Auto Sector: No free lunch

[Glenn Black]

Re: Auto Sector: No free lunch

Protectionism of home turf will always be there. The home team will always have an advantage. However, look at the market share the Detroit 3 have in their home town. If the Detroit 3 were taking care of business, and taking care of their customers, they would have been great, and picked up a little gravy overseas here & there to add to the home results. The Detroit 3 gain OK profits from overseas operations in S. America, and Europe. 12 OEM foreign car companies manufacture in USA, plus the Detroit 3. How come the Detroit 3 can't beat these 12 foreign auto manufacturers in their own home town, level playing field?

[Scott4139]

Re: Auto Sector: No free lunch

90 days? No, MNS2 terms - 45 days +/-. And no we are getting paid on time - no issue.
Scott

[Scott4139]

Re: Auto Sector: No free lunch

Take care - GM made money everywhere in the world except N.A. The problem is a local issue. GM is a leader in S.A. and China. Of course it's a mess everywhere now.
Scott

[Scott4139]

Re: Auto Sector: No free lunch

the government will not let that happen without it being somewhat managed. They know the interlinking between the suppliers. If GM is allowed to fail without a structured process, it will knock out all the automakers north and south - no debate.
Scott

[Scott4139]

Re: Auto Sector: No free lunch

simple - it's not a level playing field here in N.A. The big three have legacy costs far in excess of the others. Add $1500 profit to each car and things look a lot better immediately.
Scott

[Scott4139]

Re: Auto Sector: No free lunch

only if managed by the government, otherwise everyone is going down with them; dealers, suppliers and even the Prius.
Scott

[Glenn Black]

Re: Auto Sector: No free lunch

http://www.thetruthaboutcars.com/gm-...kroll-the-biz/

I'm glad you're getting your money. Not everybody is.

October 9, 2008 -
TTAC has secured a letter from GM’s purchasing department whereby the ailing American automaker informs its suppliers that it’s changed its payment terms. GM used to pay its indirect (i.e. non-production) suppliers “second day, second month;” roughly 35 days from receipt of goods. The new agreement stipulates payment will be made at 60 days from receipt of invoice.

While EDI can get the invoice out in minutes after shipment, people in the industry tell me it's a long, slow 60 days recently. Invoices are being questioned more, etc.

[Scott4139]

Re: Auto Sector: No free lunch

that's indirect materials - not parts on the car. Direct materials remain unchanged. We're direct so no issues (yet). I think GM knows if they miss a payment the game is up as everyone would demand wire transfer prior to loading up the trucks.

[GRG55]

Re: Auto Sector: No free lunch

And here it comes...

GM, Chrysler May Get U.S. Loans to Survive to March

Dec. 19 (Bloomberg) -- General Motors Corp. and Chrysler LLC would get U.S. loans to stay afloat until March under a Bush administration rescue plan that may be unveiled as soon as today, people familiar with the talks said.

The government could take back the money should the automakers not comply with federal restrictions as a condition of receiving the funds, said the people, who asked not to be identified because the discussions are private. The plan isn’t final and may change, the people said.

The aid is intended to help GM, the largest U.S. automaker, and No. 3 Chrysler avoid collapse because they may run out of operating funds by early next year. GM and Chrysler have said they need $14 billion to stay in business through March and are temporarily idling plants to trim expenses...

...The Treasury Department may lend to the automakers through their credit arms, GMAC LLC and Chrysler Financial, to avoid having other industrial companies line up for access to the $700 billion Troubled Asset Relief Program, the people said...

...While the option of placing Chrysler and GM into a prearranged bankruptcy has been considered, the administration decided that such a move would put Ford at a competitive disadvantage, the person said...

[Glenn Black]

Re: Auto Sector: No free lunch

http://www.morrisanderson.com/email/120208_ddooley.htm

WIM3 [Woe Is Me 3, a.k.a. Detroit 3, Big 3] dealers are failing all over the United States. At the dealer level, new car sales have dropped by 25 percent for the transplants and 70 percent for the WIM3. This grim news actually may be the one bright spot for the WIM3 because their dealer density is five times that of Toyota. At least two-thirds of WIM3 dealers need to be closed to give the survivors enough sales volume to operate profitably.
Other recent industry developments include:

• Suppliers are refusing cost-down demands and actually are successfully jamming forward price increases.
• No one is providing new lending against working capital assets tied to the WIM3, and accounts receivable (A/R) credit insurance can't be purchased. This means the financial community foresees impending WIM3 Chapter 11 filings.
• Suppliers are actually squeezing credit lines on the WIM3.

Starting in 2010, GM will be offloading its U.S. workers' and retiree healthcare issue to the UAW's managed trust, or at least so GM thought. Perhaps the UAW will be a likely bankruptcy candidate now as well

Some sound advise for the Tier I suppliers to start pushing back. The Detroit 3 are getting close to being too weak to argue.

Of course, taking any of these actions will hasten the push of the Detroit 3 over the cliff. Be careful out there.

[santafe2]

Re: Auto Sector: No free lunch

In 2006, GM had huge profits. If you dug deep into their financials, you would have found buried in the footnotes that car operations lost big time. GMAC however, made a fortune. Note that Wagoneer came up through GMAC and the financial end of GM. It wouldn't have been bad if GMAC had made the money putting people into the driver seat of GM vehicles. No, too good to be true. Where GMAC made their fortune was on home mortgages. Sound familiar? Guess why they are doing badly last year and this year? Guess why GM sold off half of GMAC? GM was junk bond rated corporate debt. They sold half of GMAC to the FIRE investors so GMAC borrowing can continue on at massive sums for low, low rates.

If the worst case comes true, exactly how will a bankruptcy court unravel all this spaghetti?

They won't. Or at least they won't in the time available. GM is bad enough as it is. Distraction of attention, loss of the excellent people who finally give up the good fight and flock off, the dead wood who burrow in deeper so they aren't spotted (if you're seen, you may lose your job), all of this will grind up the corpse of GM into hamburger. The trauma team will never be able to revive it and get it walking again, let alone running an Olympic marathon to win.

Thanks for all your industry insider follow-ups. I gained a better understanding although I'm sure glad I'm not deciding on if/how this bailout should move forward.

[santafe2]

Re: Auto Sector: No free lunch

GE is N. America's largest major appliance manufacturer. Parts & inventory have been cut to the bone. Dealers and independent applicance stores have been crying for inventory, shipping pieces to each other so they can make a sale, because GE has no inventory in warehouse. All of this to make inventory turns look impressive, as if they had implemented Lean, and to make their financials look great in preparation for the sale of the division. However, these managerial monkeyshines have cost them many sales to the competition. When Walsh was there as CEO, this crap wouldn't be tolerated. GE was the best of the best for many years, but the shine is off the apple for over 5 years now.

This is off topic and probably should be a new thread but I'll make an observation from my business that may give you a different perspective on what happened at GE. If other business people have seen "shortages" where they never existed before, we may have a thesis that sticks.

I work in the renewable energy business. We sell solar PV systems. There are two main parts to a PV system, the panel which collects energy from the sun and the inverter which changes DC electricity to AC electricity. About 6 weeks ago the largest provider of inverters ran out of their most important group of inverters. Then the #2 seller ran out and then the #3. Our first reaction was a complete WTF?!@?! But after a couple of weeks and a few phone calls we realized that the suppliers of copper, aluminum and other products were still thinking they were in the driver's seat and the manufacturers had all decided to halt production until the commodity providers caved in to the new reality.

All the inverter manufacturers have product again but prices are almost unchanged. The best case is a 1.6% discount with base product cost down 60%. I expect this to change over the next year but for now, they're keeping the profits to make up for the losses they incurred over the last 60 days. Although GE is in the renewable energy business, we don't work with them directly. I would assume they've been taking the same approach and that may explain their lack of product.

[DemonD]

Re: Auto Sector: No free lunch

Look, everyone, the bottom line is that Mr. Market is right on this one. GM is toast. Bailing them out would do nothing but prolong the inevitable, and put our country further in debt; we might as well spend 5B and send a rocket ship of 10B into a black hole in the center of our galaxy. If you think GM will survive, you can buy GM corporate bonds due in 2010 at a yield of something like 56%.

Anyone here willing to take that bet? Anyone?

Sometimes the public markets go haywire and are wrong, for example a s-ton of banks and mortgage companies in 2006, and the entire market getting stupid in october of 2007. But now? We've gotten a lot of better price discovery since then. But we're still not there, witness the fact that GM is still trading above zero.

As far as GE? They came out with a statement a few weeks ago saying they will pay their dividend through 2009 and not cut it.

Here is my take: They are completely incompetent and will be forced to cut their divvy. I don't think they would lie about that, because a statement like that would really come back to bite them, possibly even cause an investor lawsuit. But I don't believe them, they won't be paying their dividend as much, and frankly I think GE might get broken up or split up because of that financial division.

I picture GE like this: Imagine Siemens (#1 euro infrastructure company) owning washing mutual. Would you want to invest in a company like that? I certainly wouldn't! Which is why if you want to invest in large-cap infrastructure go with SI, not GE.

[GRG55]

Re: Auto Sector: No free lunch

This is off topic and probably should be a new thread but I'll make an observation from my business that may give you a different perspective on what happened at GE. If other business people have seen "shortages" where they never existed before, we may have a thesis that sticks.

I work in the renewable energy business. We sell solar PV systems. There are two main parts to a PV system, the panel which collects energy from the sun and the inverter which changes DC electricity to AC electricity. About 6 weeks ago the largest provider of inverters ran out of their most important group of inverters. Then the #2 seller ran out and then the #3. Our first reaction was a complete WTF?!@?! But after a couple of weeks and a few phone calls we realized that the suppliers of copper, aluminum and other products were still thinking they were in the driver's seat and the manufacturers had all decided to halt production until the commodity providers caved in to the new reality.

All the inverter manufacturers have product again but prices are almost unchanged. The best case is a 1.6% discount with base product cost down 60%. I expect this to change over the next year but for now, they're keeping the profits to make up for the losses they incurred over the last 60 days. Although GE is in the renewable energy business, we don't work with them directly. I would assume they've been taking the same approach and that may explain their lack of product.

I don't know anything about the household appliance industry from the inside, but can make this observation. In 1992 my wife and I did a major kitchen renovation in our old, inner-city home. As we progress the bunker we are back in the major white goods market for the first time since 1992. Imagine my surprise to discover this past week that I can purchase the current version of the same high-end refrigerator, with the same brand name, for less money today than in 1992. It has more plastic and less metal than the previous model, uses less power, and I have no idea how long it will last, but 16 years later it takes fewer working hours to earn the money to buy one.

The household appliance industry would appear to be brutally competitive at the moment. Not only is it dealing with the collapse of the US home building industry, but I see there are all sorts of major brands in the market, like Korea's LG and Samsung, that were nowhere to be seen back in 1992.

[Penguin]

Re: Auto Sector: No free lunch

Protectionism of home turf will always be there. The home team will always have an advantage. However, look at the market share the Detroit 3 have in their home town. If the Detroit 3 were taking care of business, and taking care of their customers, they would have been great, and picked up a little gravy overseas here & there to add to the home results. The Detroit 3 gain OK profits from overseas operations in S. America, and Europe. 12 OEM foreign car companies manufacture in USA, plus the Detroit 3. How come the Detroit 3 can't beat these 12 foreign auto manufacturers in their own home town, level playing field?

My point exactly: we didn't protect our home turf and other countries not in the grips of the free trade madness did.

The outcome has been terribly obvious to all of us who make things for a living. At one time I worked for the Great Yellow Father in Peoria, one of the tightest ships in America IMHO, so, yes, at one time I ~did~ make something of use to society. Take a good look at the industries that have gone, or are in the process of going, away :

Furniture: check
Textiles: check
Electronics: check
Auto industry: check
Commercial ship building: check
Commercial aviation: down to one and it outsources everything
Steel: absolutely beaten to a pulp

The backbone of American industrial might gone.

~poof~

Are we to believe that out of all of these key industries we could not find a single one where America has a comparative advantage on her own home field? Not even one?

Will