Someone Has To Be Profiting Now, Right?

September 22, 2009

There’s an old adage in the business world: no matter how bad things get, there’s always someone out there profiting from it. It was true when my immigrant great-grandfather and grandfather (with his sixth-grade education) bucked the tide against the depression during the years running into WWII thanks to their scrap metal business…and it must be true in today’s economy.

When it comes to the auto industry, however, winners are seemingly nowhere to be found. We already know that the manufacturers have been getting slammed harder than a teenager in a punk concert mosh pit. Consequently, all the new car dealers, OEM parts suppliers, Madison Avenue advertising companies, and sponsorship-heavy auto sports and lifestyle events have taken it in the shorts.

But someone has to be winning, right?

The knee-jerk reaction is to say used highline auto sales operations are profiting, but that’s not really accurate. It is true that with production of new Mercedes, BMW, Audi, and Lexus at a snail’s pace, new car inventory is a thing of the past (at least for certain models). With desirable units nowhere to be found, potential clients have to either wait or buy used. Most are simply not buying at all, which means compounding the problem with no used car trade-in. The lower supply combined with higher demand has driven up the values of highline used vehicles.

This doesn’t necessarily mean more profits for the dealer or the auction company. Higher prices can’t necessarily be recouped by dealers, and auctions are killed by lower volume. The only dealers which have seemed to do well are those well-run operations catering to demographics rich in panic sellers as well as gotta-have-it-now buyers.

If people are keeping their cars longer, then the automotive service industry is making off like a bandit, right? Nope. Dealer service centers rely almost entirely on new and used car sales to generate business – and overall corporate profits. As for independent shops, the down economy has turned regular service clients into “fix it when something important breaks” customers. Furthermore, the costs of parts, tools and services used by mechanics have all increased…and only so much of these cost increases can be passed on to the customer base in a down economy. The only upside is that there are more good mechanics looking for work, so hiring qualified talent isn’t as hard as it was in the good old days a few years ago.

Collector car auction volume and results are down. Car shows have reduced attendance and participation. People are buying less gas. Restoration parts suppliers are hanging on by a thread. Online listings on sites like eBay and Craigslist are up, but sales resulting from these listings are down sharply.

The bottom line is that no single group associated with the auto industry seems to be “winning”. The quick and the smart individuals, though, are out there positioning themselves for success. Buy low now to sell high later…or taking the opportunity to develop, test and create synergies for new technologies/products now to fulfill a need when the market returns.

And if you couldn’t guess — automotive journalists aren’t winning now, either. With advertising revenue down, the newspaper industry in shambles and a flooded talent pool, it’s nearly impossible for automotive content providers to expand into new publications. Maybe our President will bail out the automotive journalists? I’m 6’4”, doesn’t that qualify me as “too big to fail”?

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If They Can’t Sell The Cars, How Do They Expect To Sell The Car Companies?

December 5, 2008

The Big Three CEOs are back in front of Congress to again ask for money. This time, the boys left their jets at home and drove in cars. They also brought the plans for returning to profitability that Members asked them to supply.

Pluck me bald and call me Telly, but what the executives are shoveling doesn’t seem to be nearly enough fertilizer to make this garden grow again.

Central in plans from each company is the sale of at least one brand. Ford wants to sell Volvo, GM admits Saturn, Saab and Hummer are on the block, and Chrysler is waving Jeep in the wind. Now I’m not an automotive executive…and I didn’t even stay at a Holiday Inn Express last night, but I’d like someone to explain to me how if none of these brands are successfully selling individual cars to consumers, then how do the Big Three execs expect to sell the freaking brands themselves?

Let’s break it down: Volvo is on track to sell roughly 72,000 cars. Ford sold-off Volvo trucks many years ago, so the value of the brand is based only on consumer vehicles. Over at the General’s place, Hummer is on pace for just under 45,000 vehicles, Saab at 90,000 and Saturn at 230,000 cars. Jeep is the largest contributor of any of the brands, looking to deliver in 2008 for Chrysler just under a half-million vehicles.

Nobody in their right mind will buy Hummer. Its place in a 2015 35 mpg CAFE America is non-existent. Some Arab prince might buy it on a whim, but no automaker wants that brand hanging on its CAFE results like an anchor.

Saturn is like Mazda, just not as sporty. It is possible that a BMW or Porsche could buy them for their mpg and stand-alone dealership network. Don’t expect them to pay too much.

Saab and Volvo might as well look to the Korea, Malaysia or India for a buyer. No German, French or Italian company will touch these quirky Swedes.

Jeep is a more interesting play, because it’s a respected niche brand without the horrible CAFE strain of Hummer. Some company will make a play for Jeep.

In the near term, though, selling these companies creates costs for the Big Three. GM, Ford and Chrysler have traditionally spent way too much money in concessions to dealers after selling or closing brands. Also, don’t expect any companies to pay much for these brands when it is well known that a) the brands are for sale and b) nobody else is bidding on them. Despite skipping all those economics lectures in college, I do remember the whole supply and demand concept.

Obviously there is much, much, much more the Big Three’s plans for profitability than just selling these brands. Labor union concessions, plant closings, pay reductions, job cuts, supplier contract renegotiations, and dealer closings (why is it when you ask about dealer quality, Big Three executives always are quick to point out that dealers are independent, and it’s impossible to better control service and sales capabilities, but when dealers are a part of larger plan for money, they are no longer seen as rogue entities?) are all part of the deal.

Maybe the Big Three will offer “Zero Down, Zero Percent Financing”, “Factory-to-Dealer Rebates” and “Employee Pricing” for any company interested in buying Saturn, Saab, Hummer, Jeep, or Volvo?

With now $34 billion in bailout (call it loans, investment, or whatever – it’s a bailout) requested, and now talks about “government managed restructuring” which sounds way too much like British Leyland version 2008, Americans should be screaming to let the companies sink or swim on their own. If it really is as easy to sell brands, lower labor and supplier costs, and most importantly – create new cars that people will actually buy over the competition as the Big Three claim it will be with the funds Congress provides, then certainly these companies should be able to do it without getting involved with inefficient government red tape that will come with any bailout money.


No More Wings With GM’s Prayers

December 2, 2008

General Motors finally has found things to sell that are harder to get rid of than its cars: its corporate jets. In a thinly-veiled attempt at wooing Congress and smoothing the public relations disaster from the last Congressional appearance, GM just announced that it is ending its aviation program:

GM Ceasing Corporate Aviation Operations

DETROIT — GM today announced that it is ceasing operations at General Motors Air Transportation Services (GMATS) at Detroit Metro Airport.
Due to significant cutbacks over the past months, GM travel volume no longer justifies a dedicated corporate aircraft operation.

GM is currently exploring options for transferring its aircraft to another operator. The company is pursuing sale of four of the aircraft so it can terminate the leases.

GM will shutter the facility at Metro Airport effective January 1, 2009. GM will work with the airport to seek a tenant for the balance of the lease, which expires in 2009.

I wonder if any of us can get factory-to-dealer incentives on these planes…Zero down, zero percent financing maybe? In any event, while GM will lose its shirt selling the planes, it probably won’t lose more money than it has selling its own vehicles through dealers.