What do you think will happen to the US automakers?

**tripods68** · 10-06-2008, 06:25 PM

I'm not impressed at all for these two stocks even when their stocks are way down. Both GM and FOrd have instituted a strategy turnaround plan few years ago to compete against the Japanese. Yet they continue to lose money every quarters. Plus they have a negative perception about "quality" which they really need to rectify with public. Unless they can show 4 consecutive quarters of profits, I'd stay away from buying their stocks.

**maat55** · 10-06-2008, 06:38 PM

I heard a report on GM that said GM has accessed it's last 3 billion for operateing expenses.

**sweeps** · 10-06-2008, 06:40 PM

I think the automakers need to work on car features that people actually want: reliability, fuel efficiency, and style. Not on gimmicks like $2.99 gas guarantees and MyKey.

**kimiko** · 10-06-2008, 07:45 PM

In the immediate future, bankruptcy.

**MYOM** · 10-06-2008, 08:26 PM

Congress just gave 25 Billion to the automakers to tool up for hybrid car production. GM has its future riding on the Volt coming out in 2010. There will be a $7,500 tax credit to buy one. Competition is fierce in the auto business. I personally think both Ford and GM will survive but they will be smaller companies in the future. Smart money will find a better investment and I’m a car lover!

Dan Clemons, author and retired Certified Financial Planner

**cptacek** · 10-06-2008, 09:18 PM

I think they are "too big to fail" but I don't know that they would be good companies to buy stock in. The companies might survive but I bet the stock owners would be left holding the bag in any kind of bail out.

**disneysteve** · 10-07-2008, 03:31 AM

Originally posted by cptacek View Post

I think they are "too big to fail" but I don't know that they would be good companies to buy stock in. The companies might survive but I bet the stock owners would be left holding the bag in any kind of bail out.

This is pretty much what I was thinking.

**tripods68** · 10-07-2008, 06:07 AM

Originally posted by cptacek View Post

I think they are "too big to fail" but I don't know that they would be good companies to buy stock in. The companies might survive but I bet the stock owners would be left holding the bag in any kind of bail out.

This is interesting. But you wouldn't think Bear Sterns or Lehman Brothers were too big to fail either, yet they did. After government spending spree has been lately, I don't know if American public has the appetite anymore to continue bailing out companies just to save jobs. If companies just producing products for the sake of employing and saving thousand of jobs, then wheres the american innovation, pride, and ingenuity? It seems to me their just collecting paychecks at back of the taxpayers.

**sweeps** · 10-07-2008, 06:13 AM

Originally posted by tripods68 View Post

This is interesting. But you wouldn't think Bear Sterns or Lehman Brothers were too big to fail either, yet they did. After government spending spree has been lately, I don't know if American public has the appetite anymore to continue bailing out companies just to save jobs.

I agree with this -- "Bailout fatigue" is setting in.

**Maismom** · 10-07-2008, 07:36 AM

Looking at GM's balance sheet, Stockholders' equity section is now shown as "Stockholders' deficit".....

That's pretty bad. And it grew from -5.7 million to -37 million (2006 to 2007).

**Broken Arrow** · 10-07-2008, 07:54 AM

Huh, didn't realize this was a stock thread.

Kirk Kekorian went in big with Ford back in $8/share. It floated there for a while, but eventually fell down to... what is it now... $3.32 right now.

Certainly, they're hemorrhaging money, and unlike the financial sectors, while the loss of Ford or GM would be a huge blow to two icons of American industry... it wouldn't be a direct threat to the economy quite the way some financials would be if they were to fail. So, yeah, I have to agree that they may not get bailed out. Which from a trader's point of view, it's just as well. If you look at the major financials that have been bailed out so far, you'll see their stock prices have still plummeted.

Now, I actually do see an upside! Both Ford and GM are international automakers. I believe Ford anyways, have had some success with their economy subcompact (I believe it's called the Fiesta) that also have superb gas mileage! In fact, it's an ideal entry in the US market, if it weren't for the fact that it's a diesel and may not pass the US's EPA standards. That and the relatively high cost of shipping it here because they're built in UK.

I've also heard that they're making headways in India as well, again, with the introduction of economy subcompacts. So, what does that tell us? Ford and GM are both capable of making fuel sipping economy cars. It's a question of time to retool their plants from building trucks and SUVs to these economy cars here in the US.

GM is also working on the Chevy Volt, which is worth mentioning because I believe has already left the concept stage, and a production model has already been created. Despite the hype, I have to admit the Volt is pretty interesting. It's much better than current hybrids, especially if you travel anywhere other than in cities with a lot of stop-and-go traffic.

But as you can also tell, what I speak of is in the future. It may be the near future, but it's still in the future. For right now, it's bleeding heavily to stay alive until their new strategy can take hold. Of course, even then, they'll still face stiff competition from abroad. Certainly European and Asian automakers are not going to stand still either.

Not only that, but we also have to take our current consumer demand into account.

I've been eyeing at Ford myself personally. It's been on my watch-list ever since Kekorian went in, just because I like to see how that works out. However, I have yet to buy into that stock, and I don't think I'll be doing it anytime soon. The price looks great, and I admit it's tempting, but I would like to see how all this is going to pan out some more, before I jump in.

That's my $0.02

**jIM_Ohio** · 10-07-2008, 08:18 AM

Did anyone here see 60 minutes last weekend?

I used to work for Ford, went to a college founded by General Motors and my degree bears GM's name.

My take is that once someone gets an electric car working (60 minute episode from Sunday) GM and Ford will throw beaucoup bucks at them to market the car.

Having worked for Ford, and currently working for a company in which Ford and GM are each top 5 customers for us, my thought is that the autmotive industry in the US needs a huge overhaul. Honda, Rolls Royce, Nissan and Renault are also customers and they don't seem to have the culture problems of GM and Ford.

The problem with the US automakers is their culture- plain and simple. If you propose an idea and that was not the way it was done before, you are met with resistance. Then the idea gets processed through senior management meetings and dumbed down and modified.

In innovative companies, when a good idea is created, that idea finds itself to customers quickly.

TRUE story. In 1997 I worked for Ford. At that time they were manufacturing cars designed in 1992- meaning it took 5 years to go from concept to manufacturing. Honda and Toyota could each have a cycle time in range of 33-36 months. When Chrysler came out with the new body style (Ram, PT cruiser, Prowler) those body styles were 2-3 years ahead of Ford and GM doing the same thing- meaning when Ford and GM saw the style, it took them 5 years to react to what Chrysler designed in 2-3 years.

The cycle times of 5 years are just too steep to really be effective in a consumer driven industry where profit margins are decreasing.

I could go on and on, but the shorter this is, the more people will read it.

**Broken Arrow** · 10-08-2008, 05:29 AM

Thank your for sharing your experiences, Jim.

Your experiences may also explain why they've been stuck on the SUV/truck path for so long, when others are innovating and expanding their product lines.

I hope that things will turn around for them, but at less than $3 right now... I'm still not willing to buy it.

**jIM_Ohio** · 10-08-2008, 09:43 AM

Truck/SUV were the only models of cars which actually could be sold at a profit.

The small cars have little wiggle room on price (such as when I bought a Ford Focus around 1999). The small cars are generally sold at a loss and they hope to make up the lost money on financing.

The larger cars had more markup. You could negotiate a 40k truck down to 35k in some cases.

Now that the truck sales have slowed, no wonder the financial things for the automakers are unraveling. Because projects get funded over a 5 year period though, it will take some time for the money to truly dry up.

Here is some logic I have heard in automotive industry over the years:

R&D only has 10% of it's projects actually come to market
CEO solution: let's only fund the projects that work and R&D budget is cut by 90%.

Car going to manufacture has 450+ requirements identified during design process. Yet some of the requirements have no validation at end of process. (This is where my current employer specializes- we have processes for requirements driven design). The airplanes designed by Boeing and Lockheed Martin have all their requirements validated before going to production, the US automakers decided this is too expensive. HMMMM. All the companies listed use the software my company provides to deal with these requirements issues.

I went to a tier 2/3 automotive supplier (tier 2 is a supplier which supplies a company, and that company actually sends something to the assembly plant for the car). I was going while working for a non automotive client. They explained that the parts coming from a tier 3 which were approved by the automaker did not pass quality inspection (45% failure rate by their standards). Meaning some tier 2 suppliers which work in other industries have high quality standards, yet to to cut costs the automotive companies lower their standards to accept lower quality at a lower price.

On some designs automotive companies will reduce tolerance by .001" or .005" (that is between a thousandth and 5 thousands of an inch) to cut costs by a penny or two per part. If 100,000 cars are built , they saved around $1000 for that part (to lower cost of car). However because this affects quality down the line... that has high impact to the customer well after the purchase. That might be the vibration you hear in your 10 year old car (that part is just a little too big).

I have been told Honda and Toyota completely redesign their vehicles top to bottom every 2 years and retool their assembly lines every 2 years. Ford still was using drawings from the 1950's and 1960's when I was there in 1997 and when I supported them in 1998 and 1999.

At Honda and Toyota, this would instill a culture of change anything, consider anything, and build cars with the latest in manufacturing technology. At Ford, the culture is don't change what has worked in the past.

Yet we are often reminded that past performance does not guarantee future results. HMMM.

What do you think will happen to the US automakers?