Who Might Benefit From Detroit's Failings

by: Rick Newman December 03, 2008 | about stocks: F / GM / HMC / NSANY / TM    

Rick Newman

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

You'd think an automotive apocalypse was nigh. In their pleadings to the government, executives from General Motors (GM), Ford (F), and Chrysler make it sound as if the entire U.S. auto industry will crash if they don't get billions in aid. But we're forgetting something: Americans will still need to buy cars, even if they don't say GM or Ford or Chrysler on the badge.

Once the recession fades and prosperous times return, in fact, Americans might buy 16 million or 17 million cars per year, a lot more than the 12 million or fewer they'll buy this year. So who will get all that business? Here's some handicapping on who might benefit from the woes in Detroit:

Ford. GM and Chrysler are both on the brink of insolvency, but Ford says it doesn't need emergency cash right now and might return to profitability by 2011 without any help at all. If Ford turns out to be Ford tough after all, it could be a huge win. Surveys by CNW Marketing Research show that fears of a GM bankruptcy have driven buyers away from the biggest domestic automaker. Ford picked up 19 percent of those buyers, more than any other GM competitor. Honda (HMC) got 15 percent and Toyota (TM) 11 percent.

That makes sense: The top two domestic automakers have a lot of products that compete head-to-head, especially pickup trucks and SUVs. For many buyers considering a GM car, a Ford would be the next best alternative.

There are several caveats. If GM declared Chapter 11 bankruptcy, that would be an obvious chance for Ford to grab market share. But it wouldn't be that simple. A GM bankruptcy would directly threaten dozens of suppliers that Ford depends on, too. So Ford's future is directly linked to GM's ability to muddle through and keep the suppliers in business. If GM went under, Ford's biggest need would be a government plan that protects the supplier base.

Toyota. Detroit doesn't have much that Toyota wants—except for millions of pickup-truck customers. The full-size-pickup market is the last piece of home-field turf the Detroit 3 still control, and so far, Toyota's new Tundra—built at a new, billion-dollar plant in Texas—hasn't made much of a dent. Nissan's Titan has fared even worse. And crafty Honda has dabbled with the playful Ridgeline, which it calls a "sport-activity truck," but stayed away from a pickup that would compete directly with Detroit's work trucks.

Assuming that GM and Ford both stay in business, Toyota's best opening might be a government-brokered marriage between GM and Chrysler. If that happened, GM would own both the Dodge Ram and the Chevy Silverado pickups. And since GM's bailout plan calls for fewer brands, not more, it's plausible that GM could put the Ram out to pasture. GM and Ford would both rush to corral those abandoned Ram buyers—a rowdy, budget-minded lot—but it would be a great chance for Toyota to prove its chops, too. That also holds if Chrysler gets broken up and the Dodge lineup is sold off to competitors.

The southeastern United States. There's already a "new Detroit" flourishing in states like South Carolina, Alabama, Mississippi, and Tennessee—where Toyota, Honda, Nissan (NSANY), BMW, Mercedes, and Hyundai turn out cars built by Americans for Americans. These mostly nonunion factories have sprouted during flush times and could get a bigger boost as the Detroit 3 shrink—or become 2 or 1.

Analyst David Silver of the research firm Wall Street Strategies said:

Imagine if the North American plants for GM or Ford were closed, and every remaining automaker built one or two more plants across the country. That would create a lot of jobs, and while it would be an initial shock to the economy, in the long run, it may not be such a horrible scenario.

The rust belt would reel, as it did during the modernization of Big Steel, but the jobs created elsewhere would be more stable and the companies more competitive.

Consumers. Everybody loves fire sales, and in the car business, they're likely to intensify. As the Detroit 3 shrink and close down divisions, there could be dramatic markdowns on some of the weaker brands under Detroit's umbrella, like Saturn, Pontiac, Chrysler, Dodge, Lincoln, Volvo, and Saab. That will produce "negative pricing power" on competing brands like Honda and Toyota, which is bad news for profitability but good news for the household budget. And the industry has so much excess capacity that even if one or two automakers go out of business, there's still virtually no way for a survivor to corner the market and build a monopoly. That means cars will continue to get better without costing more — unless the government decides to subsidize mediocrity.

Related Articles

This article has 78 comments:

  •  
    Dec 03 03:07 PM
    If GM and Chrysler go down the tubes it will be obvious that they never learned their lesson when Toyota appeared on the scene and started taking market share. In any event just the end of the line for a few American Icons that could not adapt to the new rules of the game. Too bad, but in the last analysis they were given a chance and the combo of the union with excess benefits and a poor small care product line did them in....MarvinMBA
    Reply | Link to Comment
  •  
    Dec 03 03:20 PM
    And what about the retirees pensions and health care- are those just gonna go away? And then the government will have more people without health care and retirement.

    What about the fact that the Big 3 buy more parts from the US than Toyota and the other transplants?

    What happens if the Big 3 collapse and the transplants shut down and move offshore for cheaper labor? They can still import here- we will need cars, but who will get the jobs?

    I know these are questions that require thought and these people that write these articles are not keen on critical thinking but that lack of critical thought is what got our country into the economic mess it is in.
    Reply | Link to Comment
  •  
    Dec 03 03:39 PM
    Who sould help Toyota,Honda,Nissan,if they can't make it?They are not American owned companys,but they have just as many American workers and suppliers that would be hurt.What would happen to the American towns that they are built in?Just as many Americans own stock in them,depend on them for a living and benifits.
    Reply | Link to Comment
  •  
    Dec 03 03:42 PM
    Blacksilver:

    "Just as many Americans own stock in them,depend on them for a living and benifits"

    This is where you are wrong- far more people rely on the Big 3 than the transplants- suppliers, thousands of retirees and more dealers. This is a very flawed statement- the Big 3 have far more US content in their vehicles than the transplants.
    Reply | Link to Comment
  •  
    Dec 03 03:52 PM
    let all 3 die if they can't compete, it's been a disgrace the way they behave.
    Reply | Link to Comment
  •  
    Dec 03 03:53 PM
    It is ok for sen. richard shelby and co. to give toyota, honda, bmw, and kia $3.2 billion in tax breaks...(the same people who 50 years ago tryed to kill every american they could find). but it is wrong to help those who helped us obtain the freedom we anjoy today.
    Reply | Link to Comment
  •  
    Dec 03 03:55 PM
    Who might benefit if they fail?

    Not any of the big 3.
    Not their workers.
    Not the union OR management.
    Not taxpayers (pension takeover, loss of payroll taxes).
    Not other automakers (supplier bankruptcies).
    Not the midwest (looking at a regional depression).
    Not the rest of the US (regional depressions spread).

    The only beneficiary I can imagine would be the Chinese automakers, who would be unaffected and are arriving with their imports within the next 2 years, if we can still afford cars by then.

    Most likely, they will get bailed out, and bailed out again, to the tune of about $200B over the next few years before they finally whither to a level that is not "too big to fail". Then they'll fail.
    Reply | Link to Comment
  •  
    Dec 03 04:19 PM
    Get over it.
    Reply | Link to Comment
  •  
    Dec 03 04:19 PM
    What an American shame that anti-import Japan has taken over the auto Business in America. Japan, Korea ... Thank you Unpatriotic Americans for helping Japan and Koreas econmy and killing ours.... This is a tragedy..... over half of Toyotas vehicles are imported. Are debt to Japan for our children to pay if running in the Trillions and is unsustainable. A GREAT DEPRESSION TO COME. Thank you import buyers..


    On Dec 03 03:07 PM User 118015 wrote:

    > If GM and Chrysler go down the tubes it will be obvious that they
    > never learned their lesson when Toyota appeared on the scene and
    > started taking market share. In any event just the end of the line
    > for a few American Icons that could not adapt to the new rules of
    > the game. Too bad, but in the last analysis they were given a chance
    > and the combo of the union with excess benefits and a poor small
    > care product line did them in....MarvinMBA
    Reply | Link to Comment
  •  
    Dec 03 04:20 PM
    It was more of a question then a statement,I was wondering who would look out for all those workers.
    For the record i have always owned GM cars,one ford. Never owned a inport.
    Reply | Link to Comment
  •  
    Dec 03 04:21 PM
    Thats right let the auto industry go down the tubes and watch all them NON-UNION shops get paid even less, are you people nuts or smoking pot or something. Do you even in your wildest dreams think that the foreign automakers or for that matter will pay much at alll. Have any of you ever been over seas and see the poverty that people live in because they only have 2 classes of people - RICH and Poor, is this what you want. We already have the rich now and more of them now then ever, come on think about it. The average income of some foreign auto companies is less than $5000.00 per person, look it up before you tell everyone how much the auto workers make over here. Lets take me, i retired from Ford, and your telling me that i make $70 per hour x 40 hours times 52 weeks is around 145,000 per year mmm which is about 2700 per week and i retired at 2700 per month hell i was stupid to ever retire if they make that much money. And i never sat behind a desk looking pretty and never working up sweat like all these people sitting on tv and the other people sitting in their suits, we actually worked, liked grunts in the army, think.
    Reply | Link to Comment
  •  
    Dec 03 04:27 PM
    THANK-YOU DAVE!!!!!!!!!!!!!!!!!!...
    Reply | Link to Comment
  •  
    Dec 03 04:29 PM
    FACT.....FOR EVERY $1 PROFIT THE JAPS TAKE .95 CENTS BACK TO JAPAN.
    Reply | Link to Comment
  •  
    Dec 03 04:32 PM
    FOR EVERY TOYOTA, HONDA, KIA, PLANT THAT OPENS UP WITH LOWER WAGES AND NO BENEFITS...ONE OF OURS WITH GOOD WAGES AND BENEFITS CLOSES.
    Reply | Link to Comment
  •  
    Dec 03 04:33 PM
    THIS IS OUR LAND, THEY SHOULD BE COMPETING WITH US ...NOT US WITH THEM.
    Reply | Link to Comment
  •  
    Dec 03 04:38 PM
    Seems to me that a lot of GM vehicles are made in places like Mexico, Canada and Korea....same with Ford and Chrysler. Why? You know why......


    On Dec 03 03:44 PM User 303820 wrote:

    > FIRST OF ALL THIS GUY HAS NO CLUE, AN OTHER EDUCATED SELFISH HYPOCRITE
    > FROM THE SOUTH....WE FORGET WHY WE'RE IN THIS MESS...FOR THOSE OF
    > YOU WHO CAN'T FIGURE IT OUT... LET ME EXPLAIN IT TO YOU.
    > IT'S CALLED "FREE TRADE" WE'VE BEEN LOSING JOBS TO SLAVE LABOR FOR
    > YEARS, WE'VE BEEN SHIPPING GOOD PAYNG JOBS TO SLAVE LABOR FOR YEARS...IN
    > ORDER TO KEEP THE ECONOMY GOING PEOPLE NEED TO HAVE BUYNG POWER...WITHOUT
    > IT WE DON'T HAVE AN ECONOMY..WITHOUT GOOD PAYNG JOBS WE DON'T HAVE
    > BUYNG POWER....AFTER OUR JOBS WENT WE REPLACED BUYNG WITH BORROWING
    > AND THUS THE CURRENT MESS
    Reply | Link to Comment
  •  
    Dec 03 04:47 PM
    YOU'RE RIGHT! THANKS TO FREE TRADE THE BIG THREE GOT THE RIGHT TO BUILD IN MEXICO, CANADA, AND KOREA WITH THE BLESSING OF WASHINGTON....THAT'S WHERE THE JOB BACK CAME IN...TO PROTECT THE WORKERS DISPLACED BY FREE TRADE...
    Reply | Link to Comment
  •  
    Dec 03 04:50 PM
    WE NEED TO BRING OUR JOBS BACK...JOBS THE ONLY SOLUTION TO THIS PROBLEM....GIVING BILLIONS TO THE BANKS TO LOAN TO PEOPLE THAT DON'T HAVE JOBS JUST MAKES THING A LOT WORSE.
    Reply | Link to Comment
  •  
    Dec 03 04:57 PM
    AFTER A YEAR OF BAD TIMES...WASHINGTON SAYS WE'RE IN A RECESSION...WHERE HAVE THEY BEEN? THOSE IT HAVE ANYTHING TO DO WITH THE FACT THAT THE STOK MARKET LOST 40% OF IT'S VALUE IN THE LAST FEW MONTHS....SO IT'S NOT A RECESSION UNTILL THOSE SELFISH RICH HYPOCRITES LOOSE THEIR MONNEY.
    Reply | Link to Comment
  •  
    Dec 03 04:59 PM
    I agree 303820! We do need jobs.

    I hear there are some auto factories in Alabama, Mississippi, Georgia, Texas, and TN that are hiring. They and their suppliers even make a profit, so the jobs should be more secure.
    Reply | Link to Comment
  •  
    Dec 03 05:22 PM
    You know what's great about owning an American car...when it breaks down, parts are cheap and plentiful. The problem is, it always happens! I have blown a substantially higher amount of my hard earned dollars fixing my Fords and Chevys. I now own a Subura, made in America by Americans.
    Reply | Link to Comment
  •  
    Dec 03 05:35 PM
    It IS NOT and NEVER HAS BEEN the government's duty to provide pensions nor health care!!! Get that through your heads, people!! The government was Constitutionally chartered with very few things -- national defense, and things of that magnitude. Your PERSONAL needs have *always* been your own duty!! That's what life IS.


    On Dec 03 03:20 PM Tomas04 wrote:

    > And what about the retirees pensions and health care- are those just
    > gonna go away? And then the government will have more people without
    > health care and retirement.
    >
    > What about the fact that the Big 3 buy more parts from the US than
    > Toyota and the other transplants?
    >
    > What happens if the Big 3 collapse and the transplants shut down
    > and move offshore for cheaper labor? They can still import here-
    > we will need cars, but who will get the jobs?
    >
    > I know these are questions that require thought and these people
    > that write these articles are not keen on critical thinking but that
    > lack of critical thought is what got our country into the economic
    > mess it is in.
    Reply | Link to Comment
  •  
    Dec 03 06:09 PM
    Chevy makes a wonderful full sized pick up that beats Toyota in every way. I will buy another but with only 75,000 miles I expect another 75,000 trouble free miles. If your US vehicle is always breaking down, try changing the oil once or twice. My wife has a Toyota but as a normal size American male I break my back to crawl inside.
    Reply | Link to Comment
  •  
    Dec 03 07:12 PM
    MR. SOCIALISM CAN'T COMPETE;...THE LAST TIME I LOOKED AT MY PAY STUB I GAVE A GOOD CHUNK OF MY MONNEY TO THE GOVERNAMENT....THE SAME GOVERNAMENT THAT YOU SAY HAS NO RIGHTS TO TAKE CARE OF IT'S PEOPLE...THE LAST TIME I LOOKED AT OUR CONSTITUTION IT SAYS "WE THE PEOPLE" AND THAT INCLUES EVERYBODY, NOT JUST THE BANKERS. IT INCLUDES THE WORKING STIFFS OF THIS COUNTRY... SO...WE THE WORKING STIFFS OF THIS COUNTRY ARE ASKING FOR SOME OF OUR MONNEY TO BE USED TO SAVE OUR JOBS..I KNOW IT IS NOT EASY FOR PEOPLE LIKE YOU AND YOUR FRIEND RICHARD SHELBY TO DO.
    SINCE YOU 'D RATHER GIVE THAT MONNEY TO TOYOTA, HONDA, KIA. AND BMW ($3.2 BILLIONS)WITH OUT ANY QUESTIONS ASKED.
    Reply | Link to Comment
  •  
    Dec 03 07:23 PM
    I think everyone benefits over the long-term if GM fails. Clearly there will be hardships in the short-term, but what's really at issue is the viability of a business. Chapter 11 is the solution to that, not more money for restructuring.
    Reply | Link to Comment
  •  
    Dec 03 07:24 PM
    MR SOCIALISM CAN'T COMPETE: HAVE YOU ASKED SEN. SHELBY IF HE IS WILLING TO GIVE UP. HIS PAY FOR THE MONTH OF AUGUST AND DECEMBER SINCE HE IS NOT AT WORK...YOU SEE HE'S ASKING ME TO GIVE UP MY PAY WHEN NOT AT WORK...IS HE WILLING TO WORK FOR $1 DOLLAR, GIVE UP HIS FREE RIDES ON CORPORATE JETS? GIVE UP HIS FREE APARTMENT IN WASHINGTON AND THE REST OF HIS PERKS, WHICH MY TAX MONNEY PAY FOR?
    Reply | Link to Comment
  •  
    Dec 03 07:25 PM
    NURSE? UNLESS YOU'RE A BANK...HYPOCRITE!
    Reply | Link to Comment
  •  
    Dec 03 07:25 PM
    THEM DARN SLANTY-EYED BASTARDS! HURR HURR HURRR, HOW DARE THEY COMPETE WITH US AMURICANS. THEM THERE ALL OCHTTA BE RUN OUT OF THIS HERE COUNTRY.

    omfg, teh lulz are too much too bear in this thread.

    1) caps lock is not necessary. we hear you.

    2) every korean wanted to kill americans 50 years ago? a clue. buy one. racist remarks show exactly what sort of intellect you are sporting, bubba.

    3) manufacturing vehicles in mexico was a decision taken by american execs of an american company. so who's fault is it?

    4) thank you "Socailism...&quo... Someone who understands that the government "tit" is a gross distortion of what our government should be.

    i could go on for ages, but let me give it a rest, and not derail the thread anymore than i may already have.
    Reply | Link to Comment
  •  
    Dec 03 08:23 PM
    BLACKSILVER: ARE THE BIG THREE ASKING THE JAPANESE OR THE KOREAN GOVERNAMENT FOR HELP?
    NISSAN. TOYOTA AND HONDA CAN ASK THE JAPANESE GOVERNAMENT FOR HELP....OR....SEN. RICHARD SHELBY.
    Reply | Link to Comment
  •  
    Dec 03 08:43 PM
    HEY EVERYBODY! I GOT A SOLUTION!
    TWO EASY, FREAKIN' STEPS:

    1. EVERYBODY HAVE A BREWSKI.
    2. GET BACK ON THE ASSEMBLY LINE - ANY WILL DO. IT AIN'T GOTTA BE CARS ER NOTHIN'!
    3. HAVE SOME MORE BREWSKIS LATER ON, AND...
    4. SPREAD THE FREAKIN' LOVE AROUND!
    Reply | Link to Comment
  •  
    Dec 03 08:48 PM
    Another economic nonsense written without any sense of economic reality.
    This is not the time to allow any major institution to fail.
    Lehman's failure set the precedent for the whole financial sector and almost derailed the economy.
    If we allow GM and Chrysler to fail, the sequential set of events would undermine every economic sector and paralyze investors psyche.
    Let the Congress provide the bridge loan to the auto industry and let's enjoy the economic/market rebound in the period ahead.
    The current Armageddon has been neutralized .
    Let's not "invite"the sequel by preaching economic ignorance.
    Reply | Link to Comment
  •  
    Dec 03 08:56 PM
    User 303820 must be a UAW guy judging by both the quality and quantity of his posts. Your racist abuse has been reported. Also, GET A SPELL CHECKER!!

    As for the gent who retired from Ford and said he didn't make $70 an hour, he was correct. The $70/hour number is what is called "fully burdened". That is, it includes wages and all medical expenses and pension contributions (and a few other things). The Detroit product is clearly getting a lot better and now wins quality awards. The problem was the 40+ years from the time the first Datsun 510 hit the US shores to now, so now is almost too late for Detroit.

    One (of many) of the reasons the big 3 built cr*p for most of those 40 years was the work rules imposed by UAW contracts that prevented modernization and streamlined production processes. It was an American, Edward Deming, who taught the Japanese quality control and management that Toyota and Nissan use to this day to eat Detroit's lunch.

    A Government backed pre-packaged bankruptcy including significant UAW concessions is probably the best way to save the 3 (or a least GM and Chrysler). If we (taxpayer) just throw money at the problem, they will be back for more. Today's estimate is $39B. In February, with a more Union friendly administration in place, the sky is the limit.
    Reply | Link to Comment
  •  
    Dec 03 09:13 PM
    I'd like to apologize for my poorly worded insult of 303820 in my previous post that lumped the UAW in general with 303820. UAW guys, are by and large, good guys whose leadership, because of the lop-sided (and Marxist) US labor laws, has screwed over the domestic auto industry.
    Reply | Link to Comment