Posts Tagged ‘Chrysler’

More “Cash for Clunkers” Nonsense From Obama Stimulus Gimmickry

September 2nd, 2009 Comments off
In a previous post I dubbed the Obama administration’s “Cash for Clunkers” program as really being “economics for dummies.” The sales results tabulated by Bloomberg for the period of July 27 through August 24, coinciding with the implementation of “Cash for Clunkers,” exposes the banal irrationality of this taxpayer-subsidized boondoggle.


The program actually did stimulate auto sales-for Detroit’s foreign competitors. Toyota, for example, saw an increase in car sales of 6.4%. Among domestic manufacturers, however, only Ford saw a gain, rising by 17%. But what about Chrysler and General Motors, which are only still in business due to government financed life support.?



Even with “Cash for Clunkers,” Chrysler sales dropped by 15% and GM sank by 20%. And this is supposed to have been a “successful” economic stimulus program? If so, what in God’s name would have been considered a failure?


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GM Is Toast

May 16th, 2009 Comments off
During the Texas oil bust of the 1980s, a major real estate developer told me, “I thought I was in the real estate business, only to discover I was really in the oil business.” His comment was made as the collapse in the price of a barrel of oil inflicted massive collateral damage on all segments of the Texas economy. Similarly, the executives running the world’s major automobile companies, including those based in Detroit, have learned that they were actually in the subprime mortgages, credit default swaps and financial derivatives business.
In previous posts I have commented on the strategic miscalculations and erroneous management decisions made by General Motors and its domestic competitors as contributing factors towards their imminent demise. However, it is the Global Economic Crisis, driven by financial chicanery engineered largely on Wall Street, that is sending GM, Chrysler and possibly Ford to a rendezvous with the undertaker. While U.S. politicians, who have shoveled trillions of taxpayer dollars into the hands of reckless Wall Street firms and banks with virtually no strings attached, enjoy lambasting Detroit and the auto unions for their supposed misdeeds, a recent statistic adds ambiguity to this generalization. In April, Toyota, considered to be the best run auto company in the world, actually had a sharper drop in U.S. auto sales than GM, which is teetering on the edge of bankruptcy.

In desperation, GM has announced it will dump 1,600 domestic dealerships in the short-term, and ultimately eliminate 2,600, reducing its total dealership franchises by more than 40%. This is only part of an array of measures designed to reduce operating costs. More auto assembly plants will be shut down; additional layoffs will be undertaken while remaining employees will see their wages and benefits shrink further. However, in the wake of the financial storm that is wrecking the global economy, these last ditch and desperate stratagems are almost certainly doomed to failure. In the next several weeks GM will file for bankruptcy protection, shed several of its brands, and accelerate the death spiral that it is now locked in. With unemployment surging, not only in the United States but throughout the world where GM has significant market share, and credit essential for auto purchases being denied to consumers-macroeconomic factors that are far more relevant to the auto industry than brand elimination and dealership disposal-the extinction of General Motors as an industrial corporation seems all but certain. Possibly brands such as Cadillac or Chevrolet may survive independently or be absorbed by other auto manufacturers, but the behemoth known as GM is destined for the scrapyard of history.

While Teddy Roosevelt was completing his second term as U.S. president in 1908,the first GM automobile was manufactured. In 1954, General Motors saw its 50 millionth car roll off the Detroit assembly lines, at a time when more than half a million Americans worked for GM. Now, at death’s door, GM has announced that its dwindling workforce will shrink by a further 38%, reaching a planned level of 38,000. That represents a reduction of 93% from the 1954 employment figures!

The financial and political elites who dominate policymaking in America seem unperturbed. They apparently prefer having companies exist that engineer exotic financial derivatives than a manufactured product that is assembled by a skilled, well-compensated workforce. However, even with this melancholy certainty in front of us, I will always imagine a ride in a 1957 Chevrolet convertible as being infinitely more romantic than cruising the lanes on foot with a pocketful of securitized subprime mortgages. So, America, where does the economic road ahead lead us?

Rest in peace, General Motors.


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Chrysler Is Kaput

May 2nd, 2009 Comments off
In December, 1956 Chrysler Corporation’s president “Tex” Colbert issued the following apology to his company’s dealers: “At the moment we are embarrassed-and seriously-by a shortage of automobiles.” And embarrassed he was. Despite expanded production capacity to meet expected demand for the 1957 product line of Chrysler, actual customer purchases far exceeded projections. That was Chrysler, then.
And now? On the verge of extinction, having initiated bankruptcy proceedings, a torrent of unsold inventory clogs dealership lots, while the dying company seeks to decapitate those same dealerships. In just over half a century, how did Chrysler, and the wider domestic automobile industry, traverse the road from riches to ruin? It is a complex story, far too long to be fully documented in this space. However, there are a couple of themes related to Chrysler’s imminent demise that warrant reflection.
In 1957, engineers, real practitioners of the automotive art, still had a significant voice within the corporation, alongside the finance and marketing gurus. In fact, Chrysler at that time was renowned for the quality of its automotive engineering. In 1957, its hemi V-8 engines were considered among the finest mass produced powerplants in the industry. Its TorqueFlite automatic transmission was unsurpassed by any of its competitors. In 1957, Chrysler introduced torsion bar suspension on its vehicles, making them the most roadable American cars of their era. And not only in engineering was Chrysler dominant. In the late 1950s, Virgil Exner created the “Forward Look” for Chrysler, making the company’s cars among the most cleanly and beautifully styled on the American road. At that time, what were then Toyota, Nissan, and Honda were technologically and stylistically light years behind the supremacy of Chrysler.
Sadly, in 2009, we observe this once proud and powerful automobile company in a state of lethargy, with the embalming fluid about to be poured over the scattered remnants of its once thriving industrial empire. When we reflect back on the forces that led to the downfall of Detroit, and especially Chrysler, we see the inverse of what occurred in Japan. As solid engineering became redundant in Detroit, largely replaced by so-called “badge engineering,” Japanese firms built up the quality of their automotive engineering to a point where it ranked as world class.

When Toyota decided to create a luxury brand, Lexus, they did not merely slap a Lexus grill and some extra chrome on a jazzed-up Toyota; they invested in the most sophisticated engineering available to insure that a Lexus would be perceived by consumers as a first rate product. Chrysler, along with the other Detroit automakers, preferred to use common chassis designs and powertrains, and differentiate their brands with a different badge on the grill, and perhaps an opera window on their luxury models.

American consumers caught on, and began deserting the domestic car manufacturers in droves for the Japanese alternatives. Too late, Detroit began to recognize some of its mistakes. When the Global Economic Crisis exploded, demand destruction shrank the American automobile market by millions of units annually, at the same time that Detroit was losing market share.

Now the course of history is supposed to be reversed by, of all things, a bankruptcy filing. Is President Obama, as sincere as he is, really serious in believing that this is the path to a renaissance for Chrysler?

We are also informed that the Italian automaker, Fiat, will help to save Chrysler by offering its own automotive technology. The same Fiat that had a disastrous commercial experience in the United States, abandoning the American car market decades ago. Fiat may have excellent experience and engineering for the European car market, but to expect a merger with the Italian firm to prove more efficacious than Chrysler’s previous calamitous merger with Daimler-Benz, is simply whistling Dixie in the dark.

Chrysler is headed for oblivion, and the history books. The late “Tex” Colbert must be turning in his grave, aghast that the successful industrial behemoth he once ran so successfully is left with the forlorn hope that technology imported from Fiat is the path to salvation for a company that once stood at the top of the world in engineering excellence.

This epic is more than tragic. It is a metaphor for the reasons why the U.S. economy, once the center of manufacturing for the world, is in free fall collapse.

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Is The U.S. Auto Industry Doomed?

March 31st, 2009 Comments off
Detroit has become an urban wilderness. Only a few miles from the downtown core of the Motor City can be found once vibrant neighborhoods that are now devoid of human life. Only abandoned homes remain, extinguished of their occupants by a tidal wave of foreclosures. Recently, the local and even national media have reported on a phenomenon unique in metropolitan America; animals that had not inhabited Detroit for decades, including industrious beavers, were now reclaiming their previous habitat, as more and more areas of urban Detroit have been transformed into pastoral land. No better metaphor can exist to point out what has happened to the heart of America’s once mighty automobile industry.
As the Global Economic Crisis destroys worldwide consumer demand for automobiles, two of America’s three remaining domestic carmakers, General Motors and Chrysler, look to President Barack Obama for salvation. They, however, are not alone. The financial and banking system are first in line, while states and cities starved of tax revenues are also clamoring for help from the Obama administration. No doubt President Obama has many burdens weighing on him as he seeks to provide leadership for a national and global economy in tatters. Obama did not cause the decline of the U.S. automobile industry, and no doubt he is trying to do his best in formulating policy regarding Detroit and well as the many other ailing sectors of the U.S. economy. However, the recent decisions regarding G.M. and Chrysler that Barack Obama has made will not, in my view, do much to reverse the dismal fate that seems irreversible for the once proud car builders of Detroit.
The perspective from the White House appears to be that the two domestic auto manufacturers are in dire straits because they have not formulated a business plan that is viable in current market conditions. They have therefore, in effect, been sent an ultimatum. Chrysler is being told to merge with the Italian automaker, Fiat, while G.M. was compelled to fire its CEO, and must “restructure” radically within two months, or face bankruptcy. Washington will only provide funding for the duration of the ultimatum, with further support only available if the expectations of the Obama administration are met in full.
With respect to Chrysler, the attempt at a shotgun marriage with Fiat is just another failed automotive merger in the making. The record of foreign carmakers buying large or controlling interests in American auto companies has been universally disastrous. One need only look to Chrysler’s relatively recent merger with Mercedes-Benz, at which time the joint company was known as Daimler-Chrysler. Prior to that catastrophic union, which Mercedes-Benz management will forever regret, there was the purchase of American Motors by Renault, the French auto giant. The end result of that merger was the extinction of AMC, with its remnants bought by Chrysler. It should also be pointed out that Fiat abandoned the American car market decades ago, so it is totally unfamiliar with the dynamics of the U.S. auto marketplace.

General Motors is a much larger carmaker, with a global presence and vast overhead. Its very size defines the essence of the problem being faced not only by G.M. but also by other global car builders, including Toyota, Nissan and Ford. Currently the world has the manufacturing capacity to assemble more than 90 million automobiles a year. However, the Global Economic Crisis has created a vortex of demand destruction in the car business, reducing global demand to around 50 million units. The overhead for maintaining this complex, global manufacturing infrastructure is staggering, and can only generate profits if sales match production capacity. With worldwide sales reduced to 50 million cars, no major car company can make money.

The only solution for preserving General Motors is to provide sufficient demand for its manufacturing capacity. This demand need not be restricted to cars; during World War II Detroit became the arsenal of democracy, as its assembly lines retooled to build the weaponry that helped defeat Nazi Germany and Imperial Japan. However, in 2009, political leadership appears to lack the imagination to see the potential of harnessing the productive capacity of the auto manufacturers in other directions that can facilitate global economic development and recovery. What we are left with are ultimatums that provide only two possibilities: bankruptcy now, or becoming “leaner” with the future possibility of insolvency still hanging like a sword of Damocles.

I do not think the Obama plan for preserving a domestic U.S. auto industry, as presently conceived, will work. At most, it may preserve fragments and echoes of what was once the mightiest industrial productive capacity on the planet. Unlike the Great Depression of the 1930s, in which industrial giants such as G.M. and Chrysler did survive and eventually prosper, the Global Economic Crisis is devouring what were once seen as the pinnacles of economic and industrial might. If G.M. and Chrysler are in fact doomed, along with much of what remains of America’s industrial capacity, this will be largely due to a policy decision that establishes the financial sector as the center of gravity for the U.S. economy, reflecting the vastly more significant taxpayer dollars that have been allocated to that sector, with far fewer strings than are being attached to the paltry aid given to Detroit.

How is it possible for the U.S. to rebuild its economy if the industrial sector, epitomized by companies such as General Motors and Chrysler, is largely sacrificed on the altar of Goldman Sachs, AIG, Bank of America and their ilk?



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American Economy In Freefall

December 12th, 2008 Comments off

What began as a financial crisis in the U.S. housing and mortgage market has metastasized as a virulent global economic cancer. The U.S. economy is imploding, and taking down much of the world with it. In a tsunami of financial panic, central banks across the globe have been slashing interest rates to virtual zero, while simultaneously borrowing and printing trillions of dollars, which are being injected into failing banking systems.

With global financial arteries clogged, the economies of the planet are now cratering, with the United States economy in particular imploding at an alarming rate. A concrete example of this is the impending bankruptcy of the American automobile industry, which directly and indirectly represents the core of what is left of the domestic manufacturing industry in the United States. Ford, Chrysler and especially GM have told the U.S. government and its elected representatives in no uncertain terms that unless the government injects untold tens of billions of dollars into their virtually empty coffers, those companies will go bankrupt in a matter of months. GM has even indicated it could be forced to shut down within weeks.

With a federal budget deficit that has grown from the hundreds of billions to the trillions of dollars, where is the U.S. Treasury going to get these vast funds for the industrial bailout requests that are now piling on? Perhaps soon the retail sector of the American economy will be coming to Capital Hill, hat in hand. However, an infinite series of bailouts is not a solution to the global economic crisis.