General Motors & Ford - Precarious Positions

[Investor]

A new thread to outline some perspective into the state of play in the global car market.

As already known, General Motors and Ford are facing difficult financial positions and their ability to renew debt upon expiry dates will soon be tested. They are skating on thin ice.

Like sharks with the smell of blood in the ocean; Toyota, Honda and Nissan are moving in for the "coup de grace".

Readers who have read the recent issue of Fortune Magazine would be aware of the issues involved.

The following was published today (I will post more information over the next few days):

May 20 (Bloomberg) -- Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co. said the automakers will further increase production outside of Japan as they win market share in the U.S. and Europe.

``We will continue to boost local production and increase buying parts abroad as much as we can,'' said Toyota President Fujio Cho in an interview yesterday. ``Toyota's strategy is to make vehicles where they are sold.''

The three largest Japanese automakers are expanding production in North America, Europe and Asia to shield themselves from currency swings and to cut delivery times. Greater local production in North America has helped lessen the political pressure the carmakers experienced in the early 1980s, the executives said.

``We don't anticipate the friction that we have seen in the past,'' said Honda President Takeo Fukui in an interview yesterday. ``What we will continue to do is to produce vehicles that are well received by consumers.''

About two-thirds of Japanese automakers' cars sold in the U.S. are locally made, according to the Japan Automobile Manufactures Association. The three companies get about 90 percent of their parts locally, according to Koji Endo, an analyst at Credit Suisse First Boston in Tokyo.

Texas, Kentucky

Toyota is building a factory in San Antonio to make pickup trucks, expanding production at its factory in Kentucky and is now considering another new factory, said Cho, without elaborating. The automaker also opened a factory in Tijuana, Mexico this year.

Honda is also expanding production at its Lincoln, Alabama factory, where it builds the Pilot sport-utility. Honda, the maker of the Ridgeline pickup truck, will have annual capacity to produce 1.33 million units this year, up from 1.22 million units in 2004. Honda U.S.-made Accord sedan has more than 98 percent local content, the company said.

Nissan opened a new factory in Canton, Mississippi in May 2003 to help it win market share in the U.S. The automaker will introduce 28 new and redesigned vehicles during the three years to March 2008.

Rising Market Share

During the 1980s, Japanese automakers had about 18 percent to 19 percent of the U.S. market and most of the cars sold there were exported from Japan. Japanese automakers had a record 33 percent market share in the U.S. in April 2005, according to Autodata Corp.

Nissan co-chairman Itaru Koeda, who is chairman of Japan Automobile Manufacturers Association, said Japanese carmakers will buy more components from U.S. parts makers, as General Motors Corp. and Ford Motor Co. reduce production.

``What we can do is to increase the purchase of parts in the U.S., which will end up helping'' the industry, Koeda said. He didn't elaborate. to March 2008.

Denso Corp., the world's third-largest maker of auto parts, which is 23 percent owned by Toyota, has followed the Japanese carmakers in setting up overseas production. It builds air conditioners, air bags and ignition systems in the U.S. to supply to its biggest client, Toyota, as well as to Nissan, Honda, General Motors and Volkswagen AG.

Toyota shares rose as much as 1.3 percent to 3,930 yen in Tokyo at 10:00 a.m., while Nissan shares gained as much as 0.9 percent to 1,071 yen. Honda shares rose as much as 1 percent to 5,290 yen.

[excalibur]

I do not have any automobile stocks...yet, but I think that GM as well as Ford have already realized the trend. And that is low cost cars.
The Japanese will have the same production costs as the others. Before, or at least till now, it was a battle of prestige than a battle of quality or quantity.
My name is not Nostradamus but I fear the the Japanese are preparing a home-goal with their car industry on the long run.
GM as well as Ford or anyother American car industry, are playing the game at home.
If you don`t know enough right people, at the right time: you be in trouble.
:goodnight

[chicken]

I understand that FORD ARE NOW IN negotiation to produce a hybrid car for TOYOTA...INTRESTING I THOUGHT....for the USA market :2twocents

[Investor]

In the BRW (28/4/05) on page 35;

General Motors and Ford struggle with falling sales and underfunded pension liabilities.

Each year, the world's car makers build about 80 million vehicles, but sell only about 62 million. Given this over-capacity and the increasing prices of raw materials such as steel and oil, it is little wonder that competition is so fierce and profitability is so poor.

Ford and GM operate on margins of just 2% and DaimlerChrysler's margin is 1.7%.

In any other industry, the solution would be simple: close plants, rationalise the industry and get supply back in line with demand. But the global leader of PricewaterhouseCoopers' automotive practice, Stephen Darcy, says that common sense rarely prevails in the automotive industry.

He estimates that 45 plants need to be closed around the world to get back to the optimum level. But last year, the automotive companies opened another 19 plants, adding more than 700,000 units of capacity. "People ask me why?" He says, "You probably need a psychiatrist rather than an economist to figure it out."

Darcy says the industry's refusal to close plants makes them slaves to volume. With their fixed costs increasing, the only way to remain profitable is to sell more cars.

Graeme Addison, the director of the automotive research firm, International Car Distribution Program Australia, says the local market is close to saturation ...... there are 12.3 million vehicles in Australia, which equates to 0.7 vehicles for every Australian over 15. Take away those who can't or don't drive and the number is close to one car per person.

He is worried about the ripple effects of a slow down. "You only have to look at what the retailers are saying about softening conditions. That's got to have an impact. If the market comes off a bit, we will have cars sitting around."

Addison points to the share price of GM as proof of how incentives can destroy shareholder value; over the past 40 years, GM's share price has been basically flat; over the same period the S&P 500 index rose 1600%.

[Investor]

In The Age newspaper 12/5/05, page 19;

Toyota says it will increase spending by 15% on new factories and vehicle development as it seeks to win more market share from GM and Ford.

Capex will be a record AUD 15.3 billion this year...... Toyota's capex is 48% higher than GM's. Toyota's investments in petrol-electric hybrid cars have bolstered sales as record petrol prices encouraged US consumers to buy more fuel-efficient vehicles.

Having topped Ford in 2003 as the world's second largest car maker by unit sales, Toyota is aiming to raise its global market share to 15% from 12% now, which would put it ahead of GM.

Toyota's market capitalisation is Yen 14.1 trillion, more than the combined value of GM, Ford, Volkswagen, Citroen, Peugeot and DaimlerChrsyler.

Toyota, Nissan and Honda are the world's 3 most valuable car makers, worth a combined AUD 288 billion, according to data compiled by Bloomberg. The global production of these 3 all rose to records in the year ended March 31.

[Investor]

From The New York Times:

DETROIT, May 20 - To believe the commercials, sport utility vehicles can climb the most indomitable mountain, ford any stream and haul around the kids to boot.

But gas prices are a more unconquerable force of nature. With higher prices at the pump sinking in as something more than a blip on the radar, and with several new passenger car models winning back customers, America's love affair with S.U.V.'s is taking a breather.

For the first time in 14 years, the passenger car is actually taking sales back at the expense of S.U.V.'s and other trucks, according to an analysis of auto sales data. The renewed interest in cars over the first four months of the year, while modest, is a pause in what has been the trend in auto sales for the last decade and a half: the soaring growth of the sport utility vehicle as America's preferred family vehicle.

Sales of medium and large sport utility vehicles - like the Ford Explorer and Chevrolet Suburban - have stalled, and the torrid sales growth of large pickups has cooled.

While much of the slack is being taken up by smaller and less bulky S.U.V.'s known as crossovers, overall sales of S.U.V.'s are down 1.7 percent while passenger car sales are up 3.1 percent, according to Wards Automotive, which tracks auto sales.

"I just bought a Ford pickup truck and I wish I wouldn't have bought the darn thing," said Mark House, 45, who was shopping Friday at a Toyota dealership in the Toledo, Ohio, area with his daughter, Monika, 19, who said she wanted a car so she could keep the cost of fill-ups down.

"If gas prices were cheaper, then I'd look into an S.U.V.," she said. "It's the gas."

Mr. House, who owns and manages rental properties, said of his truck, "It's $60 to fill it up, and I don't even want to drive it anymore."

But John Wodarski, a manager at the dealership who has sold cars for 23 years, said talk about gas prices did not always translate into action.

"People rank it up there as one of their biggest concerns, just like losing weight," he said, "but no one ever does anything about it."

Weakness in big trucks is bad news for General Motors and Ford Motor, because they largely rely on big S.U.V.'s and pickup trucks for profits. Asian automakers like Toyota have had a stronger position in sales of cars and crossover vehicles.

G.M. executives say large S.U.V. sales, which are down 15 percent this year industrywide, are weak not because of gas prices but because G.M.'s models are nearing the end of a product cycle. G.M. will introduce redesigned versions of large S.U.V.'s like the Chevy Suburban and Cadillac Escalade next year. Ford executives, by contrast, have cited gas prices as a major factor in their diminished earnings projections. Phil Martens, Ford's vice president for product creation, said recently that "fuel economy has gone from not being in the top 10," among buyer concerns, "to being in the top 5."

Some analysts see a parade of newer car models as the predominant factor.

"Gas prices are having a much more minor effect than they did in the 80's," said Tom Libby, the senior director of industry analysis at the Power information network, a unit of the research and consulting firm J. D. Power & Associates. In fact, gas prices, adjusted for inflation, are not nearly as high as they were in the early 1980's. Mr. Libby said a wave of new midsize luxury cars from brands like Acura, Lexus, BMW and Infiniti were increasing car sales.

Hot sales of hybrid electric cars, like the Toyota Prius, have also helped, though Toyota's Lexus division and Ford are now also offering hybrid S.U.V.'s. Detroit's recent emphasis on making more credible passenger cars has been a major factor. Two notable cars with strong sales have been Ford's redesigned, Mustang and DaimlerChrysler's Chrysler 300 sedan.

"I never wanted a car before - never," said Tamika Cooks, a science teacher at Bellaire High School in Houston, in an interview Friday as she was signing the paperwork for her Chrysler 300C. "But this car has captured my attention. It speaks to me. It calls my name."

Burly and sleek, the 300C has won diverse appeal and convinced many that Detroit can make compelling cars if it is motivated; the rapper Snoop Dogg drives a black 300C. Ms. Cooks preferred satin jade.

"It's soft, it's feminine, it's classy," she said. "When you see it passing by, you have to stop and look."

For Ms. Cooks, gas prices, which are $2.09 a gallon for regular at a Shell station nearby, were not part of her decision, and she said she came close to buying a Lexus S.U.V. The 300C, equipped with a gas guzzling Hemi engine, is hardly akin to a Toyota Prius.

"Gas prices worry me with any vehicle," she said. "One day they're up, the next day they're slightly down."

Cars now account for 46.3 percent of the nation's vehicle market, up from 45.4 percent in the first four months of 2004, according to Ward's. Before this year, cars had been in decline every year since 1991, when they accounted for 67.4 percent of the market. In 1980, cars made up about four-fifths of sales. The growth of light trucks, a regulatory category that includes minivans, S.U.V.'s and pickup trucks, has had broad effects on the nation's oil consumption. The fuel economy of the average new vehicle sold fell to 20.7 miles a gallon in 2003 models from 22.1 miles a gallon in 1988 models. Regulations permit light trucks to consume significantly more gas than cars; the most recent Congressional effort to tighten the regulatory system was defeated in the Senate this week.

Will the growth of cars be sustained? Not likely. Domestic automakers have laid out production plans focusing on more small S.U.V.'s, and Asian automakers are increasing their focus on the pickup truck market, with Toyota building a new pickup truck plant in San Antonio.

"By the end of the decade, sales will be anywhere from two-thirds to three-fourths light trucks," said Haig Stoddard, the manager of industry analysis at Ward's.

Gas could be an X-factor. When prices went up in March, Yves Nau, a nightclub owner in Houston, traded in his GMC Yukon Denali for a Chrysler 300C sedan.

Between savings at the gas pump, lower car payments and insurance bills, he said he was saving $700 a month.

"I feel like I'm the smart guy," he said. "You save money like that and you can't ignore it."

[ob1kenobi]

Interesting. Without doubt, the markets haven't seen the worst of this yet. Both companies need to urgently overhaul their management and their marketing plans to keep nervous investors at bay.

:)

______________________
This is merely my opinion and does not constitute financial advice. When considering your financial objectives, please consult a suitably qualified and licenced professional.

[Investor]

GM weighs $10bn sale of mortgage business
From James Doran, Wall Street Correspondent

GENERAL MOTORS, the ailing Detroit carmaker, is weighing up a $10 billion (£5.5 billion) sale of its residential mortgage business, amid increasing calls for a radical overhaul of its profitable finance arm.
The group has already embarked on a restructuring of General Motors Acceptance Corporation (GMAC) to try to raise the finance unit’s credit rating from junk status.

GM has suffered two credit rating downgrades, the most recent of which was announced on Monday by Fitch. The downgrades were based on the poor performance of GM’s car manufacturing business, but they are potentially crippling to GMAC, which sells car loans, mortgages and insurance and last year accounted for $2.9 billion of GM’s $3.6 billion profits.

The world’s biggest carmaker has said it is examining methods by which it can retain the finance arm while securing its credit rating, so as not to damage the unit’s ability to raise finance. However, The Times has learnt that GM — in which Kirk Kerkorian, the US billionaire, is trying to buy a 9 per cent stake — is now considering more radical solutions.

It is understood that one plan under discussion is a sale or a flotation of the group’s residential mortgage business, which last year made profits of about $1 billion. The group has already begun talks to dispose of part of its commercial mortgage company, which last year made profits of $200 million, to a group of unnamed investors.

Brian Johnson, auto industry analyst with Sanford Bernstein, the New York research firm, said: “With interest rates still low and the housing market so hot . . . it is an ideal time to sell (the residential mortgage business). And it is not core to the auto business.”

He believes the unit could fetch $8 billion to $10 billion. It could attract the interest of banks such as HSBC, Bank of America, Wachovia and Wells Fargo.

Toni Simonetti, spokeswoman for GM, said that it was willing to examine all possibilities in securing a separate credit rating for GMAC, but said the preferred option would be to keep the unit. She described talk of a mortgage-arm sell-off as speculation.

GM shares closed down more than half a percentage point at $31.49.

[DTM]

It's funny because I was in LA in Feb this year and was talking with my nephew who was adamant he wanted to buy a new Ford 4WD pick up for 25k and I was trying to talk him out of it. My reasoning was that he should use it to invest etc etc etc. He told me that he didn't have to pay for it until 2008, 3 years away.

I think now that he was right. Ford might not be there in 3 years time. :p:

[Investor]

.... I think now that he was right. Ford might not be there in 3 years time. :p:

:D Smart kid, your nephew.

[Investor]

Toyota Leads 2.8% Gain in Japan's April Auto Output

May 27 (Bloomberg) -- Toyota Motor Corp. and Honda Motor Co., Japan's biggest and third-largest automakers, led a 2.8 percent gain in the country's vehicle production last month as they released new models and increased exports.

Domestic production by Japan's 12 carmakers gained for a fourth straight month in April, rising to 870,967 units from last year, the Tokyo-based Japan Automobile Manufacturers Association said in a release today. Exports from Japan gained for a third month, rising 6.7 percent to 428,373 units, the group said.

Toyota, Nissan Motor Co. and Honda boosted their production in Japan last month, as they released a series of new or revamped models to lure customers in Japan, the world's second-largest auto market. The three companies last month controlled almost 80 percent of the domestic market for vehicles excluding minicars.

``The auto industry is a growth industry globally,'' said Itaru Koeda, chairman of the auto association, at a May 20 press conference in Tokyo. ``Our efforts to meet customer needs are bearing fruits.''

Toyota shares gained 0.3 percent to 3,900 yen at the 3 p.m. close of trading in Tokyo. Nissan shares rose 1.9 percent to 1,088 yen, while Honda shares rose 1.9 percent to 5,340 yen.

Japan's Big 3

Production in Japan also gained as Toyota, Honda and Nissan are increasing sales overseas, taking market share from General Motors Corp. and Ford Motor Co. Toyota, the world's most valuable carmaker, is increasing output of its Prius gasoline-electric vehicle and Lexus luxury LS sedans in Japan to meet demand in the U.S. and Europe.

Exports to the U.S., the world's biggest auto market, rose for a third month in April, increasing 5.9 percent to 135,060 units, the association said. Exports to Europe rose for the first time in five months in April, adding 2 percent to 93,319 units.

In Japan, Toyota began selling the redesigned Vitz compact car in February. Honda today began selling a revamped Stepwagon minivan to compete with Toyota's Estima and Nissan's Serena models. Nissan began selling the Note compact car in January.

Toyota's domestic production rose 6.5 percent to 315,440 units in April from a year ago, the company said on May 24. Exports gained 10 percent to 179,640 units.

Honda's Japan production rose 8.1 percent to 97,710 units, while Nissan's gained 1.3 percent to 124,381 units, they said Exports rose 19 percent to 45,487 units at Honda while Nissan shipped out 61,645 vehicles, up 6.7 percent from last year.

[ob1kenobi]

Toyota Leads 2.8% Gain in Japan's April Auto Output

May 27 (Bloomberg) -- Toyota Motor Corp. and Honda Motor Co., Japan's biggest and third-largest automakers, led a 2.8 percent gain in the country's vehicle production last month as they released new models and increased exports.

Domestic production by Japan's 12 carmakers gained for a fourth straight month in April, rising to 870,967 units from last year, the Tokyo-based Japan Automobile Manufacturers Association said in a release today. Exports from Japan gained for a third month, rising 6.7 percent to 428,373 units, the group said.

Toyota, Nissan Motor Co. and Honda boosted their production in Japan last month, as they released a series of new or revamped models to lure customers in Japan, the world's second-largest auto market. The three companies last month controlled almost 80 percent of the domestic market for vehicles excluding minicars.

``The auto industry is a growth industry globally,'' said Itaru Koeda, chairman of the auto association, at a May 20 press conference in Tokyo. ``Our efforts to meet customer needs are bearing fruits.''

Toyota shares gained 0.3 percent to 3,900 yen at the 3 p.m. close of trading in Tokyo. Nissan shares rose 1.9 percent to 1,088 yen, while Honda shares rose 1.9 percent to 5,340 yen.

Japan's Big 3

Production in Japan also gained as Toyota, Honda and Nissan are increasing sales overseas, taking market share from General Motors Corp. and Ford Motor Co. Toyota, the world's most valuable carmaker, is increasing output of its Prius gasoline-electric vehicle and Lexus luxury LS sedans in Japan to meet demand in the U.S. and Europe.

Exports to the U.S., the world's biggest auto market, rose for a third month in April, increasing 5.9 percent to 135,060 units, the association said. Exports to Europe rose for the first time in five months in April, adding 2 percent to 93,319 units.

In Japan, Toyota began selling the redesigned Vitz compact car in February. Honda today began selling a revamped Stepwagon minivan to compete with Toyota's Estima and Nissan's Serena models. Nissan began selling the Note compact car in January.

Toyota's domestic production rose 6.5 percent to 315,440 units in April from a year ago, the company said on May 24. Exports gained 10 percent to 179,640 units.

Honda's Japan production rose 8.1 percent to 97,710 units, while Nissan's gained 1.3 percent to 124,381 units, they said Exports rose 19 percent to 45,487 units at Honda while Nissan shipped out 61,645 vehicles, up 6.7 percent from last year.

All of this highlights the extent of a mess that GM and Ford are really in. If the Japanese car makers find that "the auto industry is a growth industry globally" then GM and Ford have massive issues to resolve. How they do this has the potential to adversely effect other companies and the share market globally.