Fuel Economy NOT the U.S. Automakers problem

Profit margin makes no difference if nothing sells. Zero times any number is still zero. Besides that one nit picking detail, I completely agree with you. U.S. auto makers were in trouble because of short sighted product offerings, but now that's not an issue for the short term.

This thread sounds a lot like the old joke where the airline pilot comes over the intercom and tells the passengers "I have good news and bad news. The bad news is that the engines have failed and we are going to crash. The good news is that we are making excellent time and are ahead of schedule."

Tom

 

US auto makers were making what their customers would buy. Their problem was selling those vehicles at less than it cost to make them.

The Big 3 have been running big losses in their North America operations for years. The credit bubble allowed them to basically hide those losses by continuing to borrow. Suddenly the credit crunch arrives and they can't borrow any more.

Now, the European operations of Ford and GM have been profitable. (Chrysler has nearly no European operation and few sales.) Not to the extent they could cover the NA losses. But nonetheless profitable. And they did it largely by building reliable cars, and selling them at a price that more than covers costs.

Time after time companies try to compete on price with an inferior product. They get some sales. But if you make a loss on each unit, you make a loss, while your competitor makes a profit and carries on to outfight you, as they can spend more on R&D in the next generation.

Ford sells the Focus in the US (albeit a cost-reduction-engineered version with worse reliability, and a bigger, less efficient engine). GM now sells the Opel/Vauxhall Astra under the Saturn badge. These are the two biggest sellers in the UK, taking nearly 10% of the market between them. Why won't US consumers buy those cars? Because, apparently, they're too small.

(This wouldn't be complete without saying that the Focus and Astra, and their predecessors, have been the top-selling cars in the UK for decades, and the Ford Escort was not a haven of reliability and good performance. They did have to compete with VW, Peugeot, etc to stay on top of the pile. Here, American-owned car makers out-competed our native industry, which was always strapped for cash - and produced rubbish designs, bywords for unreliability.)

 

When that exchange student surfer kid from Rio spent part of the winter with my folks, he had a very hard time with that concept

Amazing true story: when I was on leave and visiting my folks, they let Surfer Kid know I was *really* good with math. So this dumb blonde puts a large, scary equation in front of me, it was his homework, and he was almost crying that he couldn't figure it out

I guess you don't need a firm grasp of high school trig and algebra to operate a surfboard? I forget the exact terms of the equation, but it was raised to a certain power

I briefly glanced at the equation, grabbed a pen, and wrote

"= 1"

The kid's jaw just about fell off his face. So I pointed to the equation again. Everything was raised to ZERO. Get it? He even missed this on simple questions, like "2 ^ 0 = ?" and he wrote down 2!

Nice kid, polite to my folks, but ... OY

 

Hi DA,

Like Gbee said, profit margin or not, you make no profit if you do not sell the car. If the people want to hedge their fuel costs bets with something like a Fit, Versa or Scion/Yaris, well a car company should have those available.

So, what does this mean. It means they need to find a way to be profitable making those cars. Whatever it is. If that means that Wagoner only gets paid 1 million a year, and the UAW has to sell a golf course, well yea. The option of not getting those costs inline is that when people need small fuel efficient cars, the company that cannot make them profitably is going to go into bankruptcy. Unless they can con Uncle Sugar out of a few billion...

 

He probably became an economist.

I used to have a page long problem that was like that, but only more subtle. In the problem I factored out a polynomial and then divided both sides by it. Once everything was reduced, you had a nice little equation that would prove, through substitution, that one was equal to two. The error, of course, was with the substituted values, which caused the polynomial to be identical to zero, thereby dividing both sides of the equation by zero. It's funny what dividing by zero will do.

Tom

 

So what you're saying in a round about way is: -
Car makers have been sticking it up the motoring public for a long time by promoting and selling giant land barges that not only will cost you more every week at the pump but they have overcharged you for them. By buying an overpriced land hog you are subsidising the small efficient cars we sell to other, far more astute auto buyers.

Hey suckers, don't expect things to change much just because we are in a fiscal down time, auto makers will continue to stick it up you as long as they can make you think a 1960s truck dressed up to look modern with a lounge suite and entertainment system installed is worth the price of 2 modern hybrids.

There is a sucker born every hour.

Using too much oil doesn't contribute to increased demand for imported oil.

So in that you say, if we can cut down our use of oil by 60% through more efficient use of it, it would not completely eliminate the need to import 60% of our oil. Hmm.

 

I think fuel economy will be the domestic automakers problem when:

a) the economy recovers and people start buying again and shortly after that (or possibly simultaneously)

b) oil prices spike up again and buyers start looking for vehicles with good fuel economy.

If the domestic makers can't make a profit (for whatever reason) on fuel efficient vehicles, then they are going lose out to those companies that do make a profit.

 

This is why Ford is working diligently to get the new Fiesta to the US market as soon as possible. And unlike the European model, the US model will have the advanced Powershift six-speed dual-clutch transmission, which means the convenience of the automatic with manual gear shifting faster than what you can do with a conventional manual and manual transmission fuel economy (no power-robbing torque converter to deal with!). :thumb:

 

Actually, he turned surfing into a career of sorts, along with being a general handyman and other odd jobs. For the life of me, I have no idea how the guy can support three kids and his wife doing that.

I guess the cost of living is pretty low in Rio

I'm pretty sure I had similar Gotchas that after you waded through the entire problem, realized

:doh:

 

Funnily enough, there are plenty of folks out there who believe that. Or, why bother, as we'll still have to import *some* oil.

I'd like a law passed prohibiting imported oil. Folks would find out just how pricey that tar sands, or deep ocean, or deep continental oil really is

 

There is also the minor detail that they have spent years jerking around the public, and some of us are tired of it.

 

Blame it on the U.S. Government on two fronts:

1) lack of regulation of oil futures, allowing the purchase of oil futures without buying oil, which caused $4 gas, and

2) no improved mpg standards for decades; and allowing commercial exemptions for private SUVs and small trucks.

It's the Government which has created the car industry mess--by not doing its job regulating oil futures and mpg standards. The car companies take what is given to them, and maximize their profits. That means big vehicles. You can't blame 'em.

 

Isn't anyone going to blame the customers who bought the land yachts (which really haven't existed since mid 1970s)? Are you saying the auto dealers/manufacturers are so talented in marketing and sales that they can get the public to buy anything they produce? Are customers so inept that they don't look for better deals? If so, why is Consumers Report and that ilk so popular? Maybe the buying public should consider that it encouraged dealers/manufacturers to act the way they did (assuming that they actually did act unethically, as some imply) by actually buying what was being sold.

 

I can tell you what the US automakers most major problem is....continually declining market share. There are the symptoms and then there is the disease.

Symptoms:
1) Verge of Bankruptcy
2) Complaints of Union Legacy costs (which is strange considering that I always found the Honda or Toyota equivalent to cost more)
3) US Government mandates claimed to cause problems.

Disease:
1) Abandoning various car markets (e.g. High mpg hybrids, etc.)
2) Quality "almost" as good as the Japanese. (Would you get a pacemaker that was #2 in reliability?)
3) Engineering is always second to marketing, finance, or whatever.

Nope, Fuel economy is not the cause of the big 3s problems.

 

anyone honestly thought something different would happen?? with the piss poor economic outlook, much less job security, and an uncertain future and one questions why someone would hesitate to buy a new car along with its 7 year payment commitment?

add to that, much tighter credit where people who would have easily gotten a loan 6 months ago now cannot?? (i know of one person at work who was in the market for a car last spring. despite now making slightly better money than before, they now are having a hard time getting financing... before they had several offers)

now, the fact that Toyota and Honda's sales were down more than Ford or GM means we only have to look at the past few Decembers to see the true picture. GM's sales did not go down as much simply because they were already pretty low. 2007 was no banner year for anyone over here either

 

The disease is residual perception of Detroit magnified by the ignorant MSM. When I watch CNBC, Bloomberg, CNN, it is downright scary how misinformed all the "experts" are about the auto industry.

The Bush White House was a great example of either incredible ignorance or inaction to promote a somewhat hidden agenda. The Bush Admin was against any govt loans to the auto industry because the "market" would take care of itself. Was it a game of chicken to protect foreign interests represented by lobbyists, crush the UAW, crush the middle class, or just blind "free-traders" who were finally educated about real-economics?
As for the 3 "disease" points above:
1. Someone name me the US market segments that GM, Ford and Chrysler have abandoned, what % of the US market they represent and how much those market segments would add to the bottom line.
2. GM and Ford quality is second to none at the present time and the results 5 years from now will show this to be true.
3. Engineering is not 2nd to marketing or finance. Chevy Malibu, Cadillac CTS, Buick Enclave, Ford F150, Chevy Corvette ZR1, all examples of the finest vehicles in each segment. The Corvette ZR1 is the finest vehicle in its segment regardless of price, probably in any segment.

 

This "bridge loan" or whatever they call it now, is just a downpayment in a long series of payments. Much like paying money to a mafia protection racket

 

The IV has been inserted, and blood is starting to drain out. The trick is to take as much as possible without killing the victim, at least not right away.

Tom

 

So the entire explaination of the loss of US auto market share is just the MSM bias?

1) High mpg hybrids, SmartCar and MiniCooper competitors, The EV1. They add nothing to the bottom line since they are not made.
2) Based on what?
3) Is the GM CEO trained in finance or engineering?