Detroit's Frosty New Year

Can the disgrace that is the U.S. auto industry get any worse? Apparently, yes. January figures show that not only did General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , and Chrysler suffer from horrific drops in sales, but now China has surpassed the U.S.

Chrysler led the way down with a 55% decline in January sales, followed by GM, which saw sales fall by 49%, and Ford bringing up the rear with only a 40% drop-off. In 2008 the Detroit Three combined to sell 13.2 million, a poor performance in itself, but now with January's numbers out, according to Autodata Corp., we're looking at a run rate of 9.6 million cars for 2009. China, however, sold enough vehicles to generate a run rate of 10.7 million for the year, passing the U.S. for the first time.

Sure there are a few caveats, such as China including sales of heavy commercial vehicles and buses where the U.S. carmakers do not, but the numbers are worrisome nonetheless.

Back when GM and Chrysler got the OK for $34 billion in loan guarantees, it was based on the premise that they would have a solid plan to return to profitability in place come March 31. While the CEOs assured Congress it was achievable, it was predicated on a domestic car market that would support 12.5 million to 13 million in vehicle sales, but would need more like 16 million car sales to enjoy "healthy profits." In fact, GM's baseline look for 2009 was for 12 million sales with a worst-case scenario of 10.5 million sold. It doesn't seem feasible that the carmakers will achieve even these dour predictions; it's more likely that they're going to need much greater infusions of cash if they're going to survive.

The tab for the whole industry is poised to mushroom. Along with the automakers, car rental agencies like Avis (NYSE: CAR  ) and Hertz (NYSE: HTZ  ) are pushing for a bailout of their own and now the auto parts supply industry wants one, too. On Monday, the Motor & Equipment Manufacturers Association -- representing Lear (NYSE: LEA  ) and TRW Automotive, among others -- asked for $25.5 billion in aid and guarantees.

Detroit is no longer interested in trying to beat Japanese carmakers. When Toyota (NYSE: TM  ) took the crown of biggest car seller from GM, I suggested it didn't matter when you're trying to simply keep your head above water. Smaller and solvent is preferable to biggest but bankrupt. Nor does the latest ignominy of China surpassing the U.S., fudged numbers or not, count for much. The future for Detroit lies in being able to build fuel-efficient cars that meet the needs of consumers.

Hopefully it will still be allowed to finish the race. While GM is hoping its plug-in Chevy Volt will be ready for next year, Ford won't have a plug-in model until 2012, having just inked a deal with Johnson Controls (NYSE: JCI  ) to supply lithium-ion batteries for the vehicle. It's just too bad that Detroit is sprinting now toward the alt-fuel goal line when it has expended all its energy already. Not making it to the finish line would just be adding insult to injury.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 06, 2009, at 8:20 PM, kazwins wrote:

    "The future for Detroit lies in being able to build fuel-efficient cars that meet the needs of consumers". Detroit WAS building what consumers wanted. Unfortunately Detroit can't flip the switch to change to the whim of the consumer as quickly as you seem to think it should. Unlike McDonald's, carbuilding is a capital-rich endeavor. The tooling is amortize over thousands of produced vehicles. Do the automakers pour millions to begin producing vehicles the consumers "need" only to find out the need has changed again? Let's see, flex fuel is out so let's try electric now.

  • Report this Comment On February 08, 2009, at 1:33 PM, Milligram46 wrote:

    Amazing how this story ignores Nissan requesting guaranteed loans from the Japanese government and Toyota poised for its worst financial loss since 1950.

    It also ignores the analyst view that at under 10 million units sold a year, the entire US auto industry regardless of who makes the cars is at risk of collapse.

    I mean are we having fun with numbers? Ford sales were down 39% - so is the fact Mercedes Benz was down 36% a "good" thing? Is the fact that Toyota was down 33% a "good" thing?

    The answer isn't in fuel effiicent cars - hello - Toyota has rebates on Priuses right now because the sales of Priuses are down about 50%. What is Toyota selling more of? Gas guzzling pickup trucks and SUVs and for the record, Toyota fullsize pickup trucks and the Toyota Sequoia fullsize SUV get the worst fuel eocnomy of any of the fullsize vehicles sold in that class. If people wanted economical vehicles there wouldn't be rebates on Priuses and they would still be building that Mississippi factory, not canceled the whole darn thing.

  • Report this Comment On February 08, 2009, at 3:59 PM, garyc27 wrote:

    Rich,

    "Can the disgrace that is the U.S. auto industry get any worse?"

    The real disgrace is the U.S. Government has permitted the playing field to continue to be unlevel. The politicians, the journalists, and environmentalists, this group of the intellectual elite, which produces nothing but, more methane than a herd of cows, have long harbored a deep vehemence against the manufacturing class that run the smokestack industries. I am speaking about those people who get sweaty and get their hands dirty to make a product not the intellectual elite who trade stocks to one another, sue each other and determine how the rest of us should live.

    "The future for Detroit lies in being able to build fuel-efficient cars that meet the needs of consumers."

    Are you trying to tell us that the arrogant corporate chiefs of the U.S. auto industry failed to foresee the demand for small, fuel-efficient cars and made gas-guzzling road-hog SUVs no one wanted, while the clever, far-sighted Japanese, Germans and Koreans prepared and built factories and vehicles for the future?

    Trade in the automobile sector is restricted globally by a variety of Non-Tariff Barriers (NTBs) including engine displacement taxes and import licensing requirements. A significant NTB to the automotive industry is currency manipulation. Asia's policy of mercantilist exchange rate management, particularly the massive intervention by Japan stretching back a decade, has acted as a subsidy to its exports and a barrier to U.S. auto manufacturers efforts to compete fairly.

    And just what are the needs of consumers?

    It seems that not too long ago consumers were buying large vehicles like SUV's to take the kids and their friends to after school sporting events, the community pool, etc. When the price of gasoline hit $4.00 plus per gallon, due to oil SPECULATION not supply and demand, the consumer no longer needed size but, fuel efficiency and hybrids became the vehicle of necessity. (By the way, according to a CBS 60 minutes report, that dramatic increase in the price of oil was due to oil speculation by Wall Street Traders such as Hedge Funds, J.P. Morgan, Goldman Sachs, Barclays and Morgan Stanley,and also heavily invested in oil futures none other than AIG and Lehman Brothers. Once again the financial sector shows up as the cause of the bubble).

    The U.S. used to have a TV industry, until the Japanese, dumped Sony televisions here until they killed it.

    Asia can free trade to the U.S. but not the other way around. These other countries manipulate currencies, grant tax rebates to their exporters and steal our technology, not to compete, but to put our companies out of business. In 2007, South Korea exported 700,000 cars to the U.S., while importing 5,000 cars from us.

    There was a time when in the United States we made all our own toys, clothes, shoes, bikes, furniture, motorcycles, cars, cameras, telephones, TVs, stoves, refrigerators, etc. For the first time in U.S. history, U.S. manufacturers employ fewer workers than the United States government.

    "While GM is hoping its plug-in Chevy Volt will be ready for next year"

    See folks, GM is already on the Obamanation train, they have their HOPE ticket.

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