Just when you think the Big 3 learned their lesson, they go and repeat the same things that got them in trouble to begin with. One would think that after 2 decades of bad decisions and one other major bailout from the government the industry would get its act together, but that is not the case. The only one of the Big 3 I have respect for is Ford (F), who told the government to pound salt over the terms of a bailout, but that makes me question why they went to the bailout table to begin with.
However, all three just made the worst decision of all time, well kind of. It appears that they bought into the whole ‘the economy is recovered’ and that the artificial demand for cars, through cash for clunkers, is somehow permanent. In fact, there is little demand left for new cars and all the pent up demand for cars was pushed forward to now through the very expensive government incentive. Unfortunately, the greatest recipients of the whole cash for clunkers deal were the Japanese car makers, not the Big 3.
Toyota (TM) has realized this and has recently cut their production by 10% and, for the first time ever, closed a plant down. However, the Big 3 have done the exact opposite of Toyota, which shouldn’t surprise anyone. GM and Ford recently announced the addition of more shifts, rehired workers and boosted output by 10%. All when traffic in dealerships is reported down 10% below June's traffic.
I guess when you are backed by the government, except for Ford, you can afford to do this, but it is not reassuring to me to see that type of decisions being made. Especially since we are, more than likely, not out of the recession and the consumer is still not spending money. Not to mention that 25% of people buying cars under the cash for clunkers program have buyer’s remorse which goes to show they really never wanted to buy a car, but free money is free money.
What you can surmise from this is that the Big 3 are living in a fantasy land while Toyota, Honda (HMC) and Hyundai (OTC:HYMLF) continue to clean the clocks of their US competitors. It makes zero sense that the Big 3 would ramp up production when the more successful Japanese makers are cutting back, perhaps GM and Ford know something we don’t, but I highly doubt that.
Based on this recent decision to ramp up production it is really no wonder why 2 out of the Big 3 failed, miserably I might add. Not to mention this is Chrysler’s third chance at survival after they were successful after the first bailout, but their second failure just illustrates how bad their business plan was to begin with. In my opinion, any car maker is far from a buy as I see shrinking credit and lack of demand driving car sales further down instead of up.