Category Archives: Auto Industry

The End of Detroit as we know it

By Lloyd Graff

What a day for Detroit. Old John Dingell, the pugnacious congressman from Motown lost his Jewel, the chairmanship of the Energy and Commerce Committee.

Dingell is 82, he succeeded his father in 1955 in the House — so the Dingells have been in Congress, virtually forever.

He lost his job to Henry Waxman of Los Angeles who is Mr. Environmental in Washington and a headline-hunting pain in the ass to the Detroit automakers.

The odds of the Big 3 getting a Washington rescue package were fading anyway, but the Waxman ascendancy was a dagger for the rust belt. Waxman’s defeat of Dingell is emblematic of the lack of clout mustered by Rick Wagoner’s last ditch attempt to circle the wagons.

Now the terms of the Detroit bailout will be dictated by an Obama Administration, with Henry Waxman having a significant impact. This bodes well for Elon Musk and Tesla Motors (see Today’s Machining World’s feature, July 2007), but it is curtains for the status quo. In the real world a bankruptcy filing is going to be ugly and disruptive for the supply chain and workforce. This is a very dark day for Detroit. There will be better days to come, but the Waxman for Dingell trade may mark the end of Detroit as we have always known it.

Question: Are you glad John Dingell is no longer in charge?

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Paul Eisenstein on automaker bailout

By Lloyd Graff

I talked to Paul Eisenstein, TMW’s resident auto guru in Detroit. He is pessimistic about a bailout for the domestic car builders. He sees the legislation caught in a food fight between the lame duck Republicans and the Democrats who find themselves defending a bailout for big business.

I asked Paul if he thought a Chapter 11 bankruptcy approach would work for General Motors. He felt the stigma of a filing would kill the sales of GM’s vehicles for years. He also says that Rick Wagoner, GM’s president, does not accept the fact that he is part of the problem. Wagoner is determined to gut it out as head of the company, which also mitigates against a Chapter 11 filing.

Eisenstein says that the big irony is that GM has made major progress in the last few years with the negotiation of a reasonable rollback settlement with the UAW. They have been ambushed by high oil prices and the current economic gloom, two things out of their control.

Eisenstein concedes GM has a crappy product line aside from the Malibu and the Escalade, but he thinks the option of allowing GM to fail is too awful to accept.

Question: Is declaring bankruptcy the worst possible course of action for General Motors?

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Would no bailout for Big Three be better?

By Noah Graff

General Motors, Ford and Chrysler have asked for $25 billion in government loans to survive the economic crisis — that’s in addition to the $25 billion Congress approved in September to foster fuel-efficient technology (NPR.org).

CNBC’s Dylan Ratigan, host of “Fast Money” and “Closing Bell” says the automakers don’t deserve another handout from the government.

He says that capitalist economics should resolve their situation, not more charity from the government. He argues that the big three have a union problem that’s not sustainable and incompetent management, so instead of another handout from the government you say, “We’ve got $25 billion at an open bid to the entire world. I want the 10 best car designs on the planet earth, I’ll give you two and half billion dollars each for each of your car designs. [If] you’ve got to do them in Detroit you can hire the workers from General Motors.” Then you would do a complete restructuring plan to finally set up a profitable business model.

GM and Ford say they are both spending more than $2 billion in cash each month, and GM says it could run out of money soon – so soon that CEO Rick Wagoner says the company may not have enough time to wait for a bailout from the Obama administration after the new president is sworn-in in January 2009.

Source: www.thestreet.com, www.npr.org

Question: Should the U.S. government give another $25 billion “loan” to the Big Three?

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Problems for Toyota too

As everyone knows, GM and Ford are suffering big time – burning billions every month, desperately begging the government for bailout money – but you might be surprised that Toyota, the “intelligent” auto company that has been showing up the Big Three for almost two decades is also in its own house of pain. Its stock dropped 20 percent last week when it announced that it will make almost no money during the second half of its current fiscal year and expects full year profit to drop by 68 percent.

Much of this pain of course is the result of a suffering economy, but partly it’s the result of some of Toyota’s poor decisions such as putting out its full size Tundra pickup in 2007 just as gas prices were skyrocketing and American buyers started panicking.

Another reason Toyota is having trouble is its Japanese tradition of not laying off employees, even as factories sit idle. They may have the benefit of being non-union, but Nissan, Daimler, GM, Renault, Ford, Volvo and Chrysler have been able to cut costs by laying off workers. Notice that that list does not include Honda which I assume has a similar Japanese employment code of ethics.

One the flipside Toyota still has $18.5 billion in cash, almost no debt and is a leader in clean technology. It stated earlier this year that it was going to shift its Mississippi plant from producing Highlander SUVs to Prius hybrids. It plans to start producing hybrids faster and put out four new models next year.

Source: Wired.com

Question: If you traditionally buy American cars and trucks, are you more or less likely to purchase one today as the Big Three beg for government money just to survive?

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New Credit Game for Industrial Equipment

By Lloyd Graff

I think we got an important signal Tuesday when Bank of America decided not to raise credit lines for McDonalds franchisees to buy new equipment such as coffee machines. They’re keeping credit lines as they are – that doesn’t mean they’re cutting them, it just means they’re not raising them as a general policy. This is important because it shows that the Wall Street mess is starting to filter down to the lending habits of major banks.

I think this is going to affect industrial equipment purchases because it affects the money available to borrow. It’s going to mean that distributors and machine tool builders are going to have to become more resourceful in enabling their customers to buy new and used equipment. A Haas or an Okuma is going to have to be more involved in the financing issues of their customers, using their clout with lenders to find money for them. They will probably be paying more for the money than in the past, but I think this is part of what the FED is all about in providing ample liquidity in the system. The sources for the money may not be the traditional ones that people have used in the past. There will be leasing money, off-shore money and bank money available, but the banks will probably be lenders who fall to the sidelines, because the more resourceful and nimble lenders will probably be the ones to step in.

Question: Have you had a problem in buying equipment recently?

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People Just Don't Get Manufacturing

August 21, Chicago’s NPR station ran a short blurb about how manufacturing’s seemingly continuous slowdown has caused many shops to let go of workers in recent months. Hearing stories like this over and over supports the notion that one of the difficulties in urging a young generation workforce to enter the manufacturing industry is not only caused by manufacturing’s image as dirty, monotonous and underpaid, but also by the general news being presented to the public everyday. Who would want to commit one’s life to jobs that are portrayed as traditionally difficult and also declining? Most people make little effort to learn the greater truth behind the stories they hear. And all that’s heard about manufacturing these days is how it’s flailing.

Question: Do you think there is a chance your children will be interested in a carear as a machinist?

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More Auto Industry Woes

Just days after Toyota said their U.S. sales dropped 18.7 percent, Toyota is cutting 800 jobs at a unit making Lexus vehicles. It’s the first time Toyota has let go of contract workers before their contracts are up. This is yet another indicator of a sliding U.S. auto market, as Toyota has historically grown during previous recessions.

In the following video John Casesa, Managing Partner of Casesa Shapiro Group, elaborates more on the future of the U.S. auto industry. He discusses automakers shifting production from SUVs and trucks to that of smaller fuel efficient cars, the changes in American car buying behavior, the importance of international emerging markets, and the prospect of a GM bankruptcy.

Source: The Wall Street Journal Online

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GM Attempts to Bridge Two Car Cultures

As GM’s car sales steadily decline in the U.S., its Buick brand has become one of the most coveted China. Buick recently debuted its new Invicta show car, the expected replacement for the LaCrosse model, whose purpose is to appeal to both U.S. and Chinese consumers, bridging the gap between the two markets. It features luxurious interior features valued by Chinese drivers, such as gadgets, computers and backseat roominess, but also addresses the preferences of American drivers for bold, exterior styling. It was designed in seven months, just in time for the Beijing Auto Show. Buick cars sharing many of the features on the show car are supposed to be in production next year.  

Source: The Wall Steet Journal

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Eco-Cycles!

The Isle of Man TT is among the oldest and famous races in motorsports. Azhar Hussain, an eco-conscious motorcycle fanatic, hopes to turn the race into what he calls the world’s first high-speed zero-emissions grand prix.

If Hussain’s vision receives approval from TT organizers, TTxGP will showcase motorcycles and three-wheelers fueled by anything that doesn’t emit tailpipe pollution. They’ll race on the same 38-mile mountain course where conventional bikes hit speeds in excess of 120 mph. “This is an event where cutting-edge technology, systems and designs can be tested against the best in the world and rapidly refined and improved,” Hussain told Wired.com. “All of this means that clean tech is delivered to the consumer faster than it would otherwise.”

Two teams have signed up so far — Kingston University in London and Electric Motor Sports, the California company that builds electric motorcycles and sells other electric vehicles.

Source: Wired.com

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Is Shell Oil a Green Maverick?

Today I came across a video of the Shell Eco-Marathon Americas which was held in April, 2008.

The event is a competition between students from around North America (there is a different one in Europe) to create the most fuel efficient car ever. Purdue University won the prize for a solar engine vehicle reaching 2,861.8 miles per gallon. Penn State won the Fuel Cell category with a car reaching 1,668.3 miles per gallon, and Mater Dei High School claimed the first and third place trophies for the internal combustion engine category. The 5th and 6th Gen vehicles traveled 2,383.8 and 1,208.6 miles per gallon respectively.

But why is Shell, an oil company, sponsoring an event whose purpose is to invent cars which will obliterate the demand for its product? It reminds me of the Philip Morris commercials telling people not to smoke. David Sexton, President of Shell Oil Products said in a CNN interview, “We’re thrilled that if some of these ideas can maybe in the future reduce fuel consumption we think that would be good for everyone.” Does “everyone” include himself?

It must be a PR thing because otherwise it makes no sense. The oil companies are banking on the idea that even if fuel efficient, alternative energy vehicles do become practical and affordable, it will take decades before the supply of vehicles worldwide adopts the new technology. In the meantime Shell looks like a green maverick amongst its Big Bad Oil peers.

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