Chrysler Today...GM Tomorrow?



I didn't know that anyone was building and selling a 350 bhp 2.0 liter aito engine Anthony. Who is it?
As for "All of the US automakers either are now or are almost in production with GDI engines. Many of the Japanese have them already, or are about to. "
Let's take a breath and do some math. Current landed and domestic passenger auto inventory in the US is currently between five and six million units. You'd think it would be easy to nail this down but folks aren't honestly reporting their numbers these days. It's come down to what the meaning of "is" or in this case "inventory usold" is. LOL
The same sort of Voodoo is going on with actual and projected sales. The consensus number for North America seems to be between 10 and 11 million units projected for 2009, two million of those have been built and aren't showing up in inventory but if you look at reported sales figures, there are about 1.2 million floating around somewhere. BTW, I think all of this mystery is related to the grooming going on to put the proper complexion on the market by GM and Chrysler as well, to some lesser extent, by the others, and sales for the year will come in at about nine million units. A death knell, in other words.
Let's now have a look at the employment/customer side of the equation. Between now and the end of June, the US economy alone will shed another two million jobs which will bring the total reduction of the work force for 2009 in at a loss of 4.4 million or perhaps even five or six million.
I doubt, under these circumstances, that there is room for additional production beyond about two million additional vehicles to fill the balance of the demand in 2009. That future production you menioned, which BTW is most of it, will never be built.
Ford, GM, Chrysler, Toyota, Honda, Hyundai, Audi, Volkswagen, and all of the rest are going to be fighting over so few units that they will be able to pat themselves on the back if they only lose their ass in 2009. This is why I don't think either Chrysler or GM will emerge from bankruptcy. They can't present a credible plan to get them through what I believe will be a three year run of six to eight million unit years. The government won't be able to come to the American public with a three year plan. Folks won't stand for it for an instant.
So here we are, and if you entertain the notion that the North American market for passenger vehicles if dead until 2012, what you have to do is get ready for 2013, which means tossing your existing product out and focusing on what the future will look like from 2015 or so on and preparing to build those as quickly and as well as you can. Under ordinary circumstances your ten year theory is entirely plausible. Given current realities and recognizing honestly what the industry will have to work with for the next five years yields a very different result. A high tech buggy whip would have been great eight or ten years ago and IIRC, Volkswagen had the stuff you are talking about then. Five years from now the buggy whip market will be dissapearing or have largely dissapeared, and there will not be a legacy foot hold because nobody is going to buy thing ONE for the nest three or so years. Absent any momentum TDI and the rest will just die on the vine.
Like I said, what you are talking about is as likely to be promise unfilled because it was overtaken by events. Things could be worse, and they might be. A wave of modest social unrest that wasn't much in North America might unfold around the world due to the consequences of the economic downturn. That would add significantly to everyones problems.
I'll bet the Germans and Japanese see things about like this when they aren't kidding themselves and the Korean's came right out a couple months ago with a pretty similar vision. Sometimes it takes relity a while to catch up with perceptions and attitudes Anthony. Especially when things change as rapidly and significantly as they recently have. Just ask Murphy if you think I'm kidding or wrong about that.
I might be way off on the rest, but not that.
JC
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

"As for the "missing" inventory, some of it (tens of thousands of vehicles) are squirreled away on parking lots in California with no buyers in sight....with the depreciation ticking away."
No, those are easy to count, and there is a total of nearly three million of them parked all around the ports. Importers have been leasing every square inch of space they can in the Long Beach Port/Los Angeles Basin area for eight months. I've heard of similar behavior around the port at San Fransisco and that there are 50,000 cars out near Tracy somewhere. There are also a couploe of airplane grave yards here. One of them is covered bumper to bumper with unsold Beamers, another Lexus's. Mercedes was just shipping their arriving inventory to dealers for a while but they have now sropped that practice. I don't know where the Mercedes bone yard is but there is one, I saw a news report an hour ago that showed a runday full of shiny new Mercedes. Looked like the Palmdale area. I wanted to photograph the landscape from the middle of the bridge to Terminal Island last December but didn't do it.
JC
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Why not? We've seen people buying houses with no money.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Kurgan. presented by Gringioni. wrote:

Houses are (were?) supposed to increase in value. Cars don't...
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

That's one of the attitudes that got this economy into this mess. People were ignoring the fact that that only works over the very long run, as in decades. In the short run, it can go either way.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Kurgan. presented by Gringioni. wrote:

yep.
But the difference is between an appreciating asset and a depreciating asset.
Or so they tell me, anyway...
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

There are SOME cars that are worth more today, evenin real dollars, than when they were built. Very few to be sure. The reason cars depreciate? They wear out, and styles change.
Sadly, much of todays housing stock also wears out due to poor build quality (build it as cheap as possible, load it up with extras, and sell it for what you can get.)
The LAND is all that has the potential to appreciate.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
snipped-for-privacy@snyder.on.ca wrote:

Very good point!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 4 May 2009 20:55:52 -0700 (PDT), Too_Many_Tools

A whole lot more than the pile of sticks sitting on it.
Land in populated areas with a thriving, or even healthy economy, will generally appreciate. Farm land in a healthy economy will always appreciate.
Unlike houses, cars, and other man-made items, they've stopped making land. In most populous areas, they've also stopped allowing outward expansion - making "urban" land limitted in supply.
This causes land to appreciate.
A reduced demand due to declining population, poor economic climate, and loss of manufacturing and other industry, will temorarily soften the market, even for land - but not as much as it softens the demand for what is built on the land.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Tue, 5 May 2009 23:57:00 -0700 (PDT), Too_Many_Tools

True, but what is true in a thriving healthy economy is also true, to a lesser extent, today.
What holds value in good times looses less in bad times - to a point.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Missing the point here.
Homes don't always appreciate. That was the flaw in people's thinking that the financial system into such a bind. As a result the system became structured in such a way that a decline in values was going to bring the whole thing down (if not for government intervention).
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 4 May 2009 20:28:57 -0700 (PDT), "Kurgan. presented by

Way back when the mortgage thing first began to be visible I saw an interview of a woman in San Francisco on CNN (I believe). She said. "Well, I found out that what I owed the bank was more then what the house was selling for and that I could rent a place for less then my mortgage payments; so I walked away from it".
At the time I thought it was a lie.
Cheers,
Bruce in Bangkok (bruceinbangkokatgmaildotcom)
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Tue, 05 May 2009 11:53:29 +0700, Bruce in Bangkok

During the meltdown of the early eighties my Motherinlaw was a real-estate broker in Windsor. MANY of the higher-end houses in the "tonier" areas of the city were abandoned to the banks for that exact reason. People who had their mortgages half paid off walked away from houses that would not sell for even half of what was left owing on them at the time! There were houses that had $300,000 mortgages when new, with $150,000 left owing on them that could not be sold for $75.000. When you are a "one horse town" and the horse is sick, things get pretty bad pretty quick.
Elliot Lake is another example. The mines closed down and you could buy a $300,000 mansion for $35,000 and the seller or the bank would say "Thank-tou, Thank-you, Thank-you!!!!.
Dozens of mill towns had the same problem when paper mills or lumber mills closed.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 4 May 2009 20:28:57 -0700 (PDT), "Kurgan. presented by

Make that "pssibly even DESPITE government intervention.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 4 May 2009 01:42:38 -0700 (PDT), "Kurgan. presented by

And there is NO GUARANTEE house prices will go up over time.
The Boomers are retiring and downsizing, and dying. The GenXers and the Echo are a smaller number, with significantly less disposable income due to a MUCH reduced economy.(particularly the lack of high paying unskilled or semiskilled manufacturing jobs which have virtually ALL been exported). Who will be buying the 1.5 million dollar mansions? They will, by and large, be bought by those who can afford 750,000 dollar homes - for $750,000. Who will buy the 750,000 homes? Those who can afford 350,000 homes - for $350,000. The 350,000 homes will have a larger market, as many more will be able to afford 200,000 dollars, and the low end 200,000 homes will hold their value steady around 150 grand, and so on down the line. The tarpaper shack will be the only one that holds it's value, or possibly even gains. (my brother got over ten times what he paid for a shack in Saskatchewan, just 5 years after buying it) It will take a lot of good years before the demand (and ability to finance) the more expensive homes will improve to the point they regain their current, muchless 2007 values - and even longer before the low end will catch up.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

"Why not? We've seen people buying houses with no money."
They had income, that's why. New research by the Federal Reserve and Boston University of credit spreads of 900 non-financial companies from 1990-2008 predicted changes in the economy 'phenomenally' well. Based on their initial research on low to medium risk corporate bonds with more than 15 years to maturity, the researchers went back to 1973 and found the analysis still worked well. With the massive widening of corporate bond spreads last fall, the researcher's model predicts the economy will lose another 7.8 million jobs by the end of 2009, and industrial production will fall another 17%. In the spirit of optimism, let's assume this 'phenomenal' model is off by 35%, due to the extreme nature of this credit crisis. That still results in another 5.1 million lost jobs, and an 11% drop in industrial production. In that scenario, the unemployment rate climbs to near 12.5%, the underemployment rate breaches 20%, and another 500,000-750,000 foreclosures result.
The International Monetary Fund (IMF) now estimates the U.S., European, and Japanese financial sectors face losses of $4.1 trillion. Banks are confronting losses of $2.5 trillion, insurers $300 billion, and other financial institutions $1.3 trillion. To date, the banking sector has written down $1 trillion of expected losses. The IMF estimates that U.S. and European banks need to raise $875 billion in equity by next year to return to pre-crisis levels.
Over the last week a number of banks have reported first quarter earnings, which was a pleasant surprise. Citigroup said it made $1.6 billion. One of the ways Citigroup achieved this gain was booking a profit of $2.7 billion on the decline in Citi's own debt. Say what? Under accounting rules, Citi was allowed to book a one-time gain equivalent to the decline in its bonds because, in theory, it could buy back its debt cheaply and save $2.7 billion over time. Of course, Citi didn't actually do that. Even though more consumer loans went bad in the first quarter, Citi reduced its loan loss reserve from $3.4 billion in the fourth quarter to $2.1 billion in the first quarter, thereby picking up another $1.3 billion of 'earnings'. And the recent change in mark to market accounting enabled Citi to book an additional $413 million in 'profit' on impaired assets. Without theses one-time adjustments, Citi's $1.6 billion in first quarter profit becomes a $2.8 billion loss.
According to a Wall Street Journal analysis of Treasury Department data, the 19 banks that received tax payer funds made or refinanced 23% less in new loans in February versus last October. Why lend money when all you've got to do is make a few adjustments and make even more money.
Between 2000 and 2008, the major credit card companies increased the number of credit cards issued to small businesses from 5 million to 29 million. During that period, many small business owners increasingly relied on their cards to provide short term financing for their business. Spending on small business credit cards increased from $70.4 billion in 2000, to $296.3 billion, according to the Nilson Report. Over the last 15 months, business bankruptcy filings have risen faster than consumer bankruptcies, with the average charge-off rising to $11,000 from $7,000, according to Equifax, Inc. In response, the card issuers have been aggressively scaling back, and have reduced available credit lines by almost $500 billion. Just another example of how the availability of credit to the economy is evaporating, despite all the Fed's efforts.
Industrial production fell 1.5% in March, and is down 12.8% from a year ago. Capacity utilization fell to 69.3%, the lowest since records began in 1967. Excess capacity is a powerful dynamic. Companies are forced to reduce or eliminate budgeted investments in new equipment, compete for every dollar of revenue, even if it means accepting thinner profit margins, and reduce costs through job cuts. The amount of excess capacity that has been created by the depth of this economic contraction is unprecedented. What most inflation bugs and investors fail to understand is how long it will take to work off the current over hang of excess capacity. If the output gap grows from the current 7% to 10% next year, Goldman Sachs estimates it could be 2015 before all the excess capacity is used up, and that's if GDP grows 4.75% per year! Ironically, one of the reasons the economy is not likely to grow that fast is that business investment will be weaker than in prior business cycles. With so much excess capacity, businesses won't need to materially increase business investment for the next 2 or 3 years.
The economy needs to create 125,000 jobs each month, just to absorb the number of new entrants into the labor market. If job growth were to average 325,000 per month in coming years, it would still take four years to replace all the jobs lost in this recession. With so much excess labor capacity, wage growth will be weak for the next few years, which will make it harder for consumers to increase savings and spending. The combination of less credit availability, weaker business investment and consumer spending will be headwinds whenever the economy emerges from this recession.
JC
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 4 May 2009 18:15:33 -0700, "John R. Carroll"
<snip a bunch of good stuff>

----------- As usual a good insight into the actual situation.
One item on the "phantom" bank profits. I did not notice any mention of "Fair Value Accounting" [FVA] as mandated by the FASB. Its one of the better "through the looking glass" provisions. Under FVA, a company is allowed to book as a profit, the fall in value their bonds may have on the premise they could now buy these back on the cheap. For example, if the GotRocks Bank Holding Company has 100 million dollars worth of bonds outstanding, and the market price for this issue falls to 50 cents on the dollar, the GotRocks Bank Holding Company can book as a 50 million dollar profit, the 50 million dollars the bond investors just lost.
These people belong in a rubber room, not the board room.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

The Untied States is mired in the deepest cyclical contraction since at least World War II, and arguably the depression. Falling home prices led us into this crisis, and home prices are still falling. The financial crisis in 2008 has become the economic crisis in 2009, as more than 2 million jobs were lost in just the first quarter, with another 3 to 5 million likely before year end. With the unemployment rate headed over 10%, and maybe up to 12% next year, the default rate on every type of consumer credit - prime mortgages, Alt-A mortgages, Option Arm mortgages, sub-prime mortgages, home equity lines, credit cards, auto loans, student loans - is headed much higher. Commercial real estate values are plunging, and corporate default rates are set to soar. Although every bank will 'pass' the government's stress test, some banks will fail the real world stress test, and need billions more in capital. Sooner or later, the Treasury Department will likely have to go hat in hand asking for more money from Congress for some of the banks. For the first time since World War II, the global economy will contract in 2009, so there aren't many places to hide. In addition to the daunting cyclical problems challenging the economy, there are a number of significant secular issues that will make it even more difficult for a self sustaining recovery to develop in 2010. Between 1982 and 2007, the amount of Total debt grew from $1.60 to $3.53 for each $1.00 of GDP. This was made possible as the cost of money fell from 15% to 20% in 1982 to the generational lows of the last few years. As interest rates fell, consumers were able to take on more debt without their monthly payments increasing very much.
Household debt has increased from $.44 in 1982 to $.98 for each dollar of GDP in 2007. However, there is no more relief coming from lower rates, so consumers are going to have to pay for their debt from income. From the mid 1990's until 2007, most consumers had the luxury of believing that their homes and 401Ks would provide most of what they would need for their retirement. The saving rate fell from over 8% 15 years ago to near 0% in 2007. The last 18 months has convinced them they need to increase their savings. The saving rate has rebounded to near 4% in the last six months, which is one reason why the economy has been so weak. As debt levels increased over the last 25 years, GDP was boosted as consumer's bought cars, bigger homes, second homes, went on nice vacations, and basically lived the good life. However, since 1966, each dollar of additional debt has given the economy less of a boost. In 1966, $1 dollar of debt boosted GDP by $.93. But by 2007, $1 dollar of debt lifted GDP by less than $.20.
The message from these facts is fairly clear. Debt levels are high, and any increase in interest rates will impose a bigger burden on the economy and quickly stunt growth. Consumer debt is already so high and interest rates are so low that it will be difficult for consumers to add debt. This means economic growth will be far weaker than the debt induced growth of the last 25 years. As consumers increase their savings, GDP will be lowered by .70% for each 1% consumers increase their saving, since consumer spending represents almost 70% of GDP. In addition, the banking system remains crippled. Lending standards are high and are not coming down with the economy remaining weak. The need for additional capital will lower future lending by several trillion dollars, as banks work to repair their balance sheets and lower their leverage ratios from 30 to the low teens. The securitization markets provide more credit than the banking system, but they remain on life support. Credit availability will remain constrained well into 2010, which represents a headwind than will mute some of the lift from fiscal stimulus.
The diminishing boost given to GDP from each additional $1.00 of debt since 1966 strongly suggests that adding more debt will not return the economy to prosperity. I am reminded of a movie from the 1950's, 'The High and the Mighty'. It starred John Wayne and Robert Stack and was about an airline flight from Honolulu to San Francisco. During the flight, one of the engines fails, but they are past the point of no return, so they must try to make it to San Francisco. Over the last 60 years, the United States has used a combination of fiscal stimulus and monetary policy to soften each recession and spur the subsequent recovery, with a fair amount of apparent success. From 1982 until 2007, the U.S. only experienced two shallow recessions that each lasted just 8 months. This stretch of 25 years may be the best 25 years in our economic history. But much of this prosperity was bought with debt, as the ratio of debt to GDP rose from $1.60 to $3.50 for each $1.00 of GDP. Sometime in the last 25 years, we passed the point of no return.
JC
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Sun, 3 May 2009 20:52:21 -0700 (PDT), Too_Many_Tools

It the car manufacturers had their fingers in the gas supply like printer manufacturers do with ink, they'd be giving you cars for $5 and charging you $50 a gallon (or more) for gasoline.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Sun, 3 May 2009 18:14:06 -0700 (PDT), Too_Many_Tools
in

I had one thirty years ago.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Polytechforum.com is a website by engineers for engineers. It is not affiliated with any of manufacturers or vendors discussed here. All logos and trade names are the property of their respective owners.