Three Reasons, Three Nos

The following is the audio transcript from “Wall Street Automotive” – WTBQ - NY Radio 1110AM / 99.1 FM – show dated December 13, 2008.

Following a debate on loan guarantees for the big three:

VO: Robb

“As we all remember, in 1979-1980, Chrysler requested $1.5 billion in Federal loan guarantees. The structure of these Federal loan guarantees was underscored to provide "Chapter 11" type restructuring opportunities without its filling. [there was strings attached] Congress required Chrysler to obtain private financing for the $1.5 billion they were seeking (the government was co-signing the note, not printing the money) and Chrysler was also required to obtain another $2 billion in "commitments or concessions" for the financing of its operations. In essence most of Chrysler’s suppliers, union workers and contractors were forced to re-negotiate with Chrysler in order to assure their own viability. Some of Chrysler's suppliers accepted ten cents on each dollar rather than to loose Chrysler as a client.

Lee Iacocca stated openly "equality of sacrifice" and most Americans bought into his sales-man-ship, after all Mr. Iacocca spoke not of a pending doom, rather he talked to the opportunities to lead and how each and every American can participate in his turn-around. The loan was paid, the K-Car and the Mini-Van was created and Chrysler was on a roll again and Mr. Iacocca was an American hero.

Today (concerning) Chrysler

81% of Chrysler is owned by Cerberus Capital LLC, a privately owned company with over 100 billion dollars in assets. If you go to Cerberus' web page and read their mission statement its clear they are experts in turning under performing companies around, this is what they do, this is why they purchased Chrysler in the first place. It’s clear from Congressional hearings Chrysler's CEO Bob Nardelli has made no effort to tap into Cerberus capital quoting “loaning money to Chrysler would represent a conflict of interest with other Cerberus investments”.

Back in July 2008, when the price of oil started to escalate, Chrysler had over 71% of its production focused on trucks and SUV type vehicles, Chrysler's only objective was to make fast money, paying less attention to customer driven products, quality and its own future.

Giving Chrysler federal government money without the parent company participating, flat out no.

(concerning) General Motors:

This is easier, let’s just outline the following brands: Pontiac, Buick, Saturn, Hummer, and GMC. GM may be illustrating different brands representing different social milieus, however the truth is GM’s real reasons for its many brands was focused on the rewards of critical mass, shared platforms, common components - looking ahead only to increase its operating margins. GM’s critical mass approach became obvious to most consumers back in the mid 1970's and became chronic in the 1990's as overlapping carlines between its brands became more and more obvious.

Sometime during the early 2000's GM tried to turn this around, however most consumers simply got tired of waiting and found Honda's, Toyota's and other Asian brands most welcome to fill their automotive needs.

The loss of consumer brand loyalty between GM's divisions was rapid, and continues to this day.

Giving General Motors federal government money without a clean sheet business plan, flat out no.

(concerning) Ford Motor Company:

Without going into too much detail here, I have the most faith in Alan Mulally, an outsider to the auto industry. Ford has capital today only because it borrowed some money last year. Ford is a smaller "ocean liner" in the automotive sea and can maneuver faster even during these turbulent times.

Ford appears stronger; however their appearance is more about their financial condition rather than their products or consumer demand. So short term Ford looks like it has some viability, however the next 24 months future car launches will prove their real strength. The most successful, efficient and modern automotive assembly plant is owned by Ford in Brazil, look for this trend to continue.

Additionally, I anticipate Ford will sell Volvo within 60 days, this will raise $3 - $4 billion dollars to the balance sheet, at the same time anticipate a more robust common stock as well, as GM share holders flee to more stable ownerships.

Giving Ford federal government money when they haven't really asked for it, flat out no.

So there it is, three reasons, three nos.

Without loans anticipate Chrysler being the first to go Chapter 11, Cerberus shows least sincerity and care and Bob Nardelli (the same person that almost drove Home-depot to the ground) is (in my opinion) a terrible leader.

GM will survive - Chevy is GM's Honda if managed properly. GM will be smaller, leaner, more global than ever before, it may take some time and some relocation of assembly plants, but I'm confident GM will be around for another 100 years.

As discussed Ford appears to have already taken some measures on a turn around, suppliers and UAW negotiations will hang on Chrysler and GM's fate”.

Automotive Hula-hoops

The day before GM met with congress, GM provided the complete Congressional presentation to all its dealers.

Before I opened the file I froze and thought …

”This has to be the most powerful presentation ever created by man. Few can imagine the force of GM gathering the best and the brightest, all focused on a single mission, create the most compelling argument ever made in order to survive. High fives must have been flying across the room, “we will blow them away” cheers in its development.”

Then I opened the file…

Scrolled down,
Down,
Down further…
Something to the effect of “With / without loans”
“Dismal forecasts”, “Car that can go 40 miles”
Shure, shure, shure… keep reading, reading…
and then …

The End.

Ok, one more time maybe I missed something.

But it wasn’t there.

Then I thought of the movie Hudsucker Proxy, a young Tim Robbins pitch “you know for kids” as he tries to sell the hula-hoop to an aging board of directors.

I guess I was hoping for a hula-hoop in GM’s presentation (replace with Ford or Chrysler at any time) something that would attract younger buyers, those who care more about text messaging and global warming than horse power.

For younger car buyers, the big three’s pitch to congress must be like watching CBS, NBC and ABC defend itself from You-tube.

I know it’s not polite to ask, but we can conclude (by observations alone) that most automotive executives are over 45 years of age (congressional folks as well).

Experience is great, however without an injection of aspiration and enthusiasm from a diverse talent pool, automotive hula-hoops like the Model A, Cadillac V8 and Mini Van, would have never been created.

Detroit has tons of white paper ready to pen the next MB A-class, VW TDI, and Smart cars but unfortunately congress (and the public) see Mustangs, Camaros and Challengers.

Suggestion for the big three if there is a round three.

Do Work

Keeping up with the Jones

The only real economic recovery after 9.11 was due to a real estate boom. The real estate boom was due to the creation of sub-prime mortgages. The sub-prime mortgage boom was due to the creation of high yielding debt securities. The debt security boom was created and sold by investment banks. The investment bank boom was the result of our economic recovery after 9.11.

Since 9.11 America lost its air-line industry, automotive industry, banking industry (and most recently) economy. Americans lost sons, daughters, brothers, sisters, husbands and wives.

The rise and fall of the Dow Jones since 9.11 took 7 years. The war of 9.11 was lost after the first few hours.

Presidential canidates shadow an American tragedy.

Future Editorial September 22, 2020

“Your Shoelace is untied”

It’s a famous line, you're looking ahead and something takes you off track and wallops you down.

That’s what happened to GM, Ford and the former Chrysler Corporation in CY 2008 when suddenly without notice the price of crude oil sky-rocketed towards the $150 per barrel mark, as brokers (based in London) speculated short positions on oil indexes without any regulation - other than those of greed.

Thus with the cost of oil rising almost out of control, Detroit’s big 3 slashed truck production, planned smaller fuel efficient cars and laid off thousands of workers.

Former President Obama’s “Big 3 Bail or Fail” plan of 2009 accelerated the demise of US auto makers by providing tax credits for smaller unprofitable cars at a time when US and Global oil production started its steady rise as China, India and Russian economies slowed during the mid 10’s.

US Alaskan Oil (symbol “USAO”) and former Vice Presidential candidate Sara Palin stated “back in 2008 US politicians sold the American public on global warming scams and sheer oil shortages because of increasing world demand. We now know the gas crisis of 2008 was nothing more than manipulation and unfortunately the former Big 3 automakers suffered the worst”.

Kia Motors (Ford's Parent Company) CEO Mark Fields stated today that “as long as large US cars and trucks get over 35 MPG and the price of gas stays at $5.95 per gallon we see no need to plan smaller car and truck platforms for the US market any time soon. We learn by our mistakes”.

Brent crude oil closed today at $125 a barrel – its lowest levels since 2014 this at time when wind power tax credits have peaked with little or no new wind energy farms on the horizon.
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Well its possible!!!

MADE men

I really don’t know much about the Mafia other than watching movies and growing up in Brooklyn. I’m told that once you’re confirmed as being MADE your untouchable, no one can kill you without clearing the request at the highest levels of the organization. In fact, just the mention of killing a guy who is MADE can get you killed because MADE guys are… well …made.

The Auto Industry has MADE men (including both genders). Corporate MADE men beg the question ...how is it possible they still continue to run the show or be employed ?

How do you spot a MADE man at your place of business ?

Seek those who keep making the same speech over and over again, have a vocabulary of 15 – 20 buzz words, dress to attract people to an image rather than a substance and likes floating around lunch rooms asking rank and file folks “what’s going on”.

The MADE man is also the person the advertising agency invites to presentations, movie premiers, golf outings and “on location” commercial productions.

At dealer meetings MADE men represent cocktail safety zones, no real business conversations, no real questions about dealer profitability, just easy - happy talk.

Seriously thought, the auto industry can’t afford MADE men any longer. MADE men represent excess, a failed strategy, an expense that just can’t be justified. Left untouched or uncorrected, MADE men consume six and seven figure assets at a time when corporate burn rates exceed ten figures.

October 08’s Automobile Magazine has an interesting story on page 154. The person featured could easily be the poster child for every MADE man “want-a-bee” out there.

Get your popcorn ready, I’m thinking God Father IV.

Tragic Communications - Winners and Losers

In 1979 Chrysler’s Lee Iacocca stated the failure of Chrysler would be an American tragedy, something all US citizens needed to rally around. “Bail out or bust” were the headlines and if anyone knew how to rally the troops it was the likeable, charismatic personality of Mr. Iacocca.

Mr. Iacocca lead customers into the showroom with $50 test drive offers that were simple and sincere… “Buy a car, get a check” consumers became the beneficiary. Iacocca’s style never lead on “the end was near”, rather he communicated what would be and how each and every American can participate in the company's turn-around.

Twenty Nine years later Chrysler is struggling, and with diminishing cash reserves, all domestic brands are on life support, however unlike 1979, few public and political “get well cards” are sent.

Today (for the most part) Americans view domestic leaders as hidden elitists, placing profits ahead of its customers.

Maybe public opinion is absorbed from the simple fact of how the big 3 communicate.

Recent announcements to “take back” attractive consumer leasing programs were communicated as “in your face”, “take that” type punishment to loyal customers everywhere.

Honda's CEO kicks back his chair in a pose resembling Mr. Iacocca's book cover... the title of the book "Thank you".

Editors note: Exception to Mr. Bill Ford Jr.

The Fool On The Hill

Twenty four hour news formats have most people believing the reason for higher gas prices is due to rising global demands of crude oil and American’s dependence of imported oil – especially from OPEC nations.

Demand for fuel in China is the best smoke-screen. It’s easy to visualize masses of people on bicycles now driving Cadillac’s with 2 car garages – thus Americans can conclude “it’s out of our control” so just pay the price.

For those just awaking ….there is a small square bock of real estate in Manhattan called Wall Street, the buildings there (and in similar markets throughout the globe especailly London); control the world’s financial conditions good, bad or indifferent.

The Street forecasts
The Street invests
The Street controls

Pay $5.00 for a gallon of gas … The Street wins.

I’ll explain.

Let’s say a group of investors concocted a strategy where it buys future stockpiles of medical equipment to price levels where the average American or Health Care provider couldn’t pay the cost any longer. One day the price of an x-ray is $100 the next day $800 and the next day $1500 – Americans would be outraged!

Over the past 25 years the price of oil and the price of a gallon of gas were paired, both rising, but matched in even parallels. Since 2002 the price of oil disconnected itself from the price of gas like a run-a-way train, the spread is alarming, if it were a cardiogram the patient would have already died.

Index Speculators claimed their territory post September 11, fueled by Institutional Investors, Mutual funds and University endowments… Index Speculators have become as critical to world oil markets as China, both place equal amounts of pressures to continue the rise in oil prices. The key difference is Index Speculators buy “oil indexes” and China buys the “actual commodity”.

As more Oil Index Speculators…”speculate”… the sheer mass of long positions assure higher prices.. the unsupervised frenzy feeds itself.

Could the oil bubble burst? Possibly.. however traditional supply and demand models are paralyzed – eight fold price increases in any commodity over an 8 year period doesn’t increase demand it reduces it (yes even with China consuming more oil). Thus increasing oil production won’t work because we already have an oil surplus.

The only remedy is to eliminate Index Speculation on all commodities. Without Index Speculation investor risk is tied into an obligation to cover short positions by buying the actual commodity, thus placing the focus on real supply and demand swings. Till then Index Speculators remain the core reason Oil and Food prices continue to increase.

The fool on the hill sits alone but has the ability to see the big picture.

Key Politics

Some time ago an ignition key was born. A silver key with no remote nor batteries to slow it down, even the key ring found itself an orphan.

The key fit perfectly in many situations, small cars, big cars, fast cars, slow cars. The key was responsible for igniting 2 cycle and 4 cycle motors and grew to ignite the economy. Sometimes keys lost their ways, however technology advancements made it possible to clone another.

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Uniting what would become a political passion play, keys are blamed for melting ice-burgs and raising sea levels, and most important, winning elections.

John Coleman, founder of the Weather Channel, stated Global Warming is “the greatest scam in history …and nothing more than a political platform”.

Pros/cons alike there are just too many keys that open back doors of beach homes, private jets, eight car garages, and SUV caravans.

The Global Warming pitch has stalled.

Keys rejoice.

American Innocence

The origins of oil production in the United States can be traced back to Titusville, Pennsylvania 1859. John D. Rockefeller turned oil into a “Standard” household name.

The origins of oil production in the Middle East can be traced back to Persia in 1908. King Ibn Saud, founder of modern Saudi Arabia was somewhat understated in his quest for oil.

Early Saudi oil production was similar to hosting a dinner party... foreign dignitaries came hungry and the Middle East was quick to learn how to entertain.

One Ford assembly plant and industrial revolution later, America's appetite for oil increased dramatically. World War I and II would prove to be the "coming out" parties for oil as a strategic tool - however it would take a Baby Boom to define oil as a real means to enjoy life.

The term "oil crisis" was founded in 1973 - members of OPEC announced, as a result of the Yom Kippur War, they would no longer ship oil to nations who had supported Israel in its conflict with Syria and Egypt.

Gas lines formed – American’s demanded answers!

Then, like a passing thunderstorm, the lines stopped and oil shined upon us once again.

The 1979 (or second) oil crisis began in the wake of the Iranian Revolution and the Ayatollah Khomeini taking control. The Ayatollah's immediate interest wasn’t oil, so he shut it down and unwittingly started a widespread panic among Saudi Arabia and other OPEC nations. The immediate concern was Iran's stability and willingness as an oil partner. As Mid East oil production stalled - prices rose and shortages, either planned or accidential, were on the horizon.

Gas lines formed and once again American’s demanded answers!

Then, as before, the lines stopped and oil was everywhere.

Today, April fools day, Congress met with top executives of the country’s five biggest oil companies and pressed them to explain why they should continue to get billions of dollars in tax breaks when they made $123 billion last year and motorists are paying record gasoline prices at the pump.

Tomorrow we shall demand answers!

American innocence is applauded, the era of cheep oil is over.

Consumer Reports

I guess if you don’t have an uncle in the business, or high speed internet connection, you need a book that tells you what to buy and what not to buy. However in my opinion CR gets the "duh" award for automotive reviews with "Captain Obvious" editorials for the masses of consumers who rely on a 3rd party publication to justify their purchase decision.

I wonder if CR would have liked some of our past automotive icons.... let’s have some fun.

“CR circa October 1963”

"The GTO is simlpy a Tempest with a large engine. The extra weight felt heavy on the steering box and handling was slow and non-responsive. The added hood scoop is not functional and the extra badging on the rear quarter panels appeared too large for the car. The dual exhaust, although functional, adds weight and future expense to replace. We liked the bucket seats, but for better value we would option for the LeMans with the more efficient 6 cylinder. Because of the poor gas mileage we cannot recommend the model."

"CR circa April 1964"

“The Mustang is an all new car by Ford, although built off the Falcon platform; the car is lower and more stylish. Rear seat room is very tight and the doors are large and hard to control when opening. Trunk space in inadequate for a family of four, however front leg room is impressive. No crash results are available at printing. We prefer the larger platforms from Ford like the Galaxy – providing more value and comfort. Overall we like the car; however the $2330 starting price is not competitive with models offering more features.”

Here’s one – The 1970 Plymouth Super Bird

“When the Plymouth Super Bird was delivered staffers at CR were aghast, the poorly designed front end and excessive rear spoiler blocked parking views in tight spaces. Fit and finish was horrible. We quickly realized why these limited edition cars are sitting in Detroit unsold. The Super Bird although a replica of a race car is truly not practical for daily shopping chores or weekend drives. Most CR staffers found the extra nose hard to judge in traffic and anticipated difficulty in accessing simple maintenance items such as fan belts and light bulbs. Crash results are impressive because of the extended bumper. We recommend the standard Plymouth Belvedere for value and functionality.”

In 2007 Consumer Reports didn't recommend the Lexus LS and in 2008 it’s on their top ten lists. How is it possible that CR doesn’t recommend Volvo as the safest car made or that (overall) a Corvette should be recommended to anyone always wanting to own such an icon.

Bottom line, hidden agenda’s are everywhere, in this article I’m making it clear I don’t like CR because of their inconsistencies of cars liked and disliked; their circle rating system drives me crazy (how can a car have so many red dots and still not be recommended?). But most of all I dislike the hard line sales pitch for printed materials in the age of free Google searches.

Yes an educated consumer is a great customer. Read, study but most important go to the dealership and drive the car. If the car fits like a really nice suit and you feel very comfortable in it, then buy it, the reality is no one builds a bad car any longer and not everyone wants to be seen wearing a CR “Best Buy” baseball cap (only $5.95 plus shipping).

Editor

"Straight Ahead" and other Fairy Tails

I'm a firm believer in history and trends.

In the 60’s people woke up, drank coffee, bought a local newspaper, went to work, came home, watched some TV and went to bed.

In 2008 people still wake up, click on e-mail, check cell phone messages, watch MSNBC, buy coffee, watch Ipod casts, go to work, log onto news formats, search Google, drive home viewing NAV systems, check e-mail, check cell phone messages, watch a reality show, take one more peek at e-mail and get to bed.

Yes information is king and if we believe bad news sells, then 24 hour news formats can be a windfall.

The most simplified definition of Economics pivots on attitude.

Believe times are bad you hold back.
Believe times are good you spend.

A recession vaulted soon after 9/11 and for really good emotional reasons.

By November 2001 GM launched zero percent, Chrysler and Ford jumped in, and the Federal Reserve Bank participated as well. Within 10 months 24 hour news makers were forced to called it a "mild" recession because they lost the key battle and really hated to loose the powerful "recession" tag line.

Now it’s January 08, 25 days after New Years, just 6 months since the Dow peaked at 14000... its cold, winter and election time.

Twenty Four Hour news require sprints of “breaking news”, "this just in", “up next” and “later on” type leading formats to capture its viewer.

How to fill the time?

The revenue makers are played out, Hurricane's, The Iraq war, Bush bashing, the election and Britney Spears, even the award winning named "Jenna 6" failed to launch.

What's a 24 hour news format to do????

Reach for the "fire box" of news stories, the always reliable, hard hitting "Household survey":

Question:
“Now that we are in a recession and the stock market is tumbling do you plan to spend your money?”

Household answer:
"No"

With glee CNN reporter Kelly Lookingood (who majored in art and fashion design) reports:

“The latest consumer survey is in and it’s a lot worse than I already predicted… 100 households surveyed if they plan to spend money this year and the answer was Absolutely NOT. All agreed that the stock market is tumbling and we are indeed in a recession”.

With a sudden 3/4 drop our new Fed Chairman proves he has an eye for news. Detroit sees it as just another January, their 16 inch incentive guns sit idle but not without ammunition.