State of the US Auto Industry

   
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 Tag: State of the US Auto Industry - GM, Ford and Chrysler

"State of the US Auto Industry"

In June 2008, The Automotive Lyceum published its first article assessing the viability of the Detroit 3 carmakers.  The economic downturn coupled with the sharp rise in the cost of fuel resulted in steep declines of highly profitable light trucks and SUVs sales at these companies - placing their very future in jeopardy.

At the time it was not anticipated that a greater economic calamity was on the horizon that would accelerate the deterioration of the Detroit 3's balance sheet, and quickly place the future of GM and Chrysler into the hand of the US government by the end of the year with Ford holding on by sheer luck. 

The Automotive Lyceum has covered what can be argued as the collapse of the US automotive industry.

May 20, 2009


 May 9, 2009

  • Chrysler LLC in Chapter 11 Bankruptcy Protection – Business Case Analysis: On Thursday April 30th, 2009 Chrysler LLC filed for Chapter 11 bankruptcy protection in New York (Court filing). When all is said and done, this exercise is not about saving Chrysler but saving face for the Obama administration.  If not for the Fiat alliance, Chrysler would have to be liquidated as no other suitable suitors have stepped up to take on the company.  With the Fiat offer out there, the government has to give the appearance it is making an attempt to save jobs and protect the company's retirees.  Chrysler's situation will not change under Fiat and will likely have to close more plants especially if the current market conditions persist or remain relatively depressed.  Fiat also gives the administration a scape goat if the alliance falls a part.

April 27, 2009

  • Fiat Should Form an Alliance with GM, Not Chrysler: A GM-Fiat tie-up still holds a lot of promise.  If a deal is agreed upon with Fiat, I am more bullish on this arrangement than the Chrysler-Fiat deal.  Ultimately, I think a full fledge merger or formal alliance between GM-Fiat merger is a likely outcome when the global auto market is finally stabilized. In the end I would like to see Marchionne walk away from Chrysler and cut a deal with GM for their Saturn assets in addition to Opel.  In return GM would take a position in Fiat again.  This will give Fiat true economics of scale and GM's vast technical resources.  I just hope Marchionne wakes up and sees Chrysler is not worth the trouble. 

April 16, 2009

  • Hardball or Backdoor: Fiat CEO Willing to Walk Away From Chrysler Alliance: In an interview this week with a Canadian newspaper Globe and Mail, Fiat CEO Sergio Marchionne said he is ready to abandon plans to form a partnership with Chrysler unless the unions accept substantial labor cost reductions by the end of the month.  It appears the Canadian Autoworkers Union has been reluctant to make concession with the company.

April 15, 2009

  • Book Review: Why GM Matters by William J. HolsteinWhy GM Matters – Inside the Race to Transform an American Icon is a fair and refreshing account of the systemic changes that have been made at the company.  Moreover, the relevance of the story is that it reflects the current economic crisis that forever changed the fortunes of the company, sending Wagoner to Washington to ask for federal assistance early last winter.  Holstein even foreshadows his firing by the Obama administration a few weeks ago.

April 6, 2009

 

  • GM and Chrysler Restructuring Plans Not Viable: On March 30th President Obama’s automotive Task Force released its assessment of GM and Chrysler’s viability plans submitted to the administration last February (See Analysis of GM and Chrysler's February 17th Restructuring Plans).  In December 2008, the outgoing Bush administration set a deadline of March 31, for both GM and Chrysler to restructure and show they can be viable business entities. The five page analysis of GM and Chrysler viability plans conducted by the President’s Task Force were suspect and maybe considered naïve, however, that may have been the point.  I disagreed with how the Task Force came to their conclusion but not their conclusions - both plans do not result in viable companies.

March 22, 2009
  • Unwinding of the US Automotive Supply Base and Direct Government AidLast week the US Treasury (press release) decided to provide up to $5 billion in financing to the industry.  The aid is anticipated to cover the money the Detroit auto manufacturers owe the sector.  Suppliers will be able to use their receivables as collateral to receive loans from the Treasury. The progam is intended to provide the suppliers with bridge loans until regular production begins at the vehicle manufacturers and cash flow improves.

March 10, 2009

  • Forecast: US Auto Market May See Great Depression Like Collapse: A worst case collapse in automotive sales is presented based upon how the market performed during the Great Depression. Given where the market is today and the potential collapse of at least two US manufacturers and the supply chain, it is not entirely inconceivable.

March 6, 2009

  • "A Going Concern" – The Global Auto Industry: It is time for governments to coordinate a restructuring of the business model prior to recapitalizing the industry. For example does it really make sense for the US government of aid both GM and Chrysler and end up with two weak companies or for France to bailout both Renault and PSA? Does the market need both Opel and VW or BMW and Mercedes-Benz? Is there really a demand in the market for 10 Japanese manufacturers? Competition and free markets of course are valid arguments but not when industry operating margins in a good year are 3% to 5%. The entire industry with few exceptions was running on fumes prior to the collapse. The time is now ripe to dynamite and rebuild the global automotive landscape.

February 28, 2009

  • GM Reports Full Year 2008 Financial Results and Opel Restructuring: Some sort of major restructuring of Opel was anticipated because of the condition of the market and the fragile state of the business unit's finances. The possibility of GM shedding its stake in Opel may be long over due. For the better part of 10 years, GM has been struggling to restructure the operation with minium success. For the better part of a decade the unit has not been profitable and divesting themselves of Opel is likely the best course of action. Opel’s European sales were down 11% in 2008, but down 24% in the 4th quarter of the year.

February 20, 2009
  • Analysis of GM and Chrysler's February 17th Restructuring Plans: On late Tuesday afternoon GM and Chrysler submitted and released their viability plans to the US treasury. Both automakers plan’s called for more federal assistance amidst market conditions that have eroded further since both first presented their case back in December of last year. Also on Tuesday, GM received the $4 billion tranche that was agreed upon with the Bush Administration last December. With today’s economy as fragile as it is, there is little chance the Obama administration will step up and call in the Bush loans and push either company into bankruptcy. Each company will receive enough money to survive if not the full baseline sum requested in the latest viability plans.


February 15, 2009

  • It May Be the Right Time for GM to File for Chapter 11 Bankruptcy: This Tuesday General Motors and Chrysler will be submitting viability plans to the US Treasury Department as part of the $17.4 billion bailout agreement reached late last year. The two companies have until February 17, to restructure their labor agreements and debt or risk having the federal government call in the loans. Reuters has reported that GM specifically is considering a Chapter 11 bankruptcy reorganization.


January 22, 2009

  • Insight Into Chrysler's New Partner - Fiat Releases 2008 Results: Fiat Group also announced its 4th Quarter and year-end financial results (Press Release). It reported revenues for 2008 were up 1.5% from 58.5 billion to 59.4 billion in part to a strong performance in the first three quarters. However, for the year profits were down 16.2% from 2.05 billion to 1.72 billion (Figure 1).


January 20, 2009

  • Fiat and Chrysler Ink Partnership Agreement: Today it was announced the Italian conglomerate Fiat Group, Cerberus Capital Management and Chrysler LLC have entered into a non-binding term sheet to establish a global strategic alliance.

    Fiat will take a 35 percent stake in Chrysler initially in exchange for giving the company access to its fuel-efficient small car platforms and engines. Fiat has the option to increase its ownership up to 55%. As part of the pending agreement Fiat is not investing money into Chrysler. It is believed the deal would not violate the terms of the $4 billion loan agreement with the US Treasury. However, the government would have to agree to the partnership.


January 14, 2009


January 7, 2009

  • 2008 US Sales Summary – The Gloom to Continue in 2009: Monday, manufacturers reported US sales results for December closing out the worst year since 1991. As an industry, sales were down almost 36% for the month with total vehicles sold just less than 900,000 and overall sales for the year down 18% for a total of 13.2 million vehicles.


December 19, 2008

  • The GM and Chrysler Bailout: Approved: With GM and Chrysler in dire need of cash, President Bush announced a little after 9:00 this morning a bailout for both auto companies. The President said given the current state of the auto industry a disorderly failure was not an option given the potential fallout to the already fragile US economy.


December 18, 2008

General Motors Corp. and Chrysler LLC have reopened merger talks, as Chrysler owner Cerberus Capital Management LP has signaled its willingness to give away part of its ownership in the auto maker, say people familiar with the discussions.”


December 9, 2008


December 5, 2008


December 3, 2008

  • US Big 3 Automaker's Bailout Plans: The US Big 3 automakers, General Motors, Ford and Chrysler yesterdy released their plans in support of a request to receive Federal loans as the three companies quickly run out of operating cash. These announcements come as November sales were down 36% in the US with GM, Ford and Chrysler showing declines of 41%, 32% and 47%.


November 21, 2008

  • US Auto Industry Bailout Hearings: The US government has begun discussions on the anticipated Federal bailout of the US automotive industry. This past week the CEOs of the Big 3 US auto manufacturers and the president of the United Auto Workers union faced questions at hearings from the US Senate and House of Representative on the dire state of the industry and why a bailout in the form of loans is justified. As part of the discussions the House of Representatives released a draft version of a $25 billion Auto Rescue Bill that would provide direct loans to automakers.


November 12, 2008

  • Insolvency Near For GM and Ford Without Government Bailout: 3rd Quarter Results:This past Friday, General Motors (chart set, 8k) and Ford ( 3Q presentation) released their very troubling 3rd Quarter financial results. GM announced that it had lost $2.5 billion and Ford net loss was $129 million. All things considering the operating loss was not a complete catastrophe, however the gross cash each company was carrying as of October 31 raises a red flag. Both companied had a staggering combined negative cash flow of over $14 billion during this period.


November 6, 2008

  • US Auto Sales Collapse Again In October 2008: Looming Bailout Motives: General Motors and Ford are scheduled to release their third quarter financial results November 7th. Given the announced losses at Toyota in the US, GM and Ford must be hemorrhaging money and very close to insolvency. The US congress with a lame duck president is about to embark on a very difficult decision. Given the poor health of the economy and the need to save jobs the US auto manufacturers will likely receive a large financial bailout.

 


October 29, 2008

  • GM & Cerberus End Game: The Bailout: The past couple weeks have been interesting since it was first reported that Cerberus and GM had initiated talks about a possible GM merger with Chrysler. At the time there was speculation that Cerberus wanted in exchange for Chrysler, increased control over GMAC. Today it all came together as the Wall Street Journal reported, GM and Cerberus are seeking to have GMAC LLC become a bank holding company just as the investment banks Goldman Sachs Group and Morgan Stanley recently took similar action to avoid insolvency. So the end game appears to be a US government cash infusion for both GM and Cerberus.

 


October 16, 2008

  • The Reckoning - GM, Chrysler & Cerberus Angle to Survive the 2008 Collapse: Then this past weekend the New York Timesreported, General Motors has had high level discussions with Cerberus about a possible merger with Chrysler. Word also came out about Cerberus wanting to buy out Daimler, the Wall St. Journal reported Renault was itching to come back to the US market after a 20-year absence and Chrysler was a possible partner.The current economic conditions could very well mean significant changes in the US automotive landscap.

 


October 6, 2008


October 3, 2008

  • Black September - Auto Sale Collapse and The Pending Great Reckoning - Given the lack of consumer confidence and the rising unemployment data, I do not believe the market has found it’s nadir and 2009 yearly sales may approach a level not seen since 1991. As I write this, the US Congress is still debating the Wall Street bailout, the credit markets are frozen and there is much uncertainty over the state of the global economy. For all the reasons above, I believe the future of the US industry is bleak and the viability of specifically GM, Ford and Chrysler is put further into question because the current economic conditions will hit them the hardest.


September 9, 2008

  • It is Being Reported - GMAC May File For Bankruptcy - As recently as September 3, GMAC announced it would cut 5,000 jobs or 60% of its staff at its mortgage lending arm, Residential Capital, and shut all 200 of its GMAC Mortgage retail offices. However, the situation at GMAC may in fact be worse than I originally have suspected. Today, the website The Mortgage Lender Implode-O-Meter that has been tracking the US housing crisis is reporting that GMAC may file for bankruptcy protection as early as tomorrow.


August 8, 2008


August 4, 2008


July 18, 2008

 

Upcoming GM Product May Save the Company. An assessment of GM's near term product launches and their potential impact on the market and the company.

 

 


 July 15,2008


July 3, 2008

 



June 30, 2008
  • GM, Ford and Chrysler Near the Brink of Collapse? Personally I believe we are on the cusp of what could not be imagined a year ago; the collapse of the US auto industry, as we know it. Back in 2005 when GM began to have serious problems I did not believe bankruptcy was a serious possibility. Given the liquid credit markets at the time and available assets I believed GM could raise the capital to pull off a successful restructuring. Chrysler still had Daimler and Ford was spiraling out of control but ended up mortgaging everything including the “Blue Oval” to re-capitalize the company. What follows is my assessment of the Detroit 3 as they face an uncertain economy and the wrong product for the wrong time.


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