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Can GM, Ford and Chrysler survive independently?
It seems the last quarter was historical for the US Automotive industry. The prognosis is not good. Here is an excerpt and a link from WSJ which provides a grim outlook if current energy costs persist or get worse.
A few years ago both Ford and GM faced questions about whether filing for bankruptcy protection was a real possibility, but such speculation is now revving up again. It comes just months after the auto makers signed new union contracts that are expected to bring Detroit's labor costs in line with those of their Japanese rivals. But the sharp rise in gas prices this year has hit the Big Three hardest because of their heavy reliance on trucks for most of their sales and profits.
"Their wiggle room right now is almost nonexistent," said Tad Howard, president of financial consulting firm Nassau Financial LLC in Potomac, Md. "I think it's a hopeless situation short of two things -- a government bailout or additional cooperation from the [United Auto Workers union]. So in some ways, bankruptcy may be an attractive alternative.
http://online.wsj.com/article/SB121397234062591983.html?mod=wsjcrmain
Regards,
OW
A few years ago both Ford and GM faced questions about whether filing for bankruptcy protection was a real possibility, but such speculation is now revving up again. It comes just months after the auto makers signed new union contracts that are expected to bring Detroit's labor costs in line with those of their Japanese rivals. But the sharp rise in gas prices this year has hit the Big Three hardest because of their heavy reliance on trucks for most of their sales and profits.
"Their wiggle room right now is almost nonexistent," said Tad Howard, president of financial consulting firm Nassau Financial LLC in Potomac, Md. "I think it's a hopeless situation short of two things -- a government bailout or additional cooperation from the [United Auto Workers union]. So in some ways, bankruptcy may be an attractive alternative.
http://online.wsj.com/article/SB121397234062591983.html?mod=wsjcrmain
Regards,
OW
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We hear about new products in the pipeline (Volt, for example). Now, I know many people think the Volt is a pipe dream, but what may be of more significance is the fact that it will be built on the new DELTA platform, of which the new Cobalt is to be built on. Really, what they need is to be able to weather the storm for another 2 or 3 years.
Where the [non-permissible content removed] Big 3 seem to have a major advantage over the US Big 3 is that they seem to be able to bring a product that is already in production elsewhere here to meet demand ( Yaris, Fit, Versa) whereas Aveo not withstanding, the US Big 3 seem reluctant to do so. It's not as if the union would have a major gripe, as it would take a run of over 100,000 units to cause a grieveance, and Honda just announced that Fit production would be raised to 80,000. If GM is already building the Beat, and Ford the Fiesta, I don't think importing 60 or 80,000 would be a big issue. Then there is always the possibility of making it here, if the product is in the long term plans (ie people continue to want them.
They broke the unions last year -- got the workers to agree to $14/hour starting pay. Here in Texas, illegal immigrants that make more than that. So if anyone thinks more union concessions will save the automakers, they're wrong -- the unions have nothing left to concede.
And if anyone thinks that the Volt will save GM, or the rebirth (after birth) of the Fiesta will save Ford, they're wrong again. The Volt isn't a car, it's a marketing strategy. GM promises it will build the Volt ..... but you can't drive a promise to work. They also promise it will cost "about $40,000," which means $50,000 when translated from car company b.s. to normal English. The mass market doesn't buy $50,000 cars. So forget the Volt as a savior.
The Big 3 spent the past 5 years denying that gas prices would rise, or that any rise would affect the car market. Looks like all those executives with Ivy League MBAs with seven-figure salaries forgot to pick up some common sense in between rounds of golf and Caribbean vacations. Now GM stock is $10 per share, Ford $5. So much for the 'best and the brightest.'
Of course, you can buy a Ford Escape Hybrid (27 mpg) .... except you can't, because they don't make enough of them. Or you can buy a Saturn Aura Hybrid (22 mpg) .... but why buy a "hybrid" that gets worse mpg than many regular cars? Or you can buy a Chevy Tahoe Hybrid (20 mpg) ..... if you want to spend $50,000.
Meanwhile, Toyota and Honda are dominating the market. And the Big 3 now say that they'll make their big comeback by offering -- sometime in the future -- exactly what the Japanese have offered for 30 years: efficient, reliable transportation.
Like I said, it's amusing.
Bottom line, though, is that they may have no choice, especially Ford. I think Cerberus could just split Chrysler up into little saleable bits, then chuck the rest and just walk away, and GM can likely avoid bankruptcy, although it will be a close one.
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
Of course, the most valuable asset they probably have, the Jeep name, is likely at an historic low. If you could get a little blip of lower gas prices they'd probably jump.
Maybe Chery or someone would want the Chrysler/Dodge name just to make the appearance of an existing brand when they jump into our market.
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
I still poke around with the idea of how I'd sell off the parts. Somebody will want Jeep badly enough to cough up the money even if this is a lousy time to be dealing with them.
I always thought that selling GM the entire minivan franchise could make sense since GM never did figure out minivans on their own.
I have to think that the Chrysler and Dodge names are only worth it to someone wanting to come into the market with familiar names. They don't really have anything in their stable that would attract a buyer. No product that says "I have to have that!" That's a shame because pre-Daimler that's what Chrysler did best.
If I'm Cerberus I've written the thing off as a bad job and just try to minimize my losses.
And I still think the Chinese will wind up owning a lot of the remaining parts of Chrysler. It buys them an instant dealer network, and some credibility if they initially brand their cars as Chryslers and Dodges.
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
“General Motors has become the Lindsay Lohan of the bond market,” analyst Shelly Lombard writes in her latest note on the sector for corporate bond research firm Gimme Credit LLC.
“A former investment grade star that now seems to be unravelling right before our eyes. The stock just fell to a 50 year low on concerns that GM will end up in bankruptcy, the corporate equivalent of rehab," the analyst write in a research note, adding that Detroit-based GM is not facing an immediate liquidity crisis so doesn’t need to raise capital immediately. It also has plenty of unpledged assets it can use to secure additional bank debt. But, she estimates the automaker will have to raise US$10-billion in the next six to 12 months “even if just to settle the market’s nerves.”
Easier said than done. As she notes: “The banks are already sitting on plenty of Ford and Chrysler loans and with the industry in turnaround mode, the banks won’t be anxious to increase their auto exposure.” Another option for the company would be to take US$3-billion to US$6-billion out of its existing US$14.8-million long-term employee health-care trust known as VEBA, Ms. Lombard says.
“We expect management to utilize any and every option it has to stay out of bankruptcy. We believe GM wants to buy itself enough time for the benefits from its recent labor and health care agreement and its new cars and crossovers to kick in. A bankruptcy would scare buyers away, eroding GM’s revenue, and delaying a turnaround.”
"Speculation about prospective Chinese interest in U.S. auto assets has been fanned by China's huge appetite for global assets. This could be a good opportunity for Chinese automakers to buy into Detroit giants in dire need of cash injections as their shares trade at multiyear lows, some analysts say, although major stakes would be out of the question for political reasons.
But with oil prices at record highs and U.S. auto sales at 15-year lows, analysts and Chinese industry executives see little benefit from purchasing small equity stakes. "Most Chinese carmakers are already making foreign auto brands in partnership with global partners," said Zhang Xin of Guotai Junan Securities. "A stake in GM will not help them sell the models in U.S. market."
China carmakers see little value in GM or Ford assets (International Herald Tribune).
I think anyone who has a few billion dollars laying around can be the happy owner of Jeep. It's going to be an interesting Fall.....
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
Saw today in a news article on GM that most analysts expect Hummer to sell for less than a billion dollars. And that is with all the investment made in the dealer network, new models, and whatnot in the last five years.
Can Jeep really be worth so much more than Hummer?
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
Sure it can. First of all, people are buying plenty of Jeeps, especially the Patriot, because they get real off-road capability and a bit of fuel efficiency, as well -- 4WD model averages 22 mpg.
Nobody's buying Hummers because they're too expensive to take off-road, they guzzle a gallon of gas every 10 miles, and they've become vandalism targets for the eco-wackos. They used to have some brag value as suburban cruisers -- "Look at me everyone! I can spend a lot of money trying to look tough!" But that pony has done its trick, and now everyone's bored with it.
Look at the numbers: A new Hummer H3 costs $31,000. A one-year-old H3 with 12,000 miles in "good" condition has a KBB trade-in value of $15,200.
A new Jeep Patriot 4WD costs $18,000, and after a year it's worth $12,000.
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Does America Even Need Its Own Automakers? may be of interest.
Regards,
OW
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)