No matter how amazing your accomplishments, it’s always nice to try to set your goals even higher. I was pretty impressed when General Motors managed to lose $1.2 billion on its North American operations in the second quarter of this year. But yesterday GM announced it had outdone even this, losing $1.6 billion on its North American operations in the third quarter.
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For GM stockholders, this was lightened with the news that the company has reached an agreement with the United Auto Workers union that could cut health costs by $3 billion per year. How did the market react to this good-news-bad-news? The price of GM stock rose 7.5% yesterday, largely undoing the damage from the plunge that the stock experienced in the first part of this month.
If capital saw the news as overall positive, what about labor? In addition to losing benefits, GM reaffirmed its intention to eliminate 25,000 jobs. So perhaps the ongoing slide in consumer confidence may be warranted. For those of us who have worried about the short-run macroeconomic implications of developments in the auto industry, yesterday’s news adds to the concerns, even if the market has hopes that over the long run, GM can dig out of the hole it’s in right now.
What picture is emerging elsewhere in the economy? Calculated Risk, who follows housing more closely than anybody, expects the housing decline to begin shortly; here is some of his latest evidence for southern California. Macroblog sees last week’s news of 0.2% gains in retail sales in September (1.1% ex-autos) as a positive, but is worried by the 1.3% drop in industrial production. Altig also reports that the fed funds futures reflect a market expectation of 25-basis-point rate hikes at each of the next three FOMC meetings, which would leave us at 4.50% by January. Prospects for relief from that dimmed even further with today’s release of the producer price index, whose 1.9% rise in September was the fastest growth in 15 years.
Oh, and by the way, there’s a new possibility of yet another hurricane that could threaten the Gulf.
Other than that, the news is great.
GM also indicated that they were planning on selling a part of their interest in GMAC. I recall that Montgomery Ward did that, and now you ask who? Sears did that, and now they are K-Mart.
While the downgraded finance rating costs GMAC, when you sell the profitable divisions the outcome seems obvious. If they can’t live on their profits, the liquidation of assets is simply a step off of the cliff.
Bill
Oh, by the way, the people who recommend this direction are the deal hustlers on wall street. They will take a fee, and ?
Bill
Professor, the earnings announcement from American Stardard today is also concerning:
http://today.reuters.com/investing/financeArticle.aspx?type=hotStocksNews&storyID=URI:urn:newsml:reuters.com:20051018:MTFH16198_2005-10-18_16-19-16_N17248589:1
Excerpt:”I think the consumer in the United States is getting pinched due to what he or she pays for energy in the form of gasoline and soon to be understood in the form of their household utility bill,” Chairman and CEO Fred Poses said during a conference call.
…
But bath and kitchen had a global sales decrease of 2 percent to $590 million, as domestic sales fell 7 percent. American Standard’s toilets and fittings are sold at U.S. retailers such as Home Depot (HD.N: Quote, Profile, Research) and Lowe’s (LOW.N: Quote, Profile, Research).
“Consumer durables spending is obviously slowing down,” said Keith Hughes, an analyst with SunTrust Robinson Humphrey. He also said higher energy and metals costs were making it hard for American Standard to raise bath product prices.
On Wilma: Wilma doesn’t look like a GOM oil event – just bad news for Florida.
Thanks for the mention!
Best Regards.
The GM picture is actually a bit worse, though better if viewed in the long term with any appreciation for accounting adjustments and the nature of special items.
GM North America (GMNA) had an adjusted loss of $1.627 billion for the third quarter. Prior to adjust, the loss was $2.095 but the offset of $468 million in special items (Plant and Facility)trimmed the adjusted loss.
Details:
http://media.gm.com/servlet/GatewayServlet?target=http://image.emerald.gm.com/gmnews/viewmonthlyreleasedetail.do?domain=74&docid=19613
Note the page attachment, General Motors 2005 Highlights – Q3 Financial Results, or go here for the details:
http://media.gm.com/servlet/GatewayServlet?target=http://image.emerald.gm.com/newspublisher/support_file/10-17-2005/38/NR-3q05-2.rtf
GM and the Macro Outlook
General Motors amazes Jim Hamilton: Econbrowser: GM losses and other economic news: No matter how amazing your accomplishments, it’s always nice to try to set your goals even higher. I was pretty impressed when General Motors managed to lose $1.2 billi…
“Calculated Risk, who follows housing more closely than anybody, expects the housing decline to begin shortly; here is some of his latest evidence for southern California.”
Your links in this sentence are mixed up. Rotate everyone down one spot and make the last one first, I think. (Isn’t it great to know that someone follows your links)
Thanks, Brian. The third link was the one that was messed up, incorrectly pointing to CR’s general page rather than his specific post on southern Calif. Second link may have looked wrong, but it was what I intended– CR contributes a post once a week over at Angry Bear, and this is one of those. First link is intentionally yet another, slightly more general post by CR.
And yes, it’s great not only to have readers who follow the links, but who also let me know when there’s a problem!
Robert Farago at The Truth About Cars has a terrific series of columns titled GM Death Watch. RTWT
GM’s management is hopelessly inept. They build crappy cars on which they loose more than $2,000 per car and they can’t shut down production because of their union contracts. Their marketing strategy is hopeless. They need to pare down from their current 15 or so worldwide brands with their overlapping products and badge engineering. And Management is rearranging the deck chairs on the Titanic.
I think the only fair assumption is that GM will file for bankruptcy in the next year or two. this will be good news for the US economy as a whole because it will stop the bleeding. New management will get to run the viable assets, and the slack in the market will be taken up by other competitors.
Don’t spend time fretting about the demise of an “American” automobile manufacturer. The automobile business is truly global. This year Hundayi opened an assembly plant in Alabama. My Hondas were built in Ohio, but my wife’s Chrysler was built in Canada.
The GM situation is simply the process of “creative destruction”. Sadly,I’m old enough to remember the bankruptcy of Penn Central and many other railroads in 1973. At the time it seemed like the roof had fallen in (there was no insurance on pension plans at the time),but the country worked through it over time.
On a long-term macro level it would be worse for inefficient producers to stay in business. It’s painful for the employees (not just the UAW but lots of people have non-union jobs at GM too) but that’s what we have job re-training programs for. Also the U.S. economy is better than mostly all the others at absorbing employees into jobs in different industries,assuming the employee is willing to move and change jobs.
One poster made a cynical comment about GM selling a piece of GMAC,implying that greedy Wall Street capitalists just want to earn a fee. It’s true,there will be a fee but who works without compensation,maybe the poster? I’m sure the fee will be competitive,given GM’s financial clout. And I agree that selling a piece of GMAC is a bit like “stepping off the cliff” as one poster said. But GM has a responsibility to its shareholders and employees to see to it that GM is properly valued in the marketplace. Selling a chunk of GMAC will help do that,although why they’re selling a controlling piece I don’t know.
Mr. Miller
I did not suggest that anyone work without a fee, nor did I use the term greedy. However, I do object when any adviser suggests a course of action that has repeatedly been demonstrated as futile. More cash will not solve the manufacturing problems at GM.
You could seperate the two companies, giving each shareholder one share of GMAC, and one share of GM. The probable results are that the GM stock would become worthless, but the shareholders would have some value. The alternative of selling off GMAC is that the GM stock becomes worthless, and the shareholders get nothing. If corporate managment, and their advisers, have a fiduciary duty to act in the best interest of shareholders, the sale of GMAC is in violation of that interest.
The problem with a direct spin-off is that the seperate companies must be viable, and prove to be that way, in order for them to enjoy immunity from the other companies liabilities. It may be too late to accomplish a spin-off, but the sale of GMAC only accelerates the probable outcome. Thus, I conclude that the only winners in a sale are the brokers.
Bill
Wait a minute. Are you telling me that the GM dealer and Movie Guy weren’t being upfront when they told us how great the employee sales program had worked out for them, and how the drop in sales in the last month had nothing to do with GM’s lackluster entries in the car (not SUV) market?
GM’s long-term future is more, not less, bleak. Their fuel economy moves are pathetic and they show no signs of moving away from large SUVs in any real way. No, Movie Guy, I’m not impressed in the least by GM’s hybrid plans, so there’s no need to post them for a tenth time, thanks.
The news regarding the sale of a majority stake in GMAC is troubling indeed. GMAC has always provided outstanding service to GM dealers. Under new leadership my concern would be the potential loss of consistency. My opinions on GM of course are derived at a local retail level. They remain an excellent partner. Nationally when they lose market share it is devastating to the corporation. Locally for a good dealer who expends the energy to take care of a solid customer base, it has little impact. We still more than triple the sales of our local Toyota dealer. The press reports virtually non-existent sales of sport utilities. That’s about all we’ve sold during the last two weeks! My year to date sales accross all model lines are consistent with the last several years, and profitability remains. ME1K, it’s just plain wrong to assume that everyone accross the country is as absorbed with fuel economy as you are. The challenges GM faces are manufacturing costs, legacy costs, a complete inability to execute rapid change when a new market opportunity arises(ex. hybrids), and public perception. When Robert asserts that GM is building crappy cars it’s a perfect illustration. I drive, sell, pay to recondition, and repair vehicles from every major automaker every day, every month, year after year, and I can say without any reservation that GM vehicles have quality which is on par with all of them. There is a huge perception lag. I’m not here declaring that GM isn’t in serious trouble. They are. It’s just a little sad when perception of why doesn’t match reality(I know, I know, it rarely does). At some point the struggles at the manufacturer I represent will no doubt begin to affect me, perhaps I’ll end up selling Chinese imports. If that happens, the shame of it will be that there are many, many loyal GM customers who are perfectly pleased with their cars and trucks. And these people would have continued to purchase them if the Corporation could have changed more rapidly to repair it’s cost structure, meet new market demands, and realize an improved image.
“M1EK, it’s just plain wrong to assume that everyone accross the country is as absorbed with fuel economy as you are.”
I make no such assumption. But I do assume that fuel economy matters to a lot more people than GM hoped (and especially claimed) it did. And the results back me up, not you.
“There is a huge perception lag.”
Oddly enough, that perception exists across pretty much the entire spectrum of automotive reviewers, including many who (like me with my Saturn in 1992) are willing to give you guys a leg up if you actually, you know, give cars a decent effort instead of retreating to monster SUVs.
Was such lovely marriage, this of labor and management, and name me another so long lasting. One for the text books; while at the dinner table, labor demanded a raise of a certain per cent, management agreed after putting up the requisite fuss and then raised the price of their cars an exactly equivalent per cent. Oh labor, you cad, look what you’ve gone and made me do, but it is only fair that I take a part as my share.
Confused, Samuelson called the marriage a sham one of corporate welfare. Or, was it welfare for the working class? I’ve forgotten already. How was he or GM to be expected to know that nothing last forever and thirty years worth of indicators is but a blink of the eye for such as GM.
Hey you guys, quit picking on GM. We need someone who will build vehicles to occupy the slow lanes. Get that Porsche out of my Lexus lane.
Wait a minute. Are you telling me that the GM dealer and Movie Guy weren’t being upfront when they told us how great the employee sales program had worked out for them, and how the drop in sales in the last month had nothing to do with GM’s lackluster entries in the car (not SUV) market?
If anyone believes the incentive program & the current losses aren’t connected… then I’ve got swamp land they can have cheap. The minute I heard about those plans last summer I told my buddies in auto components… there will be lotsa blood reported at the end of this quarter.
Look for a similar thing to happen this X-mas in retail… It will be reported that it was a good selling season but margins will be terrible… and show up in downstream financials.
Actually ME1K if you really look at the numbers the market share slide was happening for GM way before fuel prices were really on the average consumers radar screen. Thousands upon thousands of buyers never even asked about average fuel economy for years. This is indeed changing, but only VERY recently, and it remains only one consideration in the purchase process. Storage space, head/legroom, 4wd, and towing are all still equally key consideration components. As to the automotive reviewers, they actually have been pretty positive about recent GM vehicles (Cobalt, ’06 Impala, STS), but competitive vehicles have been getting good reviews as well. And they should. As I mentioned earlier, vehicles these days are much more similar in quality than in decades past. Plus the attractiveness of the US market has resulted in a huge number of new competitors. Increased alternatives in every model line, uncompetitive cost structure, and the inability to adapt quickly(to lower production without huge cost penalties, or to bring new models to market) are the real demons that haunt GM. GM products are good, but there are tons of other good products and each gets some % of share. ME1K when you were looking at Saturns in 1992 there were approximately 38 mid size sedan choices in the US. In 2005 there are approximately 47. In an earlier post I compared SUV options which have really exploded. Each of these choices will get some market share. The problem with GM is that they have a cost structure that won’t allow any loss of share and yet by nature of increased competition, loss is assured.
Rick, you can verbiage your way around it all you want, but the Saturn was almost as good as the Civic and the Corolla; while the Cobalt is nowhere close. (This opinion is shared by every reviewer I’ve seen so far).
And the idea that this is just a continuation of your gradual decline is absurd – the sudden drop in SUV sales in particular was a stark discontinuity.
M1EK — “Wait a minute. Are you telling me that the GM dealer and Movie Guy weren’t being upfront when they told us how great the employee sales program had worked out for them, and how the drop in sales in the last month had nothing to do with GM’s lackluster entries in the car (not SUV) market?”
Come on, now. Who put up the GM financial statement links? Mr. Toyota? No, I did it.
I talked with some GM senior employees this week, and I stand by my original comments. GM did very well with its employee based incentive program. For comparison, look over at Ford. Their dealers are still sitting on plenty of 2005 inventory. As are some other manufacturers.
I have not had any of the dealer owners and sales managers that I know complain about the GM plan.
Imagine the mess that GM would have found itself in had it not pushed that 05 inventory off of its lots. It would have compounded the post Katrina problem. Dealers would have had problems pushing the older tin retailed at higher prices than comparable 06 models which have been corporately marked down on the retail stickers. It would have been a mess, and the 05 models would have been deeply discounted anyway. GM was wise to tackle its inventory problems early on. No question.
The simplest way to observe the results is to tour the lots and study the stickers. GM lots are in good shape. There are a few delays related to Katrina, but those are being worked. And gasoline prices are…falling.
By the way, if anyone needs to replace tires, now might be the time. Expect some supply problems to occur shortly.
M1EK — “GM’s long-term future is more, not less, bleak. Their fuel economy moves are pathetic and they show no signs of moving away from large SUVs in any real way. No, Movie Guy, I’m not impressed in the least by GM’s hybrid plans, so there’s no need to post them for a tenth time, thanks.”
Buddy, you’re too funny. GM fuel economy improvements exceed overall improvements that we’re presently seeing from Toyota and many other manufacturers.
Toyota has a very good vehicle in the Prius. It’s a real hybrid, an industry stand alone in its size class, but Toyota’s serious approach stops there. The other two Toyota ‘hybrids’ and announced future models are all hybrid plus models built around updated higher horsepower gasoline engines. And Toyota is definitely going crazy with its push to sell more gasoline vehicles with higher horsepower. Some of the push is over the top. 500 hp Toyota coupe? Who needs that? And the forthcoming Lexus 600 is built around the same idea. Big horsepower gains, not major fuel savings. They don’t get it. Hybrid talk, but big horsepwer push. Who are they kidding?
The Toyota hybrid plus models are not going to perform better than the GM hybrid plus models on a power-to-weight or vehicle class/engine basis for reasons that have to do with gasoline engine technologies employed by GM, not Toyota. In fact, for whatever reasons, it appears that the Toyota unibody hybrid plus SUVs (Lexus RX400h and Highlander hybrid) have real world mileage performance issues. People who shell out $4K to $8K premiums to buy hybrid versions don’t expect such vehicles to offer average mileage rates barely above identical platform gasoline only versions of the vehicles. That’s not going to work in the long run, hybrid hype or not. Hence, the deep look by EPA and Toyota’s publication of pr literature for RX400h owners which verge on picking up some product liability problems in terms of what is being recommended to the drivers. Toyota made some statements that I wouldn’t have made regarding using the brakes lightly and so on.
The other consideration is cost. GM will market its various hybrid plus models at lesser marginal cost to the owners than does Toyota/Lexus. The Saturn bump should be about $1K and the already released hybrid pickups with the stop-kill engine transmissions bumped about $1.8K I believe.
You can boo hoo GM cars, but I see two new Buicks, two new Chevrolets, and three Cadillac models that I like. Hands down, the Cadillac DTS offers better fuel economy and price than a Lexus 430. And the STS is a killer car. I haven’t driven the new Buicks, but two of them look pretty good. I believe that they will compete well in their class.
If you’re going to criticize GM SUVs, particularly the large models, take a harder look at the fuel economy performance and curb weights of the large Toyota/Lexus models. None offer fuel economy as good as the GM models in their large size class. Some of Toyota’s unibody vehicles are heavy, including some of their SUVs. Beginning with the early 2006 introductions of the Chevrolet Tahoe, GMC Yukon, and Caddy Escalade, GM starts putting comparable Toyota SUV fuel economy performance to shame. That’s without hybrid plus technology. And it’s a gain that I don’t believe Toyota can make up with its current generation engine designs. So, GM should stay ahead once the hybrid plus versions go head-to-head.
M1EK to Rick — “And the idea that this is just a continuation of your gradual decline is absurd – the sudden drop in SUV sales in particular was a stark discontinuity.”
Do you think that only GM had a drop in SUV sales? If so, you’re mistaken. Better update yourself on Toyota full size SUVs as well as the other manufacturers.
Bill-
If it’s correct that the auto manufacturing is worthless,then I would agree with you that selling a portion of GMAC to invest in a lost cause is the wrong move.
But apparently management must believe the auto company is capable of being turned around and the cash realized from the GMAC sale will help to do that. I’m not on the inside of GM so can’t second-guess them on that decision. But presumably management and the board all know what their fiduciary responsibilities are. Letting the auto company go down the tubes without making a good faith effort to fix it would certainly violate those responsibilities,imho.
“M1EK to Rick — “And the idea that this is just a continuation of your gradual decline is absurd – the sudden drop in SUV sales in particular was a stark discontinuity.”
Do you think that only GM had a drop in SUV sales? If so, you’re mistaken. Better update yourself on Toyota full size SUVs as well as the other manufacturers. ”
Duh. Everybody saw a drop in large SUV sales. The difference is that GM (and to a lesser extent Ford) rely on that segment for a far too large amount of their business to be healthy.
Movie Guy, you just don’t get it.
Toyota sells large SUVs but doesn’t try to get them special regulatory help, since they also sell small cars. Toyota, while selling to those who want large SUVs, isn’t trying to force the market the wrong way; in fact, they’re trying to pull the market the ‘right’ direction, if you believe they’re enduring losses on each Prius they sell.
So you can keep bringing up the fact that they sell large SUVs till the cows come home. I DON’T CARE. They aren’t out there torpedoing CAFE reforms like GM and Ford are. They aren’t out there talking down hybrid technology like _you_ are. They’re selling vehicles that people actually _want_ _to_ _buy_. And they’re positioning themselves to be capable of serving future demand when oil is even more expensive than it is today; while GM is fiddling while Rome burns.
ME1k
“They are selling vehicles people actually want to buy”
Toyota sales year to date: 1,714,266
I’m sure most of these people agree with you.
GM sales year to date: 3,539,442
Some of these people probably disagree with you.
Toyotas market share is indeed rising rapidly, but even in a terrible September only captured 13.4% share compared to GM 26%. GM has lost 1.3% year to date.
Toyota health care cost per vehicle: $97
GM health care cost per vehicle: $1,500
GM has cost problems, but don’t believe that no one is buying their cars. 344,797 people in September would find your comments odd as they no doubt consider themselves people and bought what they wanted.
40% of all Chevrolet Cobalt sales year to date have come from non-GM owners.
GM has cost problems, but as a dealer as long as they can keep shipping me cars, I can keep selling them. (Though probably not to you ME1K!)
Comparing GM sales to Toyota sales directly is only fair if you also mention how much profit GM makes per vehicle. Selling cars at a loss in order to grasp tightly to as much of the market share as they can possibly retain is not a strategy which bodes well for the future.
And I repeat again: the last time GM had a small car which could credibly compete, I bought it (even though by objective measures it was a bit off the leaders) – that car was the Saturn SL2, and the year was 1991.
Today’s Cobalt is way behind the Prius. Not even close.
M1EK — “They [Toyota] aren’t out there talking down hybrid technology like _you_ are.”
I believe my remarks on hybrid technology have been reasonably fair. The other side of the coin is the issue. If you mate the electric technology to improved gasoline efficiency engines, then the hybrid vehicles will offer better overall performance.
It’s some of the current owners who are complaining about the Toyota hybrid plus SUVs. Now EPA has stepped in. I just passed along the news.
I don’t have a problem with hybrid or hybrid plus vehicles if they perform well and offer a good return on the investment.
The issue among buyers is simple: Why buy a hybird plus if the fuel economy performance is only slightly better than the same vehicle in the gasoline only model? And why pay expensive premiums to do so?
As an example:
Consumer Reports — “The Highlander Hybrid and RX400h are excellent overall packages, providing an inviting blend of performance, fuel economy, comfort, and features for those who don’t mind paying extra. The 22-mpg overall for the Highlander Limited ($39,885 as tested) and 23 mpg-overall for the RX400h ($49,883 as tested) are the best Consumer Reports has measured in a midsized SUV.”
“But for drivers considering a hybrid to save money, it’s hard to build a dollars-and-cents case for either of these SUVs based on fuel-savings at the gas pump. Both vehicles cost thousands of dollars more than the conventionally-powered versions of these vehicles. It could take 10 years or more to recoup that cost through savings at the pump-assuming that you’re driving about 15,000 miles a year and that gas costs about $3 a gallon.”
Source: Doug Douglas, Consumer Reports, dlove@consumer.org, 10/3/2005 6:02:00 PM
http://releases.usnewswire.com/GetRelease.asp?id=54471
Meanwhile, GM’s new large SUVs, the 2007 Tahoe, Yukon, and Escalade vehicles (available in Jan-Mar 2006) will be providing average fuel economy over 20 mpg. Without hybrid technology.
“Meanwhile, GM’s new large SUVs, the 2007 Tahoe, Yukon, and Escalade vehicles (available in Jan-Mar 2006) will be providing average fuel economy over 20 mpg. Without hybrid technology.”
Again with the apples and oranges. GM’s “over 20 mpg” is no doubt their estimate of the ___EPA___ mileage. CR’s “22 and 23” are from their own tests, which almost always skew lower than the EPA’s.
This kind of thing makes this claim:
“I believe my remarks on hybrid technology have been reasonably fair.”
If anybody else reading is confused by all this, keep in mind that Movie Guy is focusing on the hybrids which are the least cost-effective and ignoring the ones which are the _most_, like the Prius (compared to the Camry).
worth considerably less than the bytes it’s printed on.
M1EK and others:
It’s an apples to apples comparison.
I am citing real world on the street testing average fuel economy figures for the GM Tahoe, Yukon, and Escalade. Further supported by personal remarks from GM’s Bob Lutz.
Toyota only makes one cost effective and fuel efficient hybrid vehicle. Just ONE. All other thus far disclosed future Toyota hybrids will be hybrid plus models. And thus far, their fuel economy improvements are being questioned strongly by EPA and automotive testers. Toyota’s high premium add-on costs for the hybrid plus models are also being questioned as bordering on the absurd, as illustrated by Consumer Reports comments posted above.
Honda makes one pure hybrid and the others are hybrid plus models.
Ford has a decent hybrid plus vehicle, but Toyota is trying to kill it by striping Ford of same source global hybrid technology components. This is why Ford accused Toyota of predatory practices and the matter may end up in U.S. courts.
The notion that world will be supplied with more stand alone platform designed hybrid models is nonsense, as well over 90-95% percent of available hybrid technology vehicles in the next decade will be derived from existing platforms and will be hybrid plus models. Many of which will be mated to higher horsepower gasoline engines. In Toyota’s case, perhaps all.
Hybrid plus vehicles represent the principal focus of automobile manufacturers, including Toyota. It’s a fact.
GM’s Bob Lutz: “If your prior product has already been dominant in the market, with superb quality ratings, and youve got a hugely satisfied owner body, and you come out with the next generation with fuel economy over 20 mpg, you expect to do well.”
“If youre using our Displacement on Demand technology and you carefully manage when and how often you go on four cylinders, you can do better than the EPA ratings.”
GM not considering bankruptcy filing, Wagoner says
Wednesday, October 19, 2005
http://www.detnews.com/2005/autosinsider/0510/19/gm-354620.htm
Excerpts:
“As we look at the responsibilities we have to a broad range of constituents, as we look at what we need to do to make the business successful, as we look at our businesses around the world, we think there are significant costs to bankruptcy,” Rick Wagoner said. “We don’t think it’s a good option.”
While bankruptcy would allow GM to close plants and reduce union wages in court, Wagoner said GM’s turnaround requires far more than reduced labor costs. The company is trying to cut the cost of materials and vehicle development, move away from heavy incentive spending and build more enticing cars and trucks.
Wagoner said unlike the airline industry, where some bankruptcy filings haven’t had a big affect on business, even speculating about bankruptcy hurts the auto business.
“When you’re buying a car it’s a very different thing,” Wagoner said. “It’s a massive financial commitment. You expect to own it for a long time, and (bankruptcy) is something that’s going to have an impact in the consumer’s mind.”
Wagoner wouldn’t reveal more details about the tentative [healthcare] agreement with the UAW, which he called “historic.” The agreement, which must be ratified by UAW members, would cut GM’s health care costs by $3 billion annually before taxes. The agreement also would cut GM’s liability for retiree health care by $15 billion, or 25 percent. More details are expected to be released Thursday after the UAW presents the agreement to local union leaders from around the country.
GM fast tracks factory closures
Wagoner: Company has ‘clear line of sight’ on plants’ restructuring, lopping 25,000 jobs.
Tuesday, October 18, 2005
http://www.detnews.com/2005/autosinsider/0510/20/C01-352381.htm
Excerpts:
General Motors Corp. is intensifying its push to cut 25,000 factory jobs and close several plants over the next few years.
The moves are critical to GM’s goal of running its 24 North American assembly plants at 100 percent capacity by 2008, up from 88 percent this year.
“Over the past four months, we have done a lot of detailed work on this, and have at this point a reasonably clear line of sight on our overall manufacturing restructuring plan,” GM Chairman Rick Wagoner said. “Our next steps will be to work this plan in detail with the affected unions. We are planning to announce further details on this manufacturing restructuring by the end of this year.”
Several plants are shaping up as likely targets for closure, which likely would occur after GM renegotiates its labor contract with the United Auto Workers in 2007.
According to GM, its North American plants operated at 84.8 percent capacity in the third quarter. That means GM has more excess capacity than any other automaker in North America.
According to the 2005 Harbour Report on North American automotive production, Toyota Motor Corp.’s six North American plants operated at 107 percent capacity last year.
Excluding joint-venture factories in California and Ontario, Global Insight Inc. calculates GM’s capacity utilization at 79 percent. Madden said the planned closing or idling of three GM facilities — Lansing “M,” Baltimore, Md., and Linden, N.J. — will boost that figure to about 82 percent next year, but she said much more is needed to meet GM’s goal.
“GM is woefully underutilized,” Madden said. “We’re talking about five or six plants to even get them close.”
The closings must still be negotiated with the UAW, which did not respond to requests for comment.
“Calculated Risk, who follows housing more closely than anybody” perhaps from an economic impact standpoint.
But nobody covers the housing bubble like Ben Jones at THE HOUSING BUBBLE, he is the king.
http://thehousingbubble2.blogspot.com/
And Toyota is also selling 100,000 per year (more if they could make them) of that ‘pure hybrid’, while the ‘hybrid plus’ models all put together don’t account for a quarter as much.
Your desperation is showing.
M1EK — “Your desparation is showing.”
If you mean desperation (the correct spelling), I have none. I’m not arguing for the sake of arguing. I’m trying to put some of the hybrid vehicle discussion in a real world context of what is and isn’t happening among auto manufacturers.
I haven’t knocked the Prius. But, here is my understanding of its actual production.
September 23, 2005: “Toyota sold 72,849 Prius hybrids in the first eight months of 2005. That was a 132.0 percent increase over the same period of 2004.”
It’s still clear, though, that hybrid plus vehicles represent the principal future focus of automobile manufacturers, including Toyota.
There’s nothing wrong with the concept of hybrid plus vehicles if the vehicle fuel economy performances measure up close to expectations, and addtional costs to consumers are reasonable.
Yes, 72,849 in eight months is roughly 100,000 per year. Are you just trying to mislead or did you have a point?
Toyota Prius – U.S.Sales
M1EK — “Are you just trying to mislead or did you have a point?”
Here’s the Toyota Prius sales data directly from Toyota.
Toyota Prius sales in the U.S. during calendar year 2004 were 53,991 units. Calendar year 2005 data is on target to reach or exceed 100,000 units.
Model year 2004 Prius sales appear to approximate 49,383 units (Oct 03 to Sep 04 sales), assuming full inventory sales prior to arrival of new model year inventory.
Model year 2005 Prius sales appear to approximate 99,318 units (Oct 04 to Sep 05 sales), assuming full inventory sales prior to arrival of new model year inventory.
Toyota underestimated U.S. demand with the original U.S. market build plan of 36,000 units for the 2004 Prius introduced in Fall 2003. Toyota subsequently worked its way out of a supply and production sourcing problem in Japan to satisfy demand. Toyota pushed Prius production up from 10,000 units to 15,000 units per month in support of global demand. Toyota Motor Sales, U.S.A., negotiated with Toyota global corporate to bump the supply level up to where it is now, targeted at 100,000 units. And that number may grow unless other hybrid models production and marketing cut into the Prius sales, or unless economic issues negatively affect vehicle sales.
Toyota sales data for the U.S. market from monthly Toyota sales statements at Toyota’s web site
(includes any fleet and Hawaii sales)
Jan 03 – 1,606
Feb 03 – (No info avail at Toyota web site)
Mar 03 – (No info avail at Toyota web site)
Apr 03 – 1,457
May 03 – 1,233
Jun 03 – 1,069
Jul 03 – 657
Aug 03 – 299
Sep 03 – 112
Oct 03 – 4,085 (revamped Prius model year 2004 introduction)
Nov 03 – 5,558
Dec 03 – 4,025
2003 Calendar Year-to-Date Total – 24,627 (so stated by Toyota)
Jan 04 – 2,925
Feb 04 – 3,215
Mar 04 – 3,778
Apr 04 – 3,684
May 04 – 3,962
Jun 04 – 4,219
Jul 04 – 5,230
Aug 04 – 4,393
Sep 04 – 4,309
Oct 04 – 6,123
Nov 04 – 5,866
Dec 04 – 6,287
2004 Calendar Year-to-Date Total – 53,991
Jan 05 – 5,566
Feb 05 – 7,078
Mar 05 – 10,236
Apr 05 – 11,345
May 05 – 9,461
Jun 05 – 9,622
Jul 05 – 9,691
Aug 05 – 9,850
Sep 05 – 8,193 (CYTD – 81,042)
Oct 05 – TBD
Nov 05 – TBD
Dec 05 – TBD
2005 Calendar Year-to-Date Total – TBD
Toyota North American Pressroom
http://pressroom.toyota.com/Releases?p=1&criteria=sales_result&st=kw
Here is one of the issues that I have addressed which will have an impact on ‘hybrid plus’ vehicle sales. It’s significant because of manufacturers and consumers’ investment costs and the fact that over 90 percent of future hybrid vehicle production by manufacturers is now wrapped around ‘hybrid plus’ thinking.
If auto manufacturers do not keep hybrid plus add on retail surcharge costs down to a minimum for their potential customers, they may be in trouble on the sales front.
Toyota’s Chief Engineer for Product Planning is Concerned about Toyota’s Hybrid Plus Models and Pricing
Toyota to rethink on Hybrid Plus models (‘big electrical appliance’)
By Ian Porter
Manufacturing Reporter
The Age
August 8, 2005
Toyota and its hybrid-powered Prius have grabbed the high ground in the battle for the hearts and minds of environmentally-aware motorists, but all is not well in the model’s program.
Customers are not willing to pay dearly for what Toyota chief engineer for product planning, Shigeyuki Hori describes as a “big electric appliance”.
In short, hybrid versions of many models will just be too expensive, he said.
The sophisticated-looking Prius has been earning rave reviews around the world for its economy and is often cited as the way forward for car design.
There is no doubt Toyota leads the world in hybrid design and sales, and observers believed that all Toyota needed to do to stay ahead was to offer hybrid systems in all of its models, alongside normal petrol and diesel engines.
But when Toyota started to install hybrid petrol-electric drive trains in other models, the gloss soon came off, according to Mr Hori.
“The hybrid versions of the Harrier (Lexus RX 400h) and Kluger (Highlander) sports utility vehicles in the domestic market have not worked well,” Mr Hori said recently.
He says lack of sales success could be because the hybrid system adds 20 per cent or more to the retail price of the two models, which were launched in March.
The worrying aspect for Toyota is that it is spending hundreds of millions of dollars on tooling to make a hybrid version of the next Camry.
Mr Hori said it would be difficult to reduce the cost differential if Toyota continued to make the normal engines and hybrid power units available in the same bodies.
“In an ordinary car you need an engine and transmission. In a hybrid, you also need an electric motor and batteries plus you need a control system for the engine and the motor.”
The control system was so complex, the hybrid needed five times the computing power of a normal car. “The price is driven up because you are buying a big electric appliance,” Mr Hori said. “It is very difficult to bring down the price premium from between 20 and 40 per cent.”
Mr Hori said work would continue to try making the hybrid system cheaper so it could be used in small vehicles, but he was not confident.
“It’s important the price is reasonable and there is value for the price you pay,” he said through an interpreter.
“The hybrid price can be suppressed a bit, but … you just have an ordinary car with this big thing added on.”
The answer was to make hybrid cars that had no normal equivalent, although that would saddle the company with extra development costs.
“It’s better to come up with a completely new model.”
Ian Porter travelled to Japan as a guest of Toyota.
http://www.theage.com.au/articles/2005/08/07/1123353208622.html?oneclick=true
GM’s Chairman Rick Wagoner Addresses the Success of the Employee-Discount Incentive Program Offered to Customers
7:14 p.m. ET Oct. 20, 2005
General Motors Corp. was the first of the Big Three U.S. automakers to let customers pay the employee price for vehicles in June, and the automaker’s sales shot up 41 percent that month.
In an interview with The Associated Press, GM Chairman and CEO Rick Wagoner called the employee-discount incentive “an absolute home run” and said it was GM’s most successful incentive ever in terms of the number of new customers it brought to the brand, the cost to the company versus the benefits, and the low impact on dealers’ profits.
Both Ford and Chrysler outspent GM on incentives in September, which hasn’t happened since October 2001, Casesa said.
Wagoner said employee-pricing taught GM that consumers like transparent, value-based pricing rather than incentives that can make the price difficult to figure out.
“That’s an important trend. Now we have to get our whole machine – from us down to retail – operating in the most efficient way under that mode, and it’s moving, but it’s going to take a while,” Wagoner said.
Ford and GM have dropped overall prices on vehicles and cut back incentives, and they plan to stress the vehicles’ value in advertising rather than big discounts.
http://www.msnbc.msn.com/id/9767497/
M1EK — “Movie Guy, you just don’t get it.” “Toyota sells large SUVs but…” “They aren’t out there talking down hybrid technology like _you_ are.”
Really?
In point of fact, the bold statement above is not true. Mr. Shigeyuki Hori, Toyota Chief Engineer for Product Planning, is making some of the same points that I have made regarding hybrid plus vehicles.
Toyota to rethink on Hybrid Plus models (‘big electrical appliance’)
August 8, 2005
http://www.theage.com.au/articles/2005/08/07/1123353208622.html?oneclick=true
I agree completely with Toyota’s corporate chief engineer for product planning. He is concerned about hybrid vehicle costs, designs, and sales, as he should be. It is no accident that he is skeptical of hybrid plus models. He gets it. And I get it.
Turbocharging versus Hybrid Plus – Costs, Fuel Savings, and Performance Considerations
I expect that there is a likelihood that U.S. and Asian manufacturers, if following the latest European examples, may revisit turbocharger technology as an alternate solution to reducing emissions and improving fuel economy in vehicle fleets. This approach would allow for use of smaller displacement engines achieving higher average fuel economy, while still providing the desired performances that many consumers seek.
Imagine, if you will, the possibilities of marrying the technologies of displacement on demand, variable valve timing, and small efficient turbochargers to smaller displacement engines in existing vehicle platforms. The weight, fuel, and emission savings could be substantial.
Would a turbocharging approach prove to be less expensive that existing hybrid plus vehicle technology and components? Most likely. The costly battery pack would be eliminated as an additional cost, as would the complex hybrid engine management system as discussed by Toyota’s chief engineer for product planning (see article post above). Conversely, turbocharged engines would have to be ‘harder’, meaning more durable and slightly more expensive to produce. But the turbochargers would likely be designed around minimum boost needs to offset the power losses by not using larger displacement engines. Perhaps 6 to 11 psi boost would work best, minimizing wear and tear on the engines and holding down exhaust gas temperatures to reasonable levels. Now we come to the issue of comparing added weight for the hybrid plus and turbocharger applications to existing vehicle platforms. I expect that the turbocharger application would weigh less than the hybrid components due to the application on the engines concerned. A small turbocharger and its plumbing doesn’t weigh that much. Yes, if an aluminum intercoolers is used to improve the efficiency of the turbochargers, the weight has to be factored in. But, remember, we’re talking about a small turbocharger application on a smaller displacement and lighter weight engine whereas most hybrid plus technology applications appear to be targeted to larger displacement engines in existing vehicle platforms. So, the hybrid plus approach is at a disadvantage from a weight perspective unless the hybrid technology is married to smaller displacement engines.
The European manufacturers appear to be serious about shifting to even smaller displacement engines and offsetting the move by employing efficient turbocharger technologies, as well as offering some consideration to hybrid technologies in existing platforms. The Asian manufacturers promoting hybrid plus designs appear to be focused on building higher horsepower engines in existing vehicle platforms married to hybrid plus technology. Except, of course, for Toyota’s ongoing reexamination of hybrid plus as a viable and profitable marketing effort. The American manufacturers appear to be focused on four options: (1) smaller displacement engines with hybrid plus technology applications, (2) existing displacement engines with hybrid plus technology applications, (3) offering more diesel engines in some vehicle platforms, notably trucks and SUVs, and, in the case of GM, (4) focusing additional attention on improving engine efficiencies with advanced displacement on demand and variable valve timing technologies in order to reduce emissions and improve fuel savings by ten percent or more, as well as adding hybrid plus packages to some of the vehicle platforms; improving transmission efficiencies (which is important).
Which manufacturers have a better plan for fuel savings, emissions reduction, and marketing perspectives? We will find out soon enough.
What do I recommend manufacturers consider? (1) reduce the weight of existing vehicle platforms, (2) improve gasoline engine technologies which maximize fuel and emission efficiencies, (3) improve transmission technologies to reduce power waste and offer two overdrive gears, (4) improve engine exhaust scavaging designs, (5) offer more lower displacement engines in existing vehicle platforms, (6) use turbocharger applications on smaller displacement engines in existing vehicle platforms, (7) offer hybrid plus technology in conjunction with lower displacement engines to maximize fuel and emission savings, (8) eliminate the 4-valve engine programs except in the case of high performance vehicles; 4 valve engines are popular, but highly inefficient at lower rpms; 4 valve is only a good performer in the higher rpm portion of the powerband, and (9) if hybrid technology is to be maximized, design applicable platforms from the ground up to maximize investment return, and (10) continue to reduce the slipstream drag coefficient of all future vehicles.
Good read:
Automakers look to turbochargers to help reduce emissions, maintain performance
WIM OUDE WEERNINK | Automotive News Europe
Posted Date: 10/8/05
http://www.autoweek.com/news.cms?newsId=103297
The time honored adage ‘as GM goes so goes America’ has never been more relevant and prophetic than at this present time. GM is a microcosm of everything awry with America in the global economy: unsustainable pensions, unsustainable health care, wages of production workers noncompetitive with Asian and Eastern European workers, and a debt load that is less than junk considering probable future earnings. Add in manufacturing tort lability laws and workman’s compensation in the mix. Now substitute the US federal government for GM and its expected future expected GDP growth with 350-400 lawyers trying to make a living per 100,000 US poulation compared with less than 10 percent that many for Japan and 1/10 again that many for China and the US economic macrocosm and its future is readily visble.
Expect nonlinearity of historical proportions. Gary Lammert
http://www.economicfractalist.com/
[edited by JDH for length]