Guest buickman

On the Brink

67 posts in this topic

Detroit's carmakers are entering a period of crisis. For the next half-year car sales are likely to decline because of rising interest rates, bad news from Iraq and, above all, the climb in the price of gasoline. Even as that price retreats below $3, the damage has been done. People will have reason to worry about buying fuel, and that's bad for the car business.

It is especially bad for Detroit's car business, dependent as it is on pickup trucks and big sport utility vehicles: Chevy Silverados and Suburbans, Ford (nyse: F - news - people ) F150s and Expeditions, Dodge Durangos and Jeep Grand Cherokees. These parts of the business are hurting the most. The Japanese and the Germans sell heavy vehicles, too. But they aren't as dependent as Detroit is on heavy iron.

Until recently the country was buying cars and light trucks at the rate of 17 million a year. So far this year sales are running more than half a million units behind, so maybe the year will end at 16.3 million. Sales will be sinking in the first quarter, too. General Motors (nyse: GM - news - people ), Ford Motor and even Chrysler are still losing market share. Losing market share in a falling market doubles the pain.

More pain: Lots of the all-new 2007 vehicles from Detroit are these big babies, the pickups from GM, the big SUVs from Ford. They were expected to lead a sales resurgence and, at last, a move to profits.

We've already seen GM cut some overtime, and Ford, which is more conservative in planning, has cut 168,000 units (21%) out of its fourth-quarter schedule and chosen a new president and chief executive, Alan Mulally, the Man from Boeing (nyse: BA - news - people ). GM is talking about chopping 12% from its fourth-quarter plan. I expect more chopping by early next year.

Not everyone will agree. The optimists can tell you how GM, which has already introduced its new sport utilities and will be introducing new pickups this fall, will do well. Having new trucks helps, of course, but I think the results are going to be disappointing. There will be a rush of sales to fill early orders and then a falloff. GM also may steal sales from Ford and Chrysler, which doesn't do anything for Detroit's collective ability to fight off foreign brands.

Ford has some new small (4,000-pound) sport utilities coming, and they will balance out the new 6,000-pound Expedition and Lincoln Navigator. But I think Ford will sell fewer of its small crossover vehicles (like the Ford Edge and the Lincoln MKX), not because there's anything wrong with them but because competition is so great. Everyone has small crossovers. Chrysler has a big new SUV called the Aspen coming out, at just the wrong time. There are some smaller Jeeps and a midsize car, too. Nothing wrong with them, but they will be coming into a hotly competitive market.

All the vehicles were logical when the decisions were made three years ago to produce them. At the time gasoline cost less than $2. But historical logic isn't going to save Detroit.

It will be tougher for the manufacturers to hold to the new no-giveaway pricing. GM, and even Ford, have done a good job in keeping prices up. But the pressure to give away the vehicles--no money down, 0% interest, employee pricing, less than wholesale--will grow if times are rough, as I think they will be.

Operating losses (that is, before one-time writeoffs) will be considerable despite all the factory closings. I'm pretty sure that the proposed GM/Renault/Nissan confederation will not happen. I don't know about the possibility that Ford might team up with Nissan (nasdaq: NSANY - news - people ), especially with a new Ford chief executive and the problem of agreeing on whose name goes first in a combined company.

Pressures for management change abound. At GM, after all these years, the management hasn't been able to turn around the company. The improvements being made, and they are being made, could be washed away by a downturn. At Ford, management changes always come quickly--I can name ten living ex-Ford presidents--but none has really worked since 1996. Now a new chief is named, a Boeing man who knows nothing about the car industry. Maybe it will work. I remember, though, the last time they brought an outsider in to be president--by outsider, I mean Semon (Bunky) Knudsen, who came from GM. It was Cry Havoc! and let slip the dogs of division. So we'll see.

Detroit's luck has run out. A growing car market has covered up the failures of the past decade. Those days in all likelihood are gone for now. Saving the American industry will take dynamic leadership, energy, talent and a fighting spirit. Sure it's possible. We saw it once, when Lee Iacocca saved Chrysler.

Can today's managers at GM, Ford and Chrysler save their companies? I don't know the answer, but I keep thinking of the words of Oliver Cromwell to the Rump Parliament: "You have sat here too long for any good you can do. Depart, I say, and let us have done with you. In the name of God, go."

Jerry Flint, a former Forbes Senior Editor, has covered the automobile industry since 1958. Visit his homepage at www.forbes.com/flint.

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My absolutely favorite part:

"You have sat here too long for any good you can do. Depart, I say, and let us have done with you. In the name of God, go."

Gotta love Jerry!

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Yes, Flint, just look at one side of the picture. Focus on the SUVs and trucks and ignore declining gas prices and the competitve cars coming from at least two of Detroit's Big Three.

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Why does Flint always appear blind to what GM does have coming out besides trucks? Last I checked, going back a month or two and into the future about a year or so, GM has launched/will have launched:

Aveo, Aura, 08 Malibu, 08 CTS, Cobalt MCE, Aura GL, hybrid Malibu, and I think the Astra is coming at the end of 07. Now, this might not seem like a lot of vehciles compared to how many GM has, but how many cars do other manufacturers have coming out? I don't think they have 8 coming out soon.

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This is just another opportunity to cry the sky is falling.

Flint, like certain others who will remain nameless (at least for this post) will only take whatever information supports their chosen conclusion and ignore everything else.

Besides, if gas prices on their way up, and all the dire predictions of $5 a gallon prices by this month, didn't trash the truck market, I don't think that the current trend of prices dropping would. <_<

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What a stupidass article. I didn't even get past the first paragraph. Rising fuel prices? :lol:

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So let me get this straight, gasoline has dropped 30 cents a gallon, back to where it was last spring and ya'll think everything is OK again ? Its still 40-50 cents more than it was before Katrina 1 years ago. Before that everyone was tired of the current price and it was already hurting "truck" sales. Now I suppose gas will not go back up this winter ? above and beyond the $3 mark. Anyone who has been paying attention knows that immeadiately following a price drop there is an increase that sets a new higher ceiling. Then let me give a little quote that some seemed to ignore and I believe is spot on "Even as that price retreats below $3, the damage has been done."

Toyota and Honda are selling innovation and economy. Detroit is still trying to sell and survive on blow out sales of "huge" and "V8". Many GM buyers are distressed about their mileage.

Most of those cars you mentioned N* are not something many in the market are going to get excited about. They mostly sound like competition for Kia and Hyundia to me. Sad but True !

Edited by razoredge
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So let me get this straight, gasoline has dropped 30 cents a gallon, back to where it was last spring and ya'll think everything is OK again ? Its still 40-50 cents more than it was before Katrina 1 years ago. Before that everyone was tired of the current price and it was already hurting "truck" sales. Now I suppose gas will not go back up this winter ? above and beyond the $3 mark. Anyone who has been paying attention knows that immeadiately following a price drop there is an increase that sets a new higher ceiling. Then let me give a little quote that some seemed to ignore and I believe is spot on "Even as that price retreats below $3, the damage has been done."

Toyota and Honda are selling innovation and economy. Detroit is still trying to sell and survive on blow out sales of "huge" and "V8". Many GM buyers are distressed about their mileage.

Most of those cars you mentioned N* are not something many in the market are going to get excited about. They mostly sound like competition for Kia and Hyundia to me. Sad but True !

195117[/snapback]

1. 30 cents/gallon? What part of the country do you live in? Here in Minn, it's dropped OVER $1/gallon ($1.04 to be precise).

2. Demand for gasoline typically decreases in the winter months due to decreased travel. Demand for things like heating oil typically rise.

3. I do agree that $3/gallon gasoline will scare some potential buyers away, I also believe that there is still a large demand for tow-capable vehicles, whether it be suv's or pickups. The winner will be the one that delivers the balance of being the most-capable and provides the best gas mileage. That currently describes GM's entrants -- upon which they are raising the bar even further. I think GM is in position to weather this by taking sales from less capable trucks (Tundra: less hp, less torque AND less gas mileage).

4. And GM *doesn't* sell innovation and/or economy? Witness the Saturn Vue greenline. Middle-of-the-road hybrid performance that won't break the bank to purchase. Nobody else has anything similar in the SUV segment. The Saturn Aura hybrid debut is just a few months away. The Aveo outsells all other small-compacts. GM is actually making money on it's compact Cobalt's. It's not as bleak as Flint makes it out to be.

Flint is dismissive/selectively ignorant of his facts. GM isn't perfect, but it's better off than Flint lets on.

Tundra 4.7l: 271hp, 313ft-lbs, 15/18 MPG

http://autos.msn.com/research/vip/Spec_Gla...undra&trimid=-1

Silverado 5.3L: 295hp, 335ft-lbs, 15/19 mpg

http://autos.msn.com/research/vip/Spec_Gla...01500&trimid=-1

Edited by cmattson
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1. 30 cents/gallon?  What part of the country do you live in?  Here in Minn, it's dropped OVER $1/gallon ($1.04 to be precise).

2. Demand for gasoline typically decreases in the winter months due to decreased travel.  Demand for things like heating oil typically rise.

3. I do agree that $3/gallon gasoline will scare some potential buyers away, I also believe that there is still a large demand for tow-capable vehicles, whether it be suv's or pickups.  The winner will be the one that delivers the balance of being the most-capable and provides the best gas mileage.  That currently describes GM's entrants -- upon which they are raising the bar even further.  I think GM is in position to weather this by taking sales from less capable trucks (Tundra: less hp, less torque AND less gas mileage).

4.  And GM *doesn't* sell innovation and/or economy?  Witness the Saturn Vue greenline.  Middle-of-the-road hybrid performance that won't break the bank to purchase.  Nobody else has anything similar in the SUV segment.  The Saturn Aura hybrid debut is just a few months away.  The Aveo outsells all other small-compacts.  GM is actually making money on it's compact Cobalt's.  It's not as bleak as Flint makes it out to be.

Flint is dismissive/selectively ignorant of his facts.  GM isn't perfect, but it's better off than Flint lets on.

195122[/snapback]

:yes:

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OK, I was being generous. Gasoline is now 2.81 here, it was formerly 3.01 with a brief peek of 3.08 so in reality our gas has dropped 20 cents. Its NY State. We havent seen $2.00 in years, maybe three ? Our gas always goes back up during the winter, our gas always goes back up immeadiately after a decrease to a higher ceiling than ever before. People that are concerned with heating homes during the winter are also not going to be ready set go on buying a new car either. What planet do you live on, I want to move there............so long as its not saturin.

GM may be better off that some want to admit, we have all seen that here. Somehow I just dont really care waht saturin and small Chevy have, what does Buick and Pontiac have ? Or are they not GM anymo ?

<_<

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OK, I was being generous. Gasoline is now 2.81 here, it was formerly 3.01 with a brief peek of 3.08 so in reality our gas has dropped 20 cents.

<_<

195308[/snapback]

About the same here..it's still $2.75-3.00 a gallon here in the Denver metro area....I haven't seen any substantial 'drop' in prices yet. I don't expect to see it under $2.75/gallon anytime here soon.

Edited by moltar
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About the same here..it's still $2.75-3.00 a gallon here in the Denver metro area....I haven't seen any substantial 'drop' in prices yet.  I don't expect to see it under $2.75/gallon anytime soon.

195311[/snapback]

I Live in extreme southern Illinois, and I go across into Kentucky and get gas at the current Tuesday price of $2.15 per gallon. Always .20 cents higher in Illinois because of taxes..... :pbjtime:

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Just to add - Gas was $3.20/gal in the St. Louis area in August. It's currently averaging $2.06/gal, and a few places are selling for $1.99/gal.

I don't know if these levels will be sustained or not, but if it stays on this side of $3/gal, then I'd expect SUV sales to pick up (no pun intended) a bit.

-RBB

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Yet another enlightening article from Captain Obvious. I wonder what his next prediction will be... "Toyota reaping record profits", perhaps?

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For the record, if you want a taste of where America COULD be with $3+ a gallon of gas, you need to look no farther than your cousins to the north. After Katrina, we were paying $1.30 a litre; now, it is down to $.84, even .79 on a good day - a drop of about 35%. That translates into about $3.05 a U.S. gallon, currently.

Our dealership has never relied on trucks for sales. We sell a lot of Malibus, Impalas, Aveos and Cobalts. Our biggest selling truck (hold the laughter, please) is the Uplander, followed by the Equinox. We cannot GIVE away the Tahoe.

It is very challenging for GM to guess which way gas prices are going. In the meantime, trying to straddle the entire breadth of the market is a nightmare! With the Aveo at one end and the Suburban at the other, what a juggling act. At least Wagoner and the gang had the fortitude to buy into Daewood and position itself with a fleet of small, fuel efficient vehicles.

Will we have $4 a gallon gas a year from now? Or will it stay where it is? The Flint's of the world almost sound like the WANT GM and Ford to go down.

Makes you wonder how much Toyota stock they own.

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Id a rather Wagner and cronin would have had the fortitude to develope and manufacture compact economical cars here on our turf. Why has there always been this unwritten law that reliable and economical compact cars of industry strandard cant be built in N America ?

Wow ! Canadian gas is only 30 cents a gallon more and they have health care............... :scratchchin:

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Id a rather Wagner and cronin would have had the fortitude to develope and manufacture compact economical cars here on our turf. Why has there always been this unwritten law that reliable and economical compact cars of industry strandard cant be built in N America ?

195429[/snapback]

I thought the argument that the big 3 have always made about building good compact/subcompact cars in NA is that they can't make a profit on them..

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Many GM buyers are distressed about their mileage.

195117[/snapback]

who's that? My buddy who got an 07 Avalanche LOVES the 17-18 consistent mpg he gets. meanwhile, 2 friends with pilots get 15-17.

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I thought the argument that the big 3 have always made about building good compact/subcompact cars in NA is that they can't make a profit on them..

195439[/snapback]

Cobalt is making money now

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Hmmmmmm......$15,000 car/$1,500 legacy/healthcare costs

$30,000 car/$1,500 legacy/healhcare costs

Which one will turn a profit? So, build the $15,000 car in Korea, where they make a lot less than their UAW counterparts (if for no other reason than the American $$ is stronger than Korean currency) OR build in Canada where the healthcare costs (to GM anyway) are a lot lower.

The mathematics are pretty clear. Just ask Toyota.

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I thought the argument that the big 3 have always made about building good compact/subcompact cars in NA is that they can't make a profit on them..

195439[/snapback]

I thought the problem was, they never made good compact cars. GM had an engine made in Brazil, used in compacts, had lots of problems. Then they had the "Iron Duke", not exactly whats going to get buyers away from Toyota/Nissian/Honda or VW back in the day. Thats what I was talking about, for some reason Detriot could not engineer and/or produce comparable compacts. Back when we were still driving Economy Boxes the Domestics were like junk. This is who, what, why and when we (N.America) began the huge migration to VW, Toyota, Nissan and Honda. That is the type of cars that gave Domestics their bad reputation and current perception. It was like Detroit just couldnt figure out the 4 cylinder engine. Then came the Quad 4.................looked good at first, but low and behold the bean counter cheapness showed through with head problems. Now we finally have a good 4 but its made where ? Germany or Austrailia ?

Quit crying about "legacy" costs, those people were promised that money as part of their pay package, it is their due. It was to have been invested and taken care of all these years by people "we" are supposed to trust. I dont hear anyone trying to take the Smiths or Zerillos or whoevers money away from them, and we damn sure know they didnt need it in the first place. If our government had protected its citizens as their job is paid to do, there would have been enough young workers today contributing to pension funds that this whole damn mess would not even be a wisper of a thought.

They should also be protecting us from the Doctor/Lawyer/Insurance/Drug Company organized crime too............but then who would they have left to hob nob with ?

TO answer Reg. - Mid size V6 milage is not as good as competitions.............especially in the DOHC department...................this is really going to hurt GM's main market concentration and main market potential. The people I know that are crying the most about gas prices are the people driving "trucks". One friend with a 02 Chevy truck of some sorts, sorry I really find trucks to be appliance enough to forget names and #'s. His is like a 5.3 iron LS. Anyhow hes claiming 12-14 mpg and thats rural driving and he drives so laid back and slow it drives me nuts. I never, ever trust peoples mileage claimes, never have. Over the years Ive heard some real BS about crazy mileage come out of peoples mouths. 3 bucks for every 14 miles traveled somehow looses its appeal after a spell.

Construction workers of all sorts will always buy and work new trucks, so its obvious many will still sell. I think Flint was refering to the possers. You know, all those people that one day will get out there somewhere, where they dont belong and do some real baja in' with the big bad fur by fur.............. :lol:

Edited by razoredge
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people like jerry flints livelihood depends on ripping apart detroit. thats what they do.

I Live in extreme southern Illinois, and I go across into Kentucky and get gas at the current Tuesday price of $2.15 per gallon. Always .20 cents higher in Illinois because of taxes.....

bastards! i knew they were ripping me off.

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