GM Calls the Top for Oil

To those of us that follow market psychology, there are certain events that just scream "market top". I wrote about a story on CNBC in early April that I thought indicated that gold might be topping (gold hit its highs shortly before the story and has been down since - so far it was a prettty accurate call). Recall that the story was about people hiring guides to help them pan for gold, including a former mortgage broker who was buying claims to mine for gold.

Today, General Motors (GM) announces that they are completely revamping their manufacturing focus, closing 4 truck plants, and building more small cars. The CEO said he believes that high gasoline prices are permanent. Similarly, Ford (F) announced recently that they are going to downsize the F-150 pickup.

I have just one question. When was the last time a US auto manufacturer got ANYTHING right? They clearly didn't see the high oil prices coming, but now they are certain expensive oil is here to stay - certain enough for them to radically change their strategy. In fact, you could say that Ford actually did get one thing right: the F-150, which is the most popular vehicle in the world if I recall correctly. So of course THAT is the vehicle they plan to kill. Simply brilliant.

No, I am not shorting oil and I didn't short gold. Too speculative for me - but I do like to watch these things unfold...

Comments

[CrossProfit_:]

You forgot something...";-)"!

2008 Jun 03 03:00 PM

[RoeIncarnate:]

They may have identified a top, but are they right about higher oil and therefore higher gas prices are here to stay. Even at $70-80 barrel, that makes trucks and SUVs expensive to run.

2008 Jun 03 04:33 PM

[jackh:]

In spite of all the whining about high gas prices I have yet to read about anyone who is selling out and moving closer to work. When Americans start to sell houses and buy condos downtown.... that will signal the end of the oil boom.

Right now everyone hopes this is all just temporary and gas prices will drop "just like last time"........ When people start to relocate and not just buy smaller gas guzzlers is when a meaningful drop in fuel prices will occur.

2008 Jun 03 04:38 PM

[Chungst:]

Having covered the auto industry for a few years -- I will say the auto industry are just like any other consumer manufacturer in that they give consumers what they want. GM, Ford, Chrysler wouldn't have built those SUV's and truks if the demand wasn't there. If you looked at the market studies, the market demographics, etc, the automakers have a good idea of what consumers want. Let's be fair to GM, Wagoner stated GM has the ability to produce as many as 1 million (mild) hybrids if consumers wanted that back in 2003 (source: www.usnews.com/usnews/...)

Here are the key words: "The world's largest automaker last month said it would put 1 million hybrid vehicles on the road by 2008, many of them the biggest trucks and SUVs in its fleet. That's if demand materializes." I still remember that speech. GM is huge on mild hybrid, i.e. stop and go technology. GM is also betting a huge amount on hydrogen / fuel cell technology. GM entered into the largest fuel cell project in 2003/2004 timeframe with Dow Chemical (source: www.dow.com/commitment...)

So the answer to your question: "When was the last time a US auto manufacturer got ANYTHING right?"

The get many things right -- the problem with any company is to forecast demand and when you have an industry that is capital intensive, highly unionized, selling expensive durable goods, facing huge amounts of regulation, it's not possible for a company to roll out new products on a dime. If consumers wanted mild hybrids back in 2003, GM would have built them.

2008 Jun 03 04:54 PM

[anastos:]

It's nice to know that GM would only alter their vehicle line due to crazy gas prices and not because of consumers like myself who would rather have a root canal then drive an SUV, let alone buy one. Way to go Corporate America. GM and Ford get what they both deserve....a decreasing customer base horrified at their terrible product lineups and service that sucks.

2008 Jun 03 05:24 PM

[LuvMyTruck:]

I believe you will see demand start to lessen. I however do have a large Yukon XL, and most miles are driven less than a mile to take the kids to school, and I do live within 3 miles of my place of business. I guess you could say I planned ahead. I have owned several smaller SUV's over the years that had never gotten any better than 16mpg. The current Yukon XL, with space for the kids, their friends, and lots of camping or sports gear gets 20mpg on the highway easy. No changes for me thanks, even at $4-5 bucks for a gallon of gas. The manufacturers such as GM have made advancements in mileage, ours is with the ability of the engine to run on 4 or 8 cylinders.
Several years ago, GM did make an all electric car, but nobody wanted to buy it. Gas wasn't cheap, but it was cheap enough for everyone not to care about it. The public always asks why GM Ford and others don't make vehicles that get better mileage, and in turn when they do build them, that same public does not purchase it. I say put your money where your mouth is. Or, if you are not willing to accept the poor acceleration trade-off for great mileage, shut up.
I wonder how many people out there with excellent gas mileage vehicles use their remote-start feature. I believe most people think that it requires 0 gas to run a vehicle, and the vehicle only uses gas when they are driving. In turn, they will still complain about the lack of decent mileage but enjoy getting into a warm car during the winter and a cool car during the summer.
Yes, the manufacturers only stand to make money, if they build what consumers wish to purchase. Everyone wants the frills and the lavish options that add weight and complexity to their vehicles, but most often do not wish to give up the space or lack of performance in trade for the remarkable mileage.
This may well be the high end for gas, because people are going to get smarter, even in places far from california. They are beginning to car-pool, ride bikes, and even walk to work. Less trucks, more cars, throw in some hybrids and several small displacement engines, supply of gas will be more plentiful, the price of gas will go down (think supply and demand) and everyone will begin buying trucks again until its painful for them again. Remember a time when only farmers and businesses owned trucks, and the auto manufacturers only built small cars, it was not that long ago. Shortly after that, in the mid 80's, then the horsepower race began. Now, we're headed back to the make them all small. We will see added technology, eventually cheaper gas, and then hopefully not more than 10 years from now, large vehicles again, but by then all getting 40mpg or more.

2008 Jun 03 05:34 PM

[IXLR8:]

Why is it news that GM and Ford are adjusting their model mix to customer demand? Toyota is reducing the production of its Tundra, which has proven to be a collosal waste of money for them. One year late in getting to market because they couldn't build the plant properly. The had to fire the Japanese plant manager. Then, the Tundra comes out and is hit with three recalls in the first year of production, including blown engines. To make their modest sales goal, they had to offer $6,000 rebates to get people to buy it.

Toyota just launched their new LARGER 2008 Sequoia which is based on the Tundra. It also has been a dud in sales.

I'm looking forward to reading your insightful analysis on Toyota's product failures.

2008 Jun 03 06:17 PM

[Chungst:]

To IXLR8, the new Toyota Tundra is result of a paradigm shift at Toyota. In the past Toyota didn't want to compete against Ford & GM in full-size trucks -- that all changed when Toyota decided it wanted to the largest car manufacturer in the world. Plus the Tundra was a great way to bring competition to Ford after Toyota had taken so much car market share from Ford. Recall that the Ford Taurus (and Mercury Sable) was at one time the best selling passenger car in America.

2008 Jun 03 06:50 PM

[Illusion:]

LuvMyTruck - You make several assertions that are false.

1) "Several years ago, GM did make an all electric car, but nobody wanted to buy it."

The General Motors EV1 was made available for lease in California adn Arizona *only*, after the California Air Resources Board passed the ZEV mandate in 1990. Under the program, two percent of all new cars sold had to be electric by 1998 and 10 percent by 2003.

Fact 1: GM not only did not market the EV1, but actively subverted the program. GM *sued* the CARB to drop the zero-emissions mandate and then prevented people who begged to be able to buy it at full price from doing so when they killed the electric car program.

Fact 2: the oil companies were afraid of losing out on trillions in potential profit from their transportation fuel monopoly over the coming decades, while the auto companies were afraid of losses over the next six months of EV production.
GM sold their Ni-Mh battery subsidary to Texaco (Chevron) which controls the patents from being freely used:
www.evworld.com/articl...

Another red-neck statement from you:
"Or, if you are not willing to accept the poor acceleration trade-off for great mileage, shut up. "

FACT 3:
And it was fast. It could beat any Porsche off the line at a stoplight.
www.pbs.org/now/shows/.../
www.sonyclassics.com/w.../

All these facts are freely researchable and documented.
The disinformation spread by oil and auto companies is just to stall and delay for more time while we the people continue getting ripped off.

2008 Jun 03 07:26 PM

[sickofthehype:]

To the Toyota basher:

It's not 'news' with Toyota because they already did it stupid. And as far as big vehicles I've driven my 1998 Toyota Land Cruiser for 10 years now.

It's paid off, gets 14 mpg around town, can off-road anywhere on the planet, and guzzles gas - HOWEVER - I live 1 mile from the office and spend less on gas than the hypocrit Prius driver who lives 30 miles outside of town.

Reliability is Toyota's heritage, which is why people buy them and why they've pushed GM and Ford aside.

Now go get in your Pontiac and break down somewhere...

2008 Jun 03 09:50 PM

[Sophisse:]

Toyota doesn't get everything right. Did you see their press release on May US sales? Their sales of Priuses was down 37.5% "mainly as a result of limited availability". biz.yahoo.com/ap/08060...

2008 Jun 03 10:29 PM

[Nextel Acce...:]

I see oil prices plunging now......LOL

2008 Jun 04 08:09 AM

[RB Ontario:]

When are the public going to wake up and smell the roses the car companies knew that they could mass produce better products that can get better miles, but why would they when they get money from the oil companies. Also everyone states that GM and the others where only building what the consumers wanted, well if GM and the others only built certain type of vehicles be then gas, diesel or hydrogen, or electric we would have bought them as we would have had no choice that is all there would be on the market. Just like in other industries manyfactures put certain items out and we buy because that is all there is. Just like in Europe they build certain type of vehicles and since that is all there is consumers buy so North Americans need to stop whining about cars and accept what the big 3 put out. The big 3 put themselves in their current state by doing bad management , they never learned from the crisies in the 70's and the 80's.

2008 Jun 04 08:23 AM

[Chungst:]

"Also everyone states that GM and the others where only building what the consumers wanted, well if GM and the others only built certain type of vehicles be then gas, diesel or hydrogen, or electric we would have bought them as we would have had no choice that is all there would be on the market."

That is completely nonsense. I, like so many people, want to buy a hybrid but are not willing to pay a huge premium for the hybrid technology. As a result, I will wait until the hyrbrid technology's premium declines to a level where it becomes a no-brainer to pay for the extra cost.

As for diesel, I would like to buy a diesel car and Mercedes has a product that can be sold in all 50 states. Unfortunately, while gas (87 octane) goes for $4.30 a gallon, diesel costs $5.00 a gallon and that alone will make the diesel engine uneconomical use to -- not to mention not all gas stations sell diesel. As for hydrogen (or natural gas) technology, there aren't enough refueling stations to allow to me to use a hydrogen car on extended trips.

Right now, the current refueling infrastructure in the US makes it compelling to buy a traditional gas-powered car, especially if you buy a used car. The costs of hybrid technology has reached the level, where it will displace a traditional gas-only vehicle.

Also, as I stated earlier, GM was willing in 2003 (almost 5 years ago) to selling hybrid vehicles so long as consumers were willing to step up to the plate and pay the premium. Obviously consumers didn't step up until recently.

2008 Jun 04 11:06 AM

[tkenyon:]

Let's be honest, Americans don't want small cars. They are panicking out of their SUV's and into small cars or over-priced hybrids, and so are the manufacturers. As soon as the gasoline sticker shock wears off or gas prices go down and stay there for a bit, it's right back to big cars. Do the math people, how much money are you losing on selling or trading your SUV now vs. how much you will save in gas with a smaller car? A big "gas guzzler" SUV might cost $3100 a year in gas at $4. If it was $2 a gallon, you would save $1600 a year. A more efficient car MIGHT save a similar amount. In the big picture, is that really that big of a deal if you can afford to buy a big SUV in the first place? I admit it, I just bought a big Japanese SUV. Maybe bought isn't the right word - they practically gave it to me. I have a big active sports-oriented family and need space and utility - it's either a minivan or big SUV for us. I have had two vans, the kids are getting bigger, the vans aren't great on ski trips, so it was time for an SUV. Ever look at your gas mileage if you do a lot of short trips? Our van rated at 17/25 got an average of 12mpg in day to day driving! So far the SUV, rated 13/18 is doing 13+. The amount I saved on the SUV (which under "normal" conditions would likely not be discounted at all) vs. what it would normally cost (got it substantially under dealer invoice with 0.38% financing) will likely way more than make up for the extra gas expense. If gas was $2 per gal for the next three years (the term of my lease), I would save $6k on gas vs. $4 a gallon gas, less than I saved on my lease. If you want to conserve energy, adjust your habits. Carpool. Live closer to work. Telecommute. Combine trips. Ride a bike. etc. etc.

2008 Jun 04 03:28 PM

[Jason Rines...:]

Buying a used Honda Civic this summer. I'll keep the big F-150 for four wheeling and dump runs. Same goes for my home heating with oil, switching to wood stove and have fireplace (live in Maine so wood is plentiful and VERY cheap, like free). No need to spend $3,500 a year just for convenience. Capital wisely saved can be capital wisely deployed, never mind the fact we are supporting those that promote religion with radical elements of it that want us dead.

2008 Jun 04 10:55 PM

[anastos:]

When you look at the Japanese automakers, trucks were never their bread and butter. Honda and Toyota didn't get to where they are by selling trucks. They started offering trucks to round out their lineups but Toyota's longterm success never hinged on the Tundra selling 400k units a year. GM and Ford pinned their entire corporate future on the Expedition, the F-150, the Tahoe and the Silverado. Now they're paying for it with a horrible passenger car lineup, which they ignored for the last 10 years, and customers who are forced to turn to foreign automakers to meet their needs. You can talk about carpooling and moving closer to work (all of which are great) but it doesn't excuse GM and Ford getting caught with their pants down on what the consumer wants.

2008 Jun 05 01:15 PM

[PhillyD:]

For the people who are promoting "moving closer to the cities where the jobs are for shorter commutes" that sounds great but who can seel their homes in the burbs today at 50% reduced values to move into what was already more expensive housing that has increased about 3-5% in the past year. So your $400,000 house is now worth $300,000 (or less) and your city dwelling (smaller sized of course) was selling for $900,000 is now selling for $950,000. How do those numbers work?

2008 Jun 08 07:37 AM