How Bad Can it Get?

[hawk20]

How Bad Can it Get?

Aside from the near-bankruptcy of GM, Ford and Chrysler there are now forecasts that Toyota will report losses of over a billion dollars for the second half of 2008. And in a quite extraordinary move back here in Britain, Vauxhall (owned by GM) have offered their workers nine months off work on 30% of normal pay because of falling demand.

And the pound has been in freefall against both the Euro and the dollar, dropping about 25% in under a year. This means that to get the same number of Euros for a car sold in the UK, Mercedes needs to put up the price of all its cars by about a third (i.e. 100/75). No doubt they will resist doing this as otherwise sales would plummet even more than they have already. If the pound goes on falling price rises are inevitable: there is a limit to how long even MB can afford to sell at a loss.

A most thought provoking article interviewing the head honcho at Mercedes is: -
http://www.spiegel.de/international/business/0,1518,592658,00.html

Well worth a read.

 

[Juddian]

Truly bad times are set to escalate for some years yet.

Could be a distant silver lining though, no thanks to our pitiful glorious leaders of the last 40 years, eventually when UK is devalued enough, we could become a manufacturing nation once more, with real jobs of worth and real wealth creation.

This of course depends on 2 things, having a motivated, disciplined and well taught/trained youth, and i don't mean keyboard experts either, but well motivated young men and women capable of a days work with pride, sounds rather quaint and old fashioned i suppose. Better start teaching them soon before the generation of true engineers, mathematicians and scientists die off.

The second thing being to abandon the utopian idea of keeping/supporting half the world for free (take that as you like), we've got quite enough hangers on/spongers of our own as it is.

Some hellish times coming though before things turn, and if we don't have the guts to elect some true loyal to Great Britain leaders it may never happen.

 

[television]

Even in my little simple small world,,I am back fixing TVs again, done more this last two weeks than in the last 18 months put together, I charge less than I did one year ago, but I do not need the money.

 

[Alex M Grieve]

eventually when UK is devalued enough, we could become a manufacturing nation once more, with real jobs of worth and real wealth creation

Profound wisdom but, as usual, it is much worse than that. The current exporting nations (Brazil, China, India) have much lower labour costs than Europe, US & Canada. This is a consequence of much less concern for health & safety, child labour, sweat shops, 12 hour shifts, seven day working, no job security and far fewer social benefits.

Recognise the picture - we should, that was UK plc in 1830, the year of the first "Factories Act".

As we all now know, the US Autoworkers have painted themselves into a corner with "deals for life" on salaries, pensions and health care costs (a major expense for employers in the USA).

The Republicans are currently resisting funding the "Big 3", as money spent today to subsidise this picture will not last long and will not be sustainable.

Both political parties in this country are currently signalling that public sector pensions (final salary, index linked) will now clearly not be sustainable in future and are clearly looking for ways to welch on (renage on) those arrangements.

In response to Juddian's excellent observation, just how much will we need to waken up and accept reality before we can once again be competitive?

Sheperding people off benefits may be mighty unpopular, but it does not look like a choice.

 

[GseRacing]

I understood that the situation was dire but i had no idea that it had reached such levels.

It is quite a significant sign that Toyota and VW, the two biggest auto companies in the world are facing huge loses. I had no doubt that MB and BMW would find this a very difficult time, i wouldnt even be surprised if we faced losing one of them but the news from Opel, VW and Toyota is a surprise.

If this situation continues i can see the disappearance of Rolls Royce, Bentley, Lambourghini and Aston Martin. Maybe even the loss of Lotus, TVR, Land Rover and Ferarri.

But are we really doomed to live in a world where our choices for new cars are from the straight laced man at Nissan or the slightly eccentric fruits at Fiat?

 

[television]

Could it not be the the motor car producing nations have caused this problem in the first place, for years the cars have been stock piled in the compounds, even secondhand dealers have been over flowing for a few years.

Add to this the rapid changes in technology on the home electronic front where nothing is worth fixing as the cost out weighs any form of repair, it was not long ago that most homes had a video recorder that would run say for up to 10 years, most DVD and CD based system can only just get past the 12 months guarantee, and I bin loads of the things almost new. There are few people like me left in the world, most have closed down because of this throw away world that we live in. The problem is two fold. First the manufactures build the things with no thought whatsoever as to fixing them if they break down,, secondly one cannot get hold hold of specialized parts say like a plastic gear wheel used for a CD loading tray, even if you could get one, no supplier will send out an order for less than £50 so you are stuffed what ever way you turn, if you add to this the fast moving technology, the owner wants the newer one on sale, so he does not want to pay for repairs anyway, so many people come in with something and say that if I can fix it for £20 they will have it done, so I turn them away from the door.

It could be interesting to see what countries are affected in this slump or turn down. Is it only the car producing countries, they certainly are the ones getting the government backings.

Could we go back to producing cars in a small way again with all of the laws and regs that have to be met. Add to this mess the the up and coming 3rd world countries all wanting to make things in huge numbers.

 

[jberks]

I do get frustrated with us playing fair with China and India. As has been said, they don't follow the same rules as regards safety, the environment and wages so we allow people who are cheating to compete in the interests of fairness. It's not surprising that it would bite us at some point and that point is now. We have China, with it's awful human rights and uncontrolled copying industry dictating to the US on economic prudence. I'm sure if the US ignored the environment, provided no support or security to anyone and had a manufacturing sector with the low wages and high mortality rate that China does, it too would be more powerful. The truth is that the world cannot afford the high standards we dictate to ourselves and we could only afford them when we were explioiting others. This is the factor that the lefties can't grasp. There is only so much pie and if we give more to them, there is less for us. The morals of that one are for all of us to wrangle with.
The western car manufacturers have been overproducing for ages. Especially the US who produce a product nobody wants and have done forever. It's only recently that they produced a car that goes round corners! it's primarily their arrogance and crass stupidity that takes someone as extreme as Gordon Brown to better that has brought them to here. The Germans will certainly reduce production levels, probably permanently, but they should survive as their products are still desireable - though another amalgamation is probably on the cards or at the very least, more shared R&D.
Scary times, but as they say, business will go on.

 

[st4]

I do get frustrated with us playing fair with China and India. As has been said, they don't follow the same rules as regards safety, the environment and wages so we allow people who are cheating to compete in the interests of fairness. It's not surprising that it would bite us at some point and that point is now. We have China, with it's awful human rights and uncontrolled copying industry dictating to the US on economic prudence. I'm sure if the US ignored the environment, provided no support or security to anyone and had a manufacturing sector with the low wages and high mortality rate that China does, it too would be more powerful. The truth is that the world cannot afford the high standards we dictate to ourselves and we could only afford them when we were explioiting others. .

I agree completely and as china industrialises and builds 4 new powerstations/week we regulate in the name of global this, carbon this and eco that shooting our economic prowess in the foot.

As Westerns its time we toughened up, and competed again, and make things hard as we can for those "developing".

 

[carlsson20]

Truly bad times are set to escalate for some years yet.


Some hellish times coming though before things turn, and if we don't have the guts to elect some true loyal to Great Britain leaders it may never happen.

I feel what we are seeing at the moment is just the very tip of the iceberg. I've never talked to as many business owners that are so jittery with sales plummeting or near none existent order books.

Credit limits on businesses transactions being reduced and in many cases withdrawn, most new companies don't seem to have a hope in hell of getting any terms other than C.O.D


Worrying times, very worrying

Now I've cheered myself up, I shall go and roar up and down the dual carriageway and polute the planet.

 

[Splatt]

The situation is feeding on itself, Americans are now not buying cars from their big three because they fear they will fail and they will end up owning a car they cannot get serviced. Which of course drives them even closer to the brink. The loss of confidence could be the determining factor.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aIEvYFTpk7rI&refer=us

 

[hawk20]

Short term finance won't solve the problems. GM has four retirees on pension and healthcare benefits (paid for by GM) for every worker currently employed. No firm can be economic with that burden when other producers in the US started on greenfield sites, with no unions, none of those burdens and generous grants to boot.

The govt needs to take over healthcare costs and pensions, and then give appropriate finance. If you think they can survive long term.

But why should taxpayers bail out Chrysler when it is owned by Cerberus who are a private equity company with buckets of cash?

 

[Kompressed]

As I see it:

The big three are doomed and nothing can save them now. Giving them grants is like making a new suit for a dead Man.

Who buys American cars outside the US in big numbers? Nobody - and that's bad news.

What's the most popular car in the US? The Toyota Camry. This tells you all you need to know.

The US car industry is finished - it's been 30 years coming, and it's undoing was started by the VW Beetle and then the Japanese followed by the Koreans. The US car industry faces a two pronged assault - on one side the upmnarket Yanks are getting hit by the prestige Germans Audi, Porsche, BMW and Mercedes. On the other side, the cheap domestic stuff (Chevrolet, Ford etc) is getting nailed by the Japanese (quality) and the Koreans (Quality and cheap). The Big Three have nowhere to turn unless they can make cars for a bowl of rice.

As I see it, the big three have got to go. For every car facory closure, either build a Kia/Hyundai/BMW/Toyota/Mercedes plant or do something else. Ford and GM Europe can be split off and sold because they are still profitable. People still buy Fords and Vauxhalls because they are good cars. US GM/Ford stuff is crap, and the Americans know it. Chrysler has no chance at all. They have nothing in the pipeline and without MB to donate old floorpans and engines they are knackered.

BMW and Mercedes should always have a following because they make NICE cars that people WANT to buy. They are a luxury good, not a commodity like a Vectra.

 

[sib]

Would be interested to see how you guys feel we're up to with this whole 'recession'?

I'm a member of a few car forums and feel that all have their own opinions. Some obviously more sensible than others. The general feel i get from a respectable other forum is from some that this will have blown over in 12 months or so. Others believe that it's not even begun yet!!

I don't know what to think.

My industry is buggered though! I work in Construction. More specifically store fit-out - however, my employer has secured a big contract with a chain of stores and at a personal level my job is safe for the next 12 months.

My long term goalpost has moved however. Basically, i used to work in civil engineering and had been approached, just as i started my current post, by an acquaintance who'd built a good sized civil engineering business turning over around £12m a year. Basically, he operated small scale in terms of set up BUT was still getting a good turnover. He had asked me to bear in mind that in 4 years when he is 60, to go and run the business for him - a good salary and a nice motor (i was thinking a C220 CDI Sport!) included. However, now he's laid off most staff and is just trying to cut costs. Looks like im here for a while!!

Shame really as im 26 and am at that stage where i really strive to look to earn more and created a better lifestyle for myself, my wife and my son (14 months), and also new baby on the way (due March 09). Plus, i work my socks off! Regularly do a 14 hour day - without overtime pay!!

What to do what to do!!!

 

[Alex M Grieve]

What's the most popular car in the US? The Toyota Camry. This tells you all you need to know.

And it gets worse. At one point (and it may still be true) the Camry had been the most popular car for 9 out of 10 consecutive years. The year they missed first place (year 7 of 10 IIRC) they came second - that was the year in which there was a significant model revamp.

Clearly the big 3 must have studied Toyota's supremacy from every angle (it did not happen overnight, and now it has lasted for a while), but clearly they have no answer to it.

Labour costs and legacy pensioner costs are a major factor. But they are not the only factor. The big 3 just do not seem capable of building a better car than Toyota and making the price stick.

 

[Kompressed]

The other problem with the Bi9g Three is the sheer size of each. Take GM for example. They have Chevrolet, Buick, Cadillac, Holden, Saab, Vauxhall, Opel, GMC - to name just eight. Now think of the number of models each of those names makes, the factories needed to build them and the costs to man and power up those factories. Think about the amount of money needed to continually design and tool up for new models for eight or more brands (okay, Vauxhall Opel are the same), parts supply, even brochures and dealership costs. GM is too big.

Ford are slightly better off with Lincoln, Mercury and Volvo, and thank God they offloaded Jaguar (which was never going to be a success) and Land Rover. Ford and GM though are in a position where they make a product like white bread, a very decent white bread in a market awash in white bread.

VAG is VW, Audi, Seat and Skoda, four cars competing which each other from the same group. Did nobody look at BMC and Leyland in the sixties/Seventies and think.....hang on a minute - what ARE we doing?

Now BMW and Mercedes. One brand, one set of dealers and not too many factories. In the case of BMW it's two in Germany, one in Austria and one in the US - I guess MB is the same, plus of course Mercedes has it's Commercial vehicles. Both have either recently launched all new models or are about to, meaning that development costs aren't stupid. The new 5 Series/E Class are out next year and despite the rust/quality issues, Mercs still sell very well and the current line up the best they've ever had.

And is the time right for Mercedes to buy up a redundant 'Big Three' factory for peanuts and build Vans for the US market...............?

 

[hawk20]

Clearly the big 3 must have studied Toyota's supremacy from every angle (it did not happen overnight, and now it has lasted for a while), but clearly they have no answer to it.

Labour costs and legacy pensioner costs are a major factor. But they are not the only factor. The big 3 just do not seem capable of building a better car than Toyota and making the price stick.

Problem is if you are paying much higher wages and salaries, and you have four retirees on pension and health benefits for every current employee, and you have $60bn of debt to service for only £3-4bn of market value, there is no point in designing a car as good as the Camry, because you have no hope of producing it at anywhere near the Toyota price. So you try to produce SUV's and other higher value goods to get by. It was just about OK till oil went to $147 per gallon, then disastrous. Now oil is cheap again. What to produce now?

 

[jberks]

I think the only hope for the big 3 is chapter 11. It could be the best thing to happen to them. They need to get clear from the huge debt and pension obligations taken on by weak management in 'good' days. Without that they are dead. I believe this was the sticking point with the bail out and it was scuppered by the unions refusing to take their medicine. Lets see how the negotiators feel when all their members are out of a job.
I do believe they have a future though. Nt in their present form as this was grown when there was no competition, but huge swathes of the US are fervently patriotic and if the US produces an efficient decent car I believe they would buy it. Remember, over here, GM and Ford compete well with the Japanese and we have no patriotism involved. The Us clearly like european cars so perhaps the answer is for the big 3 to stop production in the US start making cars there that they already make elsewhere.
All academic at the moment though, given that even the Japsa ren't selling.
As for the future. Some 'experts' are saying that the worst will be over by the end of 09. Personally I'm not so sure. I don't see what will come along to provide the new demand. In my family alone, we have seen 3 redundancies in the last 2 months. What alarms me is that traditionally, redundancies occur amongst the lower trades. Brickies, shop and factory workers etc and commonly the young who have no commitments .These are seen as 'expendable' and the dole system is designed to provide a level of income not too far removed from what they earned. Not nice but the way it worked.
But 2 of my 3 are graduate professionals and the 3rd was reasonably senior. All are over 30 too. Ok, only 3 people you say, but if that's in my family, which has never really heard the word redundant before, then I can assume it's repeated across many others. I myself only have a job until the end of Jan which is fine, I'm freelance, but in the last 15 years I have averaged 2 or less months not earning per year, often working solidly for 12. I've already clocked up 3 months out this year and things don't look pretty out there.

This means to me that the people who traditionally kept the economy ticking over and provided a route for wealth to flow back down to get everyone else back to work (the consumers) may be so decimated by this crash that it will just grind to a halt. The only previous example of that I can think of was 1929. We'll see how long it takes for my relations to get back to work and just as importantly, how much less they will earn when they do. I'll use that as a barometer.

 

[PeterCLK]

How far to go?
If you look back to the 30's the real change came when Roosevelt took over.
He changed sentiment.
I think once Obama gets bedded in things will look up. Oh, and the 600 Billion (or is it 1200 billion) he plans to spend.
So latter half of 2009 USA will start to pick up. Which means 2010 for us.
Unfortunately that means a terrible 2009 for many here. Devaluation of pound hasn't really kicked in yet so we've those consequences to come.
On a brighter note fantastic deals on new (pre-registered) E class at the moment.

 

[hawk20]

As for the future. Some 'experts' are saying that the worst will be over by the end of 09. Personally I'm not so sure. I don't see what will come along to provide the new demand. In my family alone, we have seen 3 redundancies in the last 2 months. What alarms me is that traditionally, redundancies occur amongst the lower trades. Brickies, shop and factory workers etc and commonly the young who have no commitments .These are seen as 'expendable' and the dole system is designed to provide a level of income not too far removed from what they earned. Not nice but the way it worked.
But 2 of my 3 are graduate professionals and the 3rd was reasonably senior. All are over 30 too. Ok, only 3 people you say, but if that's in my family, which has never really heard the word redundant before, then I can assume it's repeated across many others. I myself only have a job until the end of Jan which is fine, I'm freelance, but in the last 15 years I have averaged 2 or less months not earning per year, often working solidly for 12. I've already clocked up 3 months out this year and things don't look pretty out there.

This means to me that the people who traditionally kept the economy ticking over and provided a route for wealth to flow back down to get everyone else back to work (the consumers) may be so decimated by this crash that it will just grind to a halt. The only previous example of that I can think of was 1929. We'll see how long it takes for my relations to get back to work and just as importantly, how much less they will earn when they do. I'll use that as a barometer.

Yes. Nothing is normal about this recession. A lot of people I know are losing jobs too. And, of course, droves of jobs in banking and finance are being cut.

I'm expecting longer and deeper than the Treasury forecasts.

But here is a point to ponder. The crunch came about because consumers had borrowed too much and were up to their eyes in debt. Secondly and even more importantly because banks had been allowed by the govt and Bank of England to lend too much for house buying and had driven house prices up to unsustainable levels. So when they inevitably fell the assets based on them became toxic.

How have we responded? By getting consumers to unwind their debt and pay it off? No. By cutting interest rates and trying to get them to borrow more.

Is there any plan to get house prices back down to a sensible level and keep them there? No. Just pressure on the banks to go back to lending at 2007 levels -which caused the problem in the first place.

 

[television]

Yes. Nothing is normal about this recession. A lot of people I know are losing jobs too. And, of course, droves of jobs in banking and finance are being cut.

I'm expecting longer and deeper than the Treasury forecasts.

But here is a point to ponder. The crunch came about because consumers had borrowed too much and were up to their eyes in debt. Secondly and even more importantly because banks had been allowed by the govt and Bank of England to lend too much for house buying and had driven house prices up to unsustainable levels. So when they inevitably fell the assets based on them became toxic.

How have we responded? By getting consumers to unwind their debt and pay it off? No. By cutting interest rates and trying to get them to borrow more.

Is there any plan to get house prices back down to a sensible level and keep them there? No. Just pressure on the banks to go back to lending at 2007 levels -which caused the problem in the first place.

In countries like Sweden, where houses only go up with inflation, do not have the major problems that we have. In Germany too hardly anyone owns their own house, so they are not affected as badly.

Why is it that we are the only country in the world where people buy a house to make a profit, when the rest of the world buys one for somewhere to live