Posts Tagged ‘Auto Industry’

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Auto Industry: Something’s Smelly At GM

July 28, 2009

Something’s Smelly At GM

IBD: 24 July 2009

Bailouts: You’re a once-mighty auto company that’s been bailed out by taxpayers, taken over by government and just posted a 22% sales drop. What’s your next move? Why, unveil a new men’s fragrance, of course!

It got little attention, but GM’s decision to launch its new fragrance line in honor of Cadillac’s 100th anniversary may go down as one of the most absurd moves by a troubled corporation ever. No doubt they kept a team of highly paid MBAs busy for months with the project, while the car end of their business was imploding faster than a black hole.

Is this what we get for our money — the $51 billion we taxpayers have ponied up to bail GM out of its self-inflicted woes?

“Cadillac, the new fragrance for men,” doesn’t seem like much to start the “New” General Motors Corp. on. Likewise, it’s never good to see that, amid all the cutbacks, GM’s lobbying budget remains virtually untouched. We guess the new “Government Motors” needs the political clout.

Disappointing? You bet. The White House created a so-called “Car Czar” to oversee the auto industry. The Big Three, we were told, had been totally irresponsible and needed the government’s help and the taxpayers’ cash.

Well, so far, not so good. Just one month after the government took a 60% stake in GM, it reported its first half sales fell 22%.

Worse, its global market share fell to 12% — down from 12.3% a year ago and 14.1% in 2005. Last year, Toyota took over from GM as the world’s largest automaker, and this year GM will lose its Hummer, Saab, Saturn and Pontiac lines, becoming even smaller.

We didn’t expect an instant turnaround. But then again, we also didn’t expect to find out that men’s cologne would be part of their new product lineup.

And no, we’re not just picking on the auto industry here.

At least one major American automaker seems to be getting its act together. Ford rejected a big government bailout. How’s it doing? It posted a $2.3 billion quarterly profit in the second quarter, confounding analysts and critics alike.

“We strengthened our balance sheet, reduced cash outflows and improved our year-over-year financial results despite sharply-lower industry volumes,” said Ford Chief Financial Officer Lewis Booth.

And it’s not as if GM has nothing going for it. Quite the contrary.

For one, GM’s newly reissued Camaro is a big hit.

Orders are literally running faster than production right now, forcing those who want a Camaro right away to pay more than the sticker price to get one.

And sales are booming — overseas. GM recently announced that its sales rose 38% in China in the first half, while setting sales records in seven Latin American countries during the same time. GM in the first half sold almost as many cars in China (814,442) as it did in the U.S. ( 947,518). Its share of Europe’s market is growing.

This underscores why GM should have been allowed to undergo a normal bankruptcy — not the politically rigged one that the government forced down all of our throats.

Today, GM might not exist, it’s true, if forced into a regular bankruptcy court. Its assets would have been sliced and diced to pay off its creditors. But those assets would live on. What automaker wouldn’t want to have the Camaro in its stable right now?

A regular bankruptcy would have given GM bondholders first call on its assets. Instead, they literally had money stolen from them.

More importantly, GM could have dumped its most onerous labor contracts with the United Auto Workers, while focusing on truly profitable cars. As it is, the UAW ended up with a major ownership stake in GM at the expense of its creditors and taxpayers.

GM exited bankruptcy on July 10. Today, what’s left after that politicized union-friendly travesty is two GMs.

One is the sickly domestic GM, which still has enormously costly labor contracts that give it roughly a $2,000 per car disadvantage when competing against the 12 foreign companies that make cars here. This GM can’t make money — especially now that government bureaucrats and union leaders are, in part, calling the shots.

Then there’s the other GM, the viable one. It posted big sales gains in foreign markets in the second half, and is the one part of GM that could not only survive, but thrive.

If GM manages to make it, it won’t be because of the taxpayer bailout. It will be because people elsewhere still want to buy its cars.

We hope GM can survive in the U.S. But we rather doubt it can with a management that thinks that perfume will cover up the stink of political meddling and the lingering bad odor of its ruinous retirement and health care costs.

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Car and Driver: David E. Davis (Ann Arbor)

July 16, 2009

David E. Davis Jr. is an automotive icon – a genius – an old friend – and a long time tenant of Hogback Officenter.  I loved the many times that I had the opportunity to talk with him.

He and his staff were our first tenants at Hogback Officenter (www.hogbackofficenter.com) our little office park here in Ann Arbor – shown below.

HogbackAerial

David came to Ann Arbor from New York City – and he loved the ‘Hogback’ name – originally a road only a quarter of a mile long – (from the name of it’s one time shape) .  He got a kick out of moving Car and Driver’s magazine from it’s New York City address on Broadway to Car and Driver’s Ann Arbor address on Hogback Road.

[After 30+ years the new parent company (Hachette Filipacchi) of the magazine moved the local offices to Eisenhower Parkway, Ann Arbor.  David would have said no ‘class’ at all.]

David founded Automobile Magazine and moved the staff and operation to another building we owned in downtown Ann Arbor – which had been for many years the famous Pretzel Bell (often called The P Bell).

I still make a point to read everything that David writes.  So we are including one of his latest articles.

Don

caranddriverCover

CLICK ARTICLE TO VIEW FULL SIZE:

DavidDavisArticle

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Foreign Car Makers Seen Passing Detroit in North America Capacity

June 24, 2009

Wall Street Journal 23 June 2009

By ANDREW GROSSMAN

The Big Three auto makers soon won’t be so big.

Even though they have been losing market share for decades, General Motors Corp., Ford Motor Co. and Chrysler Group LLC have continued to produce many more vehicles in North America than their foreign-owned rivals.

But production cuts as part of Detroit’s restructuring have put the Big Three on the verge of losing that distinction, according to a study by Grant Thornton LLP.

The auditing firm expects the Detroit car makers to cut capacity 36% from 2008 levels, to 7.5 million vehicles a year, as they work to more closely align capacity with smaller market share. It says European and Asian manufacturers will raise their capacity by a combined 23% to meet rebounding U.S. demand. That would leave them with the ability to make 8.1 million vehicles a year, surpassing the Big Three’s capacity by 2012.

The shift would mark a dramatic reversal of fortune. Until the 1980s, almost all vehicles made in North America were products of GM, Ford and Chrysler plants. Foreign rivals gained market share by importing vehicles made overseas.

But in the 1980s, first Honda Motor Co., then other Japanese car makers, started building plants in North America. Asian and European makers have built most of their North American plants in the South. If that trend continues, more suppliers will likely follow them there.

GM’s capacity use fell to 64% in 2008 from 88% in 2002, according to forecasting firm CSM Worldwide. Ford and Chrysler had similar drops. Honda’s North American capacity use was 94% in 2008. Toyota’s was 80%, CSM said.

Grant Thornton expects industrywide North American capacity use to hit 90% by 2012. That number has been closer to 75% historically. That would come in large part from a predicted 14% drop in overall capacity.

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The Next Oil Shock

May 26, 2009

The Next Oil Shock

By INVESTOR’S BUSINESS DAILY |26 May 2009

Energy Policy: A top expert tells Congress that oil will be around for a long time and high inventories and low prices are no excuse not to find more. Oil shock? How about a no-oil shock?

Be careful what you wish for, goes the old proverb. Well, as we all had hoped, energy prices have fallen — but only as part of the global decline in economic activity. This has been used as an excuse to further discourage exploration for and development of domestic oil resources. But if the economy does recover, that policy could provoke another recession.

Daniel Yergin, chairman of HIS-CERA, testified before the Joint Economic Committee of Congress last week that we have already experienced a “demand shock” with very high prices driven by rising global demand led by the economies of China and India.

We’ve also experienced what he calls a “recession shock” with flat or falling demand and low prices. But there might be another “long aftershock” in our future with high demand returning with a vengeance along with a global economic recovery, leaving those who buried their heads in the oil sands in the economic lurch.

The current recession has wiped out demand growth for the last four years. Oil prices have tumbled $100 a barrel or more from their high point. Spare production capacity is expected to be 6.5 million barrels per day through 2009. Anticipating a robust future, other countries such as China and Brazil have continued to look for oil while we continue to research . . . switch grass.

Interestingly, as Yergin notes, current spare capacity is equal to the combined total output of Iran and Venezuela — or the combined exports of Iran, Venezuela and Nigeria.

These are three of the most unstable nations on the earth, and two of them are implacably hostile to the U.S. This does not bode well for our economic and energy security.

While low prices and excess capacity sound good, they could vanish like the morning dew. The long lead times, up to a decade for a new field, needed to expand capacity and replenish supplies should compel us to drill like there’s no tomorrow — for there might not be.

Oil will continue to be a big player in our energy mix no matter how many windmills we tilt at or how many clown cars we place in front of 18-wheelers on our interstates.

“Today,” Yergin notes, “fossil fuels — oil, natural gas, and coal — supply over 80% of our total energy. Oil by itself is about 40%. That alone makes clear the importance of oil — and the evolution of the oil market — to our economy and security in the decade ahead.”

America’s oil and natural gas energy needs will grow. A study by ICF International, commissioned by the American Petroleum Institute, finds that our domestic energy resources placed off limits by Congress in ANWR, in Rocky Mountain shale and in the Outer Continental Shelf could generate more than $1.7 trillion in government revenue and create thousands of new jobs.

The irony is that in North America we have enough oil to ensure our energy and economic security. The U.S. and Canada together hold 15% of the world’s proven reserves, and that’s not even including the potential of American oil shale and Canadian oil sands — which are massive.

The current decline in demand has also sparked a decline in investment and added further justification for its deliberate policy of thwarting any expansion in domestic supply.

“As the economy picks up, spare capacity will start to erode, and the oil market could tighten again in the first half of the next decade,” Yergin said. “The result could be another adverse shock to the U.S. economy and global energy security.”

The result could be another recession where we drive to the unemployment office in our government-designed clown cars.

* -Note:  GOVERNMENT DESIGNED CLOWN CARS- Don

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Cartoon: Obama’s Fix to the Auto Industry

May 26, 2009

Obama: “That ought to dramaticlly reduce your fuel consumption and carbon emisisons.

Response: “Isn’t that the engine?”

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Cartoon: Obama vs. Wagner

March 31, 2009

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Abu Dhabi Boosts Stake in Daimler

March 25, 2009

Islamics can destroy the Western auto industry by manipulating oil prices.  Now they’re buying and owning western auto industries.  Our only weapon?  Don’t buy their product and watch how many they can sell in the Muslim world.

Don

multiple articles:

Abu Dhabi boosts stake in Daimler investment firm

DUBAI, United Arab Emirates — A company owned by the government of Abu Dhabi has pumped an additional $1.41 billion into Aabar Investment PJSC, giving the emirate majority control in the investment firm set to become Daimler AG’s biggest shareholder.

The announcement Monday came a day after Abu Dhabi-based Aabar — an investment vehicle set up by the Persian Gulf sheikdom — said it would pay nearly euro2 billion ($2.72 billion) for a 9.1 percent stake in the German automaker best known for its Mercedes-Benz brand.

Aabar differs from many of the oil-rich Persian Gulf’s sovereign wealth funds in that some of its shares are publicly traded. That arrangement is expected to continue, although the government will now have a clear controlling interest in Aabar.

In a statement Monday, Aabar said Abu Dhabi’s International Petroleum Investment Co. has finished buying 5.18 billion dirhams ($1.41 billion) in Aabar bonds that will be converted into ordinary shares.

IPIC is fully owned by the government of Abu Dhabi, the largest of the seven semiautonomous city-states comprising the UAE and holder of most of the Persian Gulf country’s vast oil wealth. Abu Dhabi is the federation’s capital.

Monday’s announcement follows a similar cash injection worth about $408 million by IPIC last month. Once the latest stock conversion is complete, IPIC will own 71 percent of Aabar, up from about 36 percent now.

Officials from Aabar and IPIC did not immediately respond to request for comment.

IPIC is chaired by Sheik Mansour Bin Zayed Al Nahyan, a prominent member of Abu Dhabi’s ruling family, which controls the United Arab Emirates presidency. He led the takeover of English football team Manchester City and joined Qatari investors in pumping billions of dollars into British bank Barclays PLC last year.

The Daimler deal appears to be Aabar’s biggest overseas investment yet.

In December, Aabar agreed to buy American International Group Inc.’s Swiss-based wealth management arm AIG Private Bank Ltd. According to its annual report, Aabar paid 307 million Swiss francs ($273 million) for the bank and assumed about 100 million Swiss francs worth of debt.

Aabar will become Daimler’s largest shareholder. The automaker’s second-largest owner is Kuwait’s primary sovereign wealth fund, which has a 6.9 percent stake.

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German groups seek Mideast cash to fend off hostile investors

By Daniel Schäfer in Frankfurt, Andrew England in Abu,Dhabi and Richard Milne in London

Financial Times | 24 Marcy 2009

Published: March 24 2009 02:00 | Last updated: March 24 2009 02:00

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German companies are looking eastwards. Daimler’s move to bring in Abu Dhabi-based Aabar Investments is seen by many as a showcase of how large German industrial groups are turning to the Middle East in search for cash, anchor investors and growth opportunities.

The global economic recession has made many German blue-chip companies, which often have a large free float, vulnerable to attacks from hostile shareholders and has spurred the need for fresh equity to bolster their balance sheets.

“There are a lot of German companies searching for anchor investors at the moment,” the head of German operations at a large investment bank said.

Some, such as the debtridden German car parts maker Schaeffler, have been desperately banging on the doors of Gulf funds and other sovereign wealth investors in Asia without being allowed in.

Gulf sovereign investment vehicles, boosted by soaring oil prices, had been particularly active until recently – most visibly with investments in ailing western banks, but also across asset classes and geographical areas.

However, the collapse in oil prices and plunge in global stock markets have resulted in a more cautious approach.

A senior official at the Qatar Investment Authority, for example, recently said it would hold off on investments over the next six months.

But one general trend that benefits both sides remains intact: the quest for value investments in companies that are technologically at the forefront and that can help Gulf countries to expand their domestic economies.

A blueprint for such deals has come from the US, where General Electric last year announced a deal with Mubadala, Abu Dhabi’s increasingly powerful investment vehicle.

Under the agreement, Mubadala bought a stake in GE and has created an €8bn ($11bn) joint venture with the company’s finance arm in the Middle East

Siemens, the German industrial conglomerate, has been talking to investors from the Middle East and Russia for a while about a similar deal that could strengthen its long-term investor base and boost its growth opportunities in the Gulf.

Peter Löscher, Siemens’ chief executive and a former GE manager, told colleagues last year that he was particularly struck by the GE deal.

“I think we could see a new paradigm. These investors don’t have to take over the company, but could acquire a portfolio of stakes in the best industrial companies,” he said.

“They have the money and a big market, so it is a double advantage.”

Similar deals to GE’s have followed. A couple of months ago, MAN, the German truck and engineering conglomerate, spun off 70 per cent of its industrial service unit to Aabar to create a joint venture in the sector.

The Daimler investment is only the latest example of such a deal, but it will not be the last.

Khadem Al-Qubaisi, Aabar’s chairman, told the Financial Times on Sunday that the investment company was interested in buying into further German companies in the near future.

“There are a few companies on the list,” Mr Al-Qubaisi said, praising German companies for their technology, management and skilled workforces.

“We want to buy value and high quality assets,” he said.

He said there was interest in a petrochemical company in Germany, but gave no further details.

Dieter Zetsche, Daimler’s chief executive, told the FT in October that it had been approached by several investors from the “east and south-east” that would like to make big investments in the company.

A Gulf-based banker added he expected the funds to be more “opportunistic,” with a focus on where they felt there was value.

He said they remained in an “enviable position,” in spite of the losses they have suffered in the market turmoil.

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Daimler deal fuels rival makers

By Emmanuelle Smith and Miles Johnson | Financial Times March 24 2009 02:00

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Shares in Daimler rose yesterday after Abu Dhabi-based Aabar Investments agreed to take a 9 per cent stake in the German luxury carmaker.

The €1.9bn deal sparked fresh speculation that other Middle Eastern investors might have their sights on European companies damaged by the downturn.

Daimler shares gained 1.4 per cent to €21.64. Elsewhere in the sector, BMW rose 2.8 per cent to €22.60 while Volkswagen rose 1 per cent to €212.24.

French carmaker Renault ‘s shares increased 3.7 per cent to €15.56. The group was upgraded by Goldman Sachs, the broker, from “sell” to “neutral”. French peer Peugeot , however, was downgraded from “neutral” to “sell” – its shares fell 2.4 per cent to €15.92.

Goldman Sachs said the valuations of western European car manufacturers made this the “best buying opportunity in 10 years” and upgraded its sector coverage to “attractive”.

“We now see light at the end of the tunnel,” the broker said in a note, adding that “car sales declines troughed in February”.

“Historically, such troughs have marked highly attractive entry points, preceding both absolute and sector-relative performance,” it said.

Edmund Shing, European equities strategist at BNP Paribas, was more circumspect. He said of the Daimler deal: “The sector will clearly benefit in the short term, but the need to reinforce balance sheets implies that carmakers anticipate conditions remaining awful.”

He added that, in spite of measures such as France’s €7.8bn state aid package, there would “nonetheless be a sharp retrenchment in consumer spending”.

In the wider market, the pan-European FTSE Euro-first 300 index rose 3 per cent to 739.52, with insurers and banks adding the most points, as they anticipated, and then digested, details of the US Treasury’s toxic asset plans. The French CAC 40 gained 2.8 per cent to 2,869.57 and the Dax was up 2.6 per cent to 4,176.37.