OPEC’s threatened 2 million barrel/day output cut has done nothing to halt oil’s collapse. The AP reports that Wednesday’s futures market dipped below $40/barrel for the first time since 2004. Markets are spooked by the realization that even mighty China is in a world of growth hurt at the same time as an unprecedented continued fall in US demand. US “demand for gasoline over the four weeks ended Dec. 12 was 2.7 percent lower than a year earlier.” “‘There’s just so much oil in inventory out there right now,’ said Michael Lynch, president of Strategic Energy & Economic Research. ‘Nobody wants to buy this stuff.'” (Read More…)
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Posts By: John Horner
Fourteen US companies have ganged up on the taxpayer to demand $1 billion so they can get back into the battery game. Today’s Wall Street Journal tells the story of this “latest pitch from corporate America to inject federal dollars into a project”. Alliance participants point to the 1987 creation of Sematech as an example of a successful government-industry partnership. There are, however, some big differences between the US Semiconductor industry of 1987 and the almost non-existent US advanced battery industry of today. The US’ semiconductor industry was a world leader in 1987 and was shocked into further efforts by the rise of Japanese competitors who made higher quality, lower priced memory chips. The US battery industry, on the other hand, was largely abandoned by indigenous firms as they chased ever higher return-on-investment businesses in order to boost short term stock prices. The story of failing to keep a hand in significant games due to the lure of better profits elsewhere has been told over and over again in America’s MBA infested halls of shame. (Read More…)
The new Flint, Michigan engine plant slated to build the ICE for the Chevrolet Volt has been put into deep freeze. AP (via Yahoo) has this latest tale of woe. Word is that GM has shut down construction because it doesn’t have the cash to pay for steel structural members. The Volt’s 1.4 liter four banger is to be shared with the Chevy Cruze, and both engines are planned for the brand new factory. Why is GM constructing a new building to manufacture this engine while at the same time closing factories by the dozen? Ah, the answer is hidden in Spokeswoman Sharon Basel’s statement: “The company already makes the 1.4-liter engine at a plant in Austria, she said, giving it another option for engines.” The last thing cash strapped GM needs is another engine factory while global automotive demand is imploding. If the Volt ever appears, look for its exhaust note to have a distinctly Austrian accent. California’s Governor Schwarzenegger will be so proud! Only four short months ago GM said it would spend $370 million building the new engine plant, and scored $132.5 million in Michigan tax incentives for its efforts. Hopefully Michigan didn’t put cash on the barrel. Bailout or no, the prospects for this factory going online are only slightly better than those for the revival of the GM Rotary Engine, likewise “put on hold” decades ago.
Saturday’s San Jose Mercury News carried a short piece on the swift conclusion of the Tesla v. Fisker arbitration hearings. “Tesla had alleged that Fisker stole trade secrets to create his Fisker Karma while working under contract to design a car for Tesla.”Somehow the notion that a bunch of automotive neophytes were generating significant trade secrets and that said secrets were whisked out the back door by industry veteran Fisker never did smell right. Sure enough, “retired Judge William McDonald found in November that Tesla’s case was ‘baseless.'” Tesla says it will pay up, someday. Not that Fisker needs the cash. In September, Fisker closed a $65 million investment round led by the Qatar Investment Authority on top of two previous Kleiner-Perkins led venture investment rounds.
Business Week caught up with the Ford Circus road trip to Washington for a telephone interview. Having presumably learned some lessons on that last trip, Alan is re-engaging with the wonders of road food and claims to like it! “We stopped at a dynamite service plaza and we bought a little boxed lunch.” Wow, after putting up with the crap food served on the Boeing and Ford corporate jets old Alan must be in heaven to finally get some good old fashioned Service Plaza Boxed Lunch. Somebody tell him not to eat the box, even if it does taste just like the sandwich. You have to hand it to the guy for being able to spin with the best of ’em though. (Read More…)
The latest skirmish is ostensibly over the price tag to be placed on Daimler’s remaining ownership share of Chrysler, but what we are really seeing are early salvos in the “you ripped us off” lawsuit Cerberus is destined to file against Daimler. Daimler put out a terse press release this morning saying: “The negotiations between Daimler AG and Cerberus Capital Management LLC on the redemption of Daimler’s 19.9% shareholding in Chrysler Holding LLC (“Chrysler”) and other issues related to Cerberus’s investment in Chrysler have been made considerably more difficult during the last weeks due to exaggerated demands by Cerberus. These demands by Cerberus exceed the value of Cerberus’ investment in Chrysler. For the acquisition of an 80.1% stake in Chrysler, Cerberus had invested USD 7.2 bn. The claims made now go beyond the framework of the contractually agreed possible obligations under representations and warranties. The new claims also include an allegation of conduct outside the ordinary course of business by Daimler during the time between signing and closing of the transaction as well as the allegation of incomplete information about the business. Daimler rejects these absurd allegations and the claims derived there from as being completely without substance.” (Read More…)
Ford Motor Company is getting some much-needed positive press today on the back of the Insurance Institute for Highway Safety’s (IIHS) just released “2009 Top Picks awards.” Top picks need to have best in class front, side and rear impact protection and include electronic stability control. Ford (including Volvo) took the model count grand prize with 16 vehicles getting top honors. Honda placed second with 13 vehicles and Chrysler came in dead last with exactly zero models clearing the hurdle. Of course the Ford brand portfolio includes many more vehicles than does Honda’s, so you could argue that Honda is the real winner as a percentage of its vehicles sold. In fact, ALL of Honda’s 2009 North American models made the top pick level except for the S2000 sports car. The redesigned 2009 Fit (with optional stability control) is the first minicar to make the IIHS’ list. Ford’s numbers were pumped up by multiple models of the same car each getting their own gold star. Fusion and Milan, Taurus and Sable, Escape and Mariner … you get the idea. But even with badge engineering magic, GM only managed an eight count including the sisters Enclave, Traverse, Acadia and Outlook. Once again, Ford has trounced its domestic competitors and is in the hunt with the rest of the international market. Likewise, Toyota continues the pattern of mimicking GM with only eight top picks of it’s own. Soon I suppose we will see Toyota, GM and Chrysler executives complaining that the IIHS tests aren’t representative, include selection bias …. or are just plain un-American.
Monster trucks aren’t the only ones taking it on the market chin; collectible car values are dropping through the floor as well. Today’s Wall Street Journal has a good overview of the situation. “In recent years, the vintage car market has soared, led by the priciest European models. But now, as the economy worsens to the point where even the wealthiest collectors feel pinched, demand for million-dollar sports cars is starting to skid.” Ferrari Daytona Spyder’s are a benchmark vehicle, and the benchmark is sliding to the point that at a recent California auction a fine Spyder failed to sell. Not only million dollar Ferraris and Mercedes Gullwings going begging though, 1965 Plymouth Hemis are down over 20% and pre-war everyday vintage cars like a 1940 Ford Club Coupe have skidded by 40% or more. Plunging investment account values, busted home equity lines of credit and sudden career collapses have turned a lot of buyers into sellers. “Recently, two of Michael Sheehan’s clients came to him looking to sell their Ferraris in a hurry — an unusual request. ‘They needed cash now,’ says Mr. Sheehan, a longtime Ferrari broker in Newport Beach, Calif. The cars, a $110,000 1982 Berlinetta Boxer and a $950,000 1972 Daytona Spyder, wound up selling for about 25% less than they would have sold for just a few months ago. Both sellers themselves were in hammered industries: One was a home builder from Chicago, and the other a former Lehman Bros. executive from New York.” The upcoming January Scottsdale auto auctions should make for some interesting reality television. If you have the desire and the nerve, now might make an interesting time to latch onto a copy of your childhood fantasies. Just don’t mortgage the house to do it.
Tom Krisher with the AP reports that Tiger Woods and Buick are making their rumored divorce official. The $7m/year endorsement deal was supposed to end sometime next year, but both sides have agreed that enough is enough. GM is looking to save pennies wherever it can, and it seems that the Buick-Tiger tie-up did more to raise Tiger’s already high profile than it did to actually sell Buicks. GM is cutting back high profile advertising everywhere including announcing that it would skip television advertising around the Super Bowl, the Oscars and the Emmys. No matter, does anyone watch those last two anymore? Woods’ stated reason for ripping the Buick logo off his golf bag is to “gain more time”. But time for what? Woods has been off the golf course recovering from knee surgery since right after winning the US Open, and doesn’t expect to play again until next spring. The better explanation: Woods doesn’t want his brand tarnished any more by the associated with GM than it already has been. Can you imagine the razzing he has been taking in the locker room? Then again, maybe the wife just couldn’t stand being seen in a Buick anymore.
Today’s New York Times has an interesting piece on the relationship between Ford Motor Company Chairman William C. Ford Jr. and Barack Obama’s team. During the entire industry bailout brouhaha ol’ Bill Ford has been conspicuously absent, leaving the dirty work to his well-compensated surrogate Mulally. Those with long memories may recall that Bill Ford made a big splash several years ago claiming that the family firm would assume leadership of a new, greener automotive future. At the time he had a hard job squaring his noble words with the launch of the Ford Excursion. Luckily for Ford, the Excursion has since gone on permanent holiday and Hummer has assumed Scarlet Letter status with greens everywhere. Ah what a difference a few years can make. Suddenly good fuel economy is back in style and monster trucks are so yesterday. Lately, “Mr. Ford has been working behind the scenes, meeting one-on-one with Mr. Obama in August, conferring with his senior economic advisers, and teaming up with Gov. Jennifer Granholm of Michigan to push a vision of a leaner, greener auto industry.” Ford remains in the best position to stay further ahead of the bear than GM or Chrysler as it has enough cash to get through the next year and is “not on the verge of bankruptcy like G.M. and Chrysler.” While GM and Chrysler have slashed development budgets well beyond the bone, Ford is able to say: “We have a plan that is high-tech, product-driven, which is a fuel economy plan, and we have kept that plan in place under these tough conditions.” (Read More…)
Like everyone, Honda is cutting production. The Financial Times reports that Honda’s Swindon, England plant is shutting down for the months of February and March. The Japanese company’s reputation for employee friendliness is taking a bit hit with the news that Honda’s “5,000 workers in Swindon will be laid off without pay during the shutdown.” The much lauded Japanese no layoff policy has gone by the wayside at Honda just as it has at Mazda and Isuzu. Toyota is likewise shoving people out the door of it’s Japanese factories without pay, but continues to hide behind the “contract workers” ruse which has long allowed them to in reality hire and fire to meet demand changes while claiming not to do so. Toyota “plans to reduce the number of contract workers on its Japanese payroll to about 3,000 by the first quarter of next year from more than 9,000 in the same period this year.” In simple terms, Toyota is laying off 6,000 people … without calling them layoffs. Meanwhile, “Fitch Ratings downgraded Nissan’s long-term debt rating on Friday from “A-minus” to “BBB-plus” and signaled that further cuts could follow.” Layoffs, plant shut-downs, debt rating downgrades and plunging profits. Sound familiar?
Barron‘s, the weekend edition from those warm and fuzzy people at the Wall Street Journal, is little known outside the financial world, and read by everyone inside it. Today Barron’s is hyping Honda stock, big time. Writer Jay Palmer loves him some Honda. He cites the 200 FCX Clarity fuel cell cars motoring around Santa Monica as clear evidence of technology leadership. Never mind that the hydrogen economy is about as likely as the Moller Skycar. More urgently, “amid a savage sales slump that has led the Detroit Three to plead for government aid, threatens to bankrupt General Motors and has battered most European and Asian vehicle makers, the Japanese car manufacturer is a standout.” Honda, along only with Subaru, managed to keep unit sales above 2007 levels throughout the first nine months of 2008. “Recently, however, the downturn’s severity has taken a toll on Honda. Its U.S. sales plunged 25% in October, but that still was better than the overall industry’s 32% slide. Honda now expects its 2008 U.S. sales to be off 2.4%, the first yearly decline in 15 years. But the company remains confident; it will open a new plant this month in Greensburg, Ind., that soon will be turning out 30,000 vehicles a month. And it has opted not to follow Toyota, Nissan and others in offering 0% financing.” That last bit is interesting. Honda isn’t following Toyota’s lead into the Saved by Zero swamp.
According to the AP, “Toyota Motor Corp. said Friday that for now it is sticking with plans to open its new Mississippi plant in 2010 despite media reports that Japan’s top automaker is mulling a delay.” Mississippi was originally supposed to get Highlander production.. Those plans ran aground on $4 a gallon gas. In a fit of hybrid mania, Toyota Mississippi jumped off the Highlander horse and onto the Prius this past July… just in time to see crude oil prices peak and roll over. Remember all that talk of building a Scion-like separate Prius brand? You have to think that plan is on hold. “Earlier this month, Toyota said its net profit for the July-September quarter plunged 69 percent. The car maker also downgraded its full-year profit forecast to 550 billion yen ($5.5 billion) — about a third of last year’s result. Executive Vice President Mitsuo Kinoshita said after the earnings release that the company had convened an ‘Emergency Profit Improvement Committee’ to cut costs and maximize revenues. Toyota is also assessing its manufacturing operations by ‘re-examining aspects such as the timing and scale of new projects.'”
Commodities markets are on an even wilder roller-coaster ride than the stock market and crude oil is leading the retreat. The AP reports that Thursday’s hit of inter-day low of $54.67 / barrel and closed at $58.24. That there is almost 2/3rds down from the summer’s near $150 peak. TFC Commodity Charts publishes a dandy oil price graphic ,while the EIA puts detailed gasoline price histories online. Unfortunately for conspiracy theorists, gasoline prices have tracked crude oil prices very well in recent weeks. The national average for regular fuel for the week ending November 10th was $2.17; broadly consistent with January 2007 when crude oil was last in the $55-$60 range. Interestingly for whichever automakers stay in business is the little reported fact that steel, copper and other raw material costs have plunged even more rapidly than crude oil. Copper, for example, is falling through the floor.
Former AutoWeek scribe Jeff Sabatini is now driving a keyboard for The Wall Street Journal. While our own JL loved the Honda Fit, Sabatini sees the model as the motorist’s Messiah. “While conventional wisdom says that cheap gas should damp enthusiasm for a compact fuel-sipper, I’m not going to be deterred. The Fit is unquestionably my favorite car, a vehicle that’s the best all-around transportation available from any auto maker at any price.” Wow, talk about showing some love! “Well equipped Fits may just outdo the Mini Cooper for the cheap to buy, fun to drive, feel good drive of the year. Move over BMW, the new kid is strutting his stuff. While the iconic BMW 2002 remains a cult classic because it does much with little, today’s BMWs are porkers best suited to poseurs. The Fit has recaptured the cheap to buy, cheap to run, fun to drive crown in part by being ‘nearly 1,500 pounds lighter than, say, a BMW 5-Series, that perennial best-car-on-the-road contender.'” Jeff then takes both the Big 2.8 and Honda to task for not building more Fit-like whips…
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