In 2007 CSM Predicted The 2008 Auto Industry Collapse And No One Listened! Why? - Here's What They Say About 2009 - It Ain't Pretty!
But First Snide's Remarks: In editing this article for publication, I happened to look at CSM's 2007 forecast for 2008...and guess what, they were right on...as the headline to our coverage said:
CSM Worldwide 2008
Outlook: Auto Sales To Hit Bottom
(This insightful article can be read in its entirety HERE)
I'm sure that at least one of the Big Three's high priced economist types, who gets(got) paid the big bucks from the now "Smaller Detroit Three" attended last year's presentation as did our reporters...so how come the collapse of the auto industry seems to have come as a surprise to auto executives whose responsibility it is to manage their companies and are paid very handsomely for the privilege...WHERE THE HELL WERE THEY?,the arrogant bastards...there were no cutbacks or any public acknowledgment of anything until CNN said there was a problem...what gives??? Let Me Know What You Think, firstname.lastname@example.org
CSM PREVIEWS AUTO BUSINESS FOR 2009
A Continuing Dismal Forecast
By Steve Purdy and Thom Cannell
CSM Worldwide makes their living predicting market conditions and providing advice to the auto industry. With offices all over the world and years of experience their predictions are closely watched by industry leaders, media types and government officials. So you can imagine the attentiveness of the crowd at the Detroit Automotive Press Association this week as a CSM team came to update us on their latest thinking.
The big number we’re always looking at is the overall number of vehicles that will be sold in the US market in a given year. Like stock market predictions only part of the story is revealed by one speculative number but this is an important one. Good years tend to be around 17 or 18-million units. At the beginning of last year the pessimists were saying we may go as low as 15-million in ’08. Now, the CSM number for ’09 is about 11.5-million units. That’s dismal, and scary, to say the least.
Of course, we’ve all been observing the ugly political scene in Washington where politicians disingenuously and hypocritically harangue auto execs for not doing enough to save themselves after they (Congress) handed hundreds of billions in no-strings-attached cash to financial institutions after artificially stacking the deck with market rules (CAFE) and lack of financial oversight that resulted in the avoidable credit disaster. The assembled journalists and auto industry folks were on the edge of their seats hoping for some insight into what might happen there. Will there be a “Car Czar?” Will bridge loans materialize? Will the Detroit 3 all survive? Will the industry make it through to sell another day?
Big questions all!
I asked what the qualifications of the Car Czar ought to be. Should he/she be more knowledgeable about the auto industry, an insider perhaps, or is it more import that he/she be well versed in international finance since GM is such an international company, or perhaps political expertise is more important since these will be political decisions he/she will be making. The answer seemed to focus on that person having good knowledge of the remarkably complex auto industry and an equally good grasp of politics.
Another big question surrounds the effects on OEM suppliers. These companies not only supply the domestic automakers but the “transplants” as well. If GM goes belly-up, for example, how many suppliers will be dragged down with them being unable to supply the other manufacturers in the US? Sounds like more than a ripple effect to me. It’s more like a tidal wave effect.
“The bankruptcy of a major automaker won’t be just a Detroit problem or a Michigan problem,” says Craig Cather, CSM’s president and CEO, “The pain will quickly spread to the Southern states that have new foreign-owned auto plants, as well as Canada and Mexico, because there are no quick and easy ways to restructure companies or source components when the entire industry is in crisis.” And at barely two-thirds of a normal sales year, perhaps the often-abused term “crisis” is appropriate.
CSM and the Center for Automotive Research both assert that the interdependency of suppliers to automakers is a critical factor that is glossed over in newscasts and Congressional hearings. For instance, CSM says the suppliers who contribute to Buick, Cadillac, Pontiac, et al’ provide 58% of the parts to Asian “new domestics” and 37% of European “new domestics.” Those who provide parts for your Focus, Fusion, MKS, or MKZ also supply GM (70%,) Asians (65%), and 46% of the Europeans. Chrysler’s suppliers are similarly interconnected.
Here is the part that most of us, who have little understanding of business or economics comprehend, is that profit across the automotive industry is very modest. When you cannot operate a manufacturing plant efficiently, which usually means at least 80% of capacity you lose money, immediately. In good times that might be offset by selling parts to another similar company or industry. Today, that would be who?
GM, as you know if you’re paying attention to the news, is in the deepest trouble. They are the biggest, by far, of the domestics and are in the most critically cash-strapped position. Without access to large amounts of capital soon they won’t be able to pay the essential day-to-day bills, forcing a Chapter 11 adventure. And no one knows how that may come out.
The failure of even one of The Detroit Three would quickly affect each automaker in the US, regardless of national origin. In the long term, only the largest, most international suppliers would remain: JCI (Johnson Controls,) Robert Bosch GmbH, Continental, Denso, ZF Friedrichshafen, AG would suffer great pain, but likely survive. Many of the suppliers who contribute the bits and pieces to larger companies (called Tier Two, Tier Three, and Sub-Tier suppliers) would vanish from your town, village, or city. Job losses decimate local taxes and local businesses. Roads crumble into greater disrepair, hairstyles return to the ‘60s as barbers see clients less often, and Make A Wish, United Way, Food Bank and every other charity would suffer. If you think this is alarmist, open your front door and look for For Sale signs in your neighborhood or have a chat with anyone at Starbucks. Oh, you gave up Starbucks as a luxury?
Ford, on the other hand, is in better shape. They’ve husbanded their cash a bit better but being smaller and barely more agile than GM they may not need help until well into next year, perhaps late summer. They have some attractive new efficient products near introduction which may mitigate their troubles for a while.
Chrysler, the smart analysts at CSM insist, will not survive this economic slump in the same form they now have no matter what happens. In fact, “the controlled wind-down of Chrysler is in everybody’s best interest,” according to Michael Robinet, CSM’s head of global vehicle forecasting. He is expecting that Cerberus Capital Management, Chrysler’s owner, will be able to sell the most valuable assets and brands while closing out the less valuable brands and facilities thereby mitigating, at least a bit, part of the auto industry’s huge overcapacity problem.
In this scenario, Chrysler has some desirable brands. Jeep has no peers. The Dodge brand’s new Ram trucks are the source for Nissan’s next generation trucks, replacing their own F-Alpha platform. Chrysler’s minivan design architecture underpins Volkswagen AG’s new Routan people mover. Even Viper should have another decade left in its newest iteration. Those associations form some logical links in a “controlled wind-down” strategy.
There is another scenario. A survey by the website Kelly Blue Book says 32% of Americans would consider purchasing a car built in China, 28% a car built in India. Building a distribution network for any automaker is a daunting prospect of infrastructure creation. Perhaps it is better to buy that network for pennies on the dollar and slowly introduce new products as world economies improve, earning your way into a new market.
Whether the auto sales forecast for the upcoming year stands without adjustment will be all about the “two Cs,” they say - “confidence and credit.”