When I Say Bad, I Mean Good: Europe Sees 8 Percent Slump

Bad news (or, if compared to anorexic America, good news) from J.D. Power: Western European auto sales fell by 15.5 percent to 1,035,243 million units in October from a year earlier, reports Automotive News (sub) . They say, the decline in new-car sales in Western Europe could be worse than a slump in the early 1990s. Contrast that to “the worst sales month in the post World War II era,” which GM’s Chief (Non-) Sales Analyst just saw for his employer in North America.

Everything being relative, America's relatives in the Old Country still have it relatively good. If J.D.Power’s crystal ball is still functioning, the Western European car market may decline by 8 percent in 2008, and go down between 10 and 11 percent in 2009. J.D.Power came to the not all too surprising conclusion that this would “place major strains on the European auto industry.” As opposed to the end of the world, which is generall being announced in the U.S. of A. Note: As long as the VW stock goes for between €500 and €1000, depending what time of day it is, or the whims of Porsche may be, as long as BMW’s owneresse can afford millions to pay a gigolo, the European market will be just fine. All things, considered, of course.

Old News Of The Day: Toyota Tops GM

(First published in TheTruthAboutCars on November 1, 2008)

“Toyota Motor Corp. trumped General Motors (GM) in total car sales during the first nine months of 2008 to become the world’s top car producer for the first time,” the Mainichi Shimbun reports from Tokyo. “Huh,” say you, “hasn’t ToMoCo trampled GM already?” Not exactly, and not officially. But they are kicking ass and GM to the bottom. Unstoppably, one may add.

“GM’s sales between January and September in 2008 were down 5.8 percent to 6,655,751, according to figures released by the company on Wednesday. Toyota’s sales for the same period, including those of subsidiaries Daihatsu Motor Co. and Hino Motors, were 7,051,029, almost unchanged from last year,” writes the Tokyo broadsheet with a kuso-eating grin on their faces, in the same sentence dispelling rumors that ToMoCo had contracted the galloping auto trade tuberculosis. [NB: Mainichi is one of the top three Nipponese papers,thick with Japanese politicos. Two of Mainichi’s CEOs became Prime Ministers of the Land of the Rising Corolla.]

Officially, and unbelievably, GM is still the world’s largest automaker. The official score keeper of all things auto is the oddly French-named “Organisation Internationale des Constructeurs d’Automobiles,” better known as OICA. In OICA’s 2007 tally of units sold, GM had edged-out Toyota by 800k units, and by creative bookkeeping, such as counting sales of companies where they had only a minority share. Immediately, Toyota shouted “foul!” (Politely.) They pointed to 9,497,754 units Toyota had made (as in produced) worldwide in 2007, versus 9,349,818 made by GM. Be it as it may, in the world according to OICA, GM is still the top dog until the fat lady sings the aria of the 2008 numbers.

With a deep bow towards Detroit, the Mainichi scribes now rub it in slicker than a Tokyo oily massage: “And while GM just beat out Toyota in total sales over 2007 as a whole, good first half figures and a relatively soft blow from the economic crisis compared to its American rival mean that Toyota is set to take the top spot this year.” You bet your ketsu they will.

(Picture courtesy of pictures.businessweek.com. Thank you!)

Getting Out Of Dodge. Heck, All Of Detroit.

While billionaires defect Detroit, Chinese women buy new cars with 3 months of breastfeeding.

In a sign that the worst is yet to come, turn-around artists are turning their backs on Detroit’s auto makers. Billionaire Kirk Kerkorian is unwinding his holdings in Ford Motor Co. , after his nearly one billion dollar investment (made when he thought Ford was cheap) lost two thirds of its value and is heading further South. Kerkorian had to pledge 50 million shares of his MGM Mirage Casino to back the credit line he used to buy into Ford. The house is clearly on fire when supposedly recession-proof investments in vice are pawned to prop up auto makers. (However, even vice isn’t what it used to be.)

Stephen Feinberg’s Cerberus, urged by JPMorgan Chase & Co. and Citigroup Inc., which hold a lot of the debt from Cerberus's purchase of Chrysler from Germany's (then) DaimlerChrysler AG in August 2007, is desperately trying to unload Chrysler and foist it upon GM. Cerberus is also talking with Nissan Motor Co. and Renault SA about a linkup, but that’s just viewed as a side show to lend more urgency to the wedding with GM. The Chrysler/GM nuptials have been talked up in the mainstream press as a gift from heaven, as a “win-win” situation full of “synergy” potential. These words rank big in the Dictionary of Corporate Bullshit - the smart make a runner for the door when these words are used. In a particularly apt analogy, our friends over at TheTruthAboutCars liken the Chrysler/GM shotgun wedding to the “Titanic rescuing the Lusitania.” (If Google is an indicator, they should trademark the term.)

“Typical investors, and Cerberus is anything but typical, are running from the automotive industry,'' said Warren Feder, partner at Carl Marks Advisory Group LLC in New York. “It's hard to see any upside with a degree of comfort, and you need that to make an equity investment.''

U.S.A.: Less than 11 million cars in 2009?

JPMorgan Chase & Co, who should have a vested (see above) interest in painting a rosy picture of the auto industry, just did otherwise. U.S. auto deliveries may fall to an annual rate as low as 10 million vehicles this quarter and as low as 11 million next year, Himanshu Patel, an analyst at JPMorgan Chase & Co. in New York, wrote in a report on October 21, 2008 . A few days before, J.D. Power and Associates still had estimated 13.2 units sold in the U.S. for 2009. Patel’s 2009 estimate would be the lowest rate since 1982. The predictions get worse by the day.

China may sell more cars in 2009 than the U.S.

If Patel is right (and, see above, his firm has a lot of hard earned insider knowledge about the auto business,) and if China maintains a – by Chinese standards – rather sedate growth rate , come 2009, the Chinese auto market might be the same size or even larger than the U.S. The China Association of Automobile Manufacturers, had targeted 10 million units for 2008, but with growth slowing in China, the Eastern Empire may not quite make it this year. Next year, unless the sky will fall, 11 million are entirely doable.

U.S. auto industry goes hungry. Babies too.

In the meantime, according to Bloomberg, the exit of Kerkorian, Cerberus & Co. “may leave the U.S. auto industry without new funding just as sales head to a 26-year low.”

Here comes a really disturbing bit of data: "Most consumers are worried about: 'Will I have enough to put food on the table so my family can eat?' Eduardo Castro-Wright, President and CEO of Wal-Mart's U.S. operations told attendees of a luncheon sponsored by Town Hall Los Angeles. His stores see spikes of sales of baby formula when paychecks come in, “suggesting consumers are rushing to buy such necessities as soon as they have the cash,” Reuters reported.

“As the economy worsens, Wal-Mart's customers have increasingly shown signs of living paycheck to paycheck. Wal-Mart's sales typically surge around pay periods at the beginning and middle of the month. Castro-Wright said that spike has become more pronounced as consumers' budgets become more stressed.”

Buy a new car with 3 months of breastfeeding.

Contrast this to China. In the wake of the milk worries, affluent Chinese parents of babies more and more turn to “milk mothers” or “Nai Ma” who breast feed their new-borns if the real mother doesn’t want or can. Baby formula? No, thank you. Or "bu, xie, xie," as they say. They want the real thing for their one child only. In Beijing, a milk mother from the provinces can make between $300 and $1600 a month, with free room and board. A secretary in Beijing starts at around $300 a month, and must use the money to pay for food and shelter.

Back to cars: A family that barely can feed their babies is unlikely to worry about a new ride. A Chinese milk mother can buy a new car for cash with three or 5 months earnings. While the International Breastfeeding Committee of WHO/Unicef recommends breastfeeding for six months, Chinese hospitals recommend a year or more. After a year’s of not really hard work, the milk mother will have two or three cars. Meanwhile, back in the U.S. of A. , parents need parts to keep their cars running, at least twice a month, for a trip to Wal-Mart.

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Pictures by epicharmus, Dr. Keats, Brave New Films. Thank you!

GM wants their money back

Bob Lutz, GM's vice-chairman, said GM is making plans to move money from Chinese operations to the U.S. in order to to compensate fo North American losses. Since nobody seems to want to buy the Hummer brand, which GM put up for sale, repatriating profits from China is one of the few options left for GM.

Desparate times.

Draining the huge, vibrant and growing China market of funds while the rest of the world tanks doesn't sound like such a good idea, but these are desperate times. "We do not rule out such a possibility under current conditions,” Lutz said. (Translation: We are already preparing the transfer.)

GM had been doing really well in China since they started producing vehicles here in 1999. This has changed. The Volkswagen Group again is China's market leader in passenger vehicles. GM is also being outsold by Toyota in passenger vehicles. The gap may widen if Detroit pulls out marketing and development funds from China.

Already, General Motors Corp. Asia Pacific President Nick Reilly said the company's vehicle sales in China fell in August and September from a year earlier. He also isn't too sure about GM's previous forecast of of 11% to 12% overall sales growth in the Chinese auto market for 2008. "The market is too unpredictable to forecast with any credibility," Reilly said. (Translation: Prepare for the worst.)

SAIC won't like it.

Their joint venture partners will not be amused by GM wanting their money back when cash is king and credit is an endangered species.

General Motors has several JVs in China through mergers of local companies jointly held with the Shanghai Automotive Industry Corp (SAIC) - one of China's top three automakers. SAIC is also an important JV partner of Volkswagen, and if the money flows back to Detroit, SAIC may like the Germans even better. Volkswagen doesn't need the money, their stock is skyrocketing (see real time chart on the left) while the rest of the world is going to the toilet.

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Picture by mikecolvin82. Thank you!