Archive for the 'Steve’s Rants' Category
GM and Chrysler
According to an article in the Financial Times General Motors and Chrysler, without more government aid, the future of the two companies looks even worse than it did in the fall. There are even analysts that doubt whether the third Detroit automaker, Ford Motor Company, can avoid accepting taxpayers’ money. They are even going as far as saying that the risk of bankruptcy for all three companies is very high in 2009. While this is not good news at all, hopefully agreements will be reached and the government will help out (to date GM and Chrysler have received $17.4 billion in loans, while the banks are over $700 billion, and European nations are offering bridge loans to companies there to try and keep them afloat.)
The only problem I have with this article (and many others that I have read lately) is that writers keep pointing out that truck and SUV sales have been hit the hardest, and this is critical for the Domestic 3 because they their most profitable vehicles. While this is true, the foreign companies have also been hit by slow truck and SUV sales. Nissan is collaborating on its next generation Titan full size pickup with Dodge, Toyota has moved production of its Tundra pickup to just one plant, after building a second plant at a cost of over $1 billion dollars in 2007. The auto market might not be in such bad shape if writers would actually take the time to do some simple research and write articles that promote the good things the D3 are doing, instead of always throwing them in the corner.
Pickup vs. Prius
Everyone has been arguing over what the real cause of Detroit’s trouble is. Some say it’s their product line-up, which was known for it’s poor quality, poor fuel efficiency and lack-luster designs. Others say it’s the credit crunch, the implosion of the housing market, and rising gas prices. While reading an article in this month’s Motor Trend magazine though, I realized that Angus Mackenzie is 100% correct when he states that, basically, the fickle nature of customer’s buying habits is really to blame for Detroit’s problems.
Mackenzie states some very interesting facts in his article, titled, “Prius or pickups? – What’s the best way forward for Detroit?” In summary, he lays out how unpredictable American consumers are. Toyota has halted production of a $1.3 billion factory near Tupelo, Mississippi, that was intended to build the new Prius hybrid (originally slated to build the Highlander SUV.) Why on earth would Toyota do that, you might be asking, when hybrids are the “in” thing right now? The reason is very simple actually. November 2008 Prius sales were about half of what they were in November 2007. Sales of the Prius were 8660 to more than 21,000 for the two months respectively.
So what you might say? The car market as a whole was down, people were having a harder time getting credit. To that I say, you’re absolutely right, until you look at another set of data. For that same time period, Ford F-150 sales were down only 18.5%, while the Chevrolet Silverado sales were down 22%. 37,911 F-150s and 29,534 Silverados rolled off dealer lots even with the credit crunch and bankruptcy rumors floating around. This is where the problem lies, says Mackenzie, “If no one can figure out what vehicles American consumers will buy from one month to the next (and that includes Toyota, allegedly the smartest guys in the room), how on earth is Capitol Hill going to be able to determine in which direction Detroit’s salvation lies? Should Motown be building Prius clones? Or pickups?”
This is where I couldn’t agree more. Truck and SUV sales were down sharply this summer, when gas was streaking towards $4 a gallon. Automakers (the D3 and their foreign rivals) were all scrambling to stop production of large, gas guzzling vehicles and produce more smaller, fuel efficient vehicles. Yet when the stock market fell out, gas prices tumbled down under $2 a gallon again and what do you know? Truck and SUV sales picked up, granted not to levels like the late 90′s, but still they were higher than in the summer. People had already “forgotten” the pain at the pump they had been experiencing just months before. The Detroit 3 are constantly blamed for building only large trucks and SUVs, but how can they be blamed? They wouldn’t be building them if we weren’t buying them! People were not interested in small, fuel efficient cars back in the 90′s, so Detroit didn’t build as many of them as they did larger, less efficient cars/trucks/SUVs.
This is why we need to push the politicians in this country to increase the taxes on gas. Consumers will continue to buy the most vehicle that they can afford, as long as gas stays cheap. Europeans buy diesels, not because they get better milage, but because diesel is cheaper to purchase, due to the high taxes placed on gasoline. The same is true here. Sure, Toyota sold large numbers of the Prius before gas shot up, but sales were many times greater when people were feeling the pinch every time they filled up their tank. Similarly, truck and SUV sales dropped off when people were spending $150 or more to fill their tank, but once prices fell back down, and a fill-up only cost $50 again, people moved back towards larger vehicles.
Until the leaders in DC realize what is going on, they are going to continue putting the pressure on the automakers to produce cars that get better fuel mileage, when in reality, it’s doing more harm than good. If gas prices were raised with a gas tax, then larger numbers of people would move towards smaller, more fuel efficient vehicles, forcing automakers to shift with the demand. Instead, the government is using CAFE to force automakers to increase mileage by unrealistic amounts within unrealistic deadlines.
