Detroit — Death Throes of an Industry?

By David L. Brown

I have written several pieces about Detroit in the last week or so, and today there is even more news to raise concern about the future of the American automobile industry. The problems continue to mount. On a short drive the other day I saw two vehicles parked in driveways with “For Sale By Owner” signs in the windshields. Both were shiny, impressive, fairly new vehicles. One was a Hummer, and the other was a Ford Expedition, among the most inefficient SUVs made. Then yesterday as I walked to the mailbox, I saw another vehicle for sale only three doors away from my house. I didn’t get near enough to see the brand, but it looked like a Chevy Suburban.

Obviously, these things are not only dead-on-arrival at dealer lots, but many individuals who already own them would like to dump them if possible. I say lots of luck to them. It may not be possible at all, unless they practically give them away.

And that leads me to a couple of snippets of news and commentary. I picked on Ford a few days ago, so today it’s GM and Chrysler’s turn.

General Motors Goes Into Crisis Mode

According to the news today, GM is reported to be considering eliminating some of its brands, making further white collar cuts, “speeding the introduction of small cars from other markets,” and other steps, according to an unnamed source within the company.

While no decisions have been made, the seriousness of the company’s condition can be gauged from the Draconian possibilities under consideration. This news comes only weeks after the company announced it is closing down four major plants which make pickups and SUVs and said that it is beginning plans to construct a new factory to build small, efficient cars.

Last week GM stock closed below $10 for the first time since September, 1954. Nineteen fifty-four! And back then, $10 was some real money. You could buy a good dinner for under a buck, and $10 would probably feed a family of four for a week. And dare I say it, back in those days you could have bought 50 to 100 gallons of gasoline for ten bucks,. Today you’d be lucky to get 2.5 gallons (I paid just under $4 a gallon today for regular). So where does that put the value of GM stock today? Umm, somewhere south of Tierra del Fuego? At the bottom of the deepest oil well ever drilled? At the center of the Earth? Yeah, somewhere like that. If they’re not careful it will become as worthless as a Zimbabwean $10 million bill.

Wanna see how that looks in graphic form. Here is a chart of GM stock prices for the last ten years, ending today at just above $10:


Notice the startling downturn that began sometime late last year when the price still was able to poke its head above the $40 mark as if to say “goodby cruel world,” then entering what might be called The Doomsday Dive of Death in recent weeks. This turkey is falling like a lead balloon and though the graph is logarithmic it’s hard to visualize it, but the bottom of the chart really is ground zero, solid ground coming up fast. This is a graphic version of Wile E. Coyote falling into the canyon, and that little puff of dust cannot be far behind. Shoot, I’ve been predicting big trouble for GM for nearly two years, so why didn’t I sell it short? Curses, riches have once more passed me by.

To further examine the options reported today, GM builds cars abroad for the European and Asian markets and it seems to be considering shifting some or perhaps a great deal of that production to the U.S. market, which hitherto had to be satisfied with lumbering monstrosities instead of economical little cars such as are favored overseas.

Rather than trying to start from scratch to design, manufacture and market all-new designs for the American market it makes good sense to introduce the products it already makes. The problem GM and the American auto industry as a whole faces is that it has been caught flat-footed with a sudden shift in buyer demand. As we reported a few days ago, the SUV is virtually dead. The same applies to the ubiquitous pickup truck (see below), as well as large, inefficient automobiles.

The trouble with shipping foreign-made cars to the U.S. is that it would in effect create another round of outsourcing, ceding jobs to other nations. That won’t go over well with the unions, politicians, pundits, and Mr. and Mrs. Joe Sixpack. It’s not what the country needs right now.

And on to my second item:

Chrysler Passes Crisis Mode, Goes to Full Panic

You aren’t going to believe this, and I would have trouble myself if I didn’t have the proof right in my hands. In fact, it came in the mail today disguised as an Express Mail envelope and bearing the words “Priority Delivery,” “Actual Documents,” “Do Not Discard,” and “Confidential Documents Enclosed.” Wow, I thought, that looks so important and official that it must be junk mail for sure! And, of course when I turned it over and saw the Dodge Ram emblem repeated 60 times (I kid you not) on the back, I absolutely knew it was junk. But because of my recent interest in the ongoing meltdown in Detroit I thought it would be interesting to take a look.

Imagine this if you will: I am being offered the chance to buy any Dodge product at very special prices, and in particular, and I quote “50% off MSRP on all new 2008 Dodge Ram 1500 Trucks!!!” The copywriter used the three exclamation points, and I never would use more than one and that only in unusual circumstances … except, you know, maybe in this case it’s justified. The bold type is definitely my addition.

Can you imagine it? A car company cutting the price of a major product in half, and when the model year is still only half over? It is beyond unprecedented, it is as Sylvester the Cat would put it, inconceivable. And yet, there it is in bright red ink on the sales flyer that came in today’s mail. My goodness, to cause them to give those trucks away for half price they must be in really awful straits.

I recently mentioned that the big Ford dealer here in New Mexico has been offering what seemed like incredible discounts on pickup trucks, including more than $10,000 off on its largest trucks. But those are the really expensive F-250 and F-350 trucks with diesel engines, 4WD and all the trimmings, vehicles that go for the mid $30’s to the upper $40’s, so the percentage isn’t astronomical, not in the 50 percent league. I’ll look forward to hearing of $20,000 discounts on those big trucks in the near future, and if Dodge’s price offer is any clue, I might not be disappointed. (Not that I would ever buy such a thing at any price. Heaven forefend!

The Dodge 1500 is the equivalent of the Ford F-150, long America’s best selling vehicle and sales of which are now residing in the toilet, off by 50 percent over a year ago. Hmm, 50 percent — maybe that’s where Dodge got the idea to cut its prices on the 1500 by half, to compete with the F-150 in the race to the bottom.

More than anything I have seen, that piece of marketing hype from Dodge underlines the extremely serious situation the auto industry is in. They are not just in trouble, they are in Trouble with a capital T, right there in Motor City. Not only are sales plummeting and inventories mounting, but the industry has already gone through major cost-cutting exercises in recent years. Like the airline industry, they literally have little more to cut and the trouble just keeps on coming. Unfortunately, that isn’t likely to change anytime soon. They are stuck with factories that are still churning out mechanical monstrosities, and the distribution chain is backed up so far from the glutted dealerships that it is a major challenge for the manufacturers to find places to park the unsold vehicles. No wonder they are having to practically give them away.

I also noted today that Chrysler, the owner of the Dodge brand, recently had to deny that it was about to declare bankruptcy. Bankruptcy would not be new for that company, as anyone who was around in the 1970s and 80s will remember. That time the U.S. government (that would be you, me and the other taxpayers) bailed out Chrysler until its chief executive Lee Iacocca could lead the company back into profitability. Then again about a decade ago Mercedes-Benz made the mistake of buying the company and turning the merged entity into a Frankenstein monster called Daimler Chrysler, a mistake they soon realized and eventually were able to remedy by selling off the American part of the business to, well, they say one is born every minute.

Will we taxpayers bail out Chrysler again, with Ford and GM also perhaps tottering into insolvency and equally in need of help? It seems unlikely, but anything could happen in Washington where the decisions about what to do with our money are made. Frankly, the U.S. auto makers have gone so far down the wrong road that it might be best to just let them die a quiet death.

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