Auto manufacturing quiz

Comment: This may surprise you ...

The US-sold Toyota Sequoia:

• Where are the engines manufactured?
  
• Where are the transmissions manufactured?
  
• Where are the vehicles assembled?
  
  

The cars and trucks that are currently built in __________

The Horsepower Wars

Some of my cars:

• 1968 Beetle (my first car) = 53 horsepower
  
• 1973 Plymouth Satellite (400 ci engine) = 250 - 300 HP (guessing based on this) (pic below)
  
• 2007 Buick Lucerne with Northstar V-8 = 292 HP
  

Three auto industry commentaries worth reading

Obama's flawed auto logic

Excerpt:

President Barack Obama insists he doesn't want to run the domestic auto industry -- and we should all be thankful for that.

But his actions speak differently -- and we should all be worried.

"... I rejected the original restructuring plan" that Chrysler LLC submitted for government loans, he said April 30 in announcing his decision to force Chrysler into bankruptcy. "... And the standard I set was high -- I challenged them to design a plan ..."

That's a lot of self promotion and involvement from a guy who doesn't want to control the companies.

...

The president found a scapegoat in the hedge funds that balked at the government's "offer" to take pennies on the dollar for their secured investment

"... It was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else," he said.

Pardon me while I puke.

Chrysler's secured lenders held about $6.9 billion in debt and a couple didn't want to take significantly less than what they were owed. The lenders that opposed hold less than 10 percent of that debt.

You mean to tell me that the president, who has authorized more than $19 billion in cash to the auto companies, with much of it likely never to be repaid, was willing to force Chrysler into bankruptcy over less than a billion bucks?

When you're doling out dump trucks full of cash, another Ram pickup full doesn't break the government's back.

The Truth About Cars and Trucks

Excerpt:

The two parties that turned the Big Three into a perennially limping freak of unwritten industrial policy now will take formal ownership of their handiwork. The United Auto Workers (UAW) would own 39% of GM. The federal government would own 50%. The creditors will be shafted with just 10%. (In the Chrysler plan being discussed, labor would own 55%, making it effectively a subsidiary of the UAW.)

The day after any such settlement is finalized, the clock will start ticking down to the next collective-bargaining session between a monopoly UAW and what remains of the Big Three -- though now the UAW would be sitting on both sides of the table.

Nearly 25 years ago, a Los Angeles Times reporter innocently and accurately invoked the "M" word in describing the domestic auto sector, noting that the arrival of Japanese auto plants was "threatening the UAW's traditional monopoly on labor in the domestic auto industry."

The erosion of the Big Three's market share since then has really been the erosion of the market for monopoly labor-produced cars. The UAW standard tactic, "pattern bargaining," which it pursues without embarrassment, would have gotten Bill Gates thrown in jail under the antitrust laws.

When the L.A. Times wrote, the labor cost differential versus a Japanese plant was about $2,000 per car. Twenty years later, the cost difference was about $2,000 per car. Today's lament is, "The bankers have benefited from a bailout, so why shouldn't auto workers?" But they have, they have -- for decades. For the business model described above could not possibly have survived otherwise.

Return of Le Car

Excerpt:

t's no exaggeration to say the rest of the story is told in Chrysler's bankruptcy filing. In search of a partner to underwrite development of fuel-sipping hybrids and electric cars that would be almost certain to lose money in the U.S. marketplace, Chrysler's Tom LaSorda spent two years seeking alliances with Nissan, GM, Volkswagen, Tata, Magna, GAZ, Hyundai, Honda, Toyota, Beijing Auto and others -- efforts that were "uniformly without success." Fiat, he said in an affidavit, was "Chrysler's last best hope."

Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen -- or a less promising one.

Credulous media accounts insist the only challenge now is whether Chrysler can hang on for two years until Fiat begins churning out U.S. versions of its popular European models in U.S. factories. Goodness.

Unless gasoline prices go to $5 a gallon, Mr. Marchionne certainly is not so foolish to believe making and selling teensy eurocars in the U.S. is anybody's route to salvation.

Even in Europe, he has noted, a move to bigger, more powerful cars is underway. Motorists are getting fatter and older -- and unwilling to contort themselves to get in and out of a car.

He also understands that trying to beat Toyota at its own game is a nonstarter. Toyota sets a standard of quality and technology that all must meet -- that's the price of admission. But "what we have that Toyota does not have -- and I say this with all modesty -- is the great historical heritage of the brands."

Comment: Imagine an auto industry owned half by the UAW and half by the government. And the Dems and Labor collude! UAW feeds the Dems .... the Dems feed the UAW. I won't buy those cars!

Obama: "the Car Designer in Chief"

Government vs. the Axles of Evil

Excerpts:

Barack Obama displayed reality-denying virtuosity last week when, announcing the cashiering of General Motors' CEO, and naming his replacement, and as the government was prompting selection of a new majority of GM's board of directors, and as the government announced the next deadline for GM to submit a more satisfactory viability plan than it submitted at the last faux deadline, and as the government kept the billions flowing to tide GM over until, well, whenever, the president said: "The United States government has no interest in running GM."


Actually, his administration prefers to do that rather than allow bankruptcy to infuriate the United Auto Workers union, which was preemptively grateful to Obama's administration with lavish contributions to candidate Obama. The president supposedly showed "toughness" in sacking a conspicuous member of a particularly unpopular little cohort, CEOs of big corporations. He will need more grit if, as his administration hints, this time it is serious, that its patience is wearing thin, that someday GM could face "controlled" or "prepackaged" or "surgical" bankruptcy. One suspects that those adjectives intimate that it will be faux bankruptcy, gentle in dealing with the UAW.

...
Last week, in an unenthralled summary of GM's "viability" plan, Obama's administration said: "GM earns a large share of its profits from high-margin trucks and SUVs, which are vulnerable to a continuing shift in consumer preference to smaller vehicles. Additionally, while the Chevy Volt holds promise, it will likely be too expensive to be commercially successful in the short term."


The stunning shift in consumer preferences that should make the White House's freshly minted auto experts feel vulnerable has been reported under headlines such as "Like a Rock: Hybrid Car Sales Plummet" (Wall Street Journal, Dec. 9) and "Hybrid Car Sales Go From 60 to 0 at Breakneck Speed" (Los Angeles Times, March 17). Absent $4 gasoline, customers, those nuisances with their insufferable preferences, do not want the vehicles the politicians want them to want, even with manufacturers now offering large rebates and other incentives.


The two best-selling vehicles in America this year are large pickup trucks (Ford F-Series and Chevy Silverado). In February, Toyota sold 13,600 Tundra and Tacoma pickups and 7,232 Priuses. It sells the Prius at a loss, which it can afford to do because it makes pots of money selling pickups. Has the Car Designer in Chief, a.k.a. the president, considered the possibility that what he calls "the cars of tomorrow" will forever be that?

Comment: Reminder that there is another auto industry in the United states. Toyota, Honda, Nissan, Hyundai, and BMW all manufacture autos in the United States. None of them (nor has Ford) taken the handout: Big Three, Meet the "Little Eight":

Today's Southern solons have watched their local economies blossom thanks to a younger, more-vibrant auto industry unencumbered by the Big Three's legacy costs and union work rules—a sort of anti-Detroit that has the flexibility and ability to turn profits by making the types of cars that Americans actually want to buy.

Tax cuts stimulate the economy ... in what country?

Comment: Guess the country and then read. Hint ... it's not the US!

Auto Sales Rise 25% After Tax Cuts

Excerpt:

___________ vehicle sales surged 25 percent in February, the first gain in four months, after the government cut taxes on some models ....

Sales of passenger cars, buses and trucks climbed ...., the ________ Association of Automobile Manufacturers said today in ________.

....

“Consumers are regaining confidence because of the government’s stimulus policies,”

Chrysler: "Basically they're done"

Is Chrysler a lost cause?

Excerpt:

Things were so bad last year that a single Toyota model, the Camry/Solara midsize car, outsold the entire fleet of Chrysler LLC's passenger cars.

"Basically they're done," said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight in Troy, Mich. "There is no real possibility of turning this thing around as an independent company in my opinion."

Comment: My Dad - dead for 9 years - would have never believed it

Autos: Low sales ... the new normal

Automakers Fear a New Normal of Low Sales

Excerpt:

But unless consumers change course and return to vehicle showrooms, the entire industry will be forced to make sweeping adjustments to cope with declining demand.

After several years of sales topping 16 million vehicles, the United States market plummeted to 13.2 million cars and trucks sold in 2008. Analysts expect another sizable decrease this year and do not predict a year with 15 million in sales until 2012 or later.

“After an era of excess indulgence, we’re now entering a prolonged period of conservation,” said John A. Casesa of the consulting firm Casesa Shapiro Group. “Trading in a car every three years is a luxury that the average American can no longer afford.”

The dismal sales reports for December punctuated the worst year for vehicles sales since 1992. Sales dropped 31 percent at G.M., 32 percent at the Ford Motor Company and a stunning 53 percent at Chrysler, a unit of the private equity firm Cerberus Capital Management.

Comment: Needed: GM: less brands; All: less dealerships; Chrysler: Not needed (sad to say but I doubt they are viable!)

Carpocalypse

After Lifeline, Big 3 Are Still in Deep

Excerpts:

... the auto companies’ challenges came down to four C’s: cash, cost reduction, cars and culture.

The cash and cost reduction will come through the federal aid and the revamping plans they submitted in return for the help. “But they quite obviously need to get a different management culture ...

...

Detroit still depends heavily on pickups, and S.U.V.’s, as well as crossover vehicles, which are sport utilities built on car underpinnings.

Through November, light trucks made up 58 percent of G.M.’s sales; they account for 63.5 percent of Ford’s sales and 72.2 percent for Chrysler.

In fact, Toyota has sold more Camry models alone this year than Chrysler has sold of all its cars, according to Motorintelligence.com, a firm that follows industry statistics.

...

Comment: It's like they are primarily TRUCK companies! I doubt Chrysler will make it - my Dad is "rolling in his grave"! Chrysler's best option is merger with someone - Nissan? GM? But perhaps no one wants them.

Autos: Government report on consumer preferences

Excerpt:

As a US Government report into the motor industry has stated: “The shift in consumer preferences towards smaller, more fuel-efficient passenger cars appears to be permanent.”

Comment: HT: The buyer's-market car

More:

(The report said this in 1980, a year after giving Chrysler $1 billion of bail-out money to arrest its spiral towards the plughole. Truly, there is nothing new under the sun.)

Freakonomics: "When will they ever learn?”

What’s the Point of Bailing Out the Auto Industry?

Excerpt:

Where does the auto bailout fit in?

It certainly doesn’t make markets more competitive; instead it subsidizes American oligopolists. It certainly doesn’t spur innovation; while the provisions may talk about this, bailouts have proven to be a poor way of getting firms to innovate.

It doesn’t reduce transactions costs; Chapter 11 bankruptcy procedures exist for that purpose, and they do well at it. The only possible economic argument might be fear that a bankruptcy by G.M. might spook many other markets. What about a bankruptcy by Wal-Mart? It’s much bigger than G.M., so wouldn’t the spooking effect be bigger?

Let’s face it — the bailout is purely political, pushed by troglodyte companies and their unions of high-paid workers, and helped by their agents — elected representatives from the many states in which auto production occurs. Once again, as was true with the Chrysler bailout of the late 1970’s, the taxpayer will take a beating. To quote the old protest song, “When will they ever learn?”

Comment: The Senate Republicans (bless their hearts) are playing tough on this: Republicans Float Auto Bailout Alternative

That proposal would impose even tougher requirements on the automakers than the bill approved by the House, and it would mandate the “auto czar” overseeing the rescue plan for the federal government to force the companies into bankruptcy should they fail to meet the requirements.

Under his plan, which was the subject of intense negotiations with Democrats, the automakers would be required by March 31 to cut their debt obligations by two-thirds — an enormous sum given that G.M. alone has more than $60 billion in debt.

The automakers would also be required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees based in the United States, and the companies would have to impose equivalent work rules. The plan would bar any pay for idled workers other than “customary severance pay.”

Democratic Congressional aides said that the United Auto Workers union did not support the proposal, but was willing to negotiate.

Will Barack Obama stare down Detroit?

The Latest Song of Detroit - Barack Obama's opening to practice some tough love

Excerpt:

In addition to these measures, Congress must revisit one of its own special-interest shibboleths if it really wants to save Detroit. Requiring car companies to meet corporate average fuel economy (CAFE) standards forces them to lose money on small cars that people don't want so they can sell big cars that people do want, at least until gas prices soar out of sight. Proof positive came last month, when the Toyota Sequoia and Honda Pilot SUVs posted big gains while sales of most other cars plunged. The obvious reason: gasoline prices plunged too.

The reason Europe has fuel-efficient cars is high gas prices, not CAFE laws. What's more, the only times that Americans have switched to smaller cars is 1973, 1979 and the spring of 2008, when gas prices here were high. So the time has come for Congress to stop pretending that fuel-economy can be legislated and to put market forces to work. That means raising gasoline taxes -- offset by cuts in income taxes and by gas vouchers for needy people. These measures would succeed at raising fuel economy and in reducing automotive emissions where the CAFE law has failed.

There are no painless solutions here. But amid this dismal picture, there is a real opportunity for our new president-elect. If Barack Obama can stare down the UAW, the pro-CAFE environmental lobby and the corporate-welfare supplicants by insisting on the sort of tough-love measures outlined here, he'll establish himself as a true leader. Rahm Emanuel, the president-elect's designated chief of staff, says a good crisis shouldn't be wasted. That goes for presidents, too. Can you rise to the tough-love challenge, Mr. Obama? If so, a lot of people will be singing your praises.

UAW grants concessions, exec warns of depression

Excerpt:

Worried about their jobs and warned that the cost of failure could be a depression, hundreds of leaders of the United Auto Workers voted overwhelmingly Wednesday to make concessions to the struggling Detroit Three, including all but ending a much-derided program that let laid-off workers collect up to 95 percent of their salaries.

"Everybody has to give a little bit," said Rich Bennett, an official for Local 122 in Twinsburg, Ohio, representing Chrysler workers. "We've made concessions. We really feel we're doing our part."

Union leaders also agreed to let the cash-starved automakers delay billions of dollars in payments to a union-administered trust set to take over health care for blue-collar retirees starting in 2010.

In addition, they decided to let the Detroit leadership begin renegotiating elements of landmark contracts signed with the automakers last year, a move that could lead to wage concessions.

GM, Chrysler May Accept Bankruptcy to Receive Bailout

Excerpt:

General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions.

Auto executives have warned bankruptcy would lead to liquidation as customers abandoned the companies. Staff for three members of Congress have asked restructuring experts if a pre- arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said.

“It’s essential for Congress to do due diligence on bankruptcy as an option so it gets a clear sense from independent people what the risks and possibilities are,” said Alan Gover of White & Case, who has been lead lawyer in $60 billion of corporate-debt restructurings.

Comments:

Re Barak Obama: I doubt he has the intestinal fortitude to address the Detroit issue

Re the UAW: Seems to be too little too late

Re GM and Chrysler: They waited until they were at the edge of the cliff (Think Tina and Louise!) before they began to get serious about their problem.

Ford's Business plan submission

FORD MOTOR COMPANY SUBMITS BUSINESS PLAN TO CONGRESS; PROFIT TARGET, ELECTRIC CAR STRATEGY AMONG NEW DETAILS

Excerpt:

Ford Motor Company this morning submitted to Congress its comprehensive business plan, which details the company’s plan to return to profitability and outlines a request for potential access to a temporary bridge loan in case the current economic crisis worsens or there is a bankruptcy of a major competitor.

In the plan, Ford said the transformation of its North American automotive business will continue to accelerate through aggressive restructuring actions and the introduction of more high-quality, safe and fuel-efficient vehicles – including a broader range of hybrid-electric vehicles and the introduction of advanced plug-in hybrids and full electric vehicles.

Ford is asking for access to up to $9 billion in bridge financing, but reiterated that it hopes to complete its transformation without accessing the loan should Congress agree to make the funds available.

Despite the serious global economic downturn, Ford said it does not anticipate a liquidity crisis in 2009 – barring a bankruptcy by one of its domestic competitors or a more severe economic downturn that would further cripple automotive sales and create additional cash challenges.

Comment: Link below is full PDF (33 pages). Interesting comments on the economy.

FORD MOTOR COMPANY BUSINESS PLAN - SUBMITTED TO THE SENATE BANKING COMMITTEE

Excerpts:

The forward economic outlook is also negative, with a wide range of possible outcomes due to the uncertain financial market environment. Real GDP is projected to decline significantly in the current quarter, as much as 4% or more as compared to the prior quarter (at an annualized rate). Consumer confidence is the weakest since the early 1980s, with nearly three in four consumers expecting the recession to deepen in the months ahead, according to the recent Survey of Consumers report released by Reuters/University of Michigan.

The economy is projected to contract through the first half of 2009, with a peakto-trough decline in real GDP in the 2.0% to 2.5% range. The housing sector decline, as measured by housing starts and sales, is expected to weaken somewhat from already low levels.

Spending by consumers has already fallen at an annual rate of nearly 4% in the third quarter (as compared to the second quarter). A further contraction in consumer spending is underway in the current quarter, with an additional step down likely in the first quarter of 2009. Consumers are weighing likely further employment declines and responding by increasing their saving rates and pulling back on purchases, especially of durable goods such as automobiles.

The financial crisis, now 16 months old, persists. Despite the actions taken by the Federal Government and the Federal Reserve (and other governmental institutions around the world), there is no near-term end in sight.

... we are acutely aware that our supply base, our labor structure, and our dealer network, among other factors, are sized for an industry and a market share that the domestic companies can no longer support.

there are other important policies that will help enhance the industry’s global competitiveness. First, Ford was proud to support stronger CAFE standards, and we are absolutely committed to meeting them. However, we urge Congress to maintain one economy-wide set of national standards on fuel economy. A patchwork of standards would place enormous financial and engineering burdens on manufacturers and have the effect of reducing consumer choice -- all for little or no environmental benefit.

Throughout the 1990s and into this decade, we became increasingly dependent in the U.S. market on trucks and large SUVs, which were in heavy demand by consumers and generated large profits. Many of our competitors, both foreign and domestic, likewise followed market demand and added more truck and SUV products to their lineups. Our focus on these vehicles, however, left us exposed in the event of a market shift to smaller, more fuelefficient vehicles. In anticipation of such a shift, and inspired by the compelling vision outlined by our Executive Chairman, Bill Ford, we began to refocus our portfolio earlier in this decade, introducing a new line of mid-size cars (the Fusion, Milan, and MKZ) as well as the first hybrid sport utility (the Ford Escape -- still the most fuel efficient sport utility available with an EPA city mileage rating of 34 miles per gallon). When fuel prices shot up rapidly earlier this year, the shift occurred much more quickly and was much more pronounced than we or anyone else in the industry anticipated.

In addition, we had, over a period of many years, created a labor structure that was uncompetitive with the foreign-owned transplant operations that had been established in the United States. And, we made small cars in the United States largely because of a requirement to meet federal Corporate Average Fuel Economy standards.

Comment: A worthwhile read.

From the Big Three ... a Big One?

And Then There Was One - Distilling the Big Three into a single player could save Detroit.

Excerpts:

The notion of three powerful U.S. automakers is already an anachronism. These companies are husks of the mighty institutions that once ruled the road. Now they control less than half the U.S. auto market and will lose a combined $30 billion this year. Collectively they are burning through nearly $6 billion a month, and General Motors and Chrysler warn that by the end of the year they'll be broke. They'll head back to Washington this week (ideally by car pool) to beg for a bailout.

But Detroit actually has parts worth saving. Melding them into a single entity could buff up its best brands, like Chevy, Ford and Cadillac, while leaving the clunkers (Pontiac, Mercury, Saturn, et al.) by the side of the road. It would take a healthy dose of Nietzsche's "creative destruction," but that's preferable to total destruction, especially when you're talking about an industry that supports 2.5 million jobs. Other major American industries have undertaken calamitous consolidations to survive. Why should Detroit be spared from market forces?

...

After the Berlin Wall came down in 1989 and the end of the Cold War led to shrinking defense contracts, America's aviation companies began falling into one another's arms. Boeing grabbed up all U.S. civil-aircraft business, acquiring its chief domestic rival McDonnell Douglas in 1997. That allowed Boeing to take on the true competition: Europe's Airbus.

...

Like autos, foreign competition laid waste to the American steel industry. Beginning in 1986, more than 35 American steel makers went bankrupt. In 2002, billionaire investor Wilbur Ross agreed to buy up bankrupt LTV Steel, setting off a merger frenzy that saw 17 companies shrink down to three, while financial results reversed from a $1.1 billion loss in 2003 to a $6.6 billion profit in 2004. Ross used the bankruptcy courts to renegotiate labor contracts and hire back a fraction of the workers.

... some say Detroit's salvation could come in the form of a prepackaged bankruptcy, a quicker reorganization where creditors agree to cuts up front that would hopefully be less disruptive to the overall economy. With government backing to secure loans and preserve car warranties, buyers might not turn away.

Bankruptcy could solve another intractable problem: Detroit's glut of dealers and car brands. The Big Three need to cut their dealers by one third but are blocked by state franchise laws. In bankruptcy, carmakers can tear up franchise contracts and wipe out entire brands. The question is, would a Wilbur Ross-type speculator come along to consolidate the remains of the domestic auto industry?

Comment: I think "the Big Three" is essentially a misnomer. Chrysler is virtually a non-player. Maybe "the Big Two and a Half" or "The General, a Sergeant, and a buck private". My own solution is a "Government-Sponsored-Bankruptcy". Brands worth saving: GM: Cadillac, Chevrolet, Buick; Ford: Ford and Lincoln; Chrysler: Jeep and their mini-vans. Perhaps Ford should buy Chrysler and retain the Jeep brand. All will be interesting to see it unfold.

Tesla: Federal funds?

Only the Rich Can Afford It. Should Taxpayers Back It?

Excerpts:

THE Tesla Roadster is an electric car that goes fast, looks sensational and excites envy. The seductive appearance, however, obscures some inconvenient truths: its all-electric technology remains woefully immature and don’t-even-ask expensive. If enough billionaires step forward to inject additional capital to keep the doors of its manufacturer, Tesla Motors, open, I’m happy for all parties.

If investors pass up the opportunity, however, why should taxpayers fork over the capital that Tesla needs? The Roadster is not much more than a functioning concept car that sells for $109,000. The company is requesting $400 million in low-interest federal loans as part of the $25 billion loan package for the auto industry passed by Congress last year.

The program is intended to encourage automakers to improve fuel efficiency, but should it be used for a purpose like this, as the 2008 Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act? Can you conceive any way that federal dollars could be put at greater risk — and for no equity in return, keep in mind — to benefit fewer people?

Tesla Motors, a privately held company based in San Carlos, Calif., has spent almost all of the $145 million in capital it has raised to date. It says it will soon receive another round of $40 million from its private investors to sustain operations.

In the start-up ecosystem of Silicon Valley these would be respectably large numbers, but in the automotive world, fully developing an entirely new line of technology can easily run $1 billion. That is what General Motors’ first attempt at an electric vehicle, the EV1, was estimated to have cost to develop in the 1990s.

Tesla says it cannot move forward on plans to bring out a second-generation car, a less expensive sedan seating five, without federal funds.

...

...for Tesla, batteries are based on chemistry and have nothing to do with Moore’s Law. Lawrence H. Dubois, chief technology officer at ATMI, a semiconductor industry supplier, said, “With batteries, you can’t just squeeze more energy into a smaller and smaller space the way you can squeeze more transistors.”

Elon Musk, the chief executive of Tesla, said his company would benefit from what he called “a weak Moore’s Law,” referring to the 8 percent annual improvements in the price performance of lithium-ion batteries. But 8 percent, compounded, would bring too few benefits, too late to Tesla: it would take nine years to halve the price of its battery pack.

Comment: My answer to this question: "Only the Rich Can Afford It. Should Taxpayers Back It?". NO! The way to raise capital is through IPO's, stock offerings, venture capital, bonds, and commercial loans.

Car deals

Terri's Consumer Blog: Car Deals

Excerpt:

This weekend we’ve been reporting that six Denny Hecker dealerships closed. A third of Hecker’s employees are now out of work. It’s a tough time for many industries, but car dealerships are struggling to entice people to buy.


So I spoke with Phil Reed of Edmunds.com today to get his perspective. He said while this is bad news for the industry, it can be good news for consumers.


“Now is a great time to buy a car, especially if you can pay cash or have good credit. If you have a credit score of 700 you will have no problem securing a loan. If it’s more like 600 or below, you’ll need a bigger down payment,” said Reed.

Wagoner is GM’s best salesman - and that's not saying much!

Mean Street: Why Everyone Hates GM: Pity the poor one million General Motors shareholders.

Excerpt:

the inconvenient facts of decades of declining Big Three market share and grotesque overcapacity. Only in the World of Wagoner could the industry be making “tremendous progress.”

If pressed for time, skip to the hearing’s third hour when Democratic Sen. Bob Menendez uncovers the “big lie” of a Detroit bailout. The $25 billion number is a fudge. It would only plug the hole for a few months. Mendendez was blunt. Detroit will soon be back hat in hand.

And Menendez is a sympathetic voice. Ouch. Next comes, Bob Corker, Republican from Tennessee and a no nonsense businessman. He is brutal. “GM is spiraling downward.” Chrysler has “barely a heartbeat.” “Which of the three should survive and which shouldn’t?”

Corker dares to point out what everybody knows but nobody will say. The entire American car industry is already bankrupt. One and maybe two companies will have to go. Industrial triage is inevitable. That’s the way business works.

Corker’s brilliant maneuver is to have the “impartial” Gettelfinger — whose UAW has fleeced all three — rank them by viability. Gettelfinger’s answer: Ford, then Chrysler, then last, GM.

Minutes later, Wagoner’s detached statesmanlike composure finally gives way. His face grows red. His voice rises. It’s clear just how desperate GM has become.

Chrysler CEO Bob Nardelli and Ford boss Alan Mullaly at least know how to grovel properly. Of course, they don’t carry the emotional baggage of a longtime Motowner like Wagoner.

Nardelli has been at Chrysler for just over a year. He knows Chrysler’s days are numbered and looks like a man who just wants out. Every time he has the floor, he reminds lawmakers of Chrysler’s “fragile” position. Oddly, for someone who took home hundreds of millions in a disastrous stint as Home Depot’s CEO, Nardelli can still elicit sympathy. That’s good salesmanship. He should be on a Chrysler lot.

As for Mullally, he makes it clear numerous times that Ford doesn’t even have to be in Washington asking for money. It’s the troubled, ne’er -do-well Rick Wagoner at the end of the table that’s bringing him there. “I’m here because GM is here,” Mullaly intones with aw-shucks brotherly love.

That, of course, is disingenuous. Mulally concedes that by 2010, without an upturn in the U.S. economy, even Ford will run out of money. Nor does he mention that Ford’s share price closed the day at less than two bucks.

Luckily for the Big Three, the Detroit bailout will be resurrected early next year when a new Congress and Barack Obama are sworn in.

Mulally and Nardelli will have a few months to brush up on their performances.

Wagoner may not be as lucky. His board can put up with a failure to turn a profit, but it probably won’t stand for his failure to bring money back from Washington. If this is GM’s best salesman, no wonder the company can’t move cars.

Comment: Interesting: UAW's triage

... the “impartial” Gettelfinger — whose UAW has fleeced all three — rank[ed] them by viability. Gettelfinger’s answer: Ford, then Chrysler, then last, GM.

Also interesting that these guys didn't corporate jet pool together. Three corporate jets flew them there. Ford's CEO private jets back and forth to Seattle every weekend!

Big Three auto CEOs flew private jets to ask for taxpayer money

"There is a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hand, saying that they're going to be trimming down and streamlining their businesses," Rep. Gary Ackerman, D-New York, told the chief executive officers of Ford, Chrysler and General Motors at a hearing of the House Financial Services Committee.

"It's almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. It kind of makes you a little bit suspicious."

He added, "couldn't you all have downgraded to first class or jet-pooled or something to get here? It would have at least sent a message that you do get it."

The Big 3 should become the Big 2!

BofA CEO: There are '1 too many' Detroit 3 members

Excerpt:

Two of the struggling Detroit Three automakers should combine and prove to the government they are worthy of a $25 billion rescue package being considered for them, Bank of America Chief Executive Kenneth Lewis said Tuesday.

"There are one too many" automakers, Lewis said, adding that he would require consolidation if he was deciding on a bailout.

"I think the American people are suspect of just giving more money and buying more time," Lewis told reporters after a speech to the Detroit Economic Club. "They want to see that the companies have in fact changed and the strategies have changed."

Comment: There are too many brands. Eg. Ford does not need a Mercury. GM does not need GMC, Pontiac, or Saab, or Saturn (or Hummer). There are too many dealers as well.

The South is Detroit's automotive rival

Comment: an interesting perspective that I had not previously considered.

An emerging Southern view of the Detroit bailout

Excerpts:

The jet-black, $37,500 Borrego sports utility vehicle showed up in the governor’s Capitol parking spot last month, a gift to the state from the South Korean car maker - which is now building a $1.2 billion plant in west Georgia.

...

In its own way, the governor’s new ride may be as meaningful as the demolition of the Ford plant in Hapeville, or the abandonment of the General Motors plant in Doraville.

For behind the philosophical back-and-forth over government intervention, scheduled to begin Monday in the U.S. Senate, is a cut-throat, economic reality: the South has ambitions of becoming Detroit’s rival.

And a federal dollar that artificially props up manufacturing on the northern end of I-75 is a dollar that hinders the creation of new economic models downstream, some Southern politicians maintain.

Last week, Gov. Mark Sanford of South Carolina argued that the refusal of the federal government to bail out the Pittsburgh-based steel industry in the 1970s ultimately led to the establishment of new steel mills in the South. Which permitted the birth of a new facet of the auto industry - highly automated, mostly non-union, and foreign-owned.

“There wouldn’t be a BMW in South Carolina or a whole host of other auto industries scattered across the South, because we would have just kept them all in Detroit,” the Republican said.

Georgia’s Kia plant is scheduled to open next November, employing as many as 2,500 workers. The site is located within U.S. Rep. Lynn Westmoreland’s 3rd District. Westmoreland, like other House Republicans, voted against the $700 Wall Street bailout.

He’ll vote against a Detroit rescue as well - on the grounds that it would create a slanted field of play for the workers he’ll soon represent.

Tweak CAFE and help Detroit

Yes, Detroit Can Be Fixed

Excerpt:

... simply have to allow auto makers to meet the fuel economy standards with any mix of autos made in domestic or overseas factories.

Under the nonsensical "two fleet" rule that now applies, manufacturers meet the standards separately with their "domestically" and "nondomestically" produced fleets. What does this have to do with making sure U.S. consumers get good mileage? Nothing. It's a naked handout to the UAW at the expense of the companies and their customers.

How dumb is the two-fleet rule? Nissan, in a petition for its removal, points out foreign brands may actually minimize the domestic content in their U.S. cars so they can continue to count as "nondomestic."

How dumb is the rule? Chrysler might not be unraveling today if not for the two-fleet rule, the real genesis of the Hail Marys it's been throwing in all directions to find an electric car or a small-car partner or to merge with GM. Chrysler has a perfectly salvageable business making trucks, minivans, muscle cars and Jeeps -- doomed only by the lack of enough small, fuel-efficient cars to roll out of a UAW factory with a Chrysler emblem slapped on.

For 30 years, to make and sell the large vehicles that earn their profits, the Detroit Three have been effectively required to build small cars in high-wage, UAW factories, though it means losing money on every car. (That -- not some perverse desire to make bad cars -- is why they skimped for decades on styling, engineering and materials in their family sedans.)

Sure, this bullet would be far from silver and would still cause pain. The UAW might declare war to stop production from being shifted offshore. The Big Three might have to pay billions in job buyouts to use their new freedom. Since 2005, they've had some leeway under Nafta to shift "domestic" production to Mexico and haven't done much about it.

But here's the key: Detroit would finally get what every foreign competitor and just about every other business has -- normal leverage over labor costs. Auto jobs wouldn't automatically flee offshore. The Big Three would rather hire high-quality U.S. workers -- but on the same terms that Toyota or Nissan or BMW do.

Let's not kid ourselves that a taxpayer rescue would be anything but a down payment on a never-ending bailout. The bailout already is never-ending: Chrysler was already rescued once. Forgotten are the Reagan-era import quotas that inflated the price of every car sold in America to help prop up the Big Three. If hooked up to Washington life supports today, Detroit's first assignment would be to "protect jobs" -- job protection guarantees being one of the Big Three's fatal errors in the first place.

Comment: I was watching CNBC tonight and the commentator opined that a Detroit bailout would in essence make GM (and Ford and Chrysler) like Airbus. I understand the the Saturn Astra is a fine small car, but GM cannot make money on it because it is too expensive to be built in the US.

The danger of bailing out "everybody"

GM: Almost out of cash

Excerpt:

General Motors shook an already embattled auto industry Friday as it reported a huge loss that was much worse than expected and warned it is in danger of running out of cash in the coming months.

GM, the nation's largest automaker, reported it lost $4.2 billion, or $7.35 a share, excluding special items. That's up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share.

But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.

In addition, the company said that in the first half of next year its "estimated liquidity will fall significantly short" of what it needs to continue operating. It said the only thing that would save it would be a significant improvement in economic and automotive industry conditions, help from the federal government, better access to capital markets or some combination of those options.

We Have a Debt to Discharge

Excerpt:

All the US government is doing is creating a bigger bubble. What will happen when the Treasury auctions fail, or, stretch the yield curve so wide that there is panic. We don’t want our financial institutions to fail, so we are willing to wager the creditworthiness of the nation in order to save them. I don’t like that bet. Many empires have died choking on debt. Is the US to be next?

When I wrote articles opposing the bailout, I did so because I did not think it would work, and that one-off conservations/liquidations would be preferable, but not optimal. Optimal to me would be using the bankruptcy code on a expedited basis, wiping out junior capital, and making senior capital take haircuts.

But in the present, we contemplate borrowing to bail out all manner of problems — bail out homeowners, automakers, banks, insurers, guarantors, etc. The end to this phase will come when the creditors of the US write off their prior lending, and decide not to throw good money after bad. I have no idea when that time will come, but the dreamy schemes of politicians aiming to solve every financial hurt will help to force such a time to happen.

U.S. Carmakers Said to Seek $50 Billion in U.S. Loans

Excerpt:

General Motors Corp., Ford Motor Co. and Chrysler LLC, strapped for cash as sales plunge, are seeking $50 billion in federal loans to help them weather the worst auto market in 25 years, a person familiar with the matter said.

The package would be $25 billion for health-care spending and $25 billion for general liquidity that could be delivered in different ways, including short-term borrowing from the Federal Reserve, said the person, who asked not to be identified because the plan isn't public. In return, the companies would be willing to take steps such as granting stock warrants, the person said.

Comment: I have my own personal investment in GM: I have been a GM car buyer for decades, I currently have 2 GM cars (S-10 pickup & an Impala), I have a nephew who owns a GM dealership, etc. As an investor, I own GM stock somewhere (in one mutual fund or another, or in an ETF). Nevertheless, I am concerned about bailout after bailout. GM is burning through cash, so are Ford and Chrysler. The question is this - at what time are we chasing good money after bad? And who will bailout the one who bails out? "Many empires have died choking on debt. Is the US to be next?"