Random charts- electric cars

 

Source: The Dirt on Clean Electric Cars: New research shows some drivers might spew out less CO2 with a diesel engine.

Random chart

Source: Calculated Risk Is the reduction from 16 million units a year to twelve million units a year permanent??

Random chart

Source: Percentage change in new auto sales - 2009 to 2010, year to date

Automotive restructuring...

The automakers submitted their restructuring plans to Congress (see links below) in February. Key elements of GM's plan included:

• a dramatic shift in the company‘s U.S. portfolio, with 22 of 24 new vehicle launches in 2009-2012 being more fuel-efficient cars and crossovers;
• full compliance with the 2007 Energy Independence and Security Act, and extensive investment in a wide array of advanced propulsion technologies;
• reduction in brands, nameplates and retail outlets, to focus available resources and growth strategies on the company‘s profitable operations;
• full labor cost competitiveness with foreign manufacturers in the U.S. by no later than 2012;
• further manufacturing and structural cost reductions through increased productivity and employment reductions; and,
• balance sheet restructuring and supplementing liquidity via temporary Federal assistance.

GM calculated that implementation of their plan would result in a company that would be profitable in a U.S. industry with annual sales between 12.5-13 million units (note: U.S. annual sales in the years prior to the recent economic downturn were around 16 million units). In the interim the government assistance would ensure viability until the restructuring was completed.

After examining the plans submitted the administration rejected them as inadequate... Referring to the plans submitted by GM and Chrysler, President Obama said "... after careful analysis, we have determined that neither goes far enough to warrant the substantial new investments that these companies are requesting..." He announced that GM was being given adequate capital to cover them for another 60 days while "... my team will be working closely with GM to produce a better business plan..."

OK, now this blogger has been unable to find any specifics as to what the administration sees as the shortcomings of the GM plan, or what changes they want made over the next sixty days to make the plan acceptable. Statements by the President and his administration have only contained platitudes.

For example from 'Obama Administration New Path to Viability for GM & Chrysler' (see link below), the Key Findings said: "While GM’s current plan is not viable, the Administration is confident that with a more fundamental restructuring, GM will emerge from this process as a stronger more competitive business. This process will include leadership changes at GM and an increased effort by the U.S. Treasury and outside advisors to assist with the company’s restructuring effort. Rick Wagoner is stepping aside as Chairman and CEO. In this context, the Administration will provide GM with working capital for 60 days to develop a more aggressive restructuring plan and a credible strategy to implement such a plan. The Administration will stand behind GM’s restructuring effort."

And re the changes to be made, it said: "... industry and restructuring experts will help focus this process on:

• Sustainable profitability: A viable GM should be able to generate meaningful positive free cash flowing, a normalized business environment, generate net free cash flow over the course of a business cycle and invest capital in research and development and capital expenditures sufficient to maintain or enhance its competitive position while also earning an adequate return on its capital.
• A healthy balance sheet: The restructuring must substantially reduce GM’s outstanding debt and existing liabilities to a level where they are consistent with both its normalized cash flow and the cyclical nature of its business. Given the deterioration in the auto market since late last year, this will require substantially greater balance sheet concessions than those called for in the existing loan agreements.
• More aggressive operational restructuring: The restructuring plan must rapidly achieve full competitiveness with foreign transplants and more aggressively implement significant manufacturing, headcount, brand, nameplate and retail network restructurings.
• Technology leadership: The new GM will have a significant focus on developing high fuel-efficiency cars that have broad consumer appeal because they are cost-effective, have good performance and are reliable, durable and safe."

Blah, blah... The main reality probably is that having been pummeled by the public over bailouts, AIG bonuses, etc., the administration felt obliged to be seen as taking a strong line with some recipients of government financial aid, and the automotive firms just happened to wander into the cross-hairs (i.e. bad timing, so 'no soup for them')... . Perusing written reports of what administration officials have hinted at it looks like they also want two additional main changes - GM's bond-holders agreeing to reductions in the GM debt that they hold, and a greater emphasis on 'green.' This last point is more an emphasis of the Democrats and the administration than of the market. While many fault GM for focusing on trucks and other gas-guzzlers, the fact of the matter is that this was a direct response to U.S. consumer demand. The public demand for hybrids, etc. is low, and it's not as if this latest big drop (as opposed to the long-term erosion of market share, which has only partially due to their vehicle offerings) in consumer demand has anything to do with this (as it is across the board and has adversely effect all the car companies, even those that have put a greater emphasis on this segment!)

Oh well, looking forward the plan will be tweaked, the administration will say enough changes were made to make the plan acceptable, and a level of government aid will be forthcoming.

Ford Motor Company Business Plan
GM: Restructuring Plan for Long-Term Viability
President Obama's remarks on U.S. car industry
Obama Administration New Path to Viability for GM & Chrysler

Studies of interest - I

Price Waterhouse Cooper issued 'Will You Handle the Curve? Global Automotive Perspectives 2008' In September, as the latest financial meltdown sent U.S. automotive sales plunging, and the Big 3 asking for a piece of the TARP!

The report says "... 2008 is shaping up to be a year marked by profound industrial shifts and strong headwinds for the automotive industry, as global players respond to a fast growing array of financial and regulatory pressures. Such constraints include increasing fuel economy and/or drastic CO2 emissions mandates, rising commodity prices, a weakened US dollar, changing consumer preferences, and liquidity concerns. Nonetheless, tremendous opportunities exist for automakers and suppliers who are prepared to deliver swift and viable solutions to the industry's current transformation ... The ability of Western automakers to strategically position themselves between mature and emerging markets represents a clear challenge in today’s global automotive environment. Achieving a balanced global footprint is particularly critical for the Detroit 3, which must undertake massive domestic market realignment efforts as consumers abandon traditional truck-based vehicles and begin favoring more fuel-efficient car-based autos. In addition to satisfying changing domestic demand, the Detroit automakers’ rationalisation measures must be completed in a period of reduced credit availability and fragile financial outlooks." True in spades!

From the first graph we see that vehicle sales in 'mature' markets (i.e. the "core" EU countries, Japan, and the United States) has been flat for quite some time. Virtually all (volume) growth for the automotive sector has been in the emerging markets, and the need to be competitive in these markets is critical to continued growth of the automakers (the report estimates that four countries - Brazil, Russia, India, and China - will account for 58% of the volume growth through 2015...).

The Congress has already approved USD 25 billion in funds for the Big 3, to help in the development of more 'environmentally-friendly' cars, and the Big 3 are pushing for additional TARP funds to help them through the current crisis. The Democrats appear to mostly be in favor of the idea, and it is very likely that some sort of large assistance package will be forthcoming. Rather than just shoveling a mound of cash into the pockets of the Big 3, perhaps the Congress can/will take a long, hard look at the industry and decide what (if any) the long-term role of the government should be in this area. Otherwise, once through this crisis it is highly likely that the Big 3 will be back at the Congressional pump to be re-primed in a few years! However, this blogger isn't holding his breath in anticipation of them taking a long-term view!

Updated:

Three November 16th opeds in the NYT address this issue. The first, 'How High Gas Prices Can Save the Car Industry,' argues that the Big 3 need help to avoid irreparable harm to the economy, but suggests that this happen by setting a floor to gas prices via tax, the proceeds of which would be used to bail out the automotive giants... The second, 'Have You Driven a Bus or a Train Recently,' argues that strings be attached to the help provided... The third, 'What's Good for G.M. Is Good for the Army' by retired General Wesley Clark, argues that helping the automotive giants is a national security imperative....