Category: Auto Industry

I have a "clunker," but I didn't cash in on the Cash for Clunkers program. I'm not sorry. I test drove the Chevy Traverse and the Honda Pilot. They are both nice cars. The Chevy had all the bells and whistles you could ask for and a nice ride to boot. The Pilot has fewer bells and whistles, but a solid ride and a great reputation. But, they both gave me a bit of sticker shock. (It's been ten years since I last bought a car.) The thought of a hefty monthly payment, compared to zero now, threw what seemed like a good deal into reverse.

Careful what you wish for could be the lesson for auto dealers in the government's Cash for Clunkers program. The program has been highly successful moving new car inventory and bringing people into the showrooms. But it's also been a bureaucratic nightmare as dealers slog through paperwork and wait for the government to pay the millions for the clunkers on their lots.

Fairfax Hyundai President Sam Mansouri hired extra help to process the deals and has yet to get paid one dime from the government. He says he wishes just one claim will get paid, so he can use it as a model. He also worries about the deals that might be rejected. In the meantime, he's keeping the clunkers on back lots, which are usually reserved for new cars. His inventory of new cars is so small now, it's not a problem. He says he doesn't think the program will hurt sales down the road, but he's not sure.

Mark Darren Walker hasn't owned an American vehicle since his '86 Ford Mustang. He's never owned a GM product. Lauren Weiner's parents owned GM cars, but she never has. She's preferred BMW, Honda, and Land Rover. These are the kinds of consumers GM desperately needs to attract and they could.

Both Walker and Weiner were among the 100 consumers who test drove vehicles this week at GM's Milford Proving Grounds. Walker was a tough sell. He had test driven a Chevy Tahoe in Los Angeles and didn't like it. So, he fired off an email to CEO Fritz Henderson who responded with an invitation to test drive other GM products at the company's test track. Walker loved the Cadillac CTS and was also impressed with the Buick LaCrosse. Will he switch from BMW to Cadillac when it's time for a trade? He's not sure, but he's now open to the idea.

The confusion around the Cash for Clunkers (or CARS) program continues. The Senate may take up the bill Wednesday or Thursday, but an extension of the program is anything but a done deal.

Today, Senators Diane Feinstein (D-California) and Susan Collins (R-Maine) announced their support for extending the program. Despite earlier concerns, they are happy with how consumers are using the program, particularly the increase in the number of fuel efficient vehicles purchased. The Department of Transportation found on average people using the program bought cars, SUVs, and trucks that got 9.6 more miles per gallon than their old "clunkers."

News of the U.S. auto industry's demise is greatly exaggerated. That was the message I got today when I interviewed Ford Motor Company CEO Alan Mulally. While Mulally can't comment on the future of GM and Chrysler, he's confident in the future of his firm.

Mulally expects vehicle sales to pick up, so much so that Ford is stepping up production. The company has also been scaling back on incentives. That is helping boost margins. The government is also getting ready to launch its "Cash for Clunkers" program. A number of Chicago area dealers says that program is generating a lot of showroom traffic, so that could also mean better sales for Ford.

As I watched GM CEO Fritz Henderson's press conference this morning I was struck by a couple of his comments. (Henderson met with the media in Detroit as the company emerges from bankruptcy.)

First, Henderson said "business as usual is over" at GM. I hope so. Prior to its chapter 11 reorganization, GM was a hulking giant unable, and possibly unwilling, to change its ways. After the terrorist attacks in 2001 GM couldn't sell big sport utilities without big rebates or 0% financing. Yet, the company still clung to the segment thinking consumer sentiment would change. It didn't and things got worse last year when fuel prices soared above $4.00 a gallon. The company's commitment to making smaller cars and new technology hopefully is a move in the right direction.

Well... this is interesting. It is never a good idea to second guess the Supreme Court, so we'll just have to wait and see how this develops. But Associate Justice Ruth Bader Ginsburg has, at the very least. thrown a speed bump in the path of the steam roller which has been driving the Chrysler bankruptcy process.

On Friday the Court of Appeals for the 2nd Circuit gave the OK for most of Chrysler's assets to be acquired by a group headed by Fiat, the Italian auto maker. But the 2nd Circuit stayed its order to give the parties time to appeal to the Supreme Court. Justice Ginsburg, the Justice assigned to first hear such requests in cases from the 2nd Circuit, has now extended the stay at the request of several Indiana pension funds opposed to the deal.

It could be that Ginsburg just wants more time to study the arguments. The Indiana parties claim that the government does not have the legal authority to lend money to a non-financial institution. But it is more likely that she wants to poll the other justices, at least informally, to see if there is enough interest to warrent a review by the entire Court. The Chrysler bankruptcy has raced through the courts with unprecendented speed and a lot fo short cuts were taken. It may well be that the Supremes will be the ones to wave the yellow flag and slow down the process while it checks to see if the rule of law is still being followed.

In December, Anant Sundaram, a finance professor at Dartmouth's Tuck School of Business, reviewed the number's GM gave to Congress and came up with some interesting results.

He found the company was worth somewhere between -$15 billion and -$20 billion. GM said the company was still in positive territory. Professor Sundaram turned out to be right, GM not so much.

Now Sundaram has run some numbers again using projections from the "New GM."

Bottom line, the taxpayers have lost somewhere around 40 to 50% of their investment already.

Sundaram worked the calculations in two Excel spreadsheets, and I've gotten his permission to make them available to you -- my loyal blog followers.

The first spreadsheet, values GM based on it's incremental profit margin (it's losing money now.)

You can plug in your own assumptions for market size, market share and profit margin -- those are the key variables.

Some things to think about:

Reading Rodney's blog today made me chuckle....but it also reminded me of my first car....and a valuable lesson learned.

As an undergrad at Tulane University in New Orleans in the 80s, I found myself needing wheels. After several months of nagging my parents, my father arranged for my grandmother to finance the purchase....and it wasn't long before a very nice check arrived. Flush with cash, I started visiting dealerships and test driving automobiles. I soon fell in love. But, the car of my dreams wasn't a Camaro, it wasn't a Honda Accord nor was it a Datsun 280zx....all popular choices with other 19 years olds at the time. No, the car I absolutley had to have, the car I spent all my money on (including an additional $1,000 I scrounged from hours of babysitting), the car I bought was a Renault Fuego.

There is an old saying that in life there are no second acts. But, there is if you file for bankruptcy reorganization. The U.S. steel industry has emerged stronger since many companies filed for Chapter 11. Let's hope the same holds true for the nation's domestic auto industry.

For the second time this year another iconic auto company, General Motors, filed for Chapter Eleven. Even before filing, GM successfully cut costs by paring dealerships and re-negotiating new agreements with the United Auto Workers Union and its debtors. The onus now on GM is convincing the buying public that it is a new company.

GM has a lot going for it. It has a storied history in the U.S. It has a line-up of some really great products: the Chevy Malibu, the Cadillac CTS, and the Buick LaCrosse. OnStar, its in-vehicle security and communications system is a great product.