Auto Guy

Dispelling the Hype Behind Cash for Clunkers

This is a short term blip in demand. The entire US$3 billion accounts for only a few weeks of sales if applied to every sale at the current annual sales rate. I see this as a GDP move more than anything that will help the car companies.

Did anyone see the comments from Europe on their Cash for Clunkers program. The European OEMs are starting to complain that they can't make any money on small cars. This could get interesting.

Expect the Cash for Clunkers program to be a pull ahead vs. establishing a new demand level. After it ends, sales will drop off considerably (although it will be at holiday season, so there will be some cover to hide behind).

The replacement rate that everyone references has in it several assumptions that have to be recalibrated. The first is how many cars families have (1, 2 or 3), the second is how long they keep these cars on average (5 year, 7 years, 10 Years?). Most people are still using the averages from the last 10 years, which may be optimistic give the current economic/jobs climate and the leasing/credit climate, this math gives you about 13 million annual sales. If you use fewer cars and longer life for them, you get something closer to 11 million and the "pent up demand" gets to be a considerablely smaller number.

I am in the parts supply industry. I hope I am wrong, but I see something more like 10-11 million cars sold vs 15-17 million in the near future.

GM Restructures Debt to Avoid Bankruptcy

There you go again User 286342 expecting that we are still honoring the rule of law and fiduciary responsiblities. We tossed both of those out between the AIG bonuses and the BofA "keep quiet" scandals. I do sort of remember that there is some responsibilities of the directors and officers of a company in the zone of insolvency......what were those again? oh, ya....due to creditors in order of claim on your company. I guess we threw that out too.


On Apr 29 07:13 AM User 386342 wrote:

> The terms of the bond exchange provide for 225 shares of NYSE:GM
> for each $1,000 in principal debt exchanged, which one might argue
> at todays stock price equates to $0.40 on the dollar, but before
> the shares are issued, they are subject to a 100 to 1 reverse split
> with fractional amouts rounded down. Do the math. That means those
> 225 shares become 2 shares.
>
> Anyone suggesting bondholders are being offered 40 cents on the dollar
> is suggesting NYSE:GM stock, now trading around $2.00 per share will,
> after the exchange trade for around $200.
>
> Also, look at the ratios. Why, if bondhlders can really expect a
> 40% recovery of $27 billion from 10% of the new equity does the government
> divide 90% of equity to themselves and the union to cover only $20
> billion of the combined government bridge loan and VEBA settlement?
> They issue themselves nine times the equity to cover less debt than
> the bondholders are owed.
>
> By the 40 cents on the dollar math, the government should see a huge
> windfall with their shares, no?
>
> The offer is deceptive and is not being accurately described by media.
> What ever happened to fiduciary duty to creditors in the insolvency
> zone? And despite government's claims to the contrary, they are NOT
> the largest lender to GM. The bondholders are far and away GM's biggest
> lender - and not with bridge loans to an insolvent GM either.
>
> (Patiently awaiting due diligence FOIA requests by responsible parties
> on Executive Branch management of GM in advance of the landmark courtroom
> battles sure to come. Either we now live in a country where the government
> can just barrel in a dictate terms, or we still have a Constitutional
> republic that limits the powers of government to effectively sieze
> property without just compensation)
>
> Pax et bonum

Why Chrysler Needs to Declare Bankruptcy

Actually GM only licenses the name "HUMMER" from AM General which is owed by Ira Rennert, a billionaire investor from New York. AM General builds the vehicles used for the military, not GM. GM only builds the H2, H2T and H3 civilian vehicles on GM frames (the H2 is a disguised Tahoe SUV and the H3 is a disguised Caynon truck). GM, Ford and Chrysler build no military vehicles. The last competiton for a new military vehicle was between Navistar (International) and AM General.


On Apr 25 09:49 PM a. palmer jr. wrote:

> I don't think we need all of our automakers out of business. I believe
> they all have the capabilities of producing military vehicles which
> we might need in the near future. GM built the HumVee, and although
> I don't care for the Hummers on the road, the HumVee is quite a help
> when we're in a battle. I don't think we want China building our
> military hardware!

GM Exchange Shows Treasury's True Colors

It certainly appears that the US Government is pushing both GM and Chrysler towards a courthouse showdown, but given that they have shown no value to the rule of law (witness the push to void contracts at AIG and to inequitably distribute the new ownership of GM & Chrysler) or fiduciary responsibilities (witness the BofA threats to Ken Lewis - who frankly should be fired for not having a backbone and standing up for his shareholders), it should surprise no one that the outcome is such as this.

The US Government, Republican and Democrats alike, put us in this situation, now they are uttering the phrase that gave Reagan the willys "We are from the Government, We are here to help you". This is a massive power grab by Mr. Obama. This country may never be the same.

Chrysler: Looking for a Miracle to Survive

Honda may be in a better position, but Toyota is exposed. Both have reached out to their government for help. Toyota's issue is two fold. First, they followed Ford, GM and Chrysler into large trucks and SUVs in recent years in North America. Second because their home market Japan still represents about 1/2 their worlswide sales and this market is more depressed that the North American market. The Japanese market may not recover as fast as the US market either since younger buyers are shunning cars in Japan. Honda is in a better position, but they still have had their had out to the Japanese government to help them with their troubles in the US marketplace. In an odd twist of fate, Honda is actually renting the parking lot of a closed Cleveland area Ford assembly plant to park cars that they can not get dealers to take.

The real issue for all automakers in North America is a severely depressed market averaging about a 9.4 million annualized selling rate (the real annualized build rate in North America by the auto companies for the first quarter of 2009 was closer to 7 million units, but that is another story and why we are seeing the supply chain fail in the auto industry). This 9.4 million rate is about half of what North American has performed at in the years 2005-2007 and about 30% lower than we saw in 2008. This is generally driven by consumer confidence, not the products that the companies are making which explains why all automakers' sales are down 25-45% from 2008. If you think your job might be in jepordy, then you don't buy cars, or houses or much else. This is what we are seeing.


On Apr 16 12:26 PM twilsondodge wrote:

> For those of you that blame Chrysler you need to learn a little about
> history. Chrysler was a very profitable company when they were purchased
> by Daimler and Daimler sucked them dry and tried to run them like
> they did Mercedes and they destroyed them. The purchase by Daimler
> was the worste thing that ever happened to Chrysler. Well maybe not
> the worste The Dog's that guard the gates of Hell have'nt done much
> better. The perfect storm that has consumed the American auto manufacturer
> is also taking a toll on Toyota and Honda as well so those of you
> that are downing the big three open your eyes Toyota and Honda are
> just as in just as bad of shape as the big three. Fortunately for
> them they are in a better position to weather this storm. If the
> government forces the big three to build smaller fuel efficient hybrids
> that 1 in 10000 people will buy it will do nothing to improve there
> positions. If fuel efficient Hybrids were the answer then Honda and
> Toyota would be up instead of thier business being down 40 % just
> like Chryslers was last month

Chrysler: Looking for a Miracle to Survive

Also, Fiat has proven that they can turn a failing company around. Fiat has some of the best diesel engines in europe (other major european makers actually use them) and they have some really nice designs (Fiat 500, Alfa 159, etc). I travel to Italy relatively often for business. They have made a lot of progress.

The most interesting thing about what was said by Fiat's CEO is that Italy has one of the worst labor environments in Europe, France is their top competitor in this endeavor, and they are railing on the UAW and CAW. As far as I can tell, the UAW and CAW have not blocked the streets to the plants in protest (happens all the time in Italy and France) or set anything on fire (also happens, but less frequently).

These are interesting times the the US auto industry. Toyota and Honda are losing money hand over fist too, they just have deep pockets from years of currency manipulation to make their imported cars cheaper and a very "flexible" and helpful government that doesn't advertize when they are giving their auto industry money.


On Apr 16 08:38 AM Auto Guy wrote:

> Yugo was built by the Yugoslavians under a license from Fiat based
> on older models and designs. Fiat did not have any control of the
> factory, but did help with some of the design of the early Yugo cars,
> although not the version that came to the States as I recall. They
> were not rebadged in the sense that we think of in North America,
> ie taking another company's car built in their factory and literally
> putting another company's name on it to sell.

Chrysler: Looking for a Miracle to Survive

Yugo was built by the Yugoslavians under a license from Fiat based on older models and designs. Fiat did not have any control of the factory, but did help with some of the design of the early Yugo cars, although not the version that came to the States as I recall. They were not rebadged in the sense that we think of in North America, ie taking another company's car built in their factory and literally putting another company's name on it to sell.


On Apr 15 08:07 PM DavidR wrote:

> How is it that everyone is so quick to forget the world class quality
> of the Yugo (a rebadged Fiat), but so slow to forget the past mistakes
> of the US auto industry? Wow, Fiat... I can just see the new advertising
> slogan: Jeep, designed by American Motors, modified by Chrysler,
> facelifted by Mercedes, and bailed out by Fiat. I guess that makes
> it a true world car.

Chrysler: Looking for a Miracle to Survive

The Chrysler-Fiat deal has less than a 50/50 chance at this point. The orginal post is wrong in one aspect when it mentions bondholders. Chrysler has no bondholders, it has shareholders and banks (GM has unsecured bondholders, which is why the government has more power). The banks at Chrysler have the power to make or break a deal since in a bankruptcy they would end up with all the assets of Chrysler that were pledged to them in the Cerberus buyout (plants, property, equipment, brands, IP, company logo, etc) and none of the liabilities (pensions, union contracts, employees, etc). If I was in their shoes and thinking in purely economic terms, I would force this to a bankruptcy court, take the assets and while doing that be cutting a deal with Fiat for some of the assets and the Chinese for anything that is left over.

Fiat knows this. The Government knows this. The auto suppliers know this. Everyone is just positioning so that they get enough to survive the chaos that will be the end of Chrysler. I hope that it ends differently, but the odds are no in their favor.

Remodeling the Auto Industry - Barron's

Hey Cobra, good to see you again.

Totally agree with you. Not the end of the world if the B3 go down, but it has to be a managed process or we risk a serious blow to GDP for a number of years. The auto industry is very interrelated and suppliers of the B3 are also suppliers to everyone else. These suppliers are hurting now just due to industry volumes, which are half what they were in 2007 (all in B3, J3, K1 & the Europeans). A unstructured wind down of any of the B3 will bring the entire indutry to its knees, not forever, but for long enough that we will have wished we did something different.

As I have argued before, its the process by which it happens, not the end result. I think the end result is pretty clear to those of us in the industry.


On Apr 05 08:03 PM Cobra 1 wrote:

> TO 283977:
>
> You make a strong argument for the auto industry, however, your whole
> premise is that the auto industry is the only economic engine driving
> this country. You also flat out state that it is all about people
> driving American cars, that will drive innovation.
>
> I could not disagree more. If we do not have the B3, America does
> not stop! More auto manufactures will build plants here to support
> the manufacturing base, it may not be union, but to your point, that
> is not the issue, it the manufacturing base.
>
> I can only surmise that this is a statement that without said MFG
> base, should America go to war again with anyone, without this strong
> base we would be doomed.
>
> Let me forward a premise to you with the same analogy. If we continue
> on this trend of the last 3 months, we will be the closest thing
> to a socialist society in the North America. If this is what shall
> come, then we simply take over all import plants and manufacture
> the needs of the American war or military machine. This is not unprecedented,
> it is occurring all over the non-free world as we speak.
>
> That's been a constant point for the union natzis, to rally around,
> America is doomed if we do not have the B3. I disagree wholly!

Automotive Depression: Government Needs to Let the Weak Fail

Management, but not in the south by a long shot. Its cold where I am, but I have plants in several countries. Non-union operation for now in North America, but not in all parts of the world.

I disagree with you that a union is needed to have a happy workforce. I also don't use communication to have "compliance". I actually think that people want to know the status of their company and are more likely to fight for it if they know the real situation. If people don't know they are in trouble, they won't help you. I also think that if you are doing well as a company that you should share that with the employees, both by telling them and through bonuses. Nothing makes me happier than handing out bonuses to our employees, it means we have done well together.

I know the quote by Sinclair. He also wrote a good book on Oil, but not the best one.


On Mar 05 12:55 PM plumstupid wrote:

> The important consideration is that an employer/employee relationship
> is unequal. One party has all the power while the other has none.
> Communication is helpful. When the employee feels respected he's
> likely to be more compliant. That compliance is often at the employees
> detriment.
>
> I'm a well educated guy. A retired professional. A third generation
> union man. I've worked non-union and despised it, my employer and
> my co-workers. I've worked union and as a result have had a much
> better life.
>
> I can't imagine how or why a working man wouldn't want a better life.
> I don't see how that's possible without a union.
>
> You sound somewhat more enlightened than many. I presume you are
> management at a non-union auto plant in the south from your comment.
>
> I don't think the following applies directly to you but it works
> in the greater context:
>
> “It is difficult to get a man to understand something when his salary
> depends upon his not understanding it.” - Upton Sinclair

Automotive Depression: Government Needs to Let the Weak Fail

I don't know if you include me in your "union haters" category, but you have not confused me with the facts. Actually, you made some good points. There is unfairness in the workplace and it is the place of management to keep this under control. Everyone does have different abilities and it is the place of management to try to help make workers safe and help them improve their efficiency (the best methods I have see are through Kaizen events with the workers making the decisions of what to change). It doesn't have to be us vs. them. If it gets to that point then there is not enough communication and trust in the organization. No everyone understands the guts of the business they are in or the decisions that what is happening leads to, but it is management's job to help them understand, answer questions and be honest. Perhaps this doesn't happen as much as it should and this has led to the us vs. them. If so, we have to fix it.

I have managed union and non-union shops, both can be good or bad depending on the level of trust and communciation. The shop I managed wher the employees felt the most "entitlement" was not a union shop, but a very sucessfull non-union shop that had fell on hard times for the first time. I have been on union shops that the union committee happily encouraged me to talk directly to the rank & file and others that thought that I didn't have the "right" to talk to the employees directly.

They are all different. They can be different and better if management and labor see eye to eye and talk face to face. That doesn't happen at some Detroit 3 plants and it happens at others. It happens more frequently at the transplant plants because of the culture that exists there.

We have some hurdles, legacy costs, retiree costs, health costs, but they are not unsurmountable.

BTW - Farmers are not elgible for 401K plans and most invest the vast majority of their after tax earning into land and equipment. Many never retire, instead working until they are in their late 70's, some because the have to, most because they want to.


On Mar 05 10:10 AM plumstupid wrote:

> Perhaps I have confused the union haters with the facts.
>
>

Automotive Depression: Government Needs to Let the Weak Fail

Since 99% of items at Walmart are manufactured in China (Walmart is the largest single importer from China in the US), what are you doing supporting Chinese labor. We should be thinking about how to get the jobs back that manufacture that stuff, that is where the higher wages have always been, in jobs with skills. Store clerks and shelf stocker have always made substandard wages....there is no skill to it. The only reason we are arguing about these jobs is because the ones that matter are all gone. Walmart jobs replaced the local town store keeper and his employees, believe me they didn't pay to well back in the early 1980's when I worked at a small store.

It burns me up to see union workers driving non-union made cars (happens all the time) and people who want me to support their job in the US shopping at Walmart. If we all supported our local stores, it would be great, but we don't. Instead that extra 2 cents off at Walmart is all we care about. BTW - Sam Walton would be rolling in his grave, remember the Walmart motto from the 1980's "Poudly Made In The USA".


On Mar 05 06:59 AM plumstupid wrote:

> Grist for your mill: The cost per item increase for Wal-Mart to pay
> union wages and benefits is one cent. One cent. Yes. Frankly, I wouldn't
> mind paying even ten cents more per item to be secure in the knowledge
> that my neighbors will be able to continue paying their mortgages,
> car payments and credit card bills. If that were to happen we'd all
> be allot better off!

Automotive Depression: Government Needs to Let the Weak Fail

Acutally pension plans have been abused by corporations more than 401Ks. 401Ks are actually held by a third party and can not be taken way, unlike pensions, in the event of a bankruptcy. 401Ks are actually safer, ask the steel and the airline workers about how the PBGC pays. There is no way for the company to fatten its wallet with a 401K.

The pension plan is at the mercy of the people running it and thier estimates of future returns. If you assume 15% annual returns, you are over funded and can take some of that money and use it in your business for profit. 401K, no way to do that.

I have a 401K, it is at about 65% of what it was 2 years ago. My parents, on the farm, have no 401K and no pension. All they have it what they have saved and invested in land, plus social security and medicare.

303820 - you have made some good points and some bad ones, like the rest of us, but this one doesn't make sense.


On Mar 05 08:01 AM 303820 wrote:

> COBRA!...I know wal mart's wages, my son worked there for a year...$8.50hr
> $40wk deduction for limited health care coverage...team leaders make
> a little more then $10hr...As for Chinese overtime...if you want
> overtime they'll only pay you half of wages instead of time and half!
>
>
> Your problem is ..you don't get out in the real world!
>
> 401k as retirement? how would you like to be 65 years old right now
> and retiring on a 401k?
> 401ks are another method for corporate America to use working stiffs
> money to fatten-up their wallets!

Automotive Depression: Government Needs to Let the Weak Fail

Look at the true economics. Its not the pay per hour, as I have said before. Heck, after the 2007 UAW contract, its not really the healthcare. Its the defined benefit pension plans and the retiree costs that are the difference. The hourly pay, just pay - not benefits or retiree costs (of course Toyota has not retiree costs...yet, and when they do it will be substancially lower because they have no Defined Benefit programs), is actually estimated to be slightly higher at the Toyota plant in Georgetown KY than it is in a GM plan in Flint MI.

The Defined Benefit plans have to go away. I have never seen a company that has survived with one yet, although the Detroit 3 have made it the furthest. Steel and Airlines HAD them, but no longer. The only entity that has a defined benefit plan that is looking to keep it is the US government, and it has control of the printing presses....yet is severly underfunded. Its a matter of numbers, the plans could never make a high enough return to pay out the expected benefits. It was all an illusion...or a ponze scheme. The only ones that made out were the ones that got it originally since they never had to pay in as much as they got.

Moving to healthcare, I watch the healthcare costs from our insurer (business of ~650 workers) go up by double digit percentages for several years. One year it was just over a 28% increase. I remember being so happy when, in 2005, I saw the first increase under 10%...9.8% to be exact. Businesses in the US, the auto companies included, can not take that kind of hit every year while not passing much of it on, as we did not since our workers would have been devistated by the increases in premiums and co-pays, and continue to operate profitably (and operating profitably over a longer period of time is the only way the banks let you stay in business and the only way you can stay competitve since you have to spend money to keep up with technology and productivity).

Something is wrong with our system and our country if the only grown industries are government and healthcare.


On Mar 05 06:10 AM plumstupid wrote:

> So, are you advocating Chinese or Mexican labor rates in America
> for America workers? No? OK, then where? How little is enough? $6
> no benefits? How little is enough?

Automotive Depression: Government Needs to Let the Weak Fail

Cobra - I do not want socialism either, however we have a serious problem with healthcare in this country that puts us at a disadvantage to every other nation. The other thing that we need to consider is our trade practices with nations that do not follow the rules (no currency manipulation, reasonable environmental protections, reasonable worker protections, etc). I am a lucky man, having grown up in a middle class family with a mother and father that grew up poor, but with a work eithic that changed their situtation in life (and who at 75 are still farming and still work hard). I got into manufacturing because it is an honest living and I now do turn arounds trying to save American manufacturing jobs. I could have gone to Wall Street or into a "service" industry, but I didn't want to.

Socialism is un-American and we are headed towards it with great speed. We will find that it does not work, but that doesn't mean that we don't need to find a solution to some of our nagging problems, like healthcare, social security, etc. With our aging population, who are now living longer than ever, this will be a serious drag on our economy in the next several decades.

Its been a good argument. I said what I had to say. It will be interesting to see what happens.


On Mar 04 06:55 PM Cobra 1 wrote:

> AUTO: I gave you a thumbs up for most of your thoughts, and, BTW
> thank you for sharing them!
>
> My only concern is what you are abdicating in some of your thoughts
> is socialism. I am really not interested in America becoming the
> next socialist society. The government has to not interfere with;
> free markets, free will, free speech, freedom of the press, and all
> the other freedoms our grand fathers, grandfather paid for with their
> blood!
>
> This is a cycle in world history, one that I can only hope we learn
> a lesson from that will never be forgotten. We as Americans talk
> about the great depression as it was something that we lived through,
> we have never seen this event! My parents are in their middle 80's
> and lived through this event. They find this period in World history
> a challenging time, but by no means anywhere near a depression.<br/>
>
> I am in the process of starting a business that will hopefully (if
> I work my butt off 60 to 70 hours per week for the next 2 to 3 years
> and neglect my family and friends) employee 11 to 15 people in the
> next 18 months. The least person paid in the 40K range and (hopefully
> me) in the 200K range.
>
> My father (a dutch immigrant of 1956) discusses the depression as
> only a European could understand it. When Hitler moved in and killed
> all of their animals and hung the governors of their small towns
> and made the scourge of the town the new mayor. There was no concept
> of starting a business, you hoped you could eat and not be killed
> for lifting your head to see in front of you! This was the depression,
> this was the most hopeless time of anyone's life.
>
> My father thought me if you are willing to work (not just get a paycheck,
> but work your fingers to the proverbial bone day and night) relentlessly
> and find a better way to do something than anyone else was willing
> to do, you can be all you want!
>
> This is not a depression, businesses do NOT start up during these
> times as there are no funds to start a business. I am having no trouble
> finding funds, i have a great idea, I have worked on this for 2 years
> while working a regular job, I have planned, I have made sure my
> idea was so different that I can do it better than anyone else, if,
> and that is a large IF, if I work my butt off I can be successful!
>
>
> Is this not what this GREAT COUNTRY of our was built on???? That
> my friends is not socialism, that is a republic, for the people,
> of the people, and by the people. This creates jobs, Just like our
> fore fathers did!
>
> I don't want socialism for this country, it is in every way ANTI-AMERICAN!
>