The Big 3: American Automakers

Chrysler and Daimler-Benz: The Merger

2005-11-20T21:51:00.000-05:00

In 1998, the German based company of Daimler-Benz and the American company Chrysler joined forces in an attempt to become the strongest auto manufacturer in the world. Chrysler was struggling financially and it appears as though Daimler-Benz saw growth potential in the American company so the idea of the merger was put into action. The potential for economies of scale seemed so attractive that the previously two separate entities were combined to form Daimler-Chrysler.
Over the five years period from 2000-2004, Daimler-Chrysler has experienced strong growth in both sales and operating profits, 26 and 36 percent respectively. This is good news for investors and top management, but there are a few areas of concern that need to be tended to. Company expenses show no consistency, leading to bottom line net incomes that vary from -$590 million in 2001 and as high as $7.4 billion in 2000. The only year during this five year period that wasn't in the black was in 2001. The company still seems to be showing signs of struggle, paying no dividends in 2004. The dividends had been $2.22 per share in 2000. From an investor's standpoint, seeing a decrease in dividends paid would not entice me to put my money into the company.
In terms of the merger itself, it appears that this what want the Germans or Americans really wanted. Neither management group has been happy. They have continued to be at odds with one another and the cost-savings have not materialized the way they were expected to. The net worth of the two companies in 1998 was $47 billion, but this has only increased to $52 billion as of November 2005. While all people have their own opinions on different topics, Business Week summed up theirs by labeling the merger a "colossal mistake." Thus, the merger between Daimler-Benz and Chrysler hasn't lived up to the success that it was supposed to produce.

Ford Motor Company

2005-11-16T15:55:00.000-05:00

The past five years has included many rough roads for Ford Motor Company. Ford's financial statement have revealed increases and decreases in all areas over this period with the company showing no signs of moving forward. Looking at a few financial ratios can give one some insight as to where the company is headed and where it has been the past few years. Ford has seen an increase in sales of less than 1 percent from 2000 to 2004. Luckily however, their cost of goods sold has decreased by 1.4 percent over the same period. One of the real problems seems to exist within the massive increase in selling and general and administrative expenses, which has risen 112% between the years 2000 and 2004. This leads directly to the decrease in earnings before interest and taxes (EBIT) of some forty percent. History and common sense would tell us that companies in a predicament such as this do not continue to be in business much longer. In terms of net income, Ford has seen their recent troubles become even more problematic. In both 2001 and 2002 Ford posted negative net incomes and were barely in the black in 2003. The year 2004 did show signs of improvement. With interest expenses declining, Ford was able to achieve a net income greater than it had in the year 2000. This was most certainly a great relief to all people involved in the company.
Looking at the balance sheet, there is one number that stands out that should send chills down the spine of Ford's CFO. This number is listed under accounts receivable, which stood at an amount seventeen times greater at the end of fiscal 2004 compared to 2000. This amount probably stems from the increase in loans given out by Ford Motor Credit, which has offered financing rates as low as 0% for the past few years. It appears that Ford may be recovering from its recent struggles by showing a decent net income in 2004. As for the future of the company, we will have to wait and see what impact rising oil prices will have on their sales of high-end models. There are clearly challenges awaiting the company in the near future.

GM's Financial Status

2005-11-09T13:18:00.000-05:00

General Motors an American automaker that have been receiving negative media attention because of their recent offerings on new models in an attempt to boost their sales, so I thought I would take the initiative and find out exactly were they stood today.
The corporations' sales have fluctuated over the past five years, but there has been an increase of sales of 4.6% over the five year period (2000-2004). One potential cause of concern is that the cost of goods sold has risen at a rate 8.5% over the same period, nearly double that of the increase in sales growth. Combine this with rising interest expenses and what you are left with is a bottom line net income in 2004 that is 37% lower than it was in 2000. Now don't misunderstand what these numbers are telling you. General Motors is still a profitable corporation and the largest manufacturer of automobiles in the world. GM is in no immediate danger of financial failure, but there are some areas of the production process that probably should be improved before they become a serious problem.
Looking at the balance sheet, the first thing that sticks out is the massive increase in accounts receivable. These have doubled between 2000 and 2004 to $220 billion, which accounts for forty-five percent of all assets. There doesn't seem to be anything else that stands out nearly as much as this amount on the balance sheet. In fact, there is no short-term debt on GM's books so rising interest payments should not be a huge factor in their cash position. Further information on GM's financial reports can be found at the following website;
http://moneycentral.msn.com/investor/invsub/results/statemnt.asp?Symbol=GM.

What Detroit does when fuel prices rise

2005-11-02T17:59:00.000-05:00

All over the media you hear citizens complaining about the rising price of oil and how America needs to move away from its dependence on oil because consumers cannot afford these outrageous prices for gasoline. Fuel prices have increased? I think Detroit must have missed that memo. Instead of downsizing all their models to become more fuel-efficient they decided to give the public what they have been waiting for. Chrysler and GM went out and built two of the fastest SUVs to ever lay rubber on American roads. The Jeep Cherokee SRT8 and Chevrolet Trailblazer SS may be the exact opposite of what environmentalists want to see on the roads, but they are exactly what horsepower hungry Americans crave.
Engineers did their jobs to make sure these two-ton plus rockets could still be driven by your average driver. Polished twenty inch wheels are standard on both models with performance tires that grip the road like gum to your shoe. A 9.5" rear with 4.10 gears (on the Trailblazer) sounds like we're building a hot-rod from the late '60s and not the family cruiser. With horsepower ratings in the Corvette range (420 for the SRT8 and 395 for the SS) American SUVs are taking dead aim at the high-end of the market that once belonged to BMW and Porsche. With a model at half the cost of the BMW and Porsche, Jeep and Chevrolet are making a statement that they can compete with German SUV engineering and performance.
If you need 5 seats, hate sedans, and like to embarrass folks who think their foreign sports sedan is as good as it gets, then one of these two hot rod SUVs have your name on it. If you have the forty grand to pay for one of these you aren't going to care about getting 14 miles per gallon so go out and get the performance machine your parents wouldn't let you buy when you were young.

The All-New 2007 Chevy Tahoe

2005-10-26T18:21:00.000-05:00

While domestic cars are bashed in the media on a daily basis for being of inferior quality, the Chevy Tahoe has quietly been the best-selling full-size SUV in the country for the past four years. So what did Chevrolet decide to do with their best seller? Obviously, redesign it and make it better.
For 2007, the Tahoe has been completely redone, with new innovations that are not available on model costing thousands more. The Tahoe currently achieves the best fuel economy of vehicles in its class, but now it offers displacement on demand. This is a system that cuts off fuel to 4 of its 8 cylinders while cruising at highway speeds, thus boosting fuel economy. If fuel economy is not a factor of importance to you, the Tahoe now offers a power-release second row seat. This will make entry into and exit out of the third row seat easier than any competitor. In addition to that, heated second row seats are now available. Does your Pathfinder or Sequioa offer that? I'll answer it for you, "No." A factory installed remote starter is also now available for those cold mornings. If easy access into the cargo area is important to you, the new power liftgate will become your new best friend. Another added feautre that will help you turn heads is the available polished aluminum 20" wheels.
By taking the best-selling vehicle in its class and adding so many new features to it, one can clearly see that Chevrolet engineers are playing to win. Fuel prices have been high before and they will be again. The most fuel-efficient large SUV is going to get even better and the sales of the Tahoe will surely follow this trend. Expect to see the Tahoe on the front page of MotorTrend in six months proclaiming it "The 2007 SUV of the Year."

Fuel Efficiency

2005-10-19T21:44:00.000-05:00

The American media has a profound affect on the way individuals perceive things and make their decisions. One example of this is how consumers have been taught that sport utility vehicles (SUVs)are the least fuel-efficient vehicles in the history of automobiles and are out to destroy the environment. Just looking at the size of these vehicles, one should not expect them to attain the fuel efficiency of a compact car.

Upon looking at full-size SUVs projected fuel economy, the worst in the industry is the Dodge Durango, which proclaims 12 miles per gallon (mpg) in the city and 17 mpg on the highway. For those that have knowledge in the history of the fuel-efficiency of vehicles you would already know that the mileage of the worst sport utility is comparable to that of full-size cars that were produced twenty years ago. This is pretty phenomenal when you consider the mass and lack of aerodynamics these vehicles have. Technological advances in fuel injection and the introduction of displacement on demand (a system that effectively cuts off a number of cylinders in an engine while cruising at highway speeds) have improved fuel economy in large vehicles as well as other types of cars.

If individuals would look at things deeper than merely at the surface, they would come to find out that the station wagon and minivans they drove fifteen or twenty years ago achieved the same fuel economy as their 6,000 lb Suburban does today. Unfortunately, I am sure no one will take the time to give credit to those who have created these advances, but SUVs truly are not guilty as charged of being environment destroyers. Considering how many people have purchased SUVs over the past decade, the manufacturers must be doing something right.

My picture

2005-10-17T10:08:00.000-05:00

American Muscle

2005-10-16T14:28:00.000-05:00

The 2006 Chevrolet Corvette Z06
Unsurpassed Acceleration

If you love power and have 70 grand to spend, this 3100 lb race inspired machine is exactly what you need. Auto transmission, don't even think about it. All speed traction control, you're going to need it to keep it straight. This is the most badass car to ever roll out of a General Motors plant. When the sixth generation of Corvette's arrived last summer as 2005 models, GM engineers knew they were going to have to do something big with the launch of the Z06 model. The previous generation Z06 and its 405 horsepower ran 1/4 miles in the twelve second range already, so what more could they do to such a powerful vehicle to make it even faster? The answer to this is, whatever you could have possibly dreamed of. The new 7.0 liter 427 cubic inch monster is now putting out 505 horsepower and has to be driven to comprehend what this much power can do to you in the driver seat.
Now don't get me wrong, the new Z06 is not an all-power but no comfort type of vehicle. It still offers most or all of the amenities that are offered on most all luxury vehicles. For instance, dual heated power seats and a touch-screen navigation are available, as well as dual front and side air bags. The ignition system is a push button system that requires the driver to have the keyless entry in the vehicle with them. These are just a few things offered to let you know that this Vette is a daily driver and not a pure racer.
Expect the new Z06 to run sub 12 second quarter-miles in excess of 100 mph, giving other models priced over $100,000 more than the Vette all the competition they want. Zero to sixty times will probably be just under 4 seconds, equivalent to the $500,000 Ferrari Enzo. Going by performance for the dollar, the Z06 is going to be a top performer.

GM Online

2005-10-13T14:06:00.000-05:00

An online presence is almost a necessity in today's business world. General Motors and each of its divisions have websites that allow potential customers to get information on all models, build and price models, and compare their models against ones of other brands.
There are definitely benefits to be realized by going online. GM has all eight of their divisions listed on their home page of http://www.gmbuypower.com/homePage.bp?. On this site there are links to each of the eight divisions (Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab, and Saturn). In addition to being able to go to division sites, one can also get trade-in appraisals and locate GM Certified used vehicles. Visitors have the ability to locate dealers and search their inventories in an attempt to find a vehicle with the exact appearance and options they are looking for. GM enables itself to attract customers from markets that may have not been able to find General Motors products in the past.
I feel that being able to build and price a variety of models with the options you desire is a definite advantage to the consumer because they can get an idea of what to expect in terms of availability and pricing when they head to a dealers lot to purchase a vehicle. For those salespeople who try to manipulate their customers, doing so is going to be much more difficult now because the average car-buyer has access to information that was not available last time they bought a vehicle.
Although there are costs and benefits to going online, those companies who refuse to become a bricks and clicks firm are only hurting themselves because the internet is becoming a necessity rather than a luxury. GM has been moving along this process relatively well and just needs to stay up to date with technological advancements.

Are Hybrid Models Worth Their Cost

2005-10-09T13:38:00.000-05:00

Hybrid vehicles have been gaining popularity of the past few years, especially with the recent jump in fuel prices. Determining the value of these more fuel-efficient alternatives is something that needs to be done before rushing out to buy the newest hybrid model offered that fits your wants and needs.
Upon doing some research on the all-new Ford Escape, I found that the hybrid model does increase the fuel-efficiency of the vehicle by 5 miles per gallon on the highway (a 16 percent increase over the gasoline powered model). This is a sizable increase, but one has to look past that and see what the increase is going to save you in dollar terms over the long run.
For instance, let's just say that regular gasoline is selling for $3 per gallon. By getting five more miles per gallon with the hybrid model, one would be able to drive an additional 80 miles on a full tank of gas (16 gallons). If you wanted to figure out what you would actually be saving, you could find out the cost of fuel per mile of operating the vehicle. Doing the calculations, you would find that the hybrid model would cost two cents less per mile to operate. If you drove 15,000 miles in a given year, you would save approximately $300 that year in gas expenses. It sounds pretty nice to be able to save the three hundred bucks a year in fuel costs, but you also have to consider the $3000 additional cost of the hybrid option. In reality, you would have to keep the vehicle for 10 years to realize a cost-savings from your purchase of the more fuel-efficient model. As far as I see, filling up my gas only vehicle does not seem so bad after all. So really, is it worth the extra money to get a few more miles per gallon?

What customers are REALLY buying

2005-09-29T19:32:00.000-05:00

There are over twenty different car companies currently doing business in the United States and abroad. These companies vary in all aspects from product breadth to price to quality. There are some aimed for only the richest of the rich while others are affordable for a majority of the car-buying population. Some individuals look at the top selling "cars" in the country and see Toyota's and Honda's at the top of list, not realizing that these lists fail to include the truck, van, and suv segments.
Truth be told, 3 of the top 4 selling vehicles in the United States are actually trucks. Ford's F150 is the top seller, the Chevrolet Silverado is number 2, and the Dodge Ram is number 4. These three models alone nearly outsell the remainder of the top ten selling models in the country. For those that believe U.S. automakers are producing inferior quality products, one of two things must be true about the American car buying population; either there are a significant amount of car buyers that are not intelligent or that the other individuals in the country are that much smarter than the majority of the population.
To add to the fact that truck sales dominate the U.S. automobile market, fourteen of the top twenty selling vehicles for the 2005 calendar year through August 31, 2005 were built by the big three (Ford, GM, and Chrysler). Additionally, both the F150 and the Silverado individually outsold the two top selling Honda and Toyota models combined (Accord/Civic and Camry/Corolla). Numbers don't lie, so apparently American automakers are manufacturing products that are of some quality.
So what the numbers of sales are indicating to me is that while Honda and Toyota have realized successes in the states, American automakers are still a dominant force in the United States automobile market. Different people will have different opinions on this topic because of the sales and marketing tactics used by American manufacturers this year, but these statements are based solely on the number of units sold during this calendar year.

The Past vs. Today

2005-09-22T13:26:00.000-05:00

Mustang, Impala, Charger, and GTO. These nameplates once demanded respect on the road and the track. Domestic automakers, for whatever reason, are trying to bring back these models (or at least their nameplates) to revive interest in American muscle. For instance, Ford spent millions to redesign their Mustang similar to the model that teens dreamt about in the mid 1960s. Sales seem to have been boosted by this endeavor at least temporarily, but we will have to wait and see how successful the new model will be in the long run. Another vehicle reborn, the Pontiac GTO, looks to me as though it is nothing more than a Cavalier on steroids. These would be the top of line steroids but it isn't the "burning up the track" impressive that this model needed to and should be. I worked at a Chevy dealership. Try telling a 50 year old gentleman with a '64 Impala SS Convertible in his garage that the '05 Impala SS is a front-drive supercharged V6. Trust me on this, it does not go over well. In addition, Dodge has recently introduced another legendary model to its line, the Charger. Do not get too excited however, it has four doors to make it easier for you to put the kids in their childseats. These models still sell very well (Impala was number 9 in the 2004 calendar year overall) but it is difficult for some to accept the fact that today's car buyer has very different expectations than it had thirty or forty years ago.
Both Chevrolet and Dodge are taking steps similar to Ford's idea to recreate the Mustang, with the new Impala SS and the Charger. Both of these models feature high-performance V8 engines that can be competitive with their models from the 1960s. For those not desiring this performance, there are V6 options for each of these models that obtain excellent fuel economy. Today's buyer demands a high quality product, performance, and efficiency. Any of the models mentioned above can meet buyer standards. These American automakers are trying to revive the interest that has been lost in high performance vehicles.

The Misinformed Car Buyer

2005-09-14T16:00:00.000-05:00

When the average internet user decides to begin looking for their next vehicle, they will usually take a look online to see what types of cars, trucks, and suvs are available and about how much they cost. The problem with this is that as soon as one begins looking around on auto manufacturer websites, banner ads and pop-ups soon appear with links that tell the consumer they can get a better deal by clicking on this ad and going to this particular website. For instance, sites such as http://www.carsbelowinvoice.com/redir/newcar.asp?src_id=2235&kw_sqid=101961 basically tell consumers that they are getting taken advantage of by dealers when they purchase vehicles. This particular site says, "Smart shoppers who do their research online typically save more than $1000 over just walking into the dealership." The site also says that, "Most dealerships are happy if they make $1500 - 2000 profit on any new car..." As a previous new car salesperson, I would hate to break it to carsbelowinvoice.com that they are pretty much full of it. If the average new car salesperson sold 15 units per month and was paid the going rate of 20-30% commission on the dealership profit (which according to carbelowinvoice.com is easily $2000), the average employee would be making around $7500 per month. Seriously folks, automotive sales does not require a master's degree, so if salespeople are really making $90,000 per year I would probably just drop out now and go work for my local Ford or Chevrolet dealer. You would see lines coming out of the showroom doors with people begging for sales positions.
In addition, these misinformed buyers come into a given dealership with the expection of buying the vehicle below dealer invoice because they have read that dealers can easily sell a new car for that amount. Potential car buyers should know that any business will not have its doors open for long if they are losing money by selling their product. To sell a vehicle and make zero profit is essentially useless to a salesperson since they are generally paid on a commission only basis. What this means is if the dealership does not make a profit on the sale neither will you. Salespeople do not establish solid long-term relationships with customers by trying to rip them off or lying to them. Trust and honesty are the basis for long-lasting relationships and that is what I tried to do as a salesperson. If salespeople wanted to ruin peoples' lives they would just sell credit cards to college kids.

Employee Pricing Boosts Sales

2005-09-06T15:55:00.000-05:00

At the beginning of June, General Motors anounced the beginning of an incentive program that had never been considered a possibility in most employees' minds. On June 2, every GM product except for Hummer H1, Chevrolet Corvette, and Pontiac GTO was now able to be purchased at the General Motors employee price. This amount was under dealer invoice on all models and on some higher-end models approached two thousand dollars under what the dealer ultimately paid for the vehicles. During this month, GM experienced the most dramatic increase in monthly sales in 18 years. Having seen the success that General Motors experienced, both Ford Motor Company and Chrysler made the same discounts available to the public in the month of July. Since its competitors had now introduced their version of an employee discount, GM was obligated to and did extend the employee discount through the month of July. July encouraged an even greater number of buyers to today rather than wait because of the money that could potentially be saved. As a result of Ford's "Family Plan," the best-selling F150 had its best sales month ever with all models realizing increases in sales. Chrysler realized similar successes with their version of the employee pricing program, called "Employee Pricing Plus."
The savings were so great that even employees of other car manufacturers were swapping in their Dodge Durango's for a new Ford Explorer or letting their Ford F150 truck go and buying a new Chevrolet truck. This type of market shake up has not been seen in nearly twenty years and greatly decreased the value of late-model (relatively new) used vehicles. Prices on new vehicles got to the point where an individual could buy a brand new 2005 Ford Focus for the same price as a used car dealer would have a 2003 listed for.
The only negative I can see looking at this situation from a dealer's perspective is that while sales have increased during these employee pricing programs, are buyers going to expect the same type of savings when they go to buy their next new car in a couple of years. I think General Motors and a month later Ford and Chrysler made a huge mistake by letting the public know exactly how much some people are able to buy higher-end vehicles for versus what the average buyer was previously paying for the that car. Time will tell whether employee pricing was in fact a smart business decision for the American automakers.