Tuesday, June 03, 2008

GM and Ford -- Dire Straits

As I’ve stated before, the problems in our economy are many, and the issues at hand are far more than just a housing bubble losing its steam. Although housing has played a significant role in our economy for the last decade, it is just one of the many issues at play... We also have massive trade deficits, increasing cumulative debt, foreigners holding vast sums of dollars, waning confidence in those fiat dollars, soaring energy costs, skyrocketing health care costs, significant inflation, negative personal savings rates, major immigration concerns, nearly broken Social Security system, nearly bankrupt pension plan systems (PBGC), decaying moral foundation, inept leadership, out of control government spending, ignorant/completely oblivious consumers, irrational markets, etc… I could go on, but the main issue I’d like to concentrate on tonight is our faltering American Auto Industry:

I've been talking about our US Auto Industry woes since 2005, and have even posited an eventual Bankruptcy for both Ford and GM somewhere down the line. Why? Well, they have both been bleeding red ink badly and the current US consumer downturn, credit crunch and looming recession is making matters much worse.

Many of you probably don't know this, but in an act of desperation, Ford borrowed $18 Billion back in 2006, using the company as loan collateral -- the first time ever in the company's history.

GM has had it's own set of issues: GM Bankruptcy

Well, based on just released data, it certainly seems as if the situation isn't getting any better for these two -- and sky-high gas prices are making things worse:

Ford, GM See Sales Tumble in May

GM, the nation's No. 1 auto seller, said auto sales fell a greater-than-expected 30% in May to 272,363 vehicles. Truck and SUV sales dropped 39%, while car sales fell 17%.

Ford, meanwhile, said its May U.S. sales fell 15.9% to 217,377 vehicles from 258,391 the prior year. Adjusted for one extra selling day, sales dropped 19%.

GM Finally Gets it-- Admits SUVs Are a Dead-End

The company's announcement that it is embracing compact cars, shutting down four truck plants and possibly even dumping Hummer shows GM -- and, by extension, Detroit -- realizes fuel prices aren't coming down and SUVs are a dead-end. It's a fundamental change of direction for the world's largest automaker, which has for more than 10 years counted on pickups and SUVs to provide the bulk of its sales -- and profits -- while all but ceding the passenger car market to Japan and Europe.

But with gas poised to top $4 a gallon any day now, auto sales tumbling and the economy tanking, company CEO Rick Wagoner -- like his peers at Ford and Chrysler -- is scrambling to keep up with seismic changes that are coming far faster than anyone expected.

G.M. Closing 4 Truck Plants in Shift Toward Cars

With no end in sight for elevated gas prices, G.M. announced drastic cuts in production of sport utility vehicles and pickups on Tuesday and stepped up plans for smaller cars and engines.

G.M.’s chairman and chief executive, Rick Wagoner, said G.M. will cease production at four North American assembly plants that make S.U.V.’s and pickups by 2010.

And in a humbling admission that the S.U.V. era is all but over, G.M., Detroit’s leading automaker, said it was considering selling the gas-guzzling Hummer brand it once regarded as a pillar of future growth.

Ford F-Series' long reign as U.S. top-selling vehicle ends

After decades of sales domination, the Ford F-Series was outdone as the best-selling vehicle in America in May by four Japanese cars — a development that symbolizes the difficulty Ford Motor Co.’s turnaround now faces.

In May, F-Series sales plummeted 30.6%, to 42,973, as customers continued to reject trucks in favor of more affordable, fuel-efficient cars.

The F-Series decline meant the title of top-selling vehicle went to the Honda Civic, which starts at $15,010 and is rated at 29 m.p.g. in combined city-highway driving. The sporty compact car earned the purchases of 53,299 customers last month, an increase of 37.1%.

The F-Series has been the best-selling vehicle in the United States for 26 years.

Ford has drastically cut truck production and announced an incentive program to spur sales of its F-Series. Ford is offering customers the chance to purchase or lease a 2008 F-150 for the same price employees pay. Beginning today and running through June 30, Ford’s Employee Pricing Program will be available on 2008 model F-Series pickups, including the F-150, F-250 and F-350. Harley Davidson and chassis cab models are not included.

Ford Motor Credit Hurts Recovery, Independence

Ford (F) is starting to look better and better as an M&A target. The company said yesterday that it was having significant trouble at its lending unit. At Ford Credit "Delinquencies are rising on its loans -- especially those for big trucks -- and some of its borrowers owe more than their vehicles are worth," according to The Wall Street Journal.

Ford faces huge losses in it North American operation. Management had hoped for operating profits in 2009 and then backed down on that prediction. It now seems almost certain that Ford will have to cut more workers, idle more plants, and squeeze more suppliers. At some point all of that reaches a limit.

Ford may have no alternative other than to sell stock or borrow money to underwrite its prolonged recovery. The cost of debt to a company like Ford which carries a "junk" rating, will be dear.

Ford cannot support huge losses and substantial debt service forever. At some point, perhaps toward the end of this year, the Ford family, which has a large portion of the company's voting shares, will have to pick Chapter 11 or sales to a foreign buyer.


As I've stated before: unfortunately, I believe these two companies are mortally wounded & walking dead.

I think many of you will remember the old Charles E. Wilson Quote: "What's good for the country is good for General Motors, and vice versa."

How true he was. Both the company and country are now in dire straits are both are nearly bankrupt.


Anonymous said...

Oscar Wilde died in 1900 and GM started in 1908. Don't know who originally said, "what's good for GM is good the country and vice versa", but it wasn't Oscar Wilde.

Randy said...

You are correct. My Google "Quote Search" misled me. After further research, I found the statement was made by Charles E. Wilson while president of the General Motors Corporation. Wilson later became secretary of the federal Department of Defense.


Fords a better company than general motors.