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So far the auto industry -- General Motors Corp. (NYSE: GM) and Chrysler -- have received $17.4 billion in U.S. funds after much gnashing of congressional teeth. Meanwhile, American International Group (NYSE: AIG) snapped its fingers and over the weekend some Treasury officials gave it another $30 billion -- bringing its total to $180 billion. But thanks to the worst February in 27 years, the auto industry is going to catch up fast.
February's auto sales plunge is a result of the realization among Americans that they can keep their current cars running longer -- and even if their cars are broken, they can't get the financing to buy a new one and they certainly can't pay cash for a car -- too expensive. GM's sales fell 53%, Ford Motor Co.'s (NYSE: F) sales declined 43% and Chrysler suffered a 44% drop. Incentives are not working -- the average incentive per vehicle sold is up 8% to $2,914. Only Hyundai -- which lets buyers give back their car if they lose their jobs -- bucked the trend -- its sales fell only 2%.
When you consider that GM recently gave the U.S. a demand forecast of 11.23 million vehicles for the industry in 2009, you realize that it's worth analyzing whether that number is too optimistic. And if so -- last month GM's figure looked to be 17% higher than January's 43% plunge indicated, it's likely that the amount of money GM will request is much lower than it will actually need when the reality of an ongoing 50% or more plunge in demand continues to sink in.
Then GM's demand for $30 billion could double to $60 billion; Chrysler will ask for $12 billion more instead of $5 billion and Ford will finally be forced to put its hand out and beg for government aid.
These costly bailouts prove that the surest route to success in America is to fail massively. It's a lesson for the kids out there.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns AIG and shares and has no financial interest in the other securities mentioned.
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Reader Comments (Page 1 of 1)
3-04-2009 @ 10:00AM
mselling10 said...
Mr. Cohan I am wondering about the numbers you reported for Ford. I thought I read 48%. I also read Toyota is down 39.8% and Honda is down 38%. Actually, it appears on the whole with a couple of exceptions, the automobile industry is suffering. While I do not know if it is true, I read yesterday Toyota was seeking help from their government. Your articles about this industry and the people it affects appears to me to be very biased and mean spirited. Just my own personal opinion.
3-04-2009 @ 10:05AM
Michael A. Grand said...
Re: How long before auto bailout costs $100 billion?
Response: Can a $100 billion buy a new industry?
A New World Industry in the Making
Michael A. Grand 03-04-09
Mike123A@aol.com
The USA North American Operations (NAO) Automobile Industry has lost its identity with the American consumer, and has reached the end of its incubation stage of Industrialization. Nature abhors a vacuum. Therefore, a new vision of the USA NAO Auto Industry must evolve.
A USA Governmental led bankruptcy can and probably will nurture a restructuring plan that will allow the Big Three Auto Companies to merge, downsize, restructure, and move ahead into a new incubation stage of industry that will gestate to help the USA to give birth to a new World Industry that will help us emerge from our Global economic crisis.
The economy will bottom out and rebuild itself when the USA Automobile Industry evolves into the Automobile & Space-Frame Housing Industry. The USA North American Operations (NAO) Automobile Industry will re-invent itself and begin to build new factories. The steel mills and concrete facilities will grow and produce the materials that will create new construction jobs. Tooling firms will begin to stimulate the local economy along with the transportation industry that will move the tools and materials aboard trains, trucks, and sea transport.
Homes, not cars, will be the focus of this new industry. There will be a new intent for humanity; and, there will be a new faith in a safer world. The old ways of doing business with cost and depletion accounting will fade away; and, a new cosmic accounting of unlimited and renewable resources will flourish.
The USA NAO Automobile & Space-Frame Housing Industry will be creating an additional global industry to assist in rebuilding our cities, slums, and suburban malls. Eco-technical homes and rock-solid plug-in mall-sized city-towns with renewable retrievable low-cost living units will be rented and not sold. Real jobs will be created in industry, transport, and the service sectors. This industry will create new jobs globally; and, join science, management and organized labor together to produce the largest industry this World has ever witnessed.
3-04-2009 @ 6:41PM
winslow said...
This is only too obvious. Chrysler needs to sell all of their assets and go out of business. GM needs to declare bankruptcy and emerge as a completly smaller company...that means out with the board and CEO
3-04-2009 @ 8:39PM
babyraymond8 said...
Nothing new here. Just same old Dump on the blue collar worker but save Wall Street BS. I would much rather give GM a loan than give AIG, Citigroup, or Bank of America a dime!!!
3-05-2009 @ 10:27AM
FELLINO97 said...
FOR MY OPINION I DONT GIVVE NOT EVEN ONE MOR PENNY TO ANYBODY TELL THE ALL CEO DIGGEN THE MONEY THE MAKE BEFORE SALE ALL NICE CAR AND JET THE PURCASE MAKE PAYROL LIKE EVRY UMAN PERSON AND WHIT TIME WE GONE BE FINE PEOPLE THE STIIL BILLION'S OF $ AND THE STILL WALK ON STREET FOR MY OPINION LOCK EM UP AND TAKE ALL THE MONEY THE STEEL AND GIVVE BACK TO THE PEOPLE THIS IS MY OPINION RIGHT OR WRONG THAT I THINK CARMINE