U.S. Automakers’ Race to the Bottom

Credit analyst Shelly Lombard at Gimme Credit LLC is calling it a “race to the bottom.” Ford Motor Co. (F) and General Motors (GM) both reported plunging sales for February on Tuesday, with Ford sales down 48 percent from a year ago and GM sales down 53 percent.

This is looking like a race to the bottom and there is no grand prize, just grief for the first one to get there. The most frightening thing is that 2009’s seasonally adjusted annualized sales rate is threatening to come in below the two auto makers’ worst case scenarios.

Now comes the expected word of GM’s auditors’ “substantial doubt” about the firm’s ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash.

How bad is it on the ground? At The Truth about Cars, you can see the latest memo from GM to its dealers, detailing how the company plans to buy back vehicles from bankrupt dealerships.

GM and Ford had plenty of company in their miserable sales results, with Nissan (NSANY), Toyota (TM) and Honda (HMC) reporting 37 percent, 40 percent and 38 percent declines, respectively, for February.

But believe it or not, German auto sales rose 21 percent in February, according to Verband der Automobilindustrie. Here’s what VDA President Matthias Wissmann said at the Geneva Auto Show:

These are the highest February sales numbers in the last ten years. For the first time in six months, registrations are growing. We expect that domestic sales of the complete first quarter will be above prior year numbers.

So what gives? Apparently, the German government reformed its vehicle tax, which provided ample incentive for Germans to dump their clunkers and order new cars.

Perhaps U.S. policymakers could take a page from the German playbook.

Comments

[Roscat:]

Innovation is always rewarded positively. Germany provided €2,000 for every buyer trading in a car older than 9 years for a new car. Hyundai provides a car buyback guarantee if you lose your job 12 months after the car purchase.

GM, F, and Chrysler should find their own innovative solutions to sell their brands.

Mar 05 11:33 AM

[Jeff B.:]

I've read that the overwhelming proportion of pollution coming from autos (like 90%) comes from just 10% of the oldest clunkers on the road. So, instead of more wasted bailout money for Detroit, how about the Fed Govt offers to "buy" old junkers still running but polluting heavily. However, the people receiving those buyouts must apply that to the purchase of a new or Lightly used (say, 2006 or later) car.
That would cut pollution & stimulate auto sales.

Mar 05 11:37 AM

[MARTYPAUL1943:]

WHY ARE YOU SUPRISED ABOUT GM AND FORD. dID YOU REALLY THINK THAT THE BLLOD SUCKERS FROM THESE COMPANIES WOULD NOT BE BACK TO THE A-- H---- IN CONGRESS FOR MORE MONEY.WE, THE TAXPAYER SHOULD HAVE NOTHING TO DO WITH CHRYSLER, ITS A PRIVATE COMPANY. GM AND FORD SHOULD MERGE. AS A MERGED COMPANY THE CAN REBUILD THEIR BALANCE SHEETS AND GO FORWARD. COMBINING THESE TWO COMPANIES WILL ENABLE THEM TO PRODUCE THE BEST PRODUCTS AVAILABLE AND SEND THE FOREIGN CAR COMPANIES BACK TO WHERE THEY CAME FROM. YOU WANT SOMEONE TO BLAME? BALME THE AMERICAN PEOPLE. BUYING FOREIGN CARS BECAME A STATUS SYMBOL. LIKE MANY YEARS AGO IF YOU HAD A cADILLAC,YOU MADE IT. THE AMERICAN PEOPLE HAVE BECOME THE MOST SELFCENTERED PEOPLE IN THE WORLD. GAS PRICES HAVE COME DOWN, AND AMERICANS ARE STILL BUYING THE LARGEST GAS GUZZLING FOREIGN CARS. GAS SHOULD HAVE GONE TO $5-6, THEN MAYBE WE WOULD LEARN

Mar 05 11:39 AM

[dw57:]

this is the race to bottom that we have been in since globalization started years ago. we are now seeing the results of all that hard work or eliminating as many American jobs as possible and reducing workers wages as much as possible. the result of course is that the consumer (aka a worker for some one some where) now finds them selves in no position to buy products. no matter how cheap they are. that was a fiction that shredded by in the 1900s when Ford figured out that if you didn't pay your workers well, they couldn't buy your products. or any body elses. well, nobody believed that then, and we tried that same experiment again. with predictable results, it just took longer cause we added easy credit to the mix. thats now gone, never to return. and reality is now sinking in

Mar 05 11:39 AM

[jm5383:]

Let them declare bankruptcy, break the union contracts, reopen profitable car lines with efficient operating plants (Saturn?), rehire only enough to people to run those plants at Nissan and Toyota wages....it's that easy.

Mar 05 11:52 AM

[Tesa:]

The fact that Germans are seeing a gain should be an indication that the same will happen in USA. Wait till Americans find out that the large minivans in the show rooms will be the last crop.

Mar 05 01:01 PM

[303820:]

" Note" It is the Germen government that's piking-up the tab..not the auto companies...in this country the Toyota republicans call it socialism..in Germany they call it common-sense...the Germen government likes to keep workers on the job in USA our government wants us on the unemployment line!

As for Hyundai buyback guaranty it only good if you loose your income...the magic word is INCOME because you see, after you loose your job you still collect unemployment benefits for up to a year!
IT'S BOGUS ADVERTISING, JUST LIKE THEIR BOGUS GAS MILEAGES!

Mar 05 04:29 PM

[mcbain:]

A new hire at Ford now starts at $14 an hour. How low can you go?


On Mar 05 11:52 AM jm5383 wrote:

> Let them declare bankruptcy, break the union contracts, reopen profitable
> car lines with efficient operating plants (Saturn?), rehire only
> enough to people to run those plants at Nissan and Toyota wages....it's
> that easy.

Mar 05 07:09 PM

[303820:]

MCBAIN... I APOLOGIZE ...I WAS REFERRING TO JM5383'S POST!

Mar 06 12:12 AM

[john s. gordon:]

jeff b. -

well i have a 20 yr old car which runs good & passes the emissions test with no difficulty.
> jack

Mar 06 08:28 AM

[Miken:]

STOP WRITING IN CAPITAL LETTERS....IT MAKES YOU LOOK LIKE AN IDIOT!!!!!!


On Mar 05 11:39 AM wrote:

> WHY ARE YOU SUPRISED ABOUT GM AND FORD. dID YOU REALLY THINK THAT
> THE BLLOD SUCKERS FROM THESE COMPANIES WOULD NOT BE BACK TO THE A--
> H---- IN CONGRESS FOR MORE MONEY.WE, THE TAXPAYER SHOULD HAVE NOTHING
> TO DO WITH CHRYSLER, ITS A PRIVATE COMPANY. GM AND FORD SHOULD MERGE.
> AS A MERGED COMPANY THE CAN REBUILD THEIR BALANCE SHEETS AND GO FORWARD.
> COMBINING THESE TWO COMPANIES WILL ENABLE THEM TO PRODUCE THE BEST
> PRODUCTS AVAILABLE AND SEND THE FOREIGN CAR COMPANIES BACK TO WHERE
> THEY CAME FROM. YOU WANT SOMEONE TO BLAME? BALME THE AMERICAN PEOPLE.
> BUYING FOREIGN CARS BECAME A STATUS SYMBOL. LIKE MANY YEARS AGO IF
> YOU HAD A cADILLAC,YOU MADE IT. THE AMERICAN PEOPLE HAVE BECOME THE
> MOST SELFCENTERED PEOPLE IN THE WORLD. GAS PRICES HAVE COME DOWN,
> AND AMERICANS ARE STILL BUYING THE LARGEST GAS GUZZLING FOREIGN CARS.
> GAS SHOULD HAVE GONE TO $5-6, THEN MAYBE WE WOULD LEARN

Mar 06 03:42 PM

[User 380276:]

I just watched a Saturn commercial claiming they are building cars that Americans want to buy. I disagree. I recently decided to buy a new car and began the ordeal of researching & visiting domestic auto dealers. I found 3 models that I considered good cars (quality, performance, comfort). They are the Chevrolet Malibu, Ford Fusion, and Saturn Aura. Once I decided to buy one of these the going got rough. Misleading advertisements, poor incentives, “attitude” from sales people, etc. It was if they had no idea they are in any kind of trouble. The bottom line is that for the same amount of money they wanted for these models, I could buy a better import. VW, Toyota, and even used Audis and Mercedes were a better car for the same or better price.

The bottom line is I want the best car for the money. I want the option of modern diesel engines, functional models of “luxury” SUVs that I can get in Europe and elsewhere but not in the US. If the Big Three can’t deliver, at least give us access to these import models.

I finally bought a Volkswagen. They gave me 1.9% financing, were willing to deal with me on the price ($1800 off sticker) and gave me what I wanted on my trade-in (twice what Saturn offered) all in less than an hour and the negotiations were very cordial.

I really wanted to buy one of the three US models listed above, but they made it very hard to to do. They just didn’t seem to get it.

Mar 21 08:52 AM