Auto industry takes center stage
Most of the big news events of Tuesday (December 2) had an auto industry focus. November auto sales reached their worst level since 1982. Chrysler led the way with a 47 per cent fall and Nissan fell 42 from November 2007 to November 2008. All told, the industry saw a 37 per cent plunge in November sales.
The bad news was widespread and was not limited to the Big 3 in the US. No major automaker had a sales decline of less than thirty per cent. Toyota and Honda joined Nissan and fell 34 per cent and 32 per cent, respectively.
More prominently, Tuesday was the deadline for the Big 3 (Ford, GM, and Chrysler) to share their bailout request proposal with Congress. Early in the morning, spokespeople for the companies pointed out that leaders would be driving to the meeting this time around after being chided for taking $20,000 flights on their private jets for the November meeting with lawmakers.
The picture painted by the car makers varied a bit more this time around than it did previously. GM and Chrysler each remained grim in their outlooks. GM says it needs $4 billion immediately and another $12 billion by late March in order to keep operating. Chrysler was even more aggressive in its request saying it needs $7 billion by the end of 2007.
A positive ray of light that helped catapult the Dow to a 270 point rebound Tuesday was Ford’s indication that it does not expect to have to tap into a government bailout loan. The company did make a request for a $9 billion standby line of credit but maintains that it has enough cash to be safe through at least 2009. The company even speculated that it could see a breakeven point by 2011. This is quite a claim given the dire straights message presented a few weeks ago.
Perhaps more impressive were the lengths Alan Mulally (Ford), Rick Wagoner (GM), and Bob Nardelli (Chrysler) seem willing to go in order to secure the need funds. The CEOs, heavily scrutinized for lavish spending and outlandish executive pay, all indicated a willingness to work for $1 per year in the even their companies took government loan bailout money. Ford and GM also indicated a willingness to cut executive bonuses and merit pay for salaried employees for the next year in order to optimize efficiency. Ford and GM even said they would sell the corporate aircraft that the CEOs were scolded for using to fly to last month’s meeting.
Current best-case hopes pit a rebound in the auto industry to take place in late 2009. Many analysts were surprised at how poor November auto sales were. Most knew the industry was struggling, but some analysts had estimated losses would be about half of what was actually reported by the car manufacturers.
Some consumers wonder why all the fuss over one industry in a broad-based economic recession. However, with millions of jobs potentially at stake, the economy really needs the automakers to work their way out of the mess. The question on everyone’s mind is whether the government should assist in the process.
Market Recap
The Dow suffered its fourth-largest point drop ever on Monday with its 680 point drop. The NASDAQ and S&P each loss nearly 9 per cent of their values as well. The catalyst for the fall was a report that the US was officially declared in recession beginning December 2007. The Dow rebounded Tuesday with a 270 point gain. The catalyst for the move was word from Ford that it expected to break even by 2011, and now believes it should not need to access any government bailout loan. All Big 3 auto CEOs met with Congress today with a proposal for a $34 billion bailout. Auto sales reached their worst level since 1982.
Neil Kokemuller
Tuesday, December 2, 2008
9:39 PM EST
Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.
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About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.
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