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What On Earth Were They Thinking at GM?
Wolf Richter www.testosteronepit.com
To save $2 billion in some distant year—at least that’s the official story—GM bought 7% of French automaker PSA Peugeot Citroën. Perhaps it hoped that the alliance would bail out its bleeding subsidiary Opel. But what GM bought into was one of the most uncompetitive automakers in one of the toughest auto markets in the world. And there is no happy end in sight.
Sales in the 27-country European Union have been on a relentless downward slope that is in its fifth year and shows no signs of abating. So far, the largest market, Germany, which accounts for over 23% of new vehicle sales in the EU, has held up, but if it rolls over too, the math will get really ugly. The graph shows new vehicle sales as measured by registrations:
The first quarter of 2012 was particularly tough ... for certain automakers, but excellent for others. After dropping sharply in January and February, sales in March remained on the same trajectory, the 6th month in a row of year-over-year declines, and the worst March in ten years. But not all countries in the EU suffered the same fate, according to the registration numbers that the European Automobile Manufacturers' Association (ACEA) reported today.
In Italy, sales plunged 26.7% and France 23.2%. In Spain, which had a tough March last year, sales were down 4.5%. Sales fell off a cliff in Portugal (-49.2%), Greece (-42.6%), and Cyprus (-35%). Tragic numbers.
For the upside, head north. In Germany, sales perked up by 3.4%, in the UK by 1.8%. And in Finland, sales jumped by an astounding 82.2%. But overall in the 27-country EU, sales declined by 7% to 1.45 million units. For the quarter, they were down 7.7%.
A similar picture is emerging among automakers: some were growing and gaining market share; others were spiraling deeper into their hole. Sales at Fiat, which ironically owns 58.5% of Chrysler and might be counting on a bailout from that direction, was the hardest-hit among European brands, with sales plunging 26.1% in March. Market share eroded from 6.9% last year to 5.5% this year. Renault sales dropped 20.6%, chopping its market share from 8.9% to 7.6%. Sales at PSA, GM’s precious investment, dove 19.4%. Its market share fell from 12.9% to 11.1%—still in second place behind VW’s 23.4%. And sales of GM’s Opel dropped 11.5%, whittling its market share down from 7.9% to 7.5%.
Among Asian brands, it was a picture of disparity: Mitsubishi -30.8%, Honda -23.7%, Toyota -2.9%, but Nissan gained 4.3%, Hyundai 13.3%, and Kia 18%. And the German automakers eked out sales gains: VW +1.3%, BMW +3.1%, and Daimler +4.3%.
After four years of sales declines, “overcapacity” is what CEOs of uncompetitive brands toss around every chance they get. The latest was Opel Chairman Karl-Friedrich Stracke in a letter to his employees. In discussing the sagging sales, he wrote, “The main reason is the enormous price pressure triggered by overcapacity in the entire auto industry and by declining markets in Europe." A prelude to closing plants and laying off workers.
Alas, PSA had already made several runs at it. In November, when CEO Philippe Varin played with the idea of layoffs, he was summoned by President Nicolas Sarkozy. Last June, internal documents surfaced that discussed closing the plant in Aulnay-sous-Bois near Paris, which employs directly and indirectly 9,000 people. On Thursday, Sarkozy met with union representatives. On Friday, he said on i-Télé that he’d do "everything to save the factory." On Saturday, he once again summoned Varin to the Élysée to discuss the fate of the plant. A week before the election, he needed to make a populist statement. But after their meeting, not a single statement emerged from either one.
GM has also hit a wall of resistance in its cost cutting efforts at Opel. Representatives for its 40,000 workers at 12 plants in eight countries have united to oppose any concessions. And GM is stuck with a contract dating from the financial crisis when it tried to get out from under Opel by shutting it down. To protect factories in Germany, Chancellor Angela Merkel brokered the sale of Opel. While the deal collapsed, the restructuring agreement survived, preventing GM from closing any plants in Germany through 2014.
Like PSA, Opel is getting hit by a double whammy: a declining market and a declining share of that declining market. While the first is out of its control, the second is self-inflicted—a combination of price, product, marketing, and other factors. Closing plants and transferring production to cheaper countries won’t reverse market share erosion, though it might reduce losses. Market share erosion, if unchecked, may lead to the death of the brand—the likely destiny for one or more brands in Europe.
But in Greece, sales will eventually rise from their abysmal levels; people do need something to drive. Or maybe not—because the job market is the ugliest ever, according to the latest Labor Survey. And within this already sobering picture is one number that knocks the breath out of hope itself. Read.... A Greek Impossibility: 2 Million Missing Jobs.
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Makes sense to me:
Opel Exec: "we'll give you a villa in Italy if you buy our company, so the American taxpayers can bail it out."
GM Exec: "Done!"
An interesting story about GM that is seldom discussed is the fact they get to write off about $48 BILLION of losses PRIOR to their bankruptcy! Most companies do not get this luxury. Once restructed, a bankrupt company cannot write off losses against gains from prior years. This was a *special* gift direct from Obama himself!
Now that GM is supposedly making money, shouldn't they feel obligated to PAY THEIR FAIR SHARE of taxes? Apparently not.
This $48 BILLION is about the same amount of revenue as "The Buffett Rule" would provide for the Treasury, but nary a word about this in the MSM.
I suppose the unions helped Obama get elected, so this is their "payback".
It all works till it doesn't.
Someone in a previous thread observed from Germany that 30% of cars sold there are to dealers. Any comment or corroboration on channel stuffing in
Germany WR?
who needs a car anymore anyways ! after this fiasco goes down we're all gonna be so damn poverty-ridden we won't be able to afford the gasoline, let alone the auto. in hyperinflation, do auto prices go up ? or, do they plummet like real estate values ? you guys here are the experts, i'm the learner.
People don't need cars. They need shoes. Shoes were a great leap forward for mankind.
Sadly, most Americans' shoes are MADE IN FUCKING CHINA!
The US isn't self-sufficient in shoes, no wonder the country is falling apart. Self-sufficient in shoes, self-sufficient in clothes, self-sufficient in computerized gadgets ... not.
Cars are a ridiculous luxury, similar to everyone owning their own little Titanic. The entire 'car' idea with its voracious demand for space, time and resources is bankruptcy in a can. Cars don't pay for themselves and a hundred years of 'not paying' leaves us all orbiting the debt drain.
What is underway is the end of the 'car' era. Europe is vulnerable because of its currency/debt structure that leaves all individual EU countries dependent upon external sources of credit -- that is, finance. Europe cannot repay because it does not earn anything, therefore it cannot borrow more: the result is Europublic cannot afford the necessities (luxuries) it has become accustomed to.
The rest of the world is right behind the EU on its way down the debt drain and for much the same reasons. Enough debt must be repaid in order to validate the 'debt' idea. Right now, nobody is able to repay anything! Including China, BTW.
A bit o' financial advice: get rid of your car while there are suckers out there who can/will pay something for it. Take the money and buy gold: how about that?!
@SteveFromVA
That is one of the more ridiculous postings I've read in a while!
Cars don't need to "pay for themselves".. They are a tool to do more in a shorter period of time than walking. Sure you can WALK to the grocery store every Effing day so you can carry back 2 bags of groceries. What's the point?!
If your attempt at an argument/posting is that people shouldn't go broke buying cars, then yes.. I agree.. The "newest" car in my household is a 2000 Honda I paid $6k cash in 2008 and it's still running at 179k miles. It's hardly breaking my bank and it still gets me from point A to B more efficently than your shoes. It's not cool, but it does it's job.
Sorry dude, people ARE going broke w/ their cars whether you like it or not.
Convenience isn't an economic good.
Like burning yr furniture in the middle of the living room to keep your house warm.
BTW: tools pay for themselves, maybe you should familiarize yourself with some. Come in handy some day real soon.
:)
Maybe car sales are falling because this generation of cars are big pieces of excrement. Do you want 95 microprocessors in your car? Do you want to drive a car that has 350 horsepower and gets 12 miles per gallon? Cars today last till the end of their warranties and then are too costly to maintain. My wife's 7 year old Toyota cost $6500 in parts last year. That was for a handful of little electronic boxes like "driver access control" and "brake system monitor." If a car company wants to sell cars then it should produce a safe, high-mileage machine that is maintainable by ordinary human beings. How about a Linux OS? How about self-diagnosis? How about not charge $900 for something that costs $12 to manufacture. I have no sympathy for the car manufacturers.
I do agree with you. That is one thing that disappoints me from Toyota. Their services and Toyota parts are really costly these days. I have been a Toyota user for few years now but when it comes to servicing and stuff, it just suprises me that I need to pay that much just to get it fixed.
I have yet to replace any parts on my 8 year old GM car and in fact only just replaced the breaks recently at 60,000 miles.
Much more likely the cost of gasoline $9 and going up. People can no longer afford the higher costs, especially since unemployment is very high and wages are declining.
Deck chairs on the Titanic. Auto industry in secular decline. Boomers will stop driving; next demographics endorse public transit and car sharing. Rising fuel cost accelerates the trend. Auto makers that don't find new business models are doomed. Government meddling and puppet management stupidity just pour gas on the fire.
"Boomers will stop driving; next demographics endorse public transit and car sharing."
I would not say that's remotely correct. The US is set up for cars. Unless you live in the Fedgetto (cities) a car is necessary to go to work, buy groceries, etc. Boomers will be buying fewer new cars because they don't have enough money saved, and interest rates are too low to live off investment income to cover living costs. Boomers will only buy new cars when they are absolutely forced to (when their clunker fails) and then they will buy the most affordable and reliable cars they can. Unfortunately "affordable" and "reliable" isn't words that GM understands. Recall that prior to the housing bubble, GM make the bulk of its income from Mortgages (GMAC, DiTech, etc). When the bubble pops, GM was naked.
Just let GM die already.
"Just let GM die already."
It already did! Then Obama and Washington bailed them out. GM is now a gov't owned company and will continue to be tax payer subisidized for the forseeable future.
LOL. True. It's a zombie. My bad. Man, after Bush, I didn't think we could have a more fascist bunch of assholes in office. I was wrong. I didn't vote for the Obomber, voted for Ron Paul & will again. The lesser of 2 evils is still evil in my book.
GM doesn't think in terms of people buying cars - their customer is the dealer.
If you think that is a little crazy and a mental disconnect from reality - you are right. But it is not the worst of their magical thinking.
Why do the hard work of running a company responsibly when many governments will line up to bail it out with money that may not exist, is not theirs or printed from thin air on the back of the tax payer.
Bingo, it's easy to take big risks when it's not your money and the govt's got your back.
OPM makes all investments look better. What are the odds that this acquisition can somehow be claimed as growth and will trigger additional compensation or bonuses?
I suppose if one assumes that all corporations, countries and leaders were independent and working for the benefit of the people that they are responsible for, then it would surely be an idiotic move for GM to buy anything, much less PSA Peugot Citreon... and that is the way that we were all taught/propagandized to look at it.
However, if one looks at it as just another tiny piece of the overarching, massively interconnected control grid; where EVERYTHING and EVERYONE involved in the controlling seats of money, business, government and media are all tied at the hip and working toward a coordinated goal ... then it is simply a moving of assets out of one pocket to another for a small and short-term reason... like letting your neighbor borrow the lawnmower.
I pointed this out before, but look at their YoY Level 3 "unobservable" Assets:
http://www.sec.gov/Archives/edgar/data/1467858/000146785812000014/gm2011...
Thank you FASB 157.
France ! The country known for fine automobiles, like the ....er.....ah....wait....uh no.....
Someone explain to me how Europearn ( and American) workers making a Chinese factory ( apple) wage is going to buy a car? You know that is where wages are headed. And, if wages don't get us there first then inflated currencies will coupled with 'go-no-where' salries. And, lets not forget the student loan debt slavery that will last 30 years, and young adults "did historically" buy up to 4 cars by the time they reached 35, but no more you can bet on that.
As for Chrystler, for gods sake Dan Quail is a major stock holder along with John Snow ( former Sec of Tres) so they personally will be just fine...thank you very much. U know Cerberus...the surley three headed dog that safe-guards the cave.
Haven't you heard of no down payment, no payroll documentation, 0% loans? Otherwise known as subprime.
Dig them Lost Planet Airmen, BTW.
Actually with fuel prices above 7 or 8 bucks a gallon these sales will in fact not recover. In fact as no less than the various states of Europe themselves collapse a kind of "capitalistic anarchy" is taking hold...something exceedingly bullish for capital creation and formation. This "euro thing" having been invented by New Yorkers has indeed been a boon for at least the corporate chieften types. Having said that it now appears to be a boon for Washington DC and the national security establishment as well. And since "the one always follows the other" I think this goes a long way towards explaining the manic rally in equities.
Thank heaven the US taxpayer will be there to bail them out.
There are no consequences for bad decisions in TBTF Fantasyland.
GM has a political problem in Germany and I suspect it wanted a political ally in France so bought into PSA. It is a lunatic deal otherwise just as the Chrysler-Fiat deal is loopy, but so was the Renault-Chrysler deal and GM is probably worried about being shut out of Europe with VW on the rampage and the second tier looking for alliances say Fiat-Chrysler with PSA to counter Renault-Nissan.
GM is in deep trouble in Europe and could be frozen out and probably wanted a French supporter inside the EU Commission
Looks like an invisible bailout via GovernmentMotors (which is broke) with american taxpayer bailout funds to help with channel stuffing= viva le france. At least GMAC(titsup)er ALLY Bank can continue stuffing more trash into the FILE 13.
I am happier without a car. I will never own another auto.
u 'n' stevie chew
What? GM shot it self in the foot again? They are the Barney Fife of Auto Companies.
They never restructured in any meaningful way. Walked the debt and handed equity to the unions (nationalization and economic redistribution, abrogating the rule of contract law) and then....
Didn't exit the bad businesses
Didn't expunge the bad brands
Makes Volts and Corvettes (Odd mix....)
Makes volts
Cannot sell Volts
Getting back into auto and home lending a la GMAC from days of yore.
They were fucked up before the Gubamint took 'em over.. and are a perfect match for one another.
It was funny at the DC autoshow months ago. They have the corvette on display, but it was locked so no one can sit in it. What a way to sell cars?
Knukles hits it dead center here. GM was utterly screwed and totally politicized long before the feds took it over. The Buick/Opel fiasco goes back to the 1970s, even earlier if you count the beginning of Kadett sales through Buick dealers in the 60s.
GM and its output were political footballs between the US govt and the govts of Mexico and the various Euro states for decades. This company has not had competent management in my lifetime, which goes way back into a different century.
Taxpayer ownership/fed control is just the final insult added to decades of injury. What were they thinking? "Thinking" is not the right word.
Shut.GM.Down.
Government Motors.
No surprise that they can't run an automaker. They are inept at anything except spending money.
On that alone, they are exceptionally skilled. Creatively Monty Hall-ish, sans budget.
Let the blaming begin as to PSA - doesn't matter.
Government touches a private business - turns it into crap. Long history of it. Never "fails".