Dramatic slump seen in vehicle sales

[Sean]

http://news.yahoo.com/s/nm/20051014/...s_dc&printer=1

U.S. sales of new cars and trucks at the retail level appear to have fallen off the cliff in October, led by steep declines at General Motors Corp. and Ford Motor Co., J.D. Power and Associates said on Friday. A report from the industry tracking firm's closely watched Power Information Network cited a lack of high-impact incentives from major automakers, high U.S. gasoline prices, low inventory levels and an apparent pullback by consumers after exceptionally strong sales over the summer for the dramatic slowdown. Retail new-vehicle sales were down 33 percent across the industry in the first nine days of October compared with the same period a year ago, the Power Information Network said. It said results were down at nine major automakers, but GM led the pack with a 57 percent decline followed by Ford, which saw its retail sales drop 45 percent over the first nine days of the month. The Chrysler arm of Germany's DaimlerChrysler posted a 32 percent drop over the same nine-day period compared with year-ago results. The U.S. arm of Honda Motor Co. Ltd. posted the smallest drop, with retail sales down just 8 percent, followed by Toyota Motor Corp., with sales down 14 percent. Of Japan's Big Three automakers, Nissan Motor Co. Ltd. was the worst performer in the early days of October, with retail sales down 21 percent year-over-year. "A lot could happen between now and the end of the month," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "But at this point, we're on track for an October like we haven't seen sine the early 1990s."

With Delphi filing for bankruptcy and the troubles within GM I wonder if the American auto industry will recover. What/who is to blame the most here? Gas prices, Auto-Unions, etc?

[brien]

Quote by: Sean http://news.yahoo.com/s/nm/20051014/...s_dc&printer=1 With Delphi filing for bankruptcy and the troubles within GM I wonder if the American auto industry will recover. What/who is to blame the most here? Gas prices, Auto-Unions, etc?

Economic crashes always seem to come in October. I haven't heard of anyone complaining about too much business lately but oil companies are reporting record profits.

Blame, hmmmmm. Reasons maybe, but blame? The economy is a dynamic and fluid enviornment where most every business is in some way related to the economic performance of another.

For example: Recently the price of fuel has been at record highs. When Americans have to pay more for fuel, this leaves less disposable income for let's say dining out. So the American that is on a limited budget cuts back on his weekly visit to a local restaurant. The restaurant has to lay off wait staff because there is less business due to some disposable income is being redirected to the oil companies. The restaurant orders less supplies from its suppliers which causes the suppliers to layoff some warehouse workers because there are less orders to fill. The warehouse orders less wholesale supplies and the wholesalers have to do either of two things: lower prices to induce buying or cut back on supplies. But the restaurant can't buy, even at reduced prices, if the diners aren't there. No amount of inducements can woo the diner back to the restaurant if the money the diner uses to eat there with is in his gas tank or home heating fuel tank. This is an example of higher fuel prices effect upon a service.

The same holds true for the furniture store. Buyers that have to spend more on fuel have less to spend on replacing older furniture. First the furniture store lowers prices, then they cut back on inventory, and then they layoff sales people. This ripples back to the furniture makers which ripples back to the furniture makers suppliers. First lower prices, then inventory cutbacks and finally layoffs and eventual forced closing if other markets can't be found. This is an example of higher energy prices and how they effect a product.

I think we have seen the lowering of the prices in the American auto industry already, which is a cut back on inventory, and now you are seeing the cutbacks on the materials. Next you will see the layoffs. Unlike the restaurant, the automakers cutback on inventory first and layoff workers second. When automakers cut back on materials, then the material suppliers have two options: lower the cost of supplies or layoff workers. In either case they won't be providing as much wholesale supplies for the automakers and thus will suffer a downturn in profits as well.

A quick lesson in economics shows us that there is no blame but there are reasons. The first and foremost at this point in the American economy is the price of fuel. It lessens every American's disposable income. Therefore, if the fuel prices remain high, the American economy will have to adjust accordingly. When the American on a budget drives less, it will increase supplies, and MAY lower prices. This depends upon world oil demand, not just American consumption. The American economy is so intertwined and dependent upon energy prices that any price movement in either direction will have effects upon every American who participates in the economy. It is only when the American consumes less fuel, or the price of that fuel drops to previous levels, (that would replace the redirected disposable income back from the oil companies into the consumers pocket), will the consumer regain their lost disposable income. Then maybe they will walk to the restaurant only to find it closed and out of business right next door to the furniture store's empty windows and locked doors!

[Nono]

Demand for oil in the US is so inelastic (or, put another way, the US is so oil-addicted) that, The Economist reported last month, "it would take a doubling of petrol prices to reduce American petrol consumption by just 5%".

[bishop]

delphi produces parts for all major car manufacturers, but it's largest customer is GM - and GM's sales have been horrible as of late. also, delphi was once a part of GM, so i would assume that much of delphi's business model depended on GM's ability to sell its cars. over 50% of its business comes from GM.

its next largest customer is ford, and we've all seen how they haven't been selling cars as well.

talk about putting all your eggs in one basket!


besides its pension liability ($11 billion - of which $4.5 billion is unfunded), and high labor costs (its competitors' labor costs are half delphi's), delphi seems to have a serious problem with its business model. these are legitimate factors, but not the true reason why the company failed and filed for bankruptcy.

you could blame it on oil, but you can readily see that japanese auto manufacturers, for example, have been killing the competition. why didn't delphi decide to focus more on this customer - a customer that represented the best opportunity to grow their sales?
perhaps delphi stuck with GM and ford because of the unions.. perhaps they did because of incompetent executives..

oil is the reason why american car sales are down, but it is not the real reason why delphi went under. delphi stuck with a seriously flawed business model, that's why they filed for bankruptcy. they've been losing money for over a year and a half now and never decided to change their strategy whatsoever. business is all about being able to adapt - or you die.

[Allas]

Quote by: bishop you could blame it on oil, but you can readily see that japanese auto manufacturers, for example, have been killing the competition. why didn't delphi decide to focus more on this customer - a customer that represented the best opportunity to grow their sales? perhaps delphi stuck with GM and ford because of the unions.. perhaps they did because of incompetent executives..

So, anyone up for starting a pool as to when there will be imposed limits on the amount of foreign cars allowed into the country for sale? :rolleyes:

[bishop]

it's not as easy as that.. foreign automakers have been building lots of plants here - employing americans while american manufacturers are laying them off.

and besides that.. it's just not gonna happen. consumers don't want shitty american-made gas guzzlers.. they want fuel efficient and high-quality cars - especially the kind that have very low rates of depreciation.

[RickSp]

The American demand for transportation is largely inelastic. Relatively few people will be able to switch to bicycles or hop on mass transist if they are not doing so already. This is not to say that demand for oil is inelastic. If Americans buy more fuel efficient cars real savings can be achieved. Of course, the first sign that Americans may be wising up has got to be a drop in the sale of US gas guzzlers.

GM and Ford are their own worst enemies. They build cars that in general are not as good as those built by the Japanese and now even the Koreans. Both GM and Ford have huge legacy costs averaging $2,000 - $3,000 per car which their competitors do not have. Delphi was forced into bankruptcy at least in part due to high legacy costs. The auto company labor agreements help make them uncompetive in cost just as their own bureaucratic management has made their product lines uncompetive in features and quality.

The big auto management and labor unions deserve each other. If they don't change they may end up like the python that tried to eat the alligator - both will end up dead. Ultimately they need each other and if they cannot start making big changes fast, both will lose.

I currently drive a Chrysler mini-van. When we replace it, I expect to buy a Toyota because their cars are just better. And in all likelihood, the car will be built at least in part by American workers and assembled in a US plant.

[bishop]

i don't know this for certain, but i have a good reason to believe that delphi (and ford/gm) buy a good amount of their steel from u.s. producers - who are also noncompetitive.. my reason for assuming that is because all of these unions tend to force their companies into supporting other union-dominated industries.

[Allas]

Does anyone have any idea why the US automotor giants are so reluctant to buy fuel efficiant cars? I understand that they have a long standing tradition with muscle cars, etc. but what company in its right mind would piledrive itself into bankruptcy for the sake of preserving some half-forgotten legacy?

Speaking from personal experience, i will say that Fords are more common than any single Asian brand in Denmark at least. This is probably due to 2 facts, one being that ford cars are pretty much German, and the second being that buying an Asian car means very high maintenance due the absurdly high price of spare parts and service. But Asian cars are gaining though, and its no wonder with european cars mounting in price (bmw, mercedes, audi, volvo. etc.) and american cars falling so far behind.
Ford is the only American brand you see really - youre more likely to spot a Ferrari than a Mustang on the streets of Copenhagen.
Then again, Denmark is probably the most ass-backwards country in the world in regards to car purchase. Literally 50% of what you end up paying for the car is VAT and other taxes - but im ranting now.

[bishop]

they just assumed that gas prices wouldn't rise like they have.. hence the reason why they kept pumping out bigger and badder suv's.. they bet the bank on cheap oil and they lost. honda/toyota focused on increased quality and efficiency instead.. just a difference of short-term planning vs. long-term vision.

[RickSp]

Quote by: bishop i don't know this for certain, but i have a good reason to believe that delphi (and ford/gm) buy a good amount of their steel from u.s. producers - who are also noncompetitive.. my reason for assuming that is because all of these unions tend to force their companies into supporting other union-dominated industries.

I think you may be referring to the dramatic run up in steel prices which has hurt US automakers and parts companies because of their already vulnerable cost structures. Steel costs worldwide rose 25% or so this year, primarily due to demand from China.

Steel costs to pinch auto parts makers - U.S. suppliers' prices expected to rise 26% as demand from China doubles.

[gr8ridejester]

One of the biggest reasons GM is suffering is because they are lacking hype. They have high depreciation, maintenance costs and fuel economy. They keep producing the same vehicles with slight variations in design year after year. Design plays a huge role in customer purchases. However, there are those who buy cars based on the overall value-to-cost ratio. GM has missed the boat when it comes to re-introducing a retro-style sports car as Ford did with the 05' Mustang and Daimler-Chrysler (Dodge) with the 06' Charger. GM is attempting to make up for this in 2009 with their re-release of the Camero, which a concept version will debut at the 2006 NAIAS this January. This could prove to be to little to late. Yet, the Camero following is pretty strong though. So, I guess we'll see what becomes of it.

The "big three" in general all have image issues in the American eye. Most prefer Honda, Toyota or Volkswagon, as far as low to mid-priced vehicles go. They're better handling, more fuel efficient and have a much lower depreciation value. Plus, most imports have better styling and "fun to drive" factor. Most people are willing to spend a bit more to get a higher quality product. Unfortunately, American automotive manufacturers just don't get this concept. :eek:

Another problem American automotive manufacturers are facing is more people are buying used vehicles rather than new ones. There are more resources available. Websites like Carfax and Edmunds are at John Q. Public's finger tips. People turn to eBay rather than going into a dealership. Why haggle over a price when you can just outbid someone for it? Also, a number of online automotive classifieds are available locally and worldwide. So, technology has been a major influence for new car sales going down as well.

[bishop]

when it comes to regular 4-door cars, the civics, accords, corollas and camrys of the world wipe the floor with ford's and gm's equivalents.. knowing that their best niche was trucks and suv's, both ford and gm focused on that niche. higher gas prices, lower demand for their gas guzzlers and presto... lower sales for suv's and trucks means fewer trucks produced, and fewer parts ordered from delphi. and again, over 50% of delphi's sales go to these two american companies.

despite all the problems with the unions and pensions, this seems to be primarily a problem of incompetent management. (gotta love how they pay themselves millions to be such retards.)


thanks for the article rick.. i wonder how much of those extra costs came as a result of bush's steel tariffs.. the costs of that little maneuver is said to have cost consumers (including customers like delphi) billions.

[Nono]

Quote by: Rick Relatively few people will be able to switch to bicycles or hop on mass transist if they are not doing so already. This is not to say that demand for oil is inelastic. If Americans buy more fuel efficient cars real savings can be achieved. Of course, the first sign that Americans may be wising up has got to be a drop in the sale of US gas guzzlers.

Unfortunately, the problem is structural in nature, and personal transport is only one aspect.

A major feature of the flawed structure in North America is suburbanism. That's a living arrangement that simply won't survive the end of cheap oil. And cheap oil is over.

[RickSp]

Quote by: Nono Unfortunately, the problem is structural in nature, and personal transport is only one aspect. A major feature of the flawed structure in North America is suburbanism. That's a living arrangement that simply won't survive the end of cheap oil. And cheap oil is over.

The current problem with US automakers is related to management, cost structure and product quality and design. Recently GM has lost money on every car it manufactures - clearly not a sustainable business model.

I think that rising prices will resolve problems with oil supply. Between coal reserves and surplus grain stocks, the US has some pretty vast energy resources. Cheap oil led to waste. Higher prices will encourage greater efficiency and new technology. I recently read comments by the governor of Wyoming, a state with large coal reserves, suggesting that converting coal to gasoline currently costs an equivalent of something like $35 per gallon oil. Recently there was a CNN headline, Oil tumbles below $62

I am not too worried about the suburbs surviving either. Then again, I do live in a big city.

[Nono]

The trouble is that coal, like oil, will eventually run out, "eventually" being a time that draws nearer and nearer with every gallon/ton sought and consumed by China, India et al.
And where did those grain stocks come from, if not from petroleum-based fertilizers?

The fact is that the cheap-oil bubble has allowed the human population to explode, and there are now six-billion-plus people -- here, now -- and we're hungry, thirsty and materially ambitious. The whole edifice is going to collapse if alternative energy sources don't start performing the same service much faster than they look like they will. Seems to me that suburbia will soon become untenable. Where are all those people going to live?

Iraq is just one example of the resource wars to come. Famine, pestilence, non-stop conflict -- it ain't gonna be pretty.

[RickSp]

Quote by: Nono The trouble is that coal, like oil, will eventually run out, "eventually" being a time that draws nearer and nearer with every gallon/ton sought and consumed by China, India et al. And where did those grain stocks come from, if not from petroleum-based fertilizers? The fact is that the cheap-oil bubble has allowed the human population to explode, and there are now six-billion-plus people -- here, now -- and we're hungry, thirsty and materially ambitious. The whole edifice is going to collapse if alternative energy sources don't start performing the same service much faster than they look like they will. Seems to me that suburbia will soon become untenable. Where are all those people going to live? Iraq is just one example of the resource wars to come. Famine, pestilence, non-stop conflict -- it ain't gonna be pretty.

The sky isn't falling. Not yet anyway. We may or may not have even reached "peak oil" and there are other fuels available. Cheap oil provided an absolute disincentive to develop alternatives. Cheap oil is gone, which may be the good news. And guess what? Humans grew grain even before petrochemical fertilizers.

Every time I hear an "End is Near" prediction, I grow more confident that we will be around for a good while longer.

[Nono]

Quote by: Rick Guess what? Humans grew grain even before petrochemical fertilizers.

(slapping forehead) Never woulda guessed.
And that grain supported a teeny-weeny world population until the past century. The "Green Revolution" was based on oil. And guess what? Here we all are -- probably the majority now city-dwellers -- and we want to keep eating.

Every time I hear an "End is Near" prediction, I grow more confident that we will be around for a good while longer.

Probably, but in much smaller numbers and reduced circumstances. The transition is going to be plenty turbulent.

[RickSp]

Reminds me of the bet between Julian Simon and Paul Ehrlich.

In 1980, economist |Julian Simon| and biologist Paul Ehrlich decided to put their money where their predictions were. Ehrlich had been predicting massive shortages in various natural resources for decades, while Simon claimed natural resources were infinite. Simon offered Ehrlich a bet centered on the market price of metals. Ehrlich would pick a quantity of any five metals he liked worth $1,000 in 1980. If the 1990 price of the metals, after adjusting for inflation, was more than $1,000 (i.e. the metals became more scarce), Ehrlich would win. If, however, the value of the metals after inflation was less than $1,000 (i.e. the metals became less scare), Simon would win. The loser would mail the winner a check for the change in price. Ehrlich agreed to the bet, and chose copper, chrome, nickel, tin and tungsten. By 1990, all five metal were below their inflation-adjusted price level in 1980. Ehrlich lost the bet and sent Simon a check for $576.07. Prices of the metals chosen by Ehrlich fell so much that Simon would have won the bet even if the prices hadn't been adjusted for inflation.

Julian Simon's Bet With Paul Ehrlich

I bet with Simon.

[PatrickHenry]

Quote by: RickSp converting coal to gasoline currently costs an equivalent of something like $35 per gallon oil.

Sounds a bit high to me...

Quote by: RickSp Reminds me of the bet between Julian Simon and Paul Ehrlich.

I wonder if the same falling cost paradigm would apply today and ten years from now?