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I read a few interesting things today about the state of the automotive industry. First, some analysts said that the international market might completely fall apart in 2009. Second, GM’s market cap just sunk to the price of 1950! A 58 year low, and a market cap of $2.7B. That’s just remarkable. Finally, with oil declining (possibly only temporarily, but maybe longer if demand stays low if we’re in for a long recession) the U.S. car companies can’t figure out if they should start rushing to sell profitable trucks and vans again, or if they should double-down on their bets to make efficient cars. Of course, I’m biased to the second, but I can imagine the tough decisions they face to even stay alive right now. What challenging times. I believe there will be many unintended consequences of the housing market decisions we have made, and they just might end up re-shaping the U.S., and possibly the world auto industry.
Now everyone is talking about the American economy and eclections, nice to read something different. Eugene
There’s a growing consensus that there is simply no way the auto makers can survive. They are insolvent and not even a $25B government bailout will fix that over the long run. If that’s the case, then it’s remarkable that they have any market capitalization at all. Given how much they have depended upon cheap credit over the past several years — both for them to finance their operations and for their customers to finance the purchases of vehicles — it’s difficult to imagine how they will survive the current deleveraging.
In my opinion, discretionary spending will come to a painful, screeching halt in 2009. And the oversupply of cars we have may last longer than the oversupply of housing.
Since I wrote this post, the situation has gotten even more dire for the car companies. It’s just amazing to read that car sales are down 45% for GM year over year this October. Can you imagine when a business has a fixed cost structure and your sales go down by that huge amount. I can’t. What an enormous challenge even well-run car companies must face!
I wonder why the media is not mentioning anything about the fact that GMAC, GM’s auto financing arm, got into home mortgages. Even today their website promotes getting home mortgages. The number of sour loans made by GMAC is a big part, perhaps not all, of their problem. So its not enough that GM failed to make the cut on higher mileage autos & trucks but it got into a completely different business. I wish people would look at GM for what it is, a failed auto business that lost its focus. Unfortunately the employee count is such a large block of voters that politicians will find it difficult to not come to its rescue in some form. I’m not one in favor of doing this but once elected politicians do what they feel is right not what is really right.