As cool as the Detroit version is to watch, when it comes to the core message it is trying to send, I just don’t see much different between these two industry . . . → Read More: Detroit Rhapsody]]> Many readers here know of the debate and dialogue over Chrysler’s long and expensive Super Bowl ad highlighting the auto industry and Detroit.

As cool as the Detroit version is to watch, when it comes to the core message it is trying to send, I just don’t see much different between these two industry sponsored video productions; separated by a half century they may be.

Some dealerships have accepted cars in the program since July 1. However, most dealers were waiting for Friday in order to closely examine the program’s final guidelines released . . . → Read More: Cash for Clunkers Kicks New Car Sales into High Gear]]> In June, President Obama signed the CARS Act. It makes $1 billion available for Americans that trade their fuel inefficient vehicles for brand new, greener ones.

Some dealerships have accepted cars in the program since July 1. However, most dealers were waiting for Friday in order to closely examine the program’s final guidelines released by the National Highway Traffic Safety Administration. Dealership interest was so great on Friday and Saturday that the fed’s computer certification system crashed several times. Over the weekend, other federal sites that distribute consumer information about the program were also reportedly sluggish due to the overwhelming demand by new car buyers.

The program provides for up to a $4,500 consumer credit on an inefficient used car and applies that rebate to the purchase of a brand new fuel efficient vehicle. The motivation is to get more environmentally friendly cars on the road and at the same time boost new car sales. Judging from spot market reports on Saturday, the program may have hit it’s mark — initially at least.

Spokane, WA, Ford dealer Wend le Ford said that their car lot was the busiest it has been all year. “This is the biggest thing to hit the new car side of the business in a long time,” said Andy Keys their General Sales Manager. “We had probably 70 to 80 people in the store on the program yesterday.”

Clunkermania was also reported in the Los Angeles area. “We’ve clearly had traffic coming in that’s being driven by ‘cash for clunkers,’ ” said Marc Cannon, spokesman for AutoNation Inc., which owns 77 dealerships in California, “We started doing deals early this morning.”

At Koons Ford of Baltimore, Russell Martin reports that customer traffic at their dealership has picked up by 30 percent to 40 percent since the program was signed into law last month.

Additionally manufacturers are now stacking additional rebates atop the “clunker money” to create some of the best new car deals that drivers have ever seen. Chrysler, for instance, says it will match the government’s money for consumers who turn in a clunker and buy a 2009 model.

In St. Louis, MO, Steve Cancila, of Cancila Chrysler, exclaimed, “I never imagined that something the government came up with would be so successful… and I haven’t seen [manufacturers] rebates like this in 10 years. It’s insane the amount of money they’re offering right now.”

The new car sales kick-start followed surprise after surprise this past week. Early in the week conference board indicators gave more proof that recovery has started in the US Economy. Throughout the week, the vast a majority of stocks posted better than expected earnings, including a multi-billion dollar profitable quarter from Ford. US taxpayers got a 23% return on a huge TARP payback from Goldman Sachs. Existing home sales increased for the third straight month while starts of single-family homes have risen four straight months through June.

The government said that initial claims fell by 52,000 — a drop significantly more than any economists had expected. . . . → Read More: Initial Claims at Lowest Rate Since January – Auto Plants Restart]]> The rate of new claims for jobless benefits fell to the lowest level since January, and a close look at the pattern of layoffs in the automotive industry provided additional good news for auto workers.

The government said that initial claims fell by 52,000 — a drop significantly more than any economists had expected. In addition, the new claims data appears to have been significantly effected by positive circumstances in the auto industry.

A Labor Department official said there had been far fewer automotive and other manufacturing layoffs last week than anticipated. Historically in July many auto plants are commonly idled. This year however many of those same plants sat idle earlier in the year as automakers entered bankruptcy and restructuring plans. Those plants are just now coming back on-line.

For instance, after emerging from bankruptcy protection and finalizing a deal with the Fiat Group, Chrysler resumed production of vehicles at seven assembly plants in the US, Canada, and Mexico the week of June 29. And GM attorneys are expected to lead the new General Motors out of bankruptcy protection on Friday with associated factory production restarts to follow shortly.

As the 2009 recovery gets underway, these auto plant restarts will no doubt lead to renewed optimism for US auto workers and further boost rebounding factory production.

Join the forum discussion on this post - (1) Posts

The short answer is yes, it can. The longer, more complicated answer is that the looming (potential) failures of Ford, GM, and Chrysler present long term sustainability problems for a middle class that is already clamoring for short term, emergency . . . → Read More: Ford, GM, Chrysler Announce Losses; Can the American Middle Class Survive a Big Three Meltdown?]]> Can the U.S. economy possibly get any scarier or more complicated?

The short answer is yes, it can. The longer, more complicated answer is that the looming (potential) failures of Ford, GM, and Chrysler present long term sustainability problems for a middle class that is already clamoring for short term, emergency solutions.

Ford recently announced third quarter losses of $129 million but admitted to having burned through $7.7 billion in operating costs during the same period. GM announced a staggering loss of $2.5 billion. Chrysler, by all accounts, will be belly up by the start of 2009 if the government is unable to broker a merger with GM, and all three are begging Washington for a second $25 billion in low-interest loans to keep them all afloat until the current economic crisis passes.

The announcement of these stunning losses and the request of additional federal money came alongside industry announcements of even more lay-offs and possible suspension of the plans for research and development of new, more fuel-efficient American cars. Without a more competitive product than the big trucks and SUVs of the past 15 years, it’s hard to see how and when things will get much better for the U.S. auto industry, but unfortunately the problems go much deeper than that.

Retail sales fell of a cliff in October across the board, with the exception of Wal-Mart, which saw a 2% increase in sales. Even sales of luxury items fell; items which in the past have been fairly recession-proof. Stores like Saks and Bloomingdales posted some of the worst figures of all. Job losses for October came to just under a quarter of a million, bringing the unemployment rate to a 14-year high of 6.5%, and this, by general agreement, is only the beginning of the labor effects of the recent credit crunch.

All of this bad news is hitting right before Christmas, a time when retail stores generally expect to be ramping up for the November and December sales that will carry them through the rest of the year. This year, those sales may not materialize at all. Circuit City is shutting down 120 stores for good, right before Christmas, just to stay solvent, and other big box stores that usually hire extra help for the holidays are actually terminating permanent workers to reduce costs.

The fact is that people are not buying anything right now. Even if the Big Three could produce a car that runs on air and then start shipping it to car lots tomorrow, most Americans would be unable to qualify for loans to buy these magical air cars, even if they had jobs or money to put down on them, which fewer and fewer people do with each passing day. The recession is looking like it will be long and hard, with many analysts seeing a turn-around no sooner than 2010.

When Henry Ford first started to build automobiles in the U.S., he made the radical decision to pay his assembly line workers incredibly well. He did this not out of a sense of altruism or social justice, but rather to expand his business plan so he could market his cars to everybody, thereby making more money for himself. In making this decision, he not only enabled his workers to buy the cars they were building, he also ended up creating a thriving American middle class.

Over the course of the past 30 years several developments have increased profits for U.S. corporations and their stockholders, while at the same time putting downward pressure on the mostly industrial middle class. Changes in U.S. trade agreements allowed industry to flee the U.S. rapidly and dramatically, forcing formerly middle class workers into low-wage jobs in the service sector.

As the good industrial jobs disappeared, corporations also began to eliminate middle-management white color jobs with middle class salaries. Most of the corporate jobs left in the U.S. today are entry level service sector jobs, often in call centers or tech support, with little opportunity for advancement or career development. Not much remains between the bottom of the corporate pyramid and the CEO, and what does remain is under constant pressure to produce more profit for less reward.

In fact, in most of these workplaces (the classic cubicle farms of the ‘Dilbert’ comic strip) a management style designed to turn over employees in one to two years remains firmly in place. While this rapid turnover keeps labor costs low, it also creates a very unstable, low-paid workforce with no special loyalty to any one job and not enough annual income to commit to a four-year auto loan.

In other words, the middle class jobs that created the ‘consumer economy’ are largely gone with the decline of the Big Three and the loss of myriad other U.S. industrial jobs, both related and unrelated. Steel, textiles, electronics, computer chips—all of these items are made overseas now. When people don’t have good jobs and can’t get credit, they can’t spend money. When people can’t spend money, more people lose jobs.

Short term, the U.S. will have to find a way to keep people in their homes, keep them warm and fed, and stabilize housing and financial markets. Those challenges would be daunting in and of themselves for even an economic Mozart. Deficit spending seems unavoidable at a time when the national debt is already completely out of control.

But long term, the U.S. will have to find a stable job base that can support a middle class and do whatever is necessary to keep those jobs here. If that doesn’t happen, if we don’t see something on the horizon to replace the dead industrial base, then all the stimulus packages Congress can dream up won’t prevent a long and painful period of poverty and contraction in America.

Gas prices are finally coming down.

Unfortunately we’re running on fumes and our credit cards are being declined.

What happens next will have long and lasting effects, not just on the economy, but on the health and security of the nation.

Join the forum discussion on this post - (2) Posts]]> http://www.citizeneconomists.com/blogs/2008/11/10/ford-gm-chrysler-announce-losses-can-the-american-middle-class-survive-a-big-three-meltdown/feed/ 3 http://www.citizeneconomists.com/blogs/2008/09/11/gm-encouraged-by-245-sales-drop-in-august/ http://www.citizeneconomists.com/blogs/2008/09/11/gm-encouraged-by-245-sales-drop-in-august/#comments Thu, 11 Sep 2008 09:05:40 +0000 Evelyn Black http://www.amateureconomists.com/blogs/?p=265 After posting a 24.5% decline in August sales, GM announced on September 3 that it was encouraged by falling gas prices and signs that the market might finally be bottoming out. It takes a whale of a positive attitude to see a bright spot in a sales report like that, especially when the drop . . . → Read More: GM Encouraged by 24.5% Sales Drop in August]]> After posting a 24.5% decline in August sales, GM announced on September 3 that it was encouraged by falling gas prices and signs that the market might finally be bottoming out. It takes a whale of a positive attitude to see a bright spot in a sales report like that, especially when the drop occurred during a much-hyped “Employee Discount Sales Event” designed to rid GM lots of a backlog of large to mid-sized trucks and SUVs. Ford reported a 26% drop in August sales, Chrysler a 35% drop.

Sales at Honda and Toyota also dropped but less than 10%, while Nissan actually saw a 15% increase in sales.

Gasoline prices have fallen 11% since mid-July when they hit their peak price ever, but customers remain skittish and for good reason. With three new Atlantic hurricanes currently stacked up like airplanes waiting for a runway and a near-miss from Gustav on gulf oil refineries, there is little cause for celebration. One major disaster could send oil skyrocketing all over again, and that’s not counting geopolitical problems, just hurricane risk.

GM, Ford, and Chrysler are all looking forward to 2010 when they plan to put all kinds of brand new fuel-efficient and alternatively fueled small cars on the U.S. market. Until then, the “bottoming out” of the U.S. auto market is likely to be a long bumpy bottom, made worse by tightening credit conditions and the possibility of a new waive of unsecured credit and auto loan defaults. In other words, it’s going to be a long year before the U.S. auto industry can expect to see much relief, and what the country will look like at that point is almost anybody’s guess.

Both major presidential candidates are championing $25 billion in low-cost loans to help the U.S. auto industry build the fuel-efficient cars it needs to sell right here in the U.S. Recently, the auto industry requested another $25 billion in government loans to retool their assembly plants. It’s been almost 30 years since the U.S. bailed out Chrysler to give them a leg up against the Japanese, and now here come all three of the Big Three again, hats in hand, asking for rescue so they can “keep jobs in America.”

I confess, I have a chip on my shoulder when it comes the the Big Three. Why is it that lately, after hearing for 25 years about how free markets always regulate themselves when allowed to do so, the U.S. government is suddenly expected to bail out some of the largest corporations on earth? The airlines, the Big Three automakers, Bear Stearns, Faddie Mae and Freddie Mac, and what next?

GM built a successful and wildly popular electric car in 1996 – 12 years ago – to show the state of California that it couldn’t be done, and that people would hate it and refuse to buy it. They wanted to show that new fuel emissions standards enacted by the state would cripple the auto industry.

What happened?

People in California loved the GM electric car, which was dubbed the “EV1.” They loved the EV1 so much that nearly every single person who agreed to the trial lease of the vehicle (it was not for sale but only leased to select customers as a test) wanted to purchase and keep it. GM reacted in 2003 by recalling and destroying every single EV1 in the state. An excellent documentary on this bit of recent history can be purchased or rented almost anywhere; it’s called Who Killed the Electric Car?

It’s a little known fact that the very first car ever built was an electric car. William Morrison built the first model in 1890. It ran for 13 hours at a stretch and achieved an average speed of 14 mph. In 1900 Camille Jenatzy built an electric car that reached a maximum speed of 66 mph. In 1903 the first electric/gas hybrid car was manufactured by Krieger. Then, in 1930, with the invention of the internal combustion engine and the release of Ford’s famous Model-T, production of electric cars came to an abrupt halt until once again, in 1996, GM released one to prove a point and ended up making itself look ridiculous and corrupt.

Here’s a thought: maybe the Big Three are ridiculous and corrupt. They knew in 1996 that 1) they could build an efficient electric care at a reasonable price and 2) there was a market for this car. Why didn’t they keep building it? The documentary has some things to say about that, but I submit that one less conspiratorial reason is that they have rarely been much for innovation, preferring to stick to what (they think) works and ignore what is actually happening in the wider world. And electric cars aren’t even all that innovative: they’ve been around for 118 years!

Businesses that conduct themselves so pigheadedly often fail.

I want to see automobiles made in the U.S. as much as the next guy. More, actually. (I live in Michigan.) But why give $50 billion the U.S. doesn’t have to robber barons who squandered their inheritance by thinking short term, playing it safe, and shipping their factories overseas? Why not give someone else a chance? Why not subsidize start-ups with great automobile ideas in the area of alternative energy and fuel efficiency instead? Hand it off to the little guy, see if he can score a touchdown, because these three sure can’t.

It’s going to be a long, slow 2009 any way you cut it.

Am I worried about how the Fords are doing this winter?

Not on your life.