What a doozy. Our coverage of Black Tuesday– which has nothing to do with Senator Obama wrapping up the nomination– has been long, hard and bloody. Farago and I attempted to get a grip on the financial fiasco in yesterday's podcast but made little if any headway. The story, in case you missed it, is this: Detroit is fucked. The only thing more dead than Hummer is Chrysler (it just doesn't want to admit it yet). The Ford F150 got outsold by four different cars. GM's trucks and SUVs aren't doing any better. Sales are down, down, down. Except for Subaru, whose symmetrical AWD cars have seen sales increase for three straight months. Go figure. My question for you is, what happens next? Besides layoffs, buyouts and plant closures. Federal loan guarantees? And then what? What will the American automotive landscape look like in… 2010? Look deep into your crystal balls people. We want the future.
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It will end when Chrysler dies and Jeep is sold off (My guess is early 2009). Ford and GM have the products in the pipeline to survive (ok, maybe just Ford), and the bump in sales after Chrysler is gone will help immensely.
No matter what happens, the government has motivation to prop up (at the very least) GM & Ford. They already do this, to some extent, with GSA requirements for federal purchase of vehicles from the 2.8.
The reasoning behind this is war. Not “limited police action” or any of that other crap, but WAR. Anyone who knows any history recognizes that the capacity to produce the machines required for war MUST be kept domestic. If GM & Ford go under, who’s gonna make tanks?
eggsalad,
What do we need tanks for? The enemy’s getting along just great with 1/2 ton pickups.
Maybe the’re 1/4 ton pickups. Whatever… they’re pretty small.
I am leaving my job selling new Chrysler products in about an hour for the last time and taking a far more promising for tomorrow job in the army. When I get back from the great sandbox will my job still be here? not likely. So the curse of jeep continues.. I wonder how much they’ll sell AMC for? I keep telling them i want it
eggsalad, your war argument was very eye-opening. I never looked at it that way.
besides that, I have no idea what will keep Chrysler and GM afloat. At least Ford has the right CEO, and a jewel in Ford Europe.
Also, after all this is said and done, the guys running GM will not be remembered as incompetent managers, but as cowards, with their millions in compensation while thousands are set to lose their livelihood.
Well the British let their automotive industry be bought up by the germans. Can we afford to keep these sick puppies alive on intensive care?
And these four plants are going to keep churning out trucks/suv’s until 2009 or 2010? That seems incredible. They should shut them down this year at the latest. But this is GM.
And the costs of closing down plants must be astronomical. I can’t image GM surviving just the buyouts/bribes alone on the plants that they are closing. Don’t the employees get pretty good severance packages at these plants?
Like someone said, it is hard to fathom all of the impacts these actions will be having.
The future is this:
Ford will win the Detroit bloodbath, whilst Chrysler first, then GM will be consigned to the history books. Ford will win this game by adopting the Ford Europe business model of making their Ford cars a cut above mass market cars, but below luxury status. Also, as the maker of the most reliable cars of Detroit and couple that fact with their now smaller company, Ford will start to rise up and be a threat to the new Big 3 (Toyota, Honda and Nissan). This is where it can go one of 2 ways:
1. The new Management team have learned well from Mr Mulally and now decide to adopt a “slow and steady” organic growth business model.
or
2. The new management revert back to their old ways and the “Detroit crisis situation” enters a new dynasty. Mr Farago’s daughter will now write the new Ford Deathwatch.
Toyota will start to flatten out in the US and hold its market share steady, whilst Honda and Nissan will mop up what’s left. This will allow Toyota to branch out into China, Russia, South America and India. It will launch an offensive in India as it is the only one of the growing markets where it has stalled.
VW will now start to falter. Now they are part of the Porsche family, they will launch, ill planned offensives in South America, North America (again), Russian, China and India in an attempt to become the number 1 car maker, by volume, as predicted by some German exec at VW. Since, Germans refuse to admit error, they will make the same mistakes as they did in North America, but this time it’ll be on a global scale. People will also wise to the fact of “Why should I pay 20% more for a car that’s got less gadgets and is less reliable than a Toyota or Honda?!”; which will contribute to their faltering.
Finally, Jaguar and Land Rover will have a renaissance as Tata launch their cars on India’s new middle and upper class societies. Classes which value British cars. They’ll also see what a wonderful car the X-Type is!
Ford, meanwhile, will be kicking themselves for backing the wrong horse, whilst they wonder what to do with Volvo…….
P.S Eggsalad, if war machines must be made by a domestic company, why do the US military do business with BAE systems (British company) and EADS (European company)?
1- The transition to Porsche ownership of VW will not be pretty, and internal divisions will downsize its global ambitions.
2- Chrysler shuffle off this mortal coil.
3- GM will cut Buick and Saturn.
4- Ford will sell Volvo and kill Mercury.
5- A host of compact car plants will open in America, to take advantage of shifting markets and weak dollar.
6- More…
Chrysler gets parted out. GM goes through chapter 11 and comes out 1/2 it’s current size with new owners and new managers. Ford survives by executing strategic retreat better than the others. GM’s China partner may yet end up being the new majority owner of the mother ship.
Congressional hearings are held and a couple of Cerberus execs go on Enron-like vacations to Club Fed.
Bob Lutz gets a part-time job writing editorials for Motor Trend after getting booted out of The New GM.
Chrysler is sold for chump change or bailed out of it’s current mess.
Ford secures loans or a bail out. Closed Mercury and Lincoln, sells Volvo. Continues with a more coherent structure and product plan.
GM secures loans to postpone the inevitable or goes bust, recieves bail out. Closes all brands except for Chevrolet and Cadillac. Refocuses energy on fuel-efficient cars and the rich history of it’s two main brands.
All of this probably won’t happen though.
As far as tanks go… anyone else find it funny that the US still maintains the very best army possible for a ground war in Europe?
And KatiePuckrik, X-Type = dog’s breakfast
Chrysler will be sold within the next two years, at a loss. Cerberus’ plans to bring in overseas joint venture partners and expand its non-US business will have failed. The buyer might keep bits of Chrysler active, or may just part it out and use it for its own devices. It will become a much smaller company, or it will just disappear entirely.
Ford will probably make it, but it will starve Mercury and Lincoln, and dealers will have little choice to either create F-L-M three-brand agencies or else drop their L-M lines entirely. Ford will probably get some federal loan guarantees in the process, although it’s possible that they may not need them. The Fiesta will be their make-or-break product for them in North America. But they may shut down their Australian operations in the process.
GM will need to be bailed out, and it will be. In the process, it will offshore more jobs and cut their product line down by at least one-third. They’ll be restored to breakeven, at least on paper. Long term prognosis is poor.
Jonny Lieberman,
Oh be quiet! The X-Type is a sensational car! It drives lovely, loaded with gadgets, great reliability and looks lovely.
The perfect car for people with an imagination! :O)
anyone else find it funny that the US still maintains the very best army possible for a ground war in Europe?
Look for Cold War 2.0, coming to a theater (of operations) near you. Except this time it will be Russia, not the USSR, and the dispute will be over oil and gas, not communism.
2010 is only nineteen months away. That’s not a long time. But here goes…
From a corporate standpoint, it won’t look much different. Neither Ford nor GM nor Chrysler will be allowed to fail – they’re too important to the US economy.
Ford will continue making slow but steady progress toward recovery. They will be preparing for the new Focus, which is key to their survival. Lincoln and Mercury will continue to limp along. Volvo will be for sale, if not already sold.
It’s hard to say where GM will be. It depends on how quickly they can get it together on small cars. Hummer will be choking out its last breaths. The Buick-Pontiac-GMC division will continue its slow decline. It may be for sale.
Chrysler will be rapidly approaching another federal bailout, if they aren’t already there. They do not have a single vehicle that’s competitive in today’s market, nor do they have any on the horizon. If any of the Detroit Three are allowed to fail, it will be Chrysler, but the fear of a domino effect may lead to a bailout.
Gas prices will have settled back down somewhat, but people won’t be flocking back to trucks. Gas prices notwithstanding, that societal trend is over. Big SUVs are no longer chic. Hybrids are.
Next up: AWD sedans, wagons, and cute utes. It’s a good time to be Subaru. Four-cylinder engines are sufficiently powerful these days that nobody’s going to miss the extra cylinders very much, and for those who do, there’ll be turbo fours and normally-aspirated sixes. The eight-cylinder engine is dead. Almost everything will be available as a hybrid.
The next killer app: an AWD wagon with a hybrid powertrain. Think hybrid Forester, only made by Toyota. It’s what the Prius wants to be when it grows up.
Who would make tanks?
The guys who currently make tanks perhaps.
But seriously, American tanks in WW2 were raw shit in a tin box compared to German and Soviet tanks. Possibly because the design was limited to what could be produced in a Lincoln plant converted into a Sherman factory.
KatiePuckrik :
June 4th, 2008 at 5:05 pm
P.S Eggsalad, if war machines must be made by a domestic company, why do the US military do business with BAE systems (British company) and EADS (European company)?
That’s an excellent question, and there are no good answers.
In many ways, our politicians in Washington are no smarter than GM management.
@ eggsalad
If GM & Ford go under, who’s gonna make tanks?
I guess General Dynamics, same way that they do today? :-)
GM and Ford aren’t that involved in the ground systems that the military uses.
http://www.globalsecurity.org/military/systems/ground/index.html
What next?
Let’s hope management is thrown out over at GM, because they couldn’t have done a worse job if they had been sent there by a competitor.
Which means that people who have been chafing at the bit may get a chance — and then let’s hope they realize that the future is energy lean, and that they have to rethink the transportation equation completely.
They can still leapfrog a generation, and really provide tomorrow’s solutions, but they’re starting to lag because of their insanely delusional ways.
Most of my comments hold for GM, Ford is better off, because they did get rid of old management.
Ford’s capable new management will ensure its survival by assembling and selling European models in North America. The U.S. and Canadian governments will force management changes and bail out GM with enough money to keep Chevrolet and Cadillac alive. Chrysler will disappear, and nobody will care.
Toyota’s quality and reputation have crested. It is heading for No. 2. Slow and steady Honda will supplant it as No. 1. Innovative, feisty Nissan will be No. 3.
I prefer not to make predictions, in particular concerning the future. But I’ll be hedging my bets, driving a more economical car than I need, and stay invested in liquid assets. No, I don’t drink that much.
As been said, Ford will right size itself. Chrysler is on borrowed time. On the horizon I can’t see anyone available that’s both willing and able to pick up the slack. Even the Indians are watching Tata choke down LR/Jag and I should think that would give them serious pause. China is just anathema to the US.
GM will stumble along. If they get a few hits, and no, I don’t mean the Volt, they might survive as is but it’s dicey. Reality means that probably it gets broken up. GM Americas with GMCanada propping up the US (it’s quite profitable and making sales gains), GMEurope stumbling but able to survive as a number 4, 5 or 6 player so is worth something to a Euro manu and GMAus/Asia which is worth a mint. Probably enough that it could become a cash cow if GM kept a minority stake in the venture but let the Chinese become the senior partners. Spin off the subsidiaries and come back to the table leaner and meaner for 2015. If they still have money and enough product in the tank the cycle will have turned and they’ll be rich.
Just very small.
I don’t know if you can handle my vision of Carmageddon.
Ford survives as the only remaining domestic auto maker.
Chrysler’s business is revitalized by an infusion of cash from the Chinese and the successful development and introduction of the solar powered bicycle.
GM is bailed out by the government and converted into the largest U.S. defense contractor. This arrangement allows it to flourish while still rewarding the levels of greed and incompetence that the country expects from the General.
GM’s big breakthrough comes from the creation of a revolutionary new weapon of mass destruction that was commissioned to keep the Russians, Chinese and Iranians in line. This system equips GM’s massive former dealer inventory stockpile of GM Silverado pick-ups and Tahoe SUVs with aftermarket solid- fuel rocket boosters and computer guidance systems designed to launch them on an unsuspecting populace.
Toyota will reach 25% worldwide market share relatively quickly, including in the US.
They will be the first to sell large volumes of hybrid vehicles, electric cars and robotic cars that drive themselves.
Toyota also establishes a large 2nd business with the production of cellulosic biofuel.
Honda is Toyota’s fiercest competitor and will be the runner up in US market share.
Chery and Tata will grow strongly as the world’s budget brands.
The Detroit 3 continue on the same path of endless restructuring and market share slide, until maybe they are able to reinvent themselves. Or maybe not.
(this is a prediction for 2015-2020)
Egg salad , I used to think the same thing about ships and the infrastructure required to build them. I predict that in 2010, my 20 yr old 528es will still be running fine.
eggsalad:
Anyone who knows any history…
Yeah, but that’s the problem, who does? Even if they know the history, can they apply the wisdom that should have been gleaned? Certainly nobody on high at GM, and certainly not many in DC from what I can see.
Before the transplants arrived, the Big 3 succeeded by taking turns failing. Durant ran GM into the wall a couple of times, then Old Henry ran Ford into the wall, etc. while the others did the same and died off. But they haven’t been able to compete with Toyota here, and for all of Wagoner’s chest thumping about GM’s success abroad, let’s wait until Toyota and Honda ramp up production and iron out early issues before judging the ultimate outcome. While the European offerings of Ford and GM seem to compare favorably with their US crops, will they stack up well against the Civic, Fit and diesel and hybrid variations? I have doubts.
It’s amazing to think about the huge assets GM has sold off over the past decade plus under Wagoner et al. Without this cushion the company would have been long gone.
I guess nobody here watches The Military Channel. The Army rebuilds its tanks. They send the worn-out M1A1/2 Abrams tank (low mileage! only one owner!!) to an army depot in Alabama, where workers there strip it down completely. The chassis is sand-blasted, the turbine engine is rebuilt, new electronics and other upgrades are installed, then the Abrams is put back together and tested, including a nice, refreshing bath where they look for leaks. Good use of taxpayer money, if I say so myself, versus buying new.
As for cars, by 2020 Mazda will rule the world :-)
Cant rebuild a tank blown to smithereens or melted or buried. Can patch a hole and rebuild if you own the territory.
War-wise, next big war with industrial opponent will be like the WW3 that never happened, we will fight with what we bring on day one, no serious replacements that are not alreacy in supply pipeline.
Don’t bother laying down keels on day 2 of a hot war with China.
I would like GM ford and Chrysler to live, but only Ford makes a vehicle I would even consider.
Easy.
Ford will be the last man standing. 2010 will come, and the Taurus, Fusion, Flex, and Fiesta will bring it back to profitability. Alan Mulally will become this generation’s Lee Iacocca. Mercury will be dead, Volvo will be sold, and Lincoln will be on its way back up, while big Al has Ford running lean. In a nutshell, it will be happy days again in Dearborn.
GM will limp along for a little while longer, until it eventually runs out of money and goes the way of British Leyland. By that, I mean that the company will dissolve. Buick, Cadillac, and Chevrolet will survive as either independant companies or will be bought up by Chinese and Indian automakers, to be used as trademarks to sell their vehicles under in the US. Red Ink Rick and GM will go down in history as the poster child for corporate arrogance and mismanagement.
Before both of these events, Chrysler would have filed for chapter 11. After this happened, all that was left of their customers will run away in droves, and sales will tank. (Considering how Oldsmobile sales tanked after GM announced that they were discontinuing the brand. Anybody considering an Oldsmobile shopped elseware, despite the fact that there was still a large parent company to still provide parts and support long after Olds had gone), so, Chrysler sales will drop to less than 10,000 units a month. Cerberus would just throw its arms in the air and say “fuck it”, and will put Chrysler up for sale. And then, their fate will be exactly like that of RCA.
So you will get my point, here is a brief history of how the end came for RCA: They ran out of money, and in the late 80s, was bought by rival GE and broken up, the pieces sold to other electronics companies. French electronics maker Thonpson SA bought and to this day own the rights to the RCA name. Today, they sell their products here under the RCA brand name instead of their own due to the fact that it has a strong history and is well known in this country. So essentially, RCA still lives on after the original corporation has died, albeit as just a brand name for a foreign company. With that out of the way, here is what will happen to Chrysler:
Ford will buy Chrysler from Cerberus fir just pocket change, and will break it up, selling its pieces for a profit. Jeep will be spun off and will soldier on as an independent company. The Chrysler and Dodge brands will be completely scraped hollow, and sold to Chinese automakers as just empty brand names under which to sell their vehicles in the US. I will put my money on that Chery will by Dodge, and Geely will buy Chrysler. Then, Chery and Geely will completely eschew their brand names here, and will instead just sell their vehicles in the US as Dodges and Chryslers. So essentially, their fate will be exactly just like RCA: They will be bought by a much bigger and healthier rival, and broken up and sold to foreign companies. Dodge and Chrysler, just like RCA, will still live on, however just as a US brand name for Chinese made vehicles.
I hope my post has provided an interesting look at how the big three will be in a couple years from now.
Carmageddon does not end. This is just the beginning of the Post Peak Oil decline. As oil production falls and oil importing countries try to outbid each other for the remaining oil available, gas prices will continue to rise.
At some point gas taxes will finally have to be increased to provide funds for road maintenance and discourage consumption of a finite resource: oil. When it happens another nail will have been pounded into the auto industry coffin. A few may survive who are ahead of the curve i.e. Toyota.
We are experiencing the most important change of the 21st century: Peak Oil and its implications. Cheap liquid fuel energy is a thing of the past.
The USA is poorly prepared. It will come as a shock to those who have been living in a business as usual fantasy land.
Chrysler will go for a song to one, or a consortium of Chinese automakers. They will slice and dice management, unlocking what is left of the product and engineering excellence at the corporation. Minivans, select Jeeps, the 300, the Caliber and both pickups survive and evolve in rationalized form in North America, Chrysler products flourish in China. Pride of ownership, dontcha know.
US government develops protectionist policy of unknown effectiveness. It should increase the cost of imports by 10-30% initially, depending on the balance of trade and other factors–a case by case, nation by nation basis.
GM gets loan guarantees under new management. Offshoring is curtailed, incentives established for favoring domestic suppliers. Models and production are rationalized, Volt ends up being a badge engineered Prius with a lot of face saving window dressing. Union gets cut down to size–they will whine, but be secretly relieved.
Ford is punished for rationalizing its operations prior to the carmageddon, gets similar deal to GM, but benefits less, because it was healthier to begin with. Ford products are almost exclusively based on European and Japanese platforms.
Toyota becomes the undisputed market leader in the US. Its flex factories are capable of building a Yaris after a Tundra after a Camry after a Sienna, and profitability soars.
Honda sells one million Fits per year in gas, hybrid and diesel variations. Honda becomes an American based corporation.
Nissan succumbs to the resurgence of domestic style and quality. Dies or reinvents itself.
Mazda is strictly a Ford badged product. Subaru is strictly a Toyota model.
The Europeans smarten up or cease to exist in North America. Possibly BMW eclipses Mercedes entirely, Audi might replace VW entirely here. Without quality and reliability improvements, it’s game over for arrogant automakers.
The US goes through a protracted period of reinventing itself, after shedding counterproductive political and economic idologization. It’s eye of the needle time, but America dazzles when the chips are down.
But seriously, American tanks in WW2 were raw shit in a tin box compared to German and Soviet tanks. Possibly because the design was limited to what could be produced in a Lincoln plant converted into a Sherman factory.
I believe most of the Shermans were made by Chrysler, not FoMoCo or GM. While the Sherman was inferior to the Panther and Tiger tanks, in both quality of armor and size of the main gun, in a fascist system, the government tells corporations what to do. The Nazis assigned tank construction, in part, to heavy equipment mfgs who were used to building, for example, a half dozen large cranes a year. The US, on the other hand, let companies bid on work.
The Germans built about 25,000 main battle tanks during WWII. The US built about 75,000 Shermans.
The question of quantity vs quality in military hardware exists until today. Do you want to buy one very expensive F-22 or for the same money buy a few F-35s? Of course, the critical component is the pilot, who is expensive to train and hard to replace, which is what really crippled the Japanese after Midway, when they lost over 400 naval aviators.
I suspect as UAVs become more commonplace we may see more countries go with quantity over high performance.
I think gas prices will moderate (in spite of Washington’s best efforts to wreck our energy supplies, and our economy), and consumers will grow tired of driving little tin cans for vehicles.
It will be the 1980’s all over again.
Well, gas prices will probably have doubled, maybe tripled, by 2010. Same (or worse) for diesel. I expect that we might be fighting wholesale ARMAGEDDON by then, not just some simple bantering about some irrelevant corporations….
@thoots
peak oil is somewhat mitigated by US coal reserves, the real loser here is the environment.
much like any large debtor, the US is somewhat insulated by the sheer level of debt it owes. on the one hand, business as usual is over, but on the other, Asian nations in particular cannot trash the dollar to the extent it deserves. they would be damaging themselves structurally to do so.
it is unfortunate that the US military has to some degree shredded its conventional superiority, but by taking some lessons from the British Empire they can still salvage some control in the Middle East. Playing a cynical balance of power game, they can pretty much obtain whatever results they desire. Iran is a natural ally in the region if the ruling apparatus can be cut out in some way. Arab Gulf States seem reasonably disposed towards the US, and the others, less relevant in the long run can be punished or rewarded as necessary.
If I was an American, I would purchase some gold, the physical metal-not certificates, and put some money in the resource rich Toronto Stock Exchange–use a Canadian dollar account. This should hedge against inflation and any further declines in the USD. I suspect that plugging someone with a gun will still result in serious jail time for the foreseeable future, so shoot to maim, and keep those guns under lock and key, especially if there are little ones around.
I’m gonna go clean my 30.06 just in case…
I say comfy and roomy small cars will take a big leap forward and up market. Camry and Accord Hybrids will be the most popular cars. Cars similar to the Euro Focus and TSX will be second. Americans dont quite want smaller cars, so medium sized cars with decent acceleration and good mileage will dominate. Same as it is now, with Civic and Camrys just with better economy, and probably a little less power. Crossovers will also get better mileage, and have a good chunk of the market.
Ford survives on it’s own. GM survives with some loan guarantees. Chrysler is sold for it’s (questionable) value as a dealer network for it’s foreign buyer.
Re: Tanks.
But seriously, American tanks in WW2 were raw shit in a tin box compared to German and Soviet tanks. Possibly because the design was limited to what could be produced in a Lincoln plant converted into a Sherman factory.
True. But German tanks were over-engineered, more costly to produce, more difficult to repair, and the Germans couldn’t make enough of them. For all it’s technical prowess, Germany was still carting a good bit of it’s war materiel around in horse drawn wagons.
While I’m also an armchair general, wargamer, and fan of WWII tanks, let’s keep in mind that:
– nowadays, the quantity of heavy material in the army is far lower than during WWII
– said material is built mostly by specialized companies, not large carmakers
– the real strategic industry is in electronics, not in in ground vehicle building.
A single predator drone flight now uses more bandwidth and computing power than the entire air campaign during desert Strom in 1991.
The idea of building thousands of tanks and launch them at another army of tanks crashed along with the Berlin wall.
toxicroach: But seriously, American tanks in WW2 were raw shit in a tin box compared to German and Soviet tanks. Possibly because the design was limited to what could be produced in a Lincoln plant converted into a Sherman factory.
Tanks were produced in Chrysler facilities, and Cadillac facilities, as well.
The M5 Stuart tank used a modified version of Hydramatic, which was the most advanced transmission of its day. Two of the transmissions were mated to twin Cadillac V8 engines, which were some of the most rugged, reliable engines of that time.
All automakers are bought out and taken over by Milo the Wonder Dog.
Dogs start wearing hats, berets, and scarves while driving their loyal and loving owners wherever they like. All cars come with ‘I-Bark’ which allow cars to understand the dog’s commands. However most dogs can’t stand the little bone that’s used to direct all the 75,876,321 commands. The bone is replaced with a squishy toy.
All front and rear consoles are replaced with fire hydrants.
Clinton’s old cat Socks comes back from the dead. Socks overthrows the government and puts GWB and Dick Cheney back in power.
The United States invades Mars… and loses.
“It will be the 1980’s all over again.”
I doubt it. What is different this time is the rising consumer economies inside China and India. India has about 1.1M people. China about 1.3M. The US, just over 0.3M. Between them a population about 8 times the size of the US’ is buying gasoline powered transportation, many for the first time. Those who can afford it are getting refrigeration and air conditioning. Presently those populations use less than 10% the energy per capita as the US does. All they have to do is to inch up from 10% to 20% to keep the world supply:demand equation out of balance. Prices don’t fall in a seller’s market.