Glenn Mercer

Overcapacity: The Auto Industry's Big Little Problem

I agree entirely but, after being in this industry for about 25 years and seeing this issue persist throughout, I don't see much hope ahead. Overcapacity persists for individually-rational but collectively-irrational reasons. For example, if I close my plant and thus reduce supply, I pay all the costs of closure, while my rivals benefit from any price rise generated by reduced supply. For example, governments are all too willing to fund plant investment (every politician wants to stand in front of a new factory that employs 5,000 people!), so cost of new capacity is very, very low. Then there is pricing: in the auto industry marginal price becomes average price quickly (that is, I don't mind paying $200 more for a Gucci bag at Nordstrom's even though I know it is less at Dollar Tree (okay, bad choice of stores!)) but if I am buying a $35,000 car I make darn sure I am getting a good price. Thus if demand is for 99 units at $100 ($9,900), discounting the 100th one to $90 cuts overall revenue to $9,000, for a true loss of $900, not $10. Conversely (to continue this boring lecture) if demand turns out to be 100 instead of 99 the bonus from having the extra unit of capacity is $900. Thus there is always this incentive to overbuild and go for the extra unit. Another way of viewing this is pull versus push of course. Anyway, I don't think excess capacity will ever go away...

Rewarding the Ecologically Irresponsible with Taxpayer Dollars

Remember that the bill, at least as I understand it, requires the person who trades in the clunker to show paperwork (e.g. a registration) proving that a) he or she has owned the vehicle for at least one year (thus in theory blocking people buying clunkers just to cash them in) and b) that the vehicle was road-worthy (thus in theory blocking the dragging in of rust buckets that were up on blocks for the last ten years, which would erase the environmental benefits). I don't know if enforcement of all this will work, but at least these issues seem to have been addressed.

Will Chrysler Crash?

I also agree that labor (the UAW) is not the problem. I believe Chrysler has a revenue problem (not enough people want to buy enough Chryslers at high enough prices) not a cost problem. Is there anyone in the USA who dreams of acquiring a Nitro, if only it were $400 cheaper? I don't think so. REMEMBER (and this is a fact) Toyota is now paying the same wages (in total $/year/head) at its Kentucky plant as the UAW gets at the Big Three. Stop fighting the old UAW battle... the problem now is after years of weak product not enough people will even consider a Chrysler... and if they do, they won't pony up for it.

On the Need for Better Auto Sales Metrics

I cannot say how much I agree with this post. Does Wal-Mart report unit sales of socks each quarter? Does Armani seem doomed because it sells only 1% as many suits as Value City? The auto industry, with its fascination with units, lumps a Maserati with a Mazda and a Maruti as all the same thing. Thus we get frenzied pursuit of developing markets, which represent "all the growth." In units, yes, but GM itself has forecast that ten years from now in REVENUE terms the developed world's share of total automotive sales will have hardly budged at all, even as its UNIT share falls. I'd rather be selling 50 Porsche Turbo's a year than 50,000 Tata Nano's...

Is There Any Hope for the Big Three Auto Makers?

Beats me how my one comment got printed several times! Sorry about that, it was not THAT profound a statement!

Is There Any Hope for the Big Three Auto Makers?

Much as I hate to say this, it may be time to redefine what we mean by the Big Three. Maybe the Big Six?

Is There Any Hope for the Big Three Auto Makers?

Much as I hate to say this, it may be time to redefine what we mean by the Big Three. Maybe the Big Six?

Is There Any Hope for the Big Three Auto Makers?

Much as I hate to say this, it may be time to redefine what we mean by the Big Three. Maybe the Big Six?

Is There Any Hope for the Big Three Auto Makers?

Much as I hate to say this, it may be time to redefine what we mean by the Big Three. Maybe the Big Six?

Is Anything Worth Owning in the Auto Industry?

A few comments:
1. Re Prius's looks, I was unaware anyone was buying the car for its styling. Leaving aside opinions about looks, the car has the fastest inventory turns in the USA at present, staying on dealer lots just long enough to be washed, prepped, and delivered. About one day. Love the Prius or hate it, it is a sales homerun for Toyota.
2. Conversely, while I think the Honda product line has a lock on success for the foreseeable future (after all, knocking off the F-150's sales crown is stunning!), Acura is arguably in some disarray. Only one of the Japanese upmarket brands has broken into the "Tier One" luxury segment, and that is Lexus (with a vengeance of course!). Acura continues to languish somewhat and arguably has been passed by Audi.
3. A key asset every Japanese company has, that is often overlooked, is the reservoir of high-mpg models they have "back home" that can be brought to the USA quickly if fuel prices stay high. Thus Toyota did not need to develop Scion from scratch, but just adapt domestic models for USA sales. Nissan brings its Cube here next year. Etc. Chrysler has no such reservoir; Ford could tap Mazda for small cars but to date seems not willing to do so; and GM has Daewoo in Korea, which should be able to deliver the goods (though the Aveo has been a real dud, I will admit). Unfortunately for the Big Three, the flow does not reverse: there is really no market anywhere in the world desperate for large pickup trucks.

GM and Ford: Still Easy Shorts

Frankly I liked "gamelan" better than "gameplan" anyway (grin).

Will Tata Motors Deal Show Ford The 'Way Forward'?

If I were Tata... I'd keep Land Rover (profitable and brings AWD technology complementary to Tata's, and is a "rugged" brand more in keeping with Tata's expansion in emerging markets) and sell Jaguar to Middle Eastern funds ASAP. Jaguar is losing money and brings Tata little AND I am sure there is a "package deal discount" in here: Ford's desire to sell the two together I am sure depressed the price. And while I am sure few people want to own ALL of Jaguar, I bet there are many who would like to take a flier on 20%. Jaguar thus sold off might recoup a lot of the cost of buying LR. Of course, all this may be blocked by covenants in the Ford sale agreement, but I look to the Aston Martin story for inspiration here.