The View From The Dealer Floor
Major automakers don’t sell cars to American consumers; they sell to dealers. And the biggest U.S. dealership chain by a wide margin is Fort Lauderdale, Florida-based AutoNation, which sold over 440,000 new and used vehicles last year.
So when AutoNation CEO Mike Jackson talks, auto executives listen — or so you would think.
In an interview with Reuters, Jackson said Detroit automakers had largely ignored his warnings over the past decade that the U.S. industry was headed for a crisis.
“I think I was usually able to reach an intellectual agreement on where the industry was headed. Where we disagreed was how much time we had to get there. On that, even I was wrong. Time was up,” Jackson said. Jackson thinks GM and Chrysler can be fixed. But he also thinks Washington should let either or both fail if their current turnaround effort backed by $60 billion in taxpayer funds falters. Here are excerpts from the interview and Jackson’s view of where GM, Chrysler, Ford and their rivals stand now in the marketplace:
Q: Are GM and Chrysler capable of change?
A:I think they had a near-death experience. When you really get down to the point where we either get this done or we won’t exist anymore, then it happens. …My sense is that absolutely Sergio (Marchionne) is providing leadership at Chrysler and (Fritz) Henderson at GM. It’s under way, and it’s going to happen. Q: You’re looking to buy Ford and GM dealerships. Why is that?
A: We always bet on the biggest, broadest brands. Now we’ll take a look if the pricing and the opportunities are right. We love Chevy and we love Ford. Those are the brands that will succeed in the future. Those are the brands that are going to get the majority of the product and marketing dollars from those companies. They’re also the broadest brands. You can sell everything from Chevy from a Corvette to an Aveo. It’s unbelievable how well accepted and how approachable those brands are for the American consumer.
Eastbound Traffic
Was there ever any doubt that China, having donned the overalls of the world’s manufacturer, would ultimately emerge as a top bidder in the race for sputtering global auto assets? Not only does the country have the labor force to build the automobile of tomorrow, but increasingly it has the consumer class to buy it.
So it would seem natural for Swedish luxury sports car maker Koenigsegg to tie up with China’s BAIC to help finance its purchase of Saab from General Motors. And news that the parent of China’s Geely Automotive wants to bid for Ford’s Swedish brand, Volvo, is as much a confirmation of a trend as it is evidence of a tectonic shift in the industry.
Like its neighbors Japan and South Korea before it, China has the tools to revitalize the auto industry by applying its low-cost muscle. The trick will be to nurture these imported brands and their technological expertise so they can survive the transition. China has never been known as a paradigm of consumer safety – at least not in a way befitting Volvo.
Japan and South Korea were able to grow their own intellectual capital in the auto industry. But perhaps what the struggling industry needs now, rather than innovation and cutting-edge research, is simply a place with both a production and a consumer base in which to ply its trade.
Ford goes into overdrive
With GM‘s share price heading toward $1 and Chrysler close to consummating its shot-gun wedding with Fiat, Ford‘s raising $1.4 billion through the sale of 300 million shares puts some serious distance between it and the competition.
Having gone this far into the recession without government aid, Ford is making a big show of going green, consolidating its dealer networks and taking the kind of cost-cutting steps that GM is being chased into by the government and that Chrysler is hoping for from its merger with Italy’s Fiat.
If the restructuring moves weren’t enough, Ford chief Alan Mulally (smiling and clapping, left) made sure to hit the right PR notes when detailing how the fresh cash would be used: possibly funding a larger portion of Ford’s retiree obligations.
Given that GM’s latest do-or-die deadline with the Obama administration autos task force is just a couple weeks away, Ford’s going to market now serves more to separate it from its struggling rivals than to address any real funding needs. The company said just last week that its restructuring was on track and that it had sufficient liquidity to fund it, including converting plants and investing in future products.
It’s always wiser to approach the market from a position of strength, so while Ford may not appear to need the money right now, the sorry state of the competition may have made the opportunity too good to pass up.
Deals of the Day:
* Ticketmaster Entertainment said it received the required approval from its lenders for its proposed merger with Live Nation, the world’s largest concert promoter.
Its still all about political games and playing the press, will they ever learn?
Road Shows
At the Geneva auto show, General Motors is getting down to the business of convincing European governments to pump state funds into its Opel/Vauxhall arm. Europe has long been considered one of the more profitable corners of the globe for GM. The company is talking about closing three plants there and warning officials that there will be liquidity problems at Opel/Vauxhall early in the second quarter if they don’t pony up.
Leveraging similar tactics it used in the U.S., GM is telling European leaders that the aid it needs — whatever the final price tag — will cost less than an Opel/Vauxhall failure. This is an argument likely to find more traction in Geneva than it did in Washington, where socialism is not a word used in polite company.
Meanwhile, the great race for global funding is picking up speed. Toyota, the world’s biggest auto company, is looking for dollars to keep its loan business competitive in the shrinking global auto market. Ford is again reported to be shopping Volvo in China. At speeds like these, avoiding a huge smash-up before the next big turn would be a miracle.
Deals News:
* Air France-KLM will launch a tentative bid for Czech Airlines (CSA) within weeks as European carriers regroup in the face of a downturn that so far shows no signs of easing, its chief executive said.
* Royal Dutch Shell said it plans to accept BG Group’s improved offer for its stake in Australian coal seam gas firm Pure Energy in the absence of a higher bid, helping the British firm move closer to a takeover.
* Bespoke furniture maker Smallbone said it is considering a sale of the company as its shares were suspended pending clarification on its funding.
Racing to the Rescue
Who in the world doesn’t believe in supporting the auto business? As the U.S. Treasury contemplates the extent to which it will pump funds into the Detroit Three, European leaders are revving up measures to keep their car companies chugging along.
French President Nicolas Sarkozy said France would consider making consumer auto loans more attractive as a way to help car makers hit by the global credit crunch and slowing economy. As if his country were plagued with a reckless, cut-throat sort of capitalism, the French president declared: “We cannot be the only country in the world that does not support our builders and manufacturers. We have to help industrial infrastructure.” He’s already offered 1,000 euros to every driver who trades in an old vehicle for a less-polluting one, so softening up auto loans would seem to be right up a Parisian alley.
In Italy, Fiat’s admission last week that its car business needs a partner to survive is seen as a way to put pressure on the Italian government for a solution. While media reports cite France’s PSA Peugeot-Citroen and Germany’s BMW as potential partners, industry watchers do not see a deal any time soon. Volkswagen says its finance arm has no capital problems, but is applying for state loan guarantees nonetheless. Sweden and Canada wasted no time pledging support for their auto sectors.
Much like any driver who has found himself staring dumbfounded at a mechanic’s repair bill, governments may be grumpy, but there is no way they won’t pay up.
Deals of the day:
* Suzlon Energy, the world’s fifth-largest wind turbine maker, said it has agreed with Portugal’s Martifer to revise the payment schedule to increase its stake in Germany’s REpower.
* Unite Group, Britain’s largest provider of student housing, said it has completed a sale of assets to the Unite UK Student Accommodation Fund for 171.3 million pounds ($262 million) in cash.
Really impressing how many things politicians do for these companies…
But what about the small companies?! I dont think any politician will directly help a smaller company like mine (5-20 people), but these companies are the basement of every economy!!
A bailout too far
Senate Republicans who killed an auto industry bailout must have had a particularly nasty sense of deja vu. If they didn’t get on board, the economy would collapse. “For the hundreds of thousands of people whose jobs depend on this industry, this will not be joyous season,” bellowed Sen. Chris Dodd. It was up to the Republicans. To save Detroit, all they had to do was sign over a fraction of what they’d agreed to for Wall Street.
It wasn’t as if there was another industry waiting in the wings, ready to head to Washington demanding a bailout as soon as the automakers got theirs. So the Republicans couldn’t have feared yet another dollop of largess around the corner. Ultimately, it came down to good old lefty Union vs. rightly Republicans arguing over when workers would agree to take pay cuts.
Has the countdown begun to industrywide bankruptcy? That’s what the automakers say — because of their shared suppliers and vendors, the failure of one Detroit automaker could drag down the other two, as well as other businesses. GM, Ford and Chrysler employ nearly 250,000 people directly, and 100,000 more jobs at parts suppliers could hang on their survival. The companies say one in 10 U.S. jobs is related to the auto sector.
Rebellious Republicans argued that the White House, which favored the bailout, had become irrelevant. After all, the new president takes office in just over a month, making George W. Bush about as lame as a duck sunning on a Fort Lauderdale beach.
Attention is now turning to the Treasury Department’s tattered TARP program, and whether Hank Paulson will do an about-face and throw Detroit a lifeline from what’s left of the $700 billion rescue program for the financial industry. Could Bush’s grand finale be to thumb his nose at his own party and keep hundreds of thousands of people working through Christmas?
Deals of the Day:
* Germany’s Daimler signed a $250 million deal to acquire a 10 percent stake in Kamaz, Russia’s largest truck maker, executives from Daimler and Kamaz told a joint news conference.
Natalie: It’s called INFLATION. If everyone had 1 million dollars how much do you think people would charge for in demand goods? A lot, cause everyone’s a freakin millionaire.
dlb: I totally agree with you, the GOP has been trying to make us a 3rd world country in manufacturing, health, science, edumacation… not sure why but it may have something to do with being greedy traitors.
Come on.
Gone are the days of planned obsolescence where you traded out before the cost of maintenance hit you. Not that long ago warranties for 3y/30k miles were replaced with 10/100. The paint doesn’t even chip anymore.
The secondary warranty market just exacerbates the ever increasing spread between when an auto is replaced for new.
People got used to 2 year leases but the days of $79 a month (1997) are over. Not that long ago a BWM was $400 a month, now it’s a Corolla and a 48 month lease -not that you can get approved for credit on either.
Face it, the market has changed and it’s due to more than a economic downturn.