The perfect storm we predicted is rapidly approaching hurricane force. Whether or not you believe Motown's automakers could have predicted the soaring price of gas (hint: they could have at least hedged their bets a little), it's increasingly clear that the truck-heavy domestics are in deep, deep shit. The price of oil has jumped again today; this time on rumors that Israel is about to attack Iran over their nuclear weapons program, "disrupting" Iranian oil supplies. Bloomberg reports that OPEC President Chakib Khelil predicted that the military threat– and the falling value of the U.S. dollar– may drive oil prices from their current price ($143 a barrel) to $170 a barrel. Meanwhile, Goldman Sachs has declared that supply and demand, rather than speculators, are responsible for oil's rally. All of which has raised gas prices, killed the U.S. new car market, murdered light truck sales and torn a hole in Ford, GM and Chrysler's balance sheets. Tomorrow is Black Hole Tuesday for The Big 2.8, when the full horror of the sales stats are revealed. In anticipation of this bad news, The Detroit News reports that GM stock hit a 34-year low ($10.57). Ford's stock tumbled to $4.46 a share. Barron's reports that late last week, "some [funds] designed for individual investors are selling at about 50 cents on the dollar-almost as if GM were headed for bankruptcy." Almost?
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Meanwhile, Goldman Sachs has declared that supply and demand, rather than speculators, are responsible for oil’s rally
Well, if the Goldman Sachs speculators says it is supply and demand and not speculators, it MUST be true.
And the airline industry is almost a mirror image of the auto industry. If you have a few dollars of loose change in your cup holder, you can almost buy 9 of the 10 U.S. Airlines right now.
There have been 4 government funded reports on the future of oil production. The best known of these is the Hirsch Report in 2005. All of which have roughly come to the same conclusion. All publicly available. Did the big 2.8 completely ignore these?
I think the for-sale sign in the back of that Ford/Mercury is rather ironic.
I don’t think the big 3 have any real volition anymore. I don’t know when they lost it exactly, maybe they never had it. Their course of action is constrained to choosing various ways to delay the inevitable. It’s like a chess match you know you’ve lost, but you can’t resign. You just keep playing to delay checkmate to save face.
I’ve been expecting this moment ever since I was in junior high and read that GM’s R&D budget was basically the same as Toyota. This was in 93; back when GM was still twice as large. That one little factoid made it clear that GM was all kinds of screwed. The only surprising thing is that it took another 15 years to get mated. Now they know they are in deep deep trouble but are refusing to admit it. People compare the Volt to the Apollo project, but it really resembles the German scientists desperately trying to find a new V super-weapon that would be so powerful as drive the Russians and Americans away. BTW, not violating Godwin’s law here; its a legitimate historical comparison, and in no way do am I saying GM=Hitler or something. Just comparing reactions to defeat.
As to the caption: high prices. I’d rather drive less to reduce my fuel cost than spend time in lines or driving all over town looking for a station that has gas. I did that for one or two post-Katrina fill-ups.
In high school I worked part time for an Exxon station during the 1973 oil crises and I remember the “odd/even” days when people could get fuel and having to limit people to eight gallons per sale. What I really don’t understand is why, with the history in the past three decades of severe oil fluctuations how the Detroit automakers allowed themselves to get in this position. Just mismanagement to the millionth degree. And I just heard Chrysler is announcing a “major manufacturing decision later today”, more nagtive news.
I can’t help but think Michigan may be the first state to file bankruptcy.
170$? Only? LOL… sure…
I think 250$ is more likely, provided that someone actually makes the stupid thing of bombing Iran.
Stingray: I agree, over $200.00 per barrel is quite likely. Nigeria is in a mess (big exporter to the US), Mexico and North Sea production is down, The U.S. is decades behind in development of its own reserves, the dollar is flat on its ass and China/India are dramatically increasing usage and there are many other reasons.
Just think, Last November 1st (2007) oil was in the high 80’s, now low 140’s and going higher.
I am glad I am not a dealership seeling domestic vehicles, or an RV dealer or long haul trucker.
I wonder how many millions (a day) or billions of gallons of oil, gas and diesel (a year) we are using in in our “slightly” prolonged 6 month democratization of Iraq?
Cars and oil are the least of our problems in about 3 months through about 15 months from now.
I put my money where my mouth is – we just bought an upright freezer (snagged it on sale – “closeout”) in addition to our little chest freezer, loaded them up with $110 worth of chicken and beef while it’s still under $10 a pound, with more to be gotten tonight on the way home (there’s only so much you can freeze at one time).
Look at the reality of the situation – Iowa is under water – much of it is, anyway – we’re going to have a significantly smaller crop this year and, do I need to tell you what is going to happen to food prices?
Temporarily you’ll probably see a reduction in meat prices as the market floods with slaughtered livestock that the farmers can’t afford to feed.
Then all bets are off.
2008-2009 is looking like “the perfect storm” really, isn’t it?
http://www.learcapital.com/marketcommentary/6743.html
I am glad I am not a dealership seeling domestic vehicles, or an RV dealer or long haul trucker.
A little of topic, but I just read in the paper this weekend that the largest fleetwood dealer, one of the largest RV dealers overall, in the nation is closing down its six remaining dealerships this year.
Correlation, of course, does not necessarily imply causation. There may be other factors at work, like home values tanking and taking with them the equity used to purchase lifestyles.
Perfect Storm:
1. Incompetent management not being prepared with efficient cars and trucks with plans for switching over assembly plants.
2. A president who cut the science budget when we need new ideas for saving energy and new types of energy.
3. A reduction in visas for foreign students to study here and bring new ideas to us.
4. Rising economies in China, India, Brazil, etc.
5. The Bush/Iraq War that was badly managed and probably shouldn’t have been started in the first place.
6. Wasting money battling illegal immigrants instead of solving the problem with work permits.
7. Not spending money to keep our roads and bridges in good shape.
8. Not finding ways to reduce our polution – working on this might have led to better vehicles or at least more choices in vehicles.
9. And now threatening Iran with bombs – talk about oil speculation problems!
10. Not learning how to get along with the people in the rest of the world instead of trying to police them.
Alex Rodriguez: Well, if the Goldman Sachs speculators says it is supply and demand and not speculators, it MUST be true.
As has said Warren Buffett, The Economist, and quite a few other reliable sources. The speculator theory is convenient, but not very well thought out (as are many convenient theories). The price of iron ore is up as much as oil, but there is no futures trading market for iron ore.
Not learning how to get along with the people in the rest of the world instead of trying to police them.
An article in the WSJ today talks about Iran. Sixty-five percent of its population is under 30, and there is widespread disenchantment with the theocratic regime. Iranians are well educated. I’ve read elsewhere that America, but not Bush, is very popular with Iranians. So hell yes, let’s make life-long enemies of them. I wonder what would happen to their desire for nukes if we disarmed Israel. Worth a shot before we REALLY screw up this time.
Couple of related links:
http://www.newyorker.com/reporting/2008/07/07/080707fa_fact_hersh?currentPage=all
http://www.washingtonpost.com/wp-dyn/content/blog/2008/06/30/BL2008063000719.html?hpid=opinionsbox1
Working everyday with iranians I can tell you for sure some things:
1) Some of them don’t like Ahmadinejad, at all.
2) They are as consumist as anyone. The nicest cellphones and laptops I’ve seen lately are brought by them.
3) They are industrializing, relatively fast. And they know their stuff.
4) They like America, not all of them, but they don’t hate you. GW… well I think we all do.
5) They have the american product in high esteem.
Finally, they’re not the stupid ignorant people we are led to believe.
We are entering the Post Peak Oil world where the supply of oil available declines a small percentage each year while demand from a rising world population and growing wealth in developing countries increases each year.
Oil exporting countries can increase consumption if they export less and that is what they are doing. Developing countries with scooters and mailbox on wheels type cars car afford to pay the high gas price for their limited needs.
The screws of the vise will tighten as each year passes with those who are the biggest consumers and the least prepared suffering the most. That is the U.S.A. consumer and the Detroit 2.8 who have long ignored small fuel efficient cars in favor of higher margin trucks and SUVs.
The story has just begun. It is the major story of the 21st century. It may be that just as the 20th century started with horses and trains; the 21st century will end with horses and trains.
Viewed centuries from now, cars may look like a fad that failed because of lack of resources to power them.
I will tell you as an employee of a domestic line dealership: we scrapped and clawed our way to a decent May, but hit a brick wall in June. Truck sales are almost non-existent, and many people who would like to get a new car are saddled with the sudden depreciation of their truck or SUV and simply can’t trade out of it or sell it. They are truly trapped in those vehicles.
As for the overall oil/economy situation, I refuse to succumb to the doom and gloom. We can work our way out of this situation if we have the will to.
Well, mel23, what right do we have to “disarm Israel” any more than we would have to disarm Iran of nukes?
Lesseeeeee. “Mister” A-mad-dog-on-jihad talks continually of destroying the Jews and Americans, and you want US (as in the U.S.) to disarm the Israelis?
After just quoting someone else who said about the United States “Not learning how to get along with the people in the rest of the world instead of trying to police them.”
I’m sorry but that’s just not working for me.
Notice I didn’t say I wanted the United States to go to war with Iran. In fact, I think we should bring home our troops from the rest of the entire world, as in, we have U.S. troops in 130 out of 190 countries.
Perhaps then we can actually police our border (thousands of GI’s would be happy to change from military service to Border Patrol duty), start saving the billions upon billions of dollars we are spending on health care and so on, for law breaking people who cross our border without permission, and instead spend it on health care for citizens, and start spending money on developing alternative forms of energy.
Saw an rather interesting video sent to me by a friend today about making oil from algae, in fact.
http://www.valcent.net/i/misc/Vertigro/index.html
Oh yeah, almost forgot. The other benefit of the United States bringing our troops all home, would be that the other countries of the world would actually have to carry their own defense expenses, wouldn’t they?
Sure would make them wake up and smell the coffee, wouldn’t it? It’s level the playing field a little with regards to economies – since we’ve (the US) had the huge DISADVANTAGE of trying to be the world’s police and spent billions upon billions to do it (not to mention the God-only-knows-how-many lives wasted in wars).
Let’s fact it. South Korea, Japan and Taiwan are all wealthy enough to defend themselves from aggressors. Western Europe no longer is in the throes of a cold war with the Soviet Union; the old Soviet Union is gone!
Own oil stocks. They are not great investments but will protect you against a rise in prices. If the price of oil falls, the stocks will fall but you will be paying less for gas. Wall St. calls this a ‘hedge.’
One reason we keep troops in Korea, Japan, etc. is not so much to keep Russia and China at bay, but to keep South Korea from starting a war with North Korea, and keeping Japan from remilitarizing.
Well I do not want disaster, its just too exciting. I can do just fine in a disaster I guess. I’m probably ready. I can drive less, buy smarter, educate myself, learn to feel more relax and be patient. Disaster is a blessing of sorts. I can change my own oil and brakes and lots of other parts. I shop online. I eat healthy. I let my self enjoy like and be enthusiastic and positive about my responsibilities. I can practice some faith also. Warnings are good opportunities for growth. And its ok to fear the future….I few words of wisdom.
Fear-
Fuck-Everything-and-Run
False-Evidence-Appearing-real
Face-Everything-and-Recover
For-Everything-A-Reason
Finding-Everything-and-Realizing
Failure-Expected-And-Received
Future-Events-Appearing-Real
Finding-Excuses-and-Reasons
False-Expectations-About-Reality
Forgetting-Everything-is-All-Right
Didn’t Barrons tell us to buy GM a few weeks ago?