The Carmagedonn Thread: FCA and "Consolidation"

[Jim Prower]

I think the board's completely made up of people who own the company: majority stockholders.

 

[1X83Z]

I haven't read too much into how these car companies have accumulated such massive debt so I'm going to ask a few questions.

1) Over what period did the car makers accumulate the debt?

It's not debt as much as it is simple inability to cover costs. The main problem here has been long-term concessions to unions which, over time, has built up. Ten, twenty, etc. years ago when cars were selling, automakers were all too okay with making huge concessions to unions in order to resolve potential strikes quickly. They figured they'd let the future generations deal with the ramifications of those concessions so that they wouldn't have to shut down production temporarily on successful cars, like the Tahoe. Now we're really getting a double-whammy: all those concessions have built up to the point where the automakers cannot afford to continue paying them, and meanwhile they aren't really selling any products in order to bolster their near-term future ability to pay them, mostly due to the credit crisis. GM loses $1bn monthly.

2) If they didn't make any money during the good financial times how the hell do they plan to make money over the next few years when there will still be a recession and most people will be tightening theren pockets?

The only way to do it is a massive cost cut, although it should be noted that they did make money during the good financial times, which is part of the reason that we're in this mess. Back then GM could afford to have Buick lose a million here and there because Chevrolet would pull the brands back in line. Not so anymore, but they've allowed these excess brands to continue because at the time it wasn't worth the headache to drop them.

Here's the problem they now face: they simply need to cut zillions of costs, but that is an extremely difficult proposition. Shuttering the GMC, Pontiac, and USA Buick brands is an exercise in enormous short-run costs, massive layoffs (some of which they are contractually prevented from), and eating tons of costs, like wasted marketing dollars among other manufacturing costs. Plus, you'll lose buyers and a huge dealer base. But it needs to happen, because how else will they shed all these excess costs? The other major cost-cutting thing that needs to occur (and yesterday!) is a renegotiation of union contracts. American UAW workers make tons more than Japanese-brand UAW workers, due to continuous buildup of wages thanks to unions. This absolutely needs to change for American brands to remain competitive. But, renegotiating UAW contracts is an unbelievably large step which will affect hundreds of thousands of Americans. The Democrats will do anything to prevent this from occurring, which has been holding up the auto bailout's progress.

 

[1X83Z]

My idea is a really awesome one: merge Chrysler and General Motors, and totally absorb Chrysler. Emerge with three brands: Chevrolet, Cadillac, and Jeep. Keep General Motors' Buick (China) arm. Keep only the best vehicles: Dodge Caravan/Town & Country are rebadged as Chevrolets, Ram rebadged as Silverado and the old one is killed. Chrysler 300 can stay, but as a Chevrolet-badged Toyota Avalon competitor. Jeep makes the SUVs, Chevrolet makes the cars, and Cadillac makes the luxury. Massive cost cuts will be involved here and hundreds of thousands of Americans will lose their jobs, but once again the American auto industry will be profitable.

 

[YSSMAN]

1) Over what period did the car makers accumulate the debt?

Its been a fairly progressive downward trend in just the past eight or so years. Most of the massive losses have come within the last 24-36 months.

2) If they didn't make any money during the good financial times how the hell do they plan to make money over the next few years when there will still be a recession and most people will be tightening theren pockets?

I believe they're focusing on directing sales away from SUVs toward small cars, and pushing forward with plug-in hybrids and other green technologies. Having cars people really, honestly want to buy is going to be key to driving sales, but then there is another problem... Legacy costs and the labor issues. All three are going to have to re-negotiate contracts with the UAW to lower them, which should help to increase profitability across the board.

3) Are the board of directors still being paid? If so, why?

All three of the CEOs are getting $1 salaries until the companies return to profitability, as for the boards themselves, I have no idea what those situations are.

 

[Joey D]

Even the Chinese aren't exempt:

Ssangyong says it's out of money, can't pay workers
Ssangyong, which recently attended the Paris Motor Show and showed off the C200 4-wheel-drive, is officially out of money. The company is more than $77 billion (US) in debt, and no longer has the funds to pay its employees' salaries. Ssangyong is owned by Shanghai Automotive Industries China, otherwise known as SAIC. In what could provide a cautionary tale to Volvo workers assuming Ford actually does a deal with SAIC for the Swedish brand, when Ssangyong asked SAIC for the money to pay employees, SAIC refused because Ssangyong's internal employee's union had earlier called for Chinese executives to resign. In the meantime, Ssangyong has merged operations and shut down all of its plants and the employees have planned a protest to make their feelings known.

 

[Philly]

Even if it is Ssangyong, this is rather startling. I guess we are now in a time of big automotive companies closing their doors. The question is: Who's next?

 

[Tornado]

Roewe.

 

[ROAD_DOGG33J]

Here's the Canadian bailout news

TORONTO - The Canadian and Ontario governments will provide the Canadian subsidiaries of the Detroit Three automakers with $3.29 billion in emergency loans, the prime minister said.

Prime Minister Stephen Harper said Canada's bailout plan will help keep the plants afloat while the automakers restructure business. Canada's automotive industry represents 14 percent of the country's manufacturing output.

http://www.newsday.com/news/nationworld/nation/ny-uscana215973081dec21,0,7560879.story




Jaguar Land Rover Seeking Bailout From British Government?

Pressure increased on the British *government today to rescue Jaguar Land Rover after Canada became the second G8 economy to bail out its motor industry.

Sales of new cars have abruptly dried up amid the global downturn and Jaguar Land Rover, which employs 15,000 people in Britain, has warned ministers that it will have to lay off workers in the new year if the government does not step in with financial backing.

http://www.guardian.co.uk/business/2008/dec/21/jaguar-land-rover-bailout

 

[RACECAR]

As far fetched as this may sound, I wonder if Japan's Big three will be next.

 

[Tornado]

I doubt Nissan would get any money.

 

[YSSMAN]

As far fetched as this may sound, I wonder if Japan's Big three will be next.

They're already semi-nationalized, so its hard to know for sure. But, the thing is...

Toyota had a $1.7 BN operational loss in 2008, its first in 70 years. Its so bad that Toyota isn't giving out its projections for 2009 or 2010, something they usually do.

RUH-ROH!

 

[Philly]

I think Toyota and Honda have lineups that are good enough for the marketplace for them to survive without needing money. Subaru and Mazda might do alright too. Nissan and Mitsubishi might need some help. But so far it seems that the companies needing help are specialty car makers (The British ones) and the ones who are pretty backward (GM, Chrysler).

 

[Tornado]

Toyota had a $1.7 BN operational loss in 2008, its first in 70 years. Its so bad that Toyota isn't giving out its projections for 2009 or 2010, something they usually do.

I also heard that Toyota has also killed off their ideas of spinning off the Prius into a separate brand, as well as scuttling plans to build a new factory in North America to build hybrid cars. Don't quote me on this, but I think it had something to do with Prius sales falling off the face of the Earth. I'll try and find a link to it.

 

[Joey D]

Guess hard times are not falling on supercar makers.

Lamborghini running strong with record sales and profit in 2008
The current economic conditions may be wreaking havoc on the Detroit Three, along iwth Toyota and Honda, but Lamborghini is apparently impervious to the global financial crisis. The House of the Raging Bull posted record sales and profit records for the fourth straight year and has followed through on its promise to introduce a new model every year during that time period. The company has no intentions of reducing funding for R&D, and plans to expand its global presence and dealer network throughout the next year. Here at Autoblog, we're all for Lamborghini's continued success, especially if they continue to let us drive their new models.

===

Press Release

Automobili Lamborghini S.p.A. will deliver another record year's results in 2008. Official sales figures will be communicated on the occasion of Lamborghini´s appearance at the Detroit Motor Show in January 2009.

Even as a low volume luxury car manufacturer, Automobili Lamborghini is not unaffected by the present downturn in economic activities in the wake of the global financial crisis. However, the company is in a favourable strategic position due to its identity as a luxury brand of longstanding tradition. One of its core brand values is exclusivity, which is maintained through tight management of volumes and a strict policy of maintaining a strong forward order bank. This exclusivity is of essential relevance to both dealers and customers and is pivotal for the appeal of the brand.

Lamborghini has the most attractive product line-up in the company´s 45 year history. With at least one new product launched every year, and the continued development of the dealer network to maximise market penetration, Automobili Lamborghini has produced a year on year record performance in terms of turnover, profit and volumes for the last four years, together with a rare double digit profit margin. The company´s development marks one of the most respected company turn-around programmes in the automotive and luxury industries.

Long before 2009, the company took decisive steps to address potential market volatility. Production flexibility is made possible by cooperative concepts developed with the union representatives. Besides flexible working hours, it provides the opportunity to create training and qualification programmes during work hours. There will be no layoffs, but an extension of the Christmas holiday for eight days has been confirmed.

Lamborghini will not divert from its long-term strategy. Investment into R&D will not be reduced, and there will be ongoing expansion of its brand presence on a world-wide scale, with more new products and further expansion of its dealer network. The company will continue its strategy of announcing at least one new product each year. The latest examples of this are the new Lamborghini Gallardo LP 560-4 Coupe for which deliveries commenced summer 2008, and the Gallardo LP 560-4 Spyder unveiled in November 2008 with market launch in spring 2009. Lamborghini continues its stated objectives of becoming the most profitable supersportscar manufacturer, the most attractive employer and the most attractive brand in its market.

 

[RACECAR]

^Thats rather ironic, isn't it?

 

[YSSMAN]

...as well as scuttling plans to build a new factory in North America to build hybrid cars...

They've stopped construction on the factory, which was due to open up in the Spring (?) of 2009. They still have the full intent of opening it to build the Prius, but with their cries that they are over-capacity now in some cases, it seems questionable as to what they're going to build.

I'm only laughing at them because of their silly decisions to bet so much on their truck program(s). Even GM figured out it'd have to be curtailed long before they did.

 

[Jim Prower]

They've just introduced the SUV-esque Venza, and their SUV range is at least as large, if not larger, than their car range. Somehow, though, if you've got the hottest Hybrid, the Media completely and totally forgives you

 

[Prosthetic]

Japanese cars are usually pretty cheap to maintain so people are trying to save money some are going to have the cheaper car... that might help the Japanese in the case.

 

[Tornado]

I'm only laughing at them because of their silly decisions to bet so much on their truck program(s). Even GM figured out it'd have to be curtailed long before they did.

What, you mean spending hundreds of millions of dollars on making the Tundra (and its SUV brothers) the most environmentally unfriendly vehicle in its class literally minutes before the bottom fell out of the market?

 

[niky]

What, you mean spending hundreds of millions of dollars on making the Tundra (and its SUV brothers) the most environmentally unfriendly vehicle in its class literally minutes before the bottom fell out of the market?

Don't you mean long after?

---

The Japanese makers should survive, but yes, I see it being very rough for Nissan and Mitsubishi...

 

[Small_Fryz]

^Thats rather ironic, isn't it?

The rich arnt nessisarly in any financial trouble, its only the normal everyday person who is so effected i think...

 

[Tornado]

The rich arnt nessisarly in any financial trouble, its only the normal everyday person who is so effected i think...

After all, we did hand them hundreds of billions of dollars.

 

[1X83Z]

The rich arnt nessisarly in any financial trouble, its only the normal everyday person who is so effected i think...

Do you seriously believe that?

 

[YSSMAN]

What, you mean spending hundreds of millions of dollars on making the Tundra (and its SUV brothers) the most environmentally unfriendly vehicle in its class literally minutes before the bottom fell out of the market?

There was only one other company that did it worse:

 

[Keef]

AHEM...*​

After receiving at least $4 billion dollars in low cost government loans, Chrysler, LLC thought the least it could do was thank the American people for their support. Instead of calling a press conference or writing a heart-felt letter to major newspapers, team Pentastar thought it best to take out full page ads in newspapers across America. Actually, maybe it wasn't such a good idea (not to mention several pop-up text ads). It seems there are quite a few Americans that don't like the fact that Chrysler found the need to spend hundreds of thousands of dollars taking out ads in papers when the company is struggling to remain in business. The full page ads were run in papers including the USA Today and Wall Street Journal, where the price of a full-page ad can reportedly cost up to $264,000.

Action group American Solutions calls the ads "a precise example of the fact that they do not get it" and Americans for Tax Reform likened Chrysler's ads to a polite robber that said please and thank you but still made off with the cash. It's not surprising that special interest groups would jump on the ads, but apparently some tax-paying Americans are just as displeased. A click over to Chrysler's blog shows some angry responses. There are 15 consumer responses so far, and none of them are positive. We're no ad gurus, but this didn't seem like a very good idea from the start, and it appears we're not alone.

A five year old. OMG, a five year old. A fricking five year old! I don't even need to finish that sentence because you already know how it ends! But still, I mean, a five year old could have understood how asinine this move was. While I was reading this at work I was genuinely angry. They (Chrysler, GM, Ford, or whoever) are just all wrong. All wrong. I forget how many times Chrysler has struck out now. Probably three, what with the crap cars, flying the jet to D.C., and now this, and buddy I'll tell you what, after the third strike you are out. I felt like saying that I want this company to be shut down, and now. And everyone at it who is in a decision-making position to have whatever college degree they have revoked, and their highschool diploma. I'm not even sure they should be allowed a GED--that's how unimaginably stupid they are.

But we can't do that. However, I do nominate whoever came up with this plan for a Darwin Award. It doesn't matter that this person didn't kill themselves in the process--it's just the fact that they are so monumentally stupid that they do deserve the award.











* - YSSMAN is the new mango

 

[Tornado]

I read in Motor Trend today that BMW, at the rate of cash dumping that they have now, will run out of money in 2 years.

 

[Keef]

I hear no evil coming from the BMW camp. I hear of no frivolous spending and arrogant advertisements. What I do hear is many high quality, high comfort, high style, and high performance cars. And a diesel, omg. All the companies are going to run out of money, it's no big news. But what Chrysler has done is blatantly waste it on...crap. This mishap is very elementary. I'd have predicted they'd do something like this, but I put the "thank you ad" into the "even sluts who do it for free aren't that stupid" pile. They have overcome even my pessimism and have come up with something that was unimaginable.

 

[Tornado]

I wasn't responding to your Chrysler bit. I was bringing up something different.

 

[Keef]

That's okay because I needed to get that last bit of frustration out.

Anyway, maybe BMW should stop putting so much crap that nobody needs or uses in these cars. Like 5000+ pounds of material in the X6. Does anyone really need that much mass in a car? No. The other day one pulled up next my Civic and all my change went flying out of my pocket and hit the Bimmer's driver in the face. The thing has gravity, man.

 

[YSSMAN]

I think Chrysler's intent with the ads was in fact noble, but they could have done it better by having a press conference (free news) or by posting a big thing on the internet... All, for the most part, for free.

*Note that GM and Ford haven't done stupid stuff (yet). They seem to be pretty focused on getting products out there, and letting them do the work. GM pulled all of its advertising from the Super Bowl, and I believe that Ford has backed away as a sponsor for American Idol. I'd call those fairly responsible choices. But right now, I think GM is focused on pulling off a strong showing at the Detroit/Chicago/NYC auto shows, and Ford just wants to make sure they continue with their fairly strong successes with the Fusion, F-150, Mustang and soon enough the Fiesta.

RE: BMW

Hmmm, it must depend on the market. I haven't seen a BMW or MINI add in weeks, despite having a fairly strong market around here for their products. Either way, if BMW is actually in trouble, thats not a very good sign. It seems like they still have a very strong lineup of vehicles that know their place in the market and will sell well no matter what, but I do agree with Keef, they've got a bit too much focused at the top (ie, the X3, X5 and X6) to survive the SUV exodus without being hurt.

My only suggestion to BMW? I still think they need a more affordable entry-level car. Sure, the MINI is filling out the bottom end nicely, but there are people (like me) who want a spinner on the hood and think that the 128i is still a bit too much. Can we get a four-pot model, please?