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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.
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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.
Not enough credit is being given to the high gas prices this past year and it’s serious damage on our economy and society. That one factor alone has caused serious stress in both individuals and businesses. A record number of homes and jobs have been lost as a direct result. And, while we are doing the happy dance around the lower prices at the pumps OPEC is announcing cuts to manipulate the prices upward again. We must get on with becoming energy independent.We can’t take another year like this past. There is a wonderful new book out about the energy crisis and what it would take for America to become energy independent. It covers every aspect of oil, what it’s uses are besides gasoline, our reserves, our depletion of it. Every type of alternative energy is covered and it’s potential to replace oil. He even has proposed legislative agenda’s that would be necessary to implement these changes along with time frames. This book is profoundly informative and our country needs to become more informed and move forward with becoming energy independent. Green technology would not only provide clean cheap energy it would create millions of badly needed new jobs. The Book is called The Manhattan Project of 2009 Energy Independence NOW. Our politicians all need to read this book. http://www.themanhattanprojectof2009.com
Detroit auto executives have made many bad business decisions since the heydays of the late 1960’s when GM, Chrysler and Ford could not build enough automobiles to satisfy the demand.
Of course, in those days, oil and gasoline were cheap. In 1969 one could buy a gallon of gas in places like Louisiana and Texas, for about 70 cents.
Any high school student interested in manufacturing, economics and how things work could have figured out that you could copy the design of an 80’s vintage Honda, Toyota or BMW and produce a good, marketable product with ample profit margin, yet Detroit continually pursued other designs and other markets. Where are those markets now? Down the toilet.
These guys lack understanding of basic engineering, manufacturing, economics, and common sense. All they know is their own selfish, self interest. They, and their corporations, the unions and stockholders, deserve to fall if that is all they can offer.
Some variant of the electric vehicle has been a viable alternative for at least the past decade, an opinion based on the price of gas, the economic burden of fossile fuel pollution, affordable, available technology for power conversion and the needs of the market, yet the born again, moral majority of the GW Bush camp instated and maintained large tax credits for purchase of huge gas guzzling >5,000 lb vehicles made in Detroit, essentially big, dumb, terribly inefficient trucks.
Electric vehicles are, contrary to promotions sponsored by the Detroit dumb show, not so high tech. The big auto manufacturers know very well how to build them. They pay their lawyers millions year after year to keep small, startup companies from getting a foothold, a toehold, in the market. Now they hold monopolies on piles of aging junk. That’s really just tough shit.
Soccer moms, Sara Palin included, do not need >5,000 lb double axle, long bed SUV’s to drive to the supermarket.
One should note the Detroit executives lobbied for this tax credit and they continue to plead their feeble case. Now they are asking for bailouts because they failed to see the handwriting on the wall. Why should we, the taxpayers, support their continuing failures????
We should not reward these executives and their stockholders for these ass-backward, regressive decisions. If they cannot figure out how to survive in their business, let them go down.
kwgib
Personally, what they should do is go out of business. The US Taxpayer’s have contributed nearly 8 trillion dollars to bailouts for these type of companies. That’s more than all the MAJOR expenses over the past 100 years even accounting for inflation (space race, all US wars combined, NASA, etc, etc).
Let them fail, let the workers be without jobs temporarily. If GM or Ford fail, Toyota (a strong well run company) is just going to takeover their place, and the auto industry will be the better for it.
Good ridden to ill run companies.
Efficient manufacturing dictates that a car should cost it weight in steel, plastics, plus overhead. Instead G&A, marketing and (retiree) benefits kept inflating the price. As if that was not enough, car manufacturers get even more profits by leasing and financing. To distract the American public, add hydrogen and biodiesel. In 1982, executives at Grain Processing Corp told me they paid $1 billion in federal taxes, for turning corn to alcohol. Do you think the federal government is going to give up the alcohol tax and subsidize farmers for making biofuel? We should reward innovation, manufacturing efficiency and face reality by following the money. As for Ford bashing, I am not about to turn my trusted Ranger into an orphan. Millions of GM/Ford owners might agree.
We all wish the US auto makers had not made so many terrible decisions over the past 20 years, but letting them fail would be bad for the economy and far, far worse for our national security. We need to strengthen our manufacturing base, not kill it. Also, complaining that some retired workers get benefits is also unfair. Would you rather that we are all subject to the whims of corporate masters and their myopic focus on fiscal quarterly profits?
The answer is NOT more of the same from incompetent CEOs and bean counters causing destruction of lives, families and the environment. How many times will we allow these idiots to line their pockets while they destroy the economy, get a bailout from us taxpayers, then in just a few more years destroy the economy all over again. The cycle never ends.
We need to scrap the existing corporate structure and replace it with something that fits the needs of the citizens, the environment and our children’s futures.
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Does anyone know much about the new cheap car in India called the Nano? Made by TATA MOTORS. I’m thinking of investing in them. Any ideas on that?
I am thinking of donating my used car. Do you think it’s a good idea or bad?