Category: Auto Industry

Economics Update (a Day Late) (Again!)

No Comments

I know that there is a lot of talk about the recession ending, but all the metrics that involve manufacturing real items in the united states, are down, case in point, the AAR’s report on rail traffic, which is down, 17.1% YoY, which is, as Yves Smith notes, down to 1993 levels.

I’m not saying that the rest of the world is not showing signs of recovery, after all the economic powerhouse New Zealand’s economy has left recession, and the $NZ is hitting records, but for the United States, things are not looking better for the rest of us.

Actually, we are seeing some positive movement in US manufacturing, like GM adding shifts at its plants, though this appears to be one part “cash for clunkers”, and one part having to make up for other plants that have been closed.

We are seeing some action though in Federal Reserve and U.S. Treasury land, where US Treasuries are up, and hence yields are down, largely on the expectation that the Fed won’t do anything to interest rates.

More importantly, we are seeing evidence that the Fed is looking at winding down its money printing. They are not doing it yet, but the Bernanke and crew are in preliminary discussions with bond dealers to implement reverse repurchase agreements in order to get a trillion dollars or so out of the money that they pumped into the economy:

Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.

Well, the intent is clear, though the mechanism is as clear as mud to me.

In the always fun areas of energy and currency, oil rose because the dollar fell to a one year low, $1.4778:€1.000, though this is still about a dime below the peak in early July of last year.

Lessons of the 787 and GM’s Opel Division

No Comments

Well, the first lesson is that airframers are running away from all composite aircraft, with Mitsubishi going from a composite wing to an aluminum one on its MRJ commuter jet, they say that this will make it easier to make changes to the wing to accommodate for things like stretched model. (See also here)

This is particularly noteworthy because Mitsubishi is already making the all composite wing for Boeing’s 787, so they are very familiar with the structural problems of the 787 (see here, here. and here)

The thing is, that their assessment on this situation is probably more valid than Boeing’s, because they understand the issues involved with composites more than Boeing does.

Boeing’s policy of outsourcing major design and engineering decisions, along with risk, on the 787 has placed it in a situation rather similar to where GM is right now with regard to its suppliers:

Magna’s planned acquisition of Opel is proof that carmakers have lost the upper hand in the industry by outsourcing development work to suppliers and relying on them for technological knowhow, a top GM executive said.

…

“We all had the vision that the OEMs (original equipment manufacturers) should just assemble bits and pieces, do a little bit of marketing, a little bit of design and all the rest would be done by suppliers,” he said.

“That was a nice vision. It sounds very lean, but the profit making opportunity is also shifting to the ones that have the technological knowhow. That is in very many cases now the supplier industry,” the GM Europe president told the dinner.

The situation is not as straightforward with commercial aircraft, because certifying an aircraft is far more difficult than getting regulatory approval on a car, but as we can see, Mitsubishi is already on top of that process with its MRJ, and certifying a 70-100 seat aircraft is not appreciably more difficult from certifying a 400 seat aircraft.

This may be a situation where the political tensions in Airbus, which has limited them farming out technologies and design expertise, may serve them well in the future.

What’s more, unlike an auto manufacturer there is no need to build a dealer network, which is a huge hill to climb.

Boeing’s methods on the 787 may be a suicide pact for its commercial aircraft business.

GM Bails Out Angela Merkel’s Reelection Hopes

No Comments

They decided to sell to Magna, whose bid had been anointed by Merkel and the CDU party.

I’m not sure that Merkel can lose now.

Of course, with the SDP categorically refusing to form a coalition with the Left Party, we’re likely to end up with the status quo after elections anyway: The SDP gets the most seats and votes, but by refusing to ally with the Left Party, it means that the CDU-FDP coalition has more seats than the SDP-Green coalition, and the SDP is once again forced to be a junior coalition member.

This may have been “responsible” in 2005, when the last elections happened, but in 2009, after pretty much every single complaint of the LP about the excesses of capitalism have proved true, it’s just stupid.

Economics Update

No Comments
Image Courtesy Calculated Risk

We have the new unemployment claims numbers, and according to USA Today and Reuters, the numbers are down, though as Bloomberg notes, the numbers are still 570K, more than the 564K expected.

Only, in a bit of flagrant journamalism, they ignore the fact that, the initial numbers for last week were 570K, and this week’s numbers are 570K, but since last week’s numbers have been revised up to 574K, they claim a small drop in initial Filings. (H/t Dean Baker, as well as CNN, normally the Cheer-leaders News Network, out there, for the catch)

Note that if the number is much above 400K, we are still losing jobs, that the 4 week moving average rose to 571,250, and that continuing claims rose by 92K to 6.23m.

The Institute for Supply Management’s (ISM) NMI (Non-Manufacturing Index) is at 48.4%, indicating further contraction, but this is an improvement.

As Atrios puts it, “Hurray, the 2nd derivative is positive.”

In retail, same store sales fell 2.9% year over year in August, the back to school season, so the consumer is not yet ready to put the economy back on their shoulders.

In central bank news from across the pond, the European Central Bankleft its benchmark interest rate at 1%, and issued a statement that it sees no prospect of either rate hikes or its unwinding its support for their banks in the near future.

In the world of credit rating, Moody’s raised Ford’s debt rating to Caa1 from Caa3, but according to S&P, the default rate for junk bonds rose to 10.2% in August, up from July’s 9.4%, which does not bode well for the ability of companies to raise capital.

BTW, remember last week when I said that insider selling was beating insider buying by 30.6:1? Well, it’s up to 61.8:1.

The sucker’s rally is coming to an end.

Finally, something I generally pay very little attention to, but gold is getting awfully close to $1000.00/oz. (Troy)

The gold bugs will tell you that now is the time to buy gold, but I’ll say that gold approaching the 4 digit line means that it is time to dump gold and get the f%$# out of dodge.

In currency, the dollar was a bit stronger, largely on concern for Japan’s new government, and the statement by the ECB.

In energy, oil fell slightly, largely on the unemployment numbers.

Economics Update

No Comments
Auto Sales Graph Pr0n Courtesy Calculated Risk

Construction Spending Pron Also Courtesy of Calculated Risk

As is noted by Calculated Risk, light vehicle sales hit a 1¼ year high in August, but that was with the Cash for Clunkers program, which is now over, which begs the question, “What happens in September?”

I think that the trend is generally up, because the sales were so low that the fleet replacement time (fleet size/sales) was approaching 30 years, which is simply unsustainable. (click images for full size)

It should also be noted that for all the claims of recovery, both residential and non-residential construction spending continues to decline.

Additionally, notwithstanding the “green shoots”, the bond market is pricing in some very hard times ahead, with US Treasuries rising in price, which drops their yield.

This sentiment is also serving to drive the Yen and the dollar higher, and crude oil lower, as people look for a safe haven.

When Pump and Dump Fails

No Comments

In this case, it’s Cerberus, the secretive (aren’t they all) hedge fund that bought Chrysler, and then took it into bankruptcy.

As I noted at the time, they bought Chrysler because they were hoping to buy it on the cheap, and when the likely purchaser, General Motors, turned out to be in almost as bad a shape as
Chrysler, they took a bath, as well as taking a hit on their investment in GMAC.

So now, investors are clamoring for the exits, (also here) because even though Cerberus is chock full of former government insiders, they do not believe that they will make money with the firm.

It’s clear that they bet on government bailouts that would be extremely favorable to them, and they were not, and now they are experiencing a run on the bank.

GM Sells Saab to Koenigsegg

No Comments

So it looks like the quirky cars are going to be around for a while (see here and here).

There is still the matter of financing, but this is pretty close to a done deal.

Koenigsegg is a serious (the body is completely carbon fiber, it weighs less than 1300 kg, and it does 0 to 100 km/h in under 3 seconds) supercar manufacturer (see pic), which implies that they will be doing more than just milking the brand name, and will actually look to keeping the Saab product line fairly cutting edge, perhaps migrating some of their existing tech down to Saab, which is good news.

In other Swedish car news, it looks like Ford is making some progress in selling Volvo automobile, with reports that a consortium named Konsortium Jakob AB, Volvo Trucks, and the Chinese auto companies Geely, Dongfeng, Beijing Auto, and Chongqing Changan, are all rumored to be bidding on the deal.

We Now Know Why Rattner Left the Auto Task Force

No Comments

It appears that he is more closely tied into the state pension plan pay for play scandal than had been previously indicated.

Big surprise. You hire a merger and acquisition scum bag specialist who maked his money on buying up companies, juicing the stocks by making draconian cuts, and then flipping them, and then you have to get rid of him because he turns out to be….well….a scum bag.

So shocked.

BTW, I realize why he got the job in the first place (from the Wiki), “Rattner is married to Maureen White, the former National Finance Chair for the Democratic Party,” which means that she specialized in raising lots of money from her rich friends, so there was an element of pay-for-play in his getting this assignment in the first place.

GM Exits Bankruptcy

No Comments

That was blisteringly fast.

Normally, you can’t go through a re org for an ice cream stand this quickly, but they will be back, courtesy of Congressmen who are bought and paid for by automobile dealers.

221 of said legislators have cosponsored a bill reversing GM and Chrysler’s cutting tyheir dealer rolls.

It’s not surprising. Auto dealers are always big political donors, having their thumbs on the scales is part of the business model, so now they are showing their clout.

Locking Small Children in Car Trunks

No Comments

And why this can be a good thing sometimes.

My wife is driving a rental car, because an adjuster is looking at her car, a 2008 Dodge Avenger.

While loading the trunk I noticed the emergency release handle on the latch (see crappy cell phone pic)

It’s there to deal with the problem of small children locking themselves in the trunk ans suffocating.

In condicting human factors resarch on how to make the use of the device as easy and intuitive as possible, at one point, researchers locked children in trunks of cars, and observed their progress on infra red cameras.

It’s kind of neat.

Posted via mobile.

Auto Industry Update

No Comments

GM has arranged a sale of Hummer to a Chinese firm, and sold the Saturn brand to the Penske auto dealer group.

This actually bodes well for Saturn, because former race car driver Roger Penske is a real car guy.

He doesn’t get the manufacturing facilities or design capabilities, though GM will keep 3 models rolling out for the next 2 years, so he will probably go with foreign manufacturers to supply the dealership network, most likely Renault.

If he brings in some of the high MPG diesels, he will have a real winner.

The problem with Saturn is that GM left the brand stagnant for nearly a decade.

In addition to dumping a number of brands, GM is shutting down medium duty truck production, so it’s completely getting out of the business of making commercial trucks that are the basis for things like dump trucks and cement mixers.

Finally, the Supreme Court placed a stay on Chrysler’s sale to Fiat, pending resolution of disputes with bond holder/vulture speculators.

Fiat has said that this won’t queer the deal…..Yet.

So GM Went Bankrupt

No Comments

They have filed for bankruptcy protection, and while I have no illusions that this will be as smooth or quick as Chrysler’s bankruptcy, the stakes are far larger, and the consequences of a mis-step will be industry wide, it looks like they got their ducks in a row.

They got most of the bond holders on board, they got a deal from the UAW, and a deal was cut to sell Opel, GM’s European division, though the Treasury almost killed that:

For the Magna deal to work, U.S. officials must abandon their opposition to German demands that Opel assets be temporarily placed in a trust to protect them from GM creditors.

I agree with Michael Moore’s take on all this though, it could be the start of something better, but only if the US government takes an active role in the running of the company, and redirect the unused industrial infrastructure into things like mass transit and alternative energy.

Of course, the free market Mousketeers like Larry Summers, co-chair of the auto task force, are determined that this won’t happen, so instead, we will end up with something still dysfunctional, just a bit smaller.

Auto Industry Update, GM Bankruptcy Imminent Edition, the Sequel

No Comments

It looks like some of the larger bondholders have blinked, and have agreed to a slightled debt for equity swap.

Even so, GM’s bankruptcy now seems a foregone conclusion.

It’s the Credit Default Swap doing this. There are too many players out there who bought the debt cheap along with an under-priced CDS to hedge the risk, and so have no incentive not to burn the house down.

Still, all this has GM playing the turd in the punchbowl in Europe, where it
made a surprise demand for an additional €300 million payment on the sale of its Opel division, and at this point, the Germans are beginning to suspect that the US Treasury is trying to pull this money from Germany to the US:

German leaders expressed frustration with the United States Treasury, citing inadequate guarantees that European assets would be protected from the likely bankruptcy filing in American courts and that German money would be used only for Opel.

There is also the issue that EU regulators are looking to see if the loan guarantees offered are an illegal state subsidy.

Meanwhile, Ford’s former parts division, Visteon, and Metaldyne have both filed for bankruptcy, and I think that this likely going to get worse, not better.

Auto Industry Update, GM Bankruptcy Imminent Edition

No Comments

Well, it looks like GM could not get enough of the bond holders to agree to the deal. The deadline passed without the requisite 90% buy-in.

My guess is that a lot of the speculators who purchased this debt at around 10¢ on the dollar had already purchased Credit Default Swaps (CDS) on the face value, so they had no incentive to settle.

This is yet another example of how the complex derivatives and swaps system is broken.

The UAW has been far more accommodating, with the CAW cutting a deal in the great white north, and the UAW cutting a deal down here, which I guess is the great uninsured south.

Meanwhile, the Obama administration apparently already has the bankruptcy “i”s dotted and “t”s crossed, so we may see a filing sooner, rather than later.

It looks like the new GM will be 70% government owned, though there are many sources saying that they will take no role in how the company is run.

This is bullsh#@….Not the government ownership, but the constant assertion that when the taxpayer buys a company, that they should have no voice whatsoever in how that company is run.

Government ownership should have 2 goals:

  • An unwinding of this ownership sooner, rather than later with terms favorable to the taxpayer.
  • An active involvement in the operation of the concern, to ensure that it is run for the long term benefit of the taxpayer.

The idea that the government should have no say in things like, location of manufacture, executive compensation, etc. when the taxpayer owns the firm is simply stupid ideological crap.

Meanwhile, there are a number of bids for GM’s Opel division, and Fiat is by no means the front-runner there.