As of this writing (12:30 PM central on 1/2/09) the DOW is up roughly 4.92% in the last 3 trading days – roughly a gain of 419 points.  In that time nothing has change in the economy, and actually, the news that continues to surface points to bad economic fundamentals.

Just take a look at what has come out in the last three days..

Ford expects an industry wide fall in auto sales of 35% in the month of December, year over year

Manufacturing orders hit a 60 year low

The manufacturing index drops to a 28 year low

Continuing Jobless claims rise in December, point to hard 2009

It is said by many that the stock  market looks forward roughly 6 months. That is to say the price today reflects the economic activity in 6 months.  With the news that is continuing to hit the market, there is no way one can reasonably expect such a quick economic recovery.  I would say that the stock market has moved too far, to fast on no positive data.

This may be due to the new year or because Obama will be taking office in a matter of days, no one can be sure for the 5% move, but I am very wary of such a large advance on no fundamental change in economic forecast.

Update at 3:15PM: The market closed up above 9K, up 6.1% in the last 5 days.  Is this the famed Santa Rally?  Also, Martin Feldstein, Harvard Professor of Economics, believes the economy will be worse off 1 year from now.

Public appearance is a killer- the AIG execs having large parties right after receiving bailout money, the automotive CEOs taking private jets to beg congress for money, Eliot Spitzer getting nailed for… getting nailed…   Well, how about this one for you – the UAW owns and operates a Golf course and Lakeside retreat valued at roughly $39 million.  Better yet, the properties lost $23 million in the last 5 years.

This makes me wonder… where does the UAW leadership get off saying they will fight the White House on terms of the Auto Bailout simply because the White House demanded the firms cut worker compensation to be on par with other Auto Makers.

In agreeing to provide federal assistance to General Motors and Chrysler, the White House demanded the firms cut worker compensation to the levels paid at the U.S. divisions of Toyota, Nissan and Honda. But Ron Gettelfinger, president of the United Auto Workers, said earlier this week that he would seek to remove the wage-reduction provision of the loan, calling it “an undue tax on the workers” who have already made “major” sacrifices for the benefit of the auto industry. 

You don’t think the $23 million dollars lost in the last 5 years is an “undue tax on the workers”, do you Ron?  

As with my comments in the past, I want to be very clear – I have no problem with UAW workers but with their Officers.  If the UAW was truly concerned about the health of the organization, and the workers under their care, why not act like it?  

Why?  Because, as with the auto loans, it is easier to have someone pay for your problems….

With the American auto industry in the tank, German producers halting production during December, and Toyota reporting a full year loss, it was just a matter of time this type of information hit the newswire:

Vehicle production in Japan, home to Toyota Motor Corp. and other major automakers, plunged 20.4 percent in November compared to the same month a year ago to 854,171 vehicles, the Japan Automobile Manufacturers Association said.

 

That marked the second straight month of on-year declines and the percentage slide was the biggest since the group began compiling such data in 1967, it said.

 

Production of passenger cars in Japan decreased 20.3 percent in November from the previous year to 737,797 vehicles, while production of trucks here declined 20.9 percent for the month to 106,170.

If demand continues to drop the Japanese automakers will be turning to someone for an infusion of capital. It doesn’t matter how well run the company is, if no one is buying your product you cannot meet your capital demands.

Just for the record, here is a breakdown of cash/debt levels of Japanese and US automakers:

Japanese

Honda – 10B / 18B 

Toyota – 17B / 60B 

Nissan – 6B / 19B    

US

Ford – 25B / 157B 

General Motors – 16B / 38B

I’ve asked the question a number of times now – if a company is unable to sell it’s products or services, and they reach a position where they are unable to continue with business operations, doesn’t that mean the consumer has spoken?  Should the company not shut down at that point?

Gordon Bethune, the former Continental Air CEO, wonders the same exact thing and has a great quote in the process:

“Wow, what makes them exempt from reality? What are the bankruptcy laws invented for?” Bethune asked. “I mean – if it works in airlines, works in steel – what’s the matter with these guys? Why not have a judge decide instead of the political process? And, you know – you get some fairness in the federal court, so there’s no excuse for this whole debacle I don’t think.”  

Here is the full video:

Think about how many companies ended up going through bankruptcy and still are around today.  Just off the top of my head…

• United Airlines
• Dow Corning
• Armstrong Industries
• Marvel Entertainment
• Fruit of the Loom
• Owens Corning
• W.R. Grace
• Delta Air

I’m sure there are plenty more, but there one can see a them from the list above.  Three major industries are represented – airlines, chemical manufacturers and industrial producers.  All had to face the reality that they were poorly managed or they had unforeseen circumstances that created a situation where they could not meet their finical obligations.  

Some how they still are around today, their industries did not fall into complete ruin, and some how the consumer still buys their products and services….  why are car companies any different?

I’m curious – how does a company, or a person, simply get away with saying “Bankruptcy is not an option”? 

For the last several weeks that is exactly what General Motors has been saying.  Apparently the automaker has had several board meetings, which included input from lawyers and financial consultants, and everyone agreed that nope, bankruptcy is not an option.  Sorry, it just won’t work. 

 What?  Really?

The reality is that it is an option, a viable option; it’s simply that the automaker does not want to go into bankruptcy.  I’m guessing the company continues to say this is tied directly to the belief that if GM does slide into bankruptcy that will be the end of the storied American automaker.  What GM is really saying is “Having our company go out of business is not an option”

As of this writing, 9:30 PM on 12/11/08, the Senate was still attempting to hammer out a plan to provide a “loan” to the auto industry.  As of 10:20 PM on 12/11 the bailout died in the Senate.  Yes, I believe, be it today or tomorrow or the 20^th of January 2009, a plan will be passed. 

In the end, I still believe GM will end up going under at some point.  It may not be tomorrow, but the company is not sustainable with the way it is currently managed. So, guess what, bankruptcy is an option. Simply saying something “is not an option” does not make it so.  

I cannot write worth a damn, and I sure have a big problem editing what I write.  Usually this is due to the fact that I read every third word.  Sometimes I will “read” words that are not there.  It’s like my mind fills in the blanks.

Just so we are all clear – I’m saying I am highly aware that I lack when it comes to being a writer (and I’m OK with it), however, I know that at my worst I would have the ability to be a writer at the AP.

Read this line from the story “Chrysler execs say cash will run short in January”

Kolka says most suppliers are working with Chrysler and getting payments in the normal 45-day cycle. But LaSorda says an oil company that is making billions has demanded cash before shipments.

 (emphasis mine)

Is this a quote, biased “reporting” or simply poor writing? If this is a direct quote it should be denoted as such (hello quote marks!) and the editor should be looking for a new job. Assuming it is not a quote, because why would the AP actually bother to have a writer and editor read over something before it goes to press, both the AP and Tom Kirsher end up looking like they are highly biased in favor the auto industry bailout. 

What this line says is this: a well-managed company, one that is able to turn a profit, should obviously be “spreading the wealth” to a company that may, possibly, be unable to pay the bills.  This single line continues to promote the idea that the oil companies are evil and the automakers are innocent victims.  As a result of being a victim, on principle alone, the U.S. give automakers a bailout.

No, I don’t think so…

Again, I understand I have limited ability as a writer, but if Tom Krisher can be a writer for the AP with crap like the above, so can I. 

Where do I sign up?

I’m a big believe of giving credit where credit is due, and also admitting to when I have been wrong.  Well, here you go. The Insurance Institute for Highway Safety gave Ford Motors 16 “top safety picks” among 2009 cars and trucks, taking the lead among all automakers.   

The entire list can be found here: IIHS 

A number of auto industry watchers credit Ford’s safety ratings increase to their Volvo division.  With new coming out that Volvo is potentially for sale, how will the future Ford vehicles hold up if the driver for the increase is no longer part of the company?    

It appears the auto industry is on the brink of collapse. Let’s face it, when the economy isn’t doing well product development tends to decline. How will Ford, and other automakers in general, be able to keep safety and quality at respectable levels in such an environment?  

Be it a troubled credit market, high energy crisis, or simply poor business managemnet the auto industry is hurting, big time.    The monthly sales number for all major automakers fell drastically.   

Ford: Down 33.8% 
GM: Down 23.9% 
Toyota: Down 17.5%
Honda: Down 24%

A decline in car sales cannot continue pace if the debt laden compaines expect to be around much longer. So, when the CEO of an automaker says:

“Bankruptcy is not in our consideration, Ford is going to keep restructuring for lower demand and has ample financing in place.”

I have to sit up an listen.  Why?  Because it reminds me very much of Exodus Communications. The former data center provider, the industry leader in the late 90’s, fell under the weight of their debt in 2001.  26 days before the company filed for bankruptcy the CE0 said “We have enough money“.  

Call me skeptical but corporate CEOs are usually focused on giving the best spin on a company regardless of how things really are.  I am not saying Ford will go bankrupt but now people should really be paying attention especially since CEO is calling attention to it.

I’m not sayin’, I’m just sayin’.