How to Navigate the Troubled Auto Industry - Barron's Interview

Barron's interviews John Casesa of Casesa Shapiro Group to get his views on the troubled and volatile auto industry. Some key points:

• A GM (GM) / Chrysler merger could happen because both sides are so desperate. But the track record for automotive mergers is poor, and this one is crippled by the fact both are already shedding market share. Cost savings might be easier to implement than figuring out how to combine their revenue streams with compromising their combined pull.
• The industry's challenge now is not funding cash-strapped buyers - it's that it can't even get customers into the showrooms. Adjusted for size, demand is at 50-year lows. Many automotive firms face the prospect of Chapter 11. With the big three, he thinks that "if one of the auto makers goes, they will all go."
• Casesa is alarmed Kirk Kerkorian sold his stake in Ford (F). "He's not one to give up easy. The sale is alarming." Still, he likes Ford over GM (GM) due to its simpler brand portfolio and the fact it owns 100% of its financing arm.
• Honda (HMC) and Toyota (TM) remain in a very advantageous position, particularly Honda with very little light-truck exposure. He calls Honda "probably the best-positioned auto company in the world right now," due in part to its strength in emerging alternative propulsion models.
• European carmakers are better positioned than their U.S. peers, but less so than the Asians - particularly Peugeot (PEUGY.PK), Fiat (FIATY.PK) and Renault (RNSDF.PK) which stand to benefit from the move to smaller cars.
• Among suppliers, he likes Magna International (MGA) and BorgWarner (BWA) with conservative balance sheets and little debt.
• Johnson Controls (JCI) is very diversified, and its battery business should benefit from the move to electric. Genuine Parts (GPC) will continue to thrive due to its ability to send any auto part to a mechanic anywhere in the U.S. within 24 hours.

Comments

[raising4dau...:]

How can anyone like the automotive suppliers like Magna and Johnson Controls while also predicting Chapter 11 for their customers?

2008 Oct 26 10:43 AM

[John D:]

What I would really like to see (& every one else as well)) is the data that shows the over-all number of automotive jobs lost for the last 10 years in North America as well as how it has affected the spin off service groups since the Asian imports have flooded our markets – I think those numbers alone would make us all realize that it’s time to get back to buying what our neighbors build and service.

2008 Oct 26 11:43 AM

[GoSooners:]

I respect the right of the labor unions to collectively bargain, but you must also respect my right to buy the most affordable, highest quality vehicle.

Collective bargaining contributed, unfortunately, to killing the golden goose. I lived in Michigan for several years, and I know the mentality that prevailed (and still prevails) there. The Big Three, their executives and their employees, are collectively (pun intended) responsible for their own demise.

It is not my obligation to bail them out, as a taxpayer (through a rediculous govn't bailout), or as a consumer (choosing to buy an overpriced lower quality vehicle).

The Big Three have shot themselves in the foot over and over again.

Yes, it will be a very painful event in American history if/when The Big Three finally admit their insolvency.

I can only hope that the end result will be an America that emerges again as the beacon of hope it once was.

Cheers and thanks.

2008 Oct 26 11:27 PM

[Mister Jimmy:]

Yeah, let's join our "esteemed" U.S. president in the belief that the auto industry deserves no federal help (unlike Asian and European competitors). Let 'em go under, and their suppliers, and the entire manufacturing sector, and the airlines, while we're at it. Oh, but let's make sure Billions are available for Wall Street. And let's import even more crap from China. Then, we can become ever more a nation of burger flippers and lawn cutters. That'll help us pay down that $10 Trillion national debt.

2008 Oct 27 03:00 AM

[Paul Killinger:]

You guys who suggest the government can somehow save our ailing automakers are whistling past the graveyard. The ONLY way out is for you to save YOURSELVES. You need to LEARN this lesson while there's still time left.

The two biggest handicaps you face are believing anything the leaders of your COMPANIES and your UNIONS tell you. Very naturally, they are simply looking out for themselves. Well, let me ask you, where has their leadership gotten you so far?

So they hire lobbyists and pay off politicians to get the government to hand you bailouts. This is only spending good money after bad. If you consider where all this has gotten you, bankruptcy may be your salvation. At least it would give you a fresh start, free from the burdens of the past.

2008 Oct 27 10:55 AM

[Paul Killinger:]

When the smoke clears, there will be four groups of folks who come out of all this smelling like roses. They'll be your senior executives, union leaders, the politicians and lobbyists. But the guys who do the real work, be they white or blue collar, will all get STIFFED. Even God can't help you until you figure this out. He can only help those willing to help themselves.

2008 Oct 27 11:05 AM

[Paul Killinger:]

I don't envy the situation you find yourselves in. It looks like nothing but heartache and frustration ahead. But these are also times when simple working people can arise from the ashes, as well. Remember, the definition of insanity is to keep doing the same thing and expect a different outcome. Try doing something ELSE insterad.

2008 Oct 27 11:13 AM

[DownOnMyLuck:]

Why do we still discuss the US auto industry as the so-called Big 3? Honda, Toyota, Hyandai, BMW, and others, also manufacture here in the US. I would guess there are more employees working for those manufacturers than the Big 3.

2008 Oct 27 11:41 AM

[Mister Jimmy:]

America was the "leader" and the most powerful industrial nation on earth, during the period from 1945 to about 2001. Any one that does not see that it's all over is either not paying attention or in denial. We're has-beens now, much like the Brits. Bloated with debt and a fat sense of entitlement. Thankfully, at least it means that we won't be invading any more nations to "liberate" them in the name of democracy and free trade. The Chinese can have that role, too.

2008 Oct 27 12:17 PM

[jdwill5:]

You are probably right. They are contributing to the health care and retirement systems in Germany, Japan, Mexico and China. When the USA medical and retirement systems have to bailed out it would have help to have the contribution of these lost American jobs.


On Oct 27 11:41 AM DownOnMyLuck wrote:

> Why do we still discuss the US auto industry as the so-called Big
> 3? Honda, Toyota, Hyandai, BMW, and others, also manufacture here
> in the US. I would guess there are more employees working for those
> manufacturers than the Big 3.

2008 Oct 28 11:30 AM