Article of the Week and Automaker Commentary:

Hurry up and read this week’s article before it goes into WSJ’s archives:

Auto Chiefs Admit Mistakes as They Make Case to Congress (http://online.wsj.com/article/SB122840102318379327.html)

My thoughts on what is going on in the US Auto Industry is well, mixed. I grew up a GM teen with 2 Buick Regals, 2 Oldsmobile Cutlass Supremes, and a Saturn SC2 (still own it), and always thought there drivetrains were excellent. Now-a-days though I have definitely switched to the darkside, I am firmly a Honda and Toyota guy. Someday, I will go into that more but really feel the need to evaluate the US Big 3. Before I evaluate each company it is important to note that all of these companies were restructuring when the whole market went to crap. Most have some decent new vehicles, but with nobody buying cars, and nobody putting out loans, they all got screwed so to speak. Others would say too little too late, and I do agree to some extent.

Let’s start with Ford. Ford in my opinion is the best run company of the three right now. Why, because they have viable small cars and light trucks that are reliable, built well, and really as good as anything Japan offers. They went to the government asking for a $9 billion line of credit, not bail money, but credit just in case they need it (which they may), and they have a realistic plan for profitability by 2011. They have four excellent models in the Focus, Fusion, Escape, and F-150 that will retain a good demand. To me this company is the best bet of the three for succeeding. Worth noting is that they have an extremely good hybrid in the Escape that is in its second powertrain generation, meaning already have some of the technology needed for higher mileage vehicles. The bad is that Ford is looking into selling some of Mazda, hopefully not all. Mazda has basically been the test dummy for a lot of the Ford drivetrains that are now used, and Mazda really makes some good cars.

GM is next. Frankly, I am disappointed with GM and I do not think that Rick Wagoner is the right man for CEO. However the good is all of the Cadillac product, Buick Enclave, the Chevy Silverado, Malibu, and the tiny Aveo are all pretty well built cars. The Malibu in particular is again one heck of a vehicle, now with the possibility of a 4cyl engine mated with a 6-speed transmission, which really is a car made for the common American public. Another bright spot is that the Ecotec 4cyl engine is actually pretty decent and reliable; too bad the Malibu and Saturn Aura are the only decent vehicles that it goes in. The Cobalt and variants really could be a nicer vehicle (cheap), the Saturn lineup needs more of the Opel fuel efficient engines that are common in Europe, and they need to abandon this push towards E85. The Volt looks promising. Also good is there strong presence in China’s emerging economy. I feel that with the right leadership all these loose good parts of GM could be remade into a really reliable company. It has a real chance if it can get away from acting like cow is a stallion, and instead just make that stallion. Also, they need to stay far away from merging Chrysler.

Chrysler is in terrible shape and Cerebus is to blame. What exactly was Chrysler thinking would happen when it continued to promote and develop big cars for the Hemi and delivering on such crapfests as the Dodge Caliber? Does anyone else thing that they were idiots for abandoning the Neon (the pre VW Bug redo before the actual VW Bug redo)? The only good products in their lineup are the mini-vans, Jeeps, and the Ram trucks, consequently those are the products that they spent their money on after the take over. What stinks is their eagerness to merge with GM, which to me reeks of Cerebus ready to cash out and GM to get as much money from the government as they can. Mark my prediction if GM bought Chrysler, they would dance with the corpse long enough to get paid and then burry the body. The two companies’ product lines just do not compliment each other at all. Where I am most upset with Chrysler is that the best option was out there and they didn’t jump on it, which was working with Nissan. Charles Ghosn CEO of Nissan-Renault is probably the brightest man in the auto industry right now. He offered at one point to take up to a 20% stake in Chrysler, allowing Chrysler to get Nissan built small cars, and Nissan to get Chrysler built large trucks and minivans. It actually was an excellent plan and gives Chrysler a real viable future, and they walked. To me that was worse than Yahoo walking away from Microsoft. I don’t know if I would loan them any money unless they began some good real talks with a potential buyer not named GM.

All this being said, I do really feel the government should save the companies, with true oversight. Some have suggested giving up some true bail out money for now, and then requiring the companies to prove that more is needed and will be well spent. I would approve of any plan like that, there are really too many people that this would risk, and basically end major manufacturing in the US other than planes.


Grant said...

Brilliant post, MJ.

I can't help but think the auto industry is overpopulated with options. It seems like for a small, mid-sized four door car, there are 12 different brands to pick from, and of those, each brand has 4 different options that fit that category.

With that in mind, it's easy to see how there is a flight to quality (namely Toyota and Honda) that leaves the others begging for money.

Given the big picture, economically, what do you see as the best scenario for handling the big 3?

Do you bail them out, let them go into bankruptcy, reorganization..?

The capitalist in me says let them fail if they can't make it, but the emotional side of me says give them money and let the folks keep their jobs...

While I tend to brush off my emotional side, it's really tough to get a grip on the overall scale of this problem.

I read in the paper today that GM may discontinue the Saturn brand and look to sell off Saab. Do you think a structurally smaller GM would be self sufficient?

Also, deep thought: Would you buy Ford stock right now?


MJ @ Dyslexic Research said...

I do think that a smaller GM is a better GM. I also think that Wagoner has been doing an admirable job keeping GM as big as it is for as long as it could. It is now time for them to be a more agile and more focused company. Some of their new cars are excellent, but there is still a lot of trash in there. I don't know if discontinuing Saturn matters or not because Saturn is basically the American Opel so the vehicles will exist elsewhere. Getting rid of Saab is probably a good thing, although who is going to buy them?

Ford is going to make it, but I don't know if they are out of the rough waters. You could buy the stock, but realize the government may seize the stock like they have banks if things continue to go south.

I too am conflicked on what do you really do with these companies. I do like us bailing out companies that actually build a product and move some commerce versus a bank which creates spreadsheets and interest rates. Manufacturing employs people, move metal, and really can move an economy so saving that makes sense to me.

My dad had a good outside the box idea that instead of bailing the US auto companies out, giving that money to America to put $3k-$5k down on a new car. I thought it was a good thought.