Ask the average American why they oppose the recent financial-sector bailout, and a devalued dollar will likely rank high in their answer. But perhaps what’s being missed in the hysteria is that a weaker dollar provides America with an opportunity to rediscover something we used to be pretty well known for: making high-quality products and selling them on the world market. A weak dollar means cheaper exports, and with Euro-zone costs as high as they are, European manufacturers are most likely to take advantage of this. Volkswagen has already moved on creating an American manufacturing base, with a new factory under construction in Chattanooga, TN. And now it seems that VW’s sister brand Audi is looking to get in on the action in hopes of capitalizing on its hot hand and doubling US sales by 2015. VW CEO Martin Winterkorn says its not a question of “if” anymore, but “where” and “what.” “Perhaps in Chattanooga, but we have no decision yet,” Winterkorn tells Automotive News [sub], who notes that the $1b VW plant can expand to an extra 100k production capacity if need be. This means 150k yet-to-be-announced mid-sized VWs and 100k unnamed Audis could be built in Chattanooga each year. “The new mid-sized (VW) which we want to build in America, we want only to sell in America,” says Winterkorn, who expects a decision to come next year. “(Audi) should have the right product for the market.” Given VW’s long history of saddling America with sub-standard cars that it can’t won’t sell elsewhere, this isn’t encouraging. Unless, of course, you happen to be looking for manufacturing work.
Category: News Blog
“General Motors dealers in the United States delivered 170,585 vehicles in October, down 45 percent compared with a year ago. GM truck sales of 97,119 were down 51 percent and car sales of 73,466 were off 34 percent.” And so the death knell sounds for what was once America’s largest automaker, the world’s largest automaker and the world’s most profitable company. As I stated previously, GM is now practically begging for a government bailout. Needless to say, the situation isn’t their fault. “We are obviously disappointed in our results which reflect a difficult comparison with a strong year-ago October performance,” writes Mark LaNeve, vice president, GM North America Vehicle Sales, Service and Marketing. “More importantly, it also reflects an unprecedented credit crunch that is dramatically impacting the entire U.S. economy – from the housing market to big and small companies to banks to family run businesses. The credit freeze has also had a very negative impact on consumers’ confidence and their purchase behavior across America.” Oy. Anyway, in the search for good news, GM points to the new fleet queen Malibu, sales of which are up 129 percent, and the truck sales, which are… at 45k. But then GM really reaches, with hybrid numbers that are, frankly, embarrassing…
There are only a few businesses that are tougher to compete in right now than the automotive game. Though airlines have to be on the list, a recent addition would be the world of finance. But even with credit markets frozen, lenders stuck holding worthless paper and weekly rounds of consolidation and nationalization, FoMoCo CEO Alan Mullaly thinks holding on to Ford’s financing arm makes sense. Ford Motor Credit has “been through a lot with the world slowing down, and they have restructured aggressively to focus especially on the Ford brand,” says Mulally. “And it’s been helped by us divesting the noncore brands.” And, says Mullaly, Ford Credit isn’t simply dragging its parent company down with it. “With the situation being what it is, it’s hard, but the dealers and the customers say they’re doing a great job during the hardest of times,” says Ford’s main man. Faster marketing initiatives and more leeway in setting lending criteria including leasing (now abandoned by many motor credit firms) are said to be some of the big advantages to keeping Ford Credit around. But surely there’s a downside, right? Of course, but you need to ask a “source close to Ford who asked not to be identified,” to get it. “There’s an advantage to full ownership, but not a big advantage because the issue is that nobody will loan us money,” admits the nameless blue oval boy. With Ford’s credit arm enjoying a B- rating from S&P, it’s in the same shape (roughly) as GMAC and better off than Chrysler Finance. Still, warns Peter Morici, a business professor at the University of Maryland, a wholly owned captive “is useful for moving cars out if you don’t abuse it.” In the car business, that’s one huge “if.”
Anyone fancy a Lexus? Now’s a good time to saunter over to their swanky digs; October sales at Toyota’s luxury division are off by 37.6 percent. With Toyota sales down 24.2 percent, call it a combined 25.9 percent decline. Some notable [non] performers: Camry (down 12.8 percent), Prius (-13.6), Highlander (-29.2) Tundra (-65.4). So what’s up? Corolla (+2.2 percent) and the Sequoia (of all things), up 16.3 percent. Notable from Toyota’s press release: any mention whatsoever of the U.S. economic climate. It’s all business with these guys.
With the proposed GM-Chrysler merger effectively off the table, automotive colmunists are slowly returning to the task of facing reality. Needless to say, they don’t like what they see. Though Mark Phelan may smell the smoke on the breeze as well as the next Detroit cheerleader, he obviously still figures a pom-pom in the hand is worth two in the bankruptcy court. Stuck with three sickly children who won’t all make it through this dark night of the industry, Phelan verbally douses Chrysler in 57 sauce and calls out the wolves. “If I were the U.S. Treasury Department, I’d offer GM executives $10 billion, on the condition that they walk away from Chrysler and never look back,” goes the first sentence of his latest opus. “Or $15 billion, $20 billion,” begins the second. His point? That a merger between GM and ChryCo would be disastrous. And though he acknowledges the real reasons for this (overlap, baby), he doesn’t stop there. “Cerberus’ ownership of Chrysler is a strip-and-flip operation,” raves Phelan, adding “Chrysler’s leaders spent much of the nine years they were part of DaimlerChrysler approving vehicles that didn’t stand a chance in the market.” Sure, there’s no use in arguing that the Sebring and Compass aren’t evidence of a company that practically wants to fail, Phelan isn’t feeding his beloved Chrysler to the wild beasties for the sheer fun of it (that’s our job). It’s all about saving Ford and GM.
Reuters reports that Tesla Motors has secured $40m in additional financing from existing investors. The electric sportscar firm had less than $10m in the bank as of a few days ago, but CEO Elon Musk is still convinced that Tesla has nothing to worry about. “Forty million is significantly more than we need,” Musk said in a statement. “However, the board, investors and I felt it was important to have significant cash reserves.” Except that Tesla failed to secure a $100m round of financing just a month ago, triggering the current cash crisis which has claimed a quarter of Tesla’s workforce and all of its development work. And if you aren’t already bearish on Tesla, consider that the latest round of financing comes in the form of convertible debt. This financing option is described here, but the major benefits to Tesla are that it does not have to place a value on the struggling firm (can you say “upside down?”) and it protects early “angel” investors. What we don’t know is what the “trigger” for this convertible debt is, whether it is filling a specific number of orders, reaching certain financial goals, or what. Whatever the trigger is, whenever it happens, the folks who just ponied up $40m better hope Tesla is in much better shape when that debt converts to equity. If the debt ever converts to equity. Ultimately this news is only good for one category of filth people: lawyers. Convertible debt is notorious for requiring near constant legal oversight. Whatever it takes, right?
Automotive News [AN sub] reports that The Blue Oval Boyz are getting that sinking feeling. And how. October sales sank 32 percent, “as the industry braced for what may be weakest monthly sales report in 25 years.” AN is, of course, parroting the party line. To wit: “An economic gauntlet, the likes of which haven’t been seen in more than two decades, could not deter Ford’s best-selling F-Series truck,” FoMoCo PR writes. “Ford dealers celebrated Truck Month by delivering 43,324 F-Series in October.” Truck month? Who knew? In Ford’s world, the October sales decline merits a single sentence: “Ford, Lincoln and Mercury sales totaled 129,121 in October, down 29 percent compared with a year ago.” Yes, well, unlike our headline, that’s adjusted for sales days. Anyway, if you think that’s bad– and why wouldn’t you– Volvo sales fell 52.1 percent. Make the jump for some specific examples of bad juju.
Virginia House of Delegates rep David Poisson (D-Loudoun) has introduced legislation to create a system to track the driving habits of Virginia motorists, imposing a tax on every mile driven, opening the way for congestion charging. Poisson argues that the legislature should adopt so-called “Road Pricing” during the 2009 session to compensate for dwindling gas tax revenue. “Inflation and escalating construction costs have severely eroded the purchasing power of fuel-tax revenue,” Poisson said in a statement. “At the same time, tax receipts are dropping as soaring gas prices and a weak economy reduce traffic volume. When people do drive, it is in more fuel-efficient cars, which only makes our revenue problems worse. Clearly, we can’t continue this way.” Well of course not. Only the facts tell a slightly different tale…
Our guys on the front line tell us that GM has just launched a nationwide coupon program called “Garage Mate.” The General has mailed an unspecified number of consumers a $2k-off coupon good for every 2008 AND 2009 vehicle The General sells (including the Pontiac G8). The two grand is on top of any and every other available discount. More info as it becomes available.
From GM PR: “Record-setting sales performance in GM’s Latin America, Africa and Middle East and Asia Pacific regions during the third quarter of 2008 helped General Motors sell more than 2.1 million vehicles globally during the third quarter 2008. Compared with the third quarter of 2007, GM’s total sales were down 11.4 percent, reflecting continuing economic pressures in the U.S. market, which pushed North America sales down 18.9 percent, and growing pressure in Europe, where sales were down 12.3 percent. Sales of 1.286 million vehicles outside the U.S. accounted for nearly 61 percent of GM’s total global sales volume compared with just over 56 percent a year ago.” And that’s how you spin ’em boys. Meanwhile, every one of GM’s eight U.S. brands cratered, big time [all stats Q3 losses, year-to-date]: Buick (-19.1), Cadillac (-15.6), Chevrolet (-15), GMC (-19.3), HUMMER (-46.4), Pontiac (-14.7), Saab (-31.9), Saturn (-16.9). Take fleet sales out of that mix, consider discounts relative to profits… There’s blood in the water folks.
“Yes, the auto industry is big. And important. But Congress shouldn’t dole out more taxpayer dollars to save firms that missed opportunities to help themselves.” And so begins The Dallas Morning News‘ editorial advising its readers that Motown should be left to its own devices. The News is home to one of automotive journalism’s genuine gems: writer Terry Box. Box has always been loyal to his readers’ best interests; this editorial has his fingerprints all over it. Be that as it may, Motown may wish to point out that Texas is home to Toyota’s massive– and now underutilized– Tundra factory. Of course, it’s also the state where you’ll find GM’s Arlington plant, once-proud maker of the GMC Yukon, GMC Yukon XL, Chevrolet Suburban, Chevrolet Tahoe and Cadillac Escalade. No matter how you slice it, The Lone Star state has at least one dog in this fight. Make the jump for the rest of the ed [thanks to peakwarehouse for the link].
I was wondering why this morning’s Automotive News [sub] was revisiting the story on GM’s product development cutback. True: it was THE story of last week. And the new quote from analytical superstar John Casesa is pregnant with foreboding. “It’s really the last resort and underscores how dire the liquidity situation has become.” And now, the money shot: “According to one informed estimate, GM may have about $17 billion in cash left. Since the company needs $11 billion to $14 billion on hand to maintain normal operations, it may face a cash-flow crisis this winter.” MAY? GM’s burning through a billion a month. Without special write-offs or cash calls, The General will run out of liquidity by January. As with Chrysler, even approaching a cash conflagration flame-out puts the ailing American automaker in dire straits. Suppliers, who are busy going to the wall, may demand cash up front, whittling GM’s “pad” down to, well, nothing. If there’s a “run on the bank,” GM’s suppliers could throw GM into C11.
Tonight. On World’s Most Extreme Detroit Apologists… Move over Jerry Flint! Forbes’ ancient and once venerable scribe thinks GM CEO Rick Wagoner hasn’t raped stockholders by pocketing more than $100m in executive compensation. But The Detroit Free Press‘ Justin Hyde and Brent Snavely are willing to go even further. While their most recent mega-apologia predicts the end of Wagoner’s misguided management, the writers are happy to give the floor to analysts who suggest that Wagoner’s done- and is still doing— a great job. “Erich Merkle, an analyst from Crowe Horwath LLP, said Wagoner inherited years of bad decisions from previous managers that have limited his options. ‘You almost need to put Roger Smith on the hot seat, and I know he’s dead,’ Merkle said of the CEO who led GM from 1981 to 1990. ‘They were setting the company up for disaster later down the road. The business model that was created and the way that the contracts were structured were such that they were just not economically viable.'” Mea culpa be damned. And you can be damned sure that Merkle isn’t the only one blind to Wagoner’s cataclysmic effect on GM’s business…
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