Saturday, June 28, 2008

Car Trouble

Reuters has an article about the trouble U.S. automakers will have attracting investors.

Bankers and analysts say Detroit-based automakers could still find partners for limited tie-ups but caution it could prove impossible to find a deep pocket overseas for the cash the U.S. industry could need to ride out the current downturn.

The Truth About Cars website has a running series of articles on the plight of GM, Ford and Chrysler. The overall consensus there is that Chrysler is a goner as soon as it's private-equity owner can sell/strip/close it, and GM and to a lesser extent Ford are in serious trouble, at least as they currently exist. From the Reuters article.....

"What's wrong with GM is it's too big now. GM is also deep in the red and no one would want to buy it. I can't think of ways to help it except through restructuring," said Koji Endo, a Credit Suisse analyst in Tokyo.

This agrees with what I've read elsewhere. GM has too many divisions for it's market share, and the constant juggling means no one brand can get steady sales momentum. I've read articles by analysts who think GM should kill everything but Chevrolet and Cadillac. The problem with that is dealer franchise agreements make it very expensive; killing Oldsmobile cost over $1 billion.

Ford may be in better shape because it's smaller and has taken some tough steps to turn itself around,plus it has some good small cars. That said, it also mortgaged just about everything in the process, so if things don't work out soon, it could go down fast.

Chrysler......well, as I said in a previous post, when I recently walked though a dealer lot just to browse, I didn't see anything I'd want.

That last statement is at the core of the problems all three automakers. In addition to the bad reputation they garnered over decades of shoddy quality and indifference to customers, driving those customers to Toyota,Honda and others likely never to return, they spent years living off the fat of the SUV land and neglected their car lines, so that when gas prices took off they had no fall-back plan.

It's hard to see a good ending. It's possible two of the companies could benefit from the third going under. It's also possible that the first one to go through bankruptcy (assuming one could make it; would you buy a car from them?) could emerge leaner and more competitive, causing more trouble for the others. Speaking of others, Toyota and Co. won't just stand by and wait to see what happens; making and selling cars is only going to get tougher and more expensive as new technologies get tested. It took Toyota a long time to get back the investment needed for the Prius. That kind of long-term thinking has been largely absent at GM,Ford and Chrysler, and it's not going to be easy to do now, with the bill collectors knocking at the door.

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