Big Three Auto Woes

Forbes  Oct 18  Comment 
At that, the truck having the highest percentage of repeat buyers isn’t even a full-size model.
MarketWatch  Sep 15  Comment 
Pandora Media Inc. landed a licensing deal with the third of the "big three" music labels Thursday, one of the final steps for the company's planned on-demand streaming service. The online-radio pioneer announced a direct licensing deal with...
Forbes  Sep 13  Comment 
A digital series not from the big three that's actually worth watching!
Wall Street Journal  Aug 10  Comment 
Canadian auto workers kick off contract negotiations with Detroit’s Big Three Wednesday, with union officials aiming to preserve jobs in one of the country’s bedrock manufacturing industries.
Forbes  Jul 12  Comment 
Bud, Miller, Coors and others agree to add nutritional information to their packaging, in an initiative that will likely serve as a turning point for alcohol labeling in this country.
Reuters  Jul 4  Comment 
Detroit's Big Three automakers on Monday reported higher Canadian sales for June and for the first half of 2016, on an annual basis, with forecasters expecting another record-breaking year.
BBC News  Jun 25  Comment 
As Moody's, one of the big three credit ratings agencies, cuts its outlook for the UK's economy from "stable" to negative", BBC News explains what the agencies do.
Flightglobal  Jun 24  Comment 
Flightglobal data reveals the size and shape of the world market for airliner training simulators
Automotive World  Jun 7  Comment 
Production commitment will be the union's primary focus area in upcoming negotiations with the Big Three, writes Megan Lampinen The post Wages slip to the wayside in Canadian labour talks appeared first on Automotive World.


In recent years, the recurring troubles of the American Big 3 automakers have been coming to a head. General Motors (GM), Ford, and Chrysler face a host of problems. Legacy costs inherited from past manufacturing heydays in the form of costly pension and health care plans for retired employees add up to hundreds of billions of dollars. Unappealing gas-guzzler product lines that are a step behind current auto buying trends aren't driving strong earnings, either; instead, the Big 3 are trying to pad flagging normal sales rates with price incentives. Finally, continuing tussles with the United Auto Workers and large capital investments in SUV and truck manufacturing equipment make it hard to cut costs and downsize to profitability. Meanwhile, Asian and European competitors are rapidly outstripping these traditional auto manufacturing powerhouses.

Asian and European brands captured 54.2% of overall vehicle sales in June, edging out the 45.8% of sales that went to the U.S. brands, according to Autodata (see chart above), placing the Big Three in their weakest competitive position ever compared to their overseas rival. Until last year, there had never been a month that American car buyers preferred the combined offerings of Asian and European automakers to those of the Big Three.

The situation of the Big Three has become more tenuous as long-time Michigan democratic Congressman, John Dingell, was replaced as chairman of the House Energy and Commerce Committee by Californian Henry Waxman. What does this mean for the Big Three? As a long-time champion of America's automakers in the House of Representatives since 1955, Dingell used his chairmanship to protect the interests of Detroit automakers against Federal Government regulation, especially fuel economy standards.[1] Conversely, Henry Waxman has aggressively and openly called for ever more stringent fuel economy regulations and less generous help for automakers.[2] This change and the broad regulatory scope of the Energy and Commerce Committee will likely make any long-term Federal Government assistance for the Big Three both less forthcoming and less generous.

Despite a propensity to lump the Big Three together, it is important to understand the different strategic positions of each automaker. The best way to do this is by looking at the loan requests submitted to Congress during December 2008. GM reported that it will have to cease operations unless it gets $4 billion immediately, and $18 billion in longer term financing.[3] Chrysler is in a similarly dire state, claiming to need $7 billion before year end. Ford appears to be in a relatively better position, claiming that it will not need to draw on government support unless business conditions deteriorate rapidly.[4] Nevertheless, Ford is still requesting $9 billion in loan guarantees as a hedge.[5] Although the Senate eventually rejected these requests, the Bush Administration used $17.4 billion from funds allocated to the US Treasury under the Emergency Economic Stabilization Act of 2008, to keep Chrysler and General Motors (GM) from short-term insolvency. Ford did not receive any loans.

However long-term survival still remains unclear, both because the possibility of longer term government subsidy remains unclear, and because many now believe that the US auto market was artificially inflated during the past decade. Low interest loans and cheap leases led to a glut of consumption, illustrated by the following statistics: forty years ago only 6% of US households owned three or more cars, in 2000 that number was 18%; America currently has 244 million vehicles for its 202 million drivers.[6] At the same time, the quality of cars has improved considerably, which means that the average automobile can reliably be used for a decade.[7] This situation meant that automakers came to expect 16 million new car sales annually in the US. Most now believe the level of sustainable US fleet replacement is closer to 14 to 15 million per year.[8] While this will be an improvement over the 12 to 13 expected as the final tally for 2008, such a recovery will not be back to pre-recession levels.

Image: Auto3mktshr.jpg

Toyota's eco-friendly offerings, including the hybrid electric Prius, are making it difficult for the Big 3 to compete.
Toyota's eco-friendly offerings, including the hybrid electric Prius, are making it difficult for the Big 3 to compete.

Who wins from Big 3 woes?

  • Japan's own Big 3- Toyota, Nissan, Honda, and other prominent foreign car manufacturers are ready and waiting to fill the production capacity and demand vacuum left by the Big 3's failure to continue dominating the North American market.

Who loses?

The Big 3 auto woes strike North American auto components manufacturers particularly hard, and hit in more than one way. Reductions in production volume and capacity will obviously decrease sales for the parts suppliers, but spending cuts within the Big 3 infrastructure also translate into decreased earnings for suppliers.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki