You're now on the archive server. Commenting has been disabled.
Guest Post: Why Ford CEO's "U.S. Car Market In A V-Shaped Recovery" Thesis is Wrong
Submitted by The Firecracked Report, a new up and coming financial blog
Why Ford CEO’s “U.S. Car Market in a V-shaped Recovery” Thesis is WRONG
»
- 4358 reads
- Printer-friendly version
- Send to friend
Tyler, did you take to many reds today?
Bars & vodka are better suited to different situations...
JUST DO COKE!
Or wash a #7 lith filter in that drink....
er ah, make mine a diet. I'm trying to watch my girlish figure. (which is sad because I'm a man.)
Not if you had a sex change operation, then it all makes sense.
So, I guess we can choose to believe a random blogger or the ceo of a major US car company. Hmmm, I know who I'm choosin'!
The median age of all cars on the road is nearing a record high 10 years old which should drive a nice replacement cycle the next few years.
Is that what you have to tell yourself so you can sleep at night?
a random blogger??? You are either a newb or a 'tard. TD is no "random blogger". I've learned more in 6 months on this blog than in 10 years of reading books and watching/listening to mainstream financial news channels...
'tard!
Biff
TD is da man! But I wasn't aware that he is behind the Firecracker Report.
in that case i apologize...
first, a friendly reminder: you're not choosing people, you are choosing ideas.
second: did you even read the article?
third: people need financing in order to be able to participate in the next replacement cycle.
At least until they have exhausted their radical default options and revert to a cash and carry society.
Okay, I believe the Ford CEO's ideas and not the random blogger's. Yes, I read the article and it makes sense from a bear's point of view. However, there's lots of people out there who did things the right way, didn't get into debt and have pristine balance sheets. These people are just waiting for the hint of economic recovery and they will start buying. Cash for clunkers is proof people are willing to buy when they can get a good deal and I expect there will be plenty of great deals for cars in the next few years. 12.5 million next year should be a cakewalk.
People with pristine balance sheets very rarely buy US made cars.
Mullaly is talking his book.
Exactly. More likely than not, if someone is smart enough not to get into excessive debt, they are smart enough not to buy sub-par American cars.
Additionally, the people with pristine balance sheets are the ones that are going to carry the pain of a debased dollar. Debasement of our currency is the only way our monetary system stays intact and the side-effect is that people's savings get wiped out AKA "And its gone!" So those pristine balance sheets, if they survive helicopter ben, will most likely settle for some repairwork.
Those balance sheets that are there have hedges for this eventuality.... Hence the reason their balance are the way they are.
That's the most retarded thing I've read on here.
your picture makes my stomach feel weird, but i have to agree.
I hope a lot of folks are in the same boat as my wife and I! All we owe on is the house, no ccs, no car payments, nothing. We drive two old 98 Fords, and will keep on driving them until they do not run anymore. Then fix them up and keep driving them.
We have absolutely no desire to replace two paid off vehicles with new car payments, none whatsoever!
I hope there are a lot of smart people out there who think the same! Fark the car manufacturers.
"choose to believe a random blogger or the CEO of a major US car company"
I agree. Since those CEO's of major US car companies ("major" is a relative term, as there are only two unless you want to count Tesla) got absolutely everything right up to now, we should all continue to hang our hats on whatever they say. Those Japanese wish they could perform in the marketplace the way those "majors" have! I even heard Lexus has a Pinto in their design and engineering room.
Folks, other than the snarky random blogger comment ( and who of us here is not snarky), a legit comment was posed. We have enough preaching to the choir comments, this should not be labeled junk.
To answer your comment. I forget whose quote, but " Never pay any attention to any CEO talking about his company's stock" and I'll add to that, projections on the health of his industry. THAT is one conflicted biased individual. While the random blogger has no "book to talk" so to speak, other than daily providing facts and data that one cannot find in the MSM.
And at the end of the day, you indeed get to choose what to believe.
In this case, I think you chose poorly
http://www.youtube.com/watch?v=-DGFuHC75aY
Yea, the blogger as we see truth every day if we open our eyes. I have bought cars in 18 month's consisting of 3 saturns rebuilt to my specification since I have 3 in college now and my 1999 Jeep which I just have had done for $893.15. I know a good mechanic, lawyer, doctor and we take care of each other. My children learn a skill in college first and then a sheepskin. I did as my father instructed me decades ago. I think you better remember the new, new normal. My grand childrens education is in tax free investments already unless things and times get harder and they will indeed.
We have discharged employees from 1987 hire date and up and I do work for a GeoCorporate firm and the things we make you do use everyday if you believe me or not.
America better wake from this dream but they will not and the gatekeeper has failed. My next car is a Studebaker and when the people working for the old man ask for to much money when things got tight he told his workers the truth that when he could he would. He reminded his employees have they saved enough for there family's needs since he had. The Union said we will strike you and the old man closed the doors. My grandfather left college in the GD and he told my father what he told me. The damn truth and this nation will learn the hard way. Government cannot save you do the damn math kids.
"if you believe me or not."
I don't. Your piece looks to me like you took english as a second language.
just sayin'
"My next car is a Studebaker and when the people working for the old man ask for to much money when things got tight he told his workers the truth that when he could he would."
Peaks happen. Sometimes things never recover. Look at the sales figures for Cessna/Piper/Beechcraft in the 1970's and 1980's, then look at the figures for the 21st Century. Granted a car is more useful than a private aircraft (though hardly as fun), but folks made due with used or just stopped flying. It is possible that car drivers will make due with used, too, and avail themselves of public transport more (or just stay home). And as C4C has shown (80% US trade-ins; 80% foreign bought), if the US consumer does buy, he or she prefers foreign to Ford or GM.
The problem with that preference is what role GM and Ford provide. They exist as the alternative to the bland golfcart vs. overpriced exotic formula that foreign brands do all the time. GM and Ford fill in the middle that Japan, Korea, China, and EU/UK won't. While there is some issue with quality, it's not the wide margin that it was; I'd chalk it to more use of Chinese parts and less failure by design.
The question is what happens if GM and Ford were just given blanket exemptions that keep them from doing what they do well - medium-large cars without the large-astronomical price tag. That is, exempt them from most of the environmental regulations (CAFE, near-impossible economy standards, CA emissions, etc.) that seem to target Detroit exclusively. It won't please the faux environmentalists up in Aspen, but it eliminates a large part of their problems. The problem is that there is no Taft-Hartley to break environmentalists.
In short: Let GM and Ford do what they do well and not care about environmental mandates.
I agree with the posts here that ZH has a lot of great information. But the analysis of the auto sector, both in this post and other ZH entries on the topic is very light on real analysis.
A few points to consider:
- Every past recovery in light vehicle sales - and that is every cycle since the first auto volume recession in 1973/4 - has turned higher even as unemployment rose. Every single one. Shall I list them so everyone can check? 1973/4, 1979/80, 1991/2, 2002/3. That is a pretty good track record of bucking the unemployment trend noted in this piece and elsewhere on ZH. OK - I know "this time is different". So let's keep going.
- GM is not in auto rental business, as cute a sound bite as that is. Do you really think you will get a refund on your sales tax when you turn a car back in on day 59? If you do, I will post my paypal account and offer you a sweet deal on a bridge. That alone will make turnbacks very rare. Do the math for yourself. Average car: $25K. Average sales tax: 7%. 60 days. Divide. It is no deal to hold the car and turn it back in. You can check this fact on GM's own website. It is not hard to find. www.gm.com
- The average credit score of a person receiving a car loan has tumbled in recent months. It used to +720 and is now around 650, and coming down further. Check this fact with any local new car dealer. Call them. Check it out.
- Of course vehicle demand will drop after CfC. To claim anything else is stupid. But to claim this lower rate is a sign of true underlying demand is equally retarded. No offense - it just is. Demand got pulled forward. Run the average SAAR for the whole back half of 2009. Hell, add in a few months of 2010 if you want. Just do not claim September is any more real than August.
- What CfC did do quite well is clean out dealer inventories in small and medium sized cars. Oh - and guess what?!?! Those are the lowest profit generating vehicles any car maker produces. Now you can argue - rightly, I believe, that the government should not subsidize vehicle sales. But that is water under the bridge. It is done. And by doing it, the government gave a huge gift to the auto companies. Instead of car companies piling on incentives to move those small/mid units, the govt did it. Which means that dealer inventories are the cleanest and lowest they have EVER been in ANY recession. Again - check with your local dealer. DO NOT take my word for it.
- Also, consider how all those CfC cars got sold - don't you think they were financed? Of course they were. They didn't magically move off dealer lots and into people's driveways. The auto finance system in this country just ran months of a 14-15 mm SAAR. And it can keep doing it, if demand is there.
- Clean inventories mean lower breakevens for auto companies, since they do not have to run killer incentives to draw traffic. Or - and this is why Ford's CEO does in fact know more than the random blogger - they can put those incentives right back on and drive traffic anyway. CfC did prove people will buy cars if the price is right.
- One aside. GM is running the plants that it does not expect to close at 3 shift capacity right now. And all the way through Q4. Check autonews.com. They track this statistic by the day. Go back and look at what car companies earn when they run three shifts across their systems for a quarter. Hint: It is not losses. Again, do not trust me. Go look for yourself. The bottom line: GM will, repeat WILL, post a profit in Q4.
Check the facts - they are all in easy reach. No, next year's vehicle sales will not be especially impressive. But yes, they will be higher than 2009. And they can do that with the CURRENT auto finance system (just did it, as a mater of fact) and HIGHER unemployment (as evidenced by every recession since 1974). GM is not renting cars (just do the math) and will likely post a profit sooner than expected.
There are a host of problems in this country, and ZH has a great take on most of them. But autos - not so much.
Is that you Charlie? ;-)
If GM claims a profit, it will be a govt subsidized, phony profit (and completely temporary, attributable to the gov't paying an outrageous ~$13K per additional vehicle sold beyond what would have sold anyway). Pulled forward demand doesn't increase demand at all - it just creates less demand at some point in the future! And how much does GM owe the taxpayers again?....
This time IS different when it comes to consumer purchases of expensive durables... as Denniger frequently points out when he shows the parabolic debt curve & explains the consumer is tapped. The notion that the consumer can continue to take on (and service) more & more debt while their personal wealth and income is descreasing is preposterous.
If cars are being sold to people with 650 ratings, that is just more bad debt that is highly likely to default.... that's not good for GM, or anyone.
If what you say about the sales tax is true, then the 60-day turn-in-your-keys program will be a failure... from both a volume perspective (nobody with a brain would do it unless they were going to buy a car anyway), and from a PR perspective (when the dummies start complaining about being misled).
I agree that some of the ZH posts on the auto industry are pretty superficial and also agree with a lot of the points you make. I suspect that SAAR will recover to maybe 12-13 million units in the next year or two because old cars have to be replaced at some point. However, Ford lost over $15 billion in 2006-07 when U.S. unit sales were over 16 million annually.
While unit volume could rise from current levels, I think an unfavorable mix shift is a huge issue. Virtually all auto manufacturers, but particularly the former Big 3, lived on sales of high margin vehicles. In the case of Ford, that would be loaded up F-150's, Explorers and Lincoln Navigators. I'd guess they make 5X the gross profit on one of those vehicles as they do on a base model Ford Focus. Even Toyota has this issue; they make a lot more on a Lexus than they do on a Corolla. I would bet there will be a long-term shift away from cars as status symbols, even among many people who can afford them.
There are plenty of other problems in this industry. The industry is so big in terms of employment (including suppliers) that governments tend to resist supply going away. The Economist recently reported that Europe has enough auto production capacity to produce 40% more vehicles than the demand from the 2007 sales peak, yet not one auto plant in Europe has been closed in the current downturn. The German government is preventing Opel from failing. The U.S. government prevented both GM and Chrysler from failing.
You mention the lending capacity in the U.S. auto industry. I don't know if the borrowing capability is there. The former Big 3 pulled sales forward for years with incentives and discounts that allowed people who were underwater on their trade-ins to roll the negative equity into a new vehicle with a 60 or 72 month loan. There have to be a lot of buyers who are upside on their current vehicle loans and would have to stroke big checks to trade into a new vehicle.
it's here
To prevent inflation from taking off, the Federal Reserve will need to start boosting interest rates quickly and aggressively once the economy is back on firmer footing
http://finance.yahoo.com/news/Officials-Fed-will-need-to-apf-1511169380....
Still looking for news there?
I’ve starting using a new investor news site that aggregates hundreds of investor related blogs and ranks articles based on what other investors think of them. Helps me focus on the important articles. Also has filters for particular topics like deflation, etc that you can configure to your interests. Many other features like remembering what you’ve read, etc. too. Check it out at http://bit.ly/LsGrj
CO2 is not the culprit, it is not the cause of global warming and climate change, nor is it a pollutant.
CO2 is an integral part of their strategy to control the world. Who are they? They are the Bilderbergs and the global wealthy elite human beings of the planet who's only desire is to rule the whole entire place.
There is no basis for claiming CO2 causes global warming, now referred to as climate change. There is no basis in fact or science. All your bases Bildreberg's are belong to us.
At least the Buildeberg's got a consolation prize. It's called the Internet. They wanted a controlled collectivist society? Well the got it. Here we are.
You can’t control the Internet just like you can’t control the weather.
ROFLAMO...
That is so 1990's.
I don't think you've been keeping up with current events.
http://khqqdw.bay.livefilestore.com/y1pXtKnunUNgDTNfssSuVTwJc-7Ue3PlKfj9...
http://www.youtube.com/watch?v=QkLTzesBxGE
OK.. so if someone is frugal in the biggest boom time in US history???? They are going to change their ways and become mad consumers in a uncertain world? US car sales have been at an all time high since 9-11. Why would you assume that we are in for a huge upturn now?
I would bet prior to 9-11 the average age of cars was much older than todays stats. Not to mention car prices are up, rebates are down and Leases are non existent or at least much less attractive
Thanks to Zerohedge we, contrarians, are alive!
Perhaps Ford's CEO has a Barrick batphone.
A Timmy-telly is much more valuable.
The logic of spending 30 thousand dollars or 500 per month on a new car doesn't hold up. We drive 4 used vehicles that in total cost us 12.500. The repair costs on all 4 doesn't amount to the monthly loan on one new one. I've imparted this logic to my kids you can't recover the costs on a new vehicle over the term of the loan and if it's the new car smell that appeals to you then buy it in a can and spray it in the car every once in a while. The imports are in a worst position because their cars typicaly hold up better so their scrap rates are lower in the long term they've set themselves up for lower sales by virtue of their better quality. The best example of what could happen is Cuba they've been driving the same cars siince 1955 so 9.2 million units would be the high side of the curve.
article from today's old grey lady about vehicles, specifically pickups.
take a look at Ford's pickup sales....ouch.
http://www.nytimes.com/2009/09/30/business/30truck.html?_r=1&ref=business
Check out the belated response to the Rahm anon... hehe
There is the possibility that Ford's sales may do well while GM's and other's may decline. Perhaps that's what Ford's CEO was implying...
A good friend of mine who owns one of the largest Ford dealers in New England said he doesn't know whether sales will pick up to this level, but he said it depends on three things: 1) if gas goes way up people will replace their guzzlers (for you inflationists), 2) construction needs to pick up for truck sales to pick up and 3) credit needs to remain as easy to get as it is today -- he said people are crazy to think that credit is tight. He said anyone with a pulse can get credit to buy a car or truck. The only surprising thing he said was that 96% of the credit apps he received during July and August C4C mayhem were high scores and easily approved.
well if you don't believe a random blogger maybe you will believe another auto CEO that just doubled down in the US.......
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCIadllzd_Zc
Hey Guys,
Was speaking with a co-worker whose husband works at local GM dealership. Sales Manager at today's meeting, layed out the scenario for the sales team to double commisions. Evidently they have an insurance company that will pay out on the GM cars if the vehicles are returned during the 60 days. Dealer advises that husband purchases car, on 31st day husband brings car back and is reimbursed for sales tax and any expenses as long as husband follows return rules. Then dealer is reimbursed for all expenses paid to customer and difference in value since car is now used. Then wife purchases vehicle off used car side for 30% less. Salesmen makes two commisions. Customer gets 30% discount on car. Everybody wins.
Who do these people think they are that they can get away with insurance fraud - banks?