What Auto Sales?
What Auto Sales? The ones happening in your local dealerships. Yes, its true they are not doing as many deals but they are still getting deals done. If they were not, auto makers and the dealerships would be going bankrupt and many of your local economies would see massive unemployment.
Auto sales are happening, simply not at the pace which we would like. The numbers will improve as the global credit crisis dissolves and customers are able to get approved. That is the main enemy right now - the customers in the showrooms simply can not get approved, some are but most simply are not.
Do not despair, however, they will fix this global credit crisis, just not overnight as would all like. Auto sales will increase, hopefully more gradually rather than a huge spike. Gradual increase is key here.
Cash Is King In Business… Part 2
Cash is king in business…
What truly needs to happen for our Big 3 domestic auto makers to not just survive but thrive after this industry downturn and global credit crisis are solved, than Washington needs to help the Big 3 not just with a loans, but also effective legislation essentially making unions illegal in this country. That is right, you heard it here, unions need to be made illegal in this country. They were great in the past but they are now out-of-date and no longer relevant in this modern automotive economy.
It is because of the unions, that the Big 3 have huge limitations when it comes to their cash flows. They have huge healthcare and pension liabilities that need to be solved and down away with. If that were so, GM, would not be so desparate for cash and need a loan from the Feds in order to retool thier factories and meet the needs of their current business. Their cash is “stuck in the past” if you will when it needs to be used in the present. And the unions have a huge part to play in this dilema. In fact, if the one of the Big 3 do go bankrupt, the root cause would be the unions and their unrealistic demands of healthcare and pension funding. To all who are upset with GM, Ford and Chrysler - do not be totally angry with them, their current cash burn is not completely their fault. The root cause goes way back to union days.
Why are unions so bad, you ask? From a purely business perspective, they do not give the employees that are employed for the business any incentive or reason to work their absolute best each and every day for the company that is paying them. Their raises, healthcare and retirment benefits are not at all based on their performance but based on contracts penned in by lawyers and negotiated by union officials. Where is the fairness in that. Unions had their time in the past, the present is not their time and yet they refuse to leave - ridiculous!
So that in a nutshell is where the Big 3’s cash goes to. Now in all fairness, the Big 3 have mismanaged their assets in the past and not adjusted to consumer demand as quickly as they should have, but there again, the unions and their contracts have had a role in Big 3 decision making.
We do believe that the right thing to do is for Congress to give them the loans they need to make it through the current global credit crises, however after that serious legislation needs to be signed into law making unions illegal - that is if we want domestic auto makers in this country!
Cash Is King In Business
Any entrepreneur and businessmen (women!) know this and this past Friday (yesterdeay) we all found out just how much of a king it is!
Cash flow is the lifeline of business, without a positive cash flow, your sunk. GM, Ford and Chrysler are learning this a very hard way. Sure a business can take out a loan, utilize credit cards, lines of credit but just like anyone else they still have to pay all those loans back, no matter what type it is. The bad part about all this is that the automotive industry is such a capital intensive business to be in, in the first place. So really, the Big 3 have done “alright” so far, “staying afloat.”
The time has come however, for the business practices of old to to go into the past so that the Big 3 have a level playing field in business in order to compete effectively. Most of the import auto makers do not have the healthcare and union liabilities on their balance sheets. So let us be fair here, if the Big 3 domestic auto makers are to have a shot of not just surviving this industry downturn but afterwards thriving, than there needs to be some change. To be continued in the next post…
Coming This Week!
As previously announced, beginning next week, Automotive Ace will begin to transform into a premier automotive web blog!
We have been making preparations for this during the current week and intend to begin the transformation during this upcoming week! We are very excited about making the transition and hope all things will go smoothly. Nonetheless, there are bound to be issues arising from this move and we thank you in advance for your patience during the transistion period. We also welcome your feedback into features you would like to see appear on the blog. Happy Automotive blogging!
Automotive Ace Major Annoucement!
We would like to extend to all our users a great big thank you for all your continued support!
After some changes in our team and some great consultation time with some highly regarded advisors, we have decided to take somewhat of a different route with Automotive Ace. The details…
Here at Automotive Ace, we are deciding to discontinue the development of our customized automotive search engine and instead to more aggessively develop our blog! It basically comes down to a purely business decision as we that it is better in the long-term for everyone involved here at Automotive Ace, but most importantly for our users. In business, you sometimes have to change your course as markets and customers change their habits and behaviors. However, a search feature will remain on Automotive Ace, initially just to search our blog and in the future you will also have the option to search the web for all the automotive information you need!
Again, we thank you for all your continued support and we look forward to developing one of the best automotive blogs on the web today and into the future.
Check back frequently, as we make our changes to the Automotive Ace and transform into a highly regarded automotive blog for all to see!!!
Credit Markets Part 2
Their are millions of consumers out there each year that go into dealerships ready to purchase or lease a new car or truck and basically all they have to do is “sign and drive.”
Those days are over for the forseeable future, unless you have stellar credit. Please do not get mad at your local automotive dealership, because it simply is not them. They want you to get approved so that you can take delivery and they can move on the next customer. It is the banks, they are simply very fearful right now to loan money to most people and this is after a period when they loaned money to just about anyone - literally.
Your local automotive dealerships are going to do everything they can do get you approved - it is their best interest to get you approved or restructure the deal on more favorable terms so that you can get approved. Afterall, if they are not selling cars, they are not making any money. We personally believe, that if you have a job, some cash down and good credit rating - you have the loan. It is only a small percentage of the population that will actually find it truly difficult to get a loan. You may have to dig a little deeper but they are there. So do not despair, the loan you need is waiting for you!
Credit Markets
Your automotive dealerships for all intents and purposes relies on your credit rating to do business with you. It’s nothing personal, it’s just business. Unless of course you do have the cash to pay for your car or truck.
Automotive dealerships basically function on credit. As we stated in this post, the automotive industry, runs on credit. Automotive dealerships finance their inventory of new and used cars, usually have mortgages on their property and if they belong to one of the public dealership groups usually participate in the commercial paper markets or take out even longer loans to fund their operations. With the credit markets tightening and their customers finding it harder to get approved for the loans they need to purchase or lease their new car, it is getting harder and harder for the dealerships to make deals happen. Of course, we know that there are still many dealerships out there making deals happen, because they have the cash flow and right customer base to do it. For example, we doubt that many luxury automotive dealerships are having trouble gettting their customers approved. And we are sure that there are other dealerships out there that are really using their customer loyalty to the max during this period.
This is one of those time in a very cyclical industry where you are very happy, if you have managed your cash flow extremely well, have hired and extensively trained your sales personnel and have treated your new and especially your existing customers well because all these factors will come together in this time and you will actually prosper in a down cycle when other are struggling just to survive. You have prepared well for this season and when this season is over, you will be well-prepared to take your dealership to the next level!
The One Constant That Is Always Changing
Fuel prices, love them or hate them, they are like a necessary evil that we have to face or deal with depending on how you look at it.
The one thing you can always count on is that they are forever changing. We are happy to see them coming down in recent weeks, although we highly doubt they will ever return to $2 or less a gallon. Those days, I believe we can safely say are gone for good. Whatever the case, whether it is gas or ethanol or electricity that we will be buying in the future to fill up our vehicles, the one constant we can be sure of is that they will always be changing. Sometimes for the good and sometimes for the worse.
However, the one thing that makes us laugh here at Automotive Ace, is that you see a lot on local television that the local news stations are always reporting where the least expensive gas is. For the most part, every station is with 10-20 cents of each other - so really where is the great savings. If you start talking 30 cents or more a gallon difference than yes, that is worth it but for the most part it is not worth your valuable time to go out of your way too much to save a few bucks in gas. Time is your most valuable possession, not your money. Money can always be made, time is here and then it is gone.
The Credit Crunch
With credit markets grinding to a near hault, the automotive industry, more than any other industry is hugely impacted. Let’s examine what makes the wheels of this huge industry “go round.”
First and foremost, the auto makers sell their dealerships the inventory of new cars entirely on credit. Yes, that is right, even the dealerships have to take out loans to buy new cars! Now granted, usually this type of credit extended to the dealerships by the auto makers captive finance company is a revolving line of credit, which means they only pay interest on the part of credit that they have used and as they pay back the credit - they receive more credit. Let us keep this in perspective however, in states like California and Florida where the retail auto industry has a great presence and dealership lots are usually full of new cars - we are talking about $15-20mm of credit sitting out on hard concrete. Not just $15-30k for the average car.
Secondly quite a few dealerships (the place that has about $15mm on credit of new car inventory) are usually mortgaged. So now we have the company owns the dealership has millions of dollars of credit in use to buy their new car inventory and to finance building and land in which they do business to sell all that inventory. Very few dealerships are actually owned outright by the company.
Thirdly, you have the auto makers and the parts suppliers (the majority being public companies) which means that many of these companies participate in the commercial paper markets to fund a portion of their operations. Whether its payment for goods delivered or funding to purchase raw materials or what have you - they need to pay for it somehow.
And last but not least, and probably one of the most important aspects is consumer loans to finance the purchasing and leasing of new cars to the consumer or business. If consumers or businesses can not get the loans they need to purchase or lease the vehicles - than you have a huge problem on your hands, if you live and work in the auto industry.
This is why the credit crunch is so huge for the automotive industry - it literally breathes on credit. And yes, even the auto makers and the dealerships pay interest on their loans, not just you and I. In fact, they probably pay a vast amount more because their loans are in the millions if not billions of dollars.
We here at Automotive Ace, believe that dealerships do tend to get a bad wrap in general public, but they are just like any other business - their purpose is to make money, the only difference is that their products are hugely expensive for the average consumer and need to be bought on credit.
Tracinda And FoMoCo
More bad news for Ford, there recent vote of confidence by Mr. Kirk Kerkorian of Tracinda Corp has been lost. Mr. Kerkorian liquidated some 7% of his share in Ford common stock taking a near $33 million dollar loss on the deal.
From a product perspective, Ford cars and trucks have gotten much better. Much of us here at Automotive Ace either have owened a Ford or grew up with Fords. Unfortunately however, those that are in the market for a vehicle here, are not looking at any Ford models and that is Ford’s problem.
Besides the recent stock news related with Mr. Kerkorian, Ford also has a potential bomb on their hands, if they do not contest GM’s much talked about acquisition of Chrysler from Cerberus Capital. It is not the immediate market conditions but the future market conditions that could really have an averse affect on Ford in the future from a competitive standpoint here. Only time will tell what happens.
GM And Chrysler
Some more thoughts…
GM will be a huge winner if the this does go down even more so in the future, because Chrysler has been working on a full slate of hybrid vehicles, not just one model or two. They have a full slate of vehicles that are ready to go into production for model year 2010 and that definately buys GM some solid future potential and takes away and questions that they will be able to survive. And as we said before, when auto sales do begin to bounce back and people start coming to dealerships by the hundreds, GM will not only have a hybrid technology to spread across their vehicle lineup but they will also have another asset up for sale… Chysler….again!
We are not huge fans of Chrysler, although an innovative company, but they are not a steady company. They are really seller of automotive trends rather than of automotive vehicles. However, they do have one thing GM needs and that is cash, everything else can be pretty much consolidated and trimmed to meet market specs.
The losers in this are going to be employees, in the form of job losses, but I am sure the foreign auto makers are hiring! They know how to make and sell cars in this country… maybe they can give Detroit a refresher course.
GM And Chrysler
GM buying Chrysler? Stranger things have happened.
However, if a deal does get done, GM is definately the winner. Sure they might have a few more brands on their hands but more importantly they will have more cash and the ability to consolidate a workforce that is already too large for market conditions. And on top of that, they will have bought up one of their competitors - that is sweet!
Not only that, but when the automotive industry does begin to bounce back and auto sales begin to climb, Chrysler will become an asset that is for sale… again! And they will also control a the full-size pickup market in this country - which really is a mute point at this stage in the game considering that they have for all intents and purposes lost their appeal with the buying public.
If I were Ford, I would be looking at ways to either intervene and stop this or make an offer for Chrysler myself, either way its not a good deal for Ford if and when GM does buy Chrysler.
Automotive Ace
We just want to take this moment to let you know that our blogging will become a litte bit more frequent now. We took some time away and to plan and prepare to make some more improvements to our automotive search engine. We may not blog every day but it will be a few times a week now as we truly want to engage our users in useful and effective way to improve your experience on Automotive Ace and to help make navigating the automotive industry a bit easier.
Trading In For A Hybrid?
If you look at if with a long term view, that is good, because you will have to keep your hybrid for probably a minimum of 5 years to recoup the higher sales price. That if your looking at it from a purely monetary perspective.
Now if you are an eco-friendly or “green-minded” than the monetary costs are secondary. There are quite a few hybrids out there that are available to choose from. Toyota defianately comes to mind along with Honda, even GM and Ford are major players here. We think that the “SUVunized” hybrids are probably a better deal because they are more functional than your traditional hybrid currently.
So to those of you who choose to go “green” with your next automotive purchase we applaud you, just be prepared for a bit of an increased price and charting into unknown territory of resale values and maintenance and repair costs.
More Than Just The Lot
If you look at a major OEM automotive dealership lot’s, you would assume that their major source of revenue would be new car sales - and that is mostly true. However, in down turns in the economy like this, especially with the credit crunch, the smart dealerships are looking to more fully develop or even expand their parts and service revenues.
Why? For one thing, automotive service is a huge business. The second thing is that that retail parts and service brings in instant income. When a customer pays the dealership for parts and/or services provided, the dealership does not have to wait for the manufacture to pay on the warranty claim and it is priced at retail level versus a mediocre wholesale price.
So the smart automotive dealership is developing a stagnant part and service department and the even smarter automotive dealership was already doing that and is looking to expand it now during the down cycle.
Make no mistake, parts and service revenue will never equal the kind of revenue that comes from new and used car sales but it can definately complement it and in these down times it can help to propel your dealership in the way of referrals, which in the automotive industry is priceless!!
Sales
Automotive dealerships across the country are definately seeing a slowdown in auto sales, both in new and used sales numbers. We are sure that there are dealerships out there that are slower than other in this regard. This is the type of environment where things can get lethal.
We are in an economic environment right now, where if you can learn how to sell now, when the economy is in a down-cycle — you will do even better as it begins to get stronger. From a business perspective, if your automotive dealership has a strong balance sheet and great sales talent… you can drive your competitors right out of business. Which is your rigtht to do, if you were fiscally responsible when times were good and set your dealerhip up to whether down turns in the economy.
That is what business is all about, being able to deliver the solution that solves the problem for your customer and being able to win out over your competitor.
Its Been Awhile…Again
We have been busy preparing Automotive Ace for big improvements that will be phased in over the next several months. We are also preparing to make some key changes to this blog, Automotive Ace Daily!
These improvements to our search engine will vastly enable Automotive Ace to take your Automotive Search Experience to the next level. We are striving to be the leader in automotive search services as the core industry and related industries are changing quickly. The automotive industry is seeing unprecedented challenges which means that the companies engaged in business in this industry will need to adapt to thrive (or even survive) which means new information… and that means people will need to search to find that information.
We also have plans to make some key changes to our blog. We want our blog to be relevant and useful to our users and so we will be making mostly visible changes to represent where we feel the automotive industry is changing and where it is headed. So check back often and as always feel free to give us feedback!
PickensPlan.com
We highly agree with T. Boone Pickens and his plan at PickensPlan.com We, as a country, need to start moving away from imported oil as our main source of fuel for our vehicles and start looking at the solutions available to us. We believe that ethanol is still the best solution for this country and stand by it. Unfortunately it just is not ready at the volumes that we need currently, so we need to do something about that. PickensPlan.com is a start. We invite all our visitors to check it out!
Its Been Quiet
In the automotive dealerships around America. And yes, the auto makers and dealerships are doing everything they can to get people in their showrooms. Its an absolutely great time to buy a car, truck or SUV because for all intents and purposes - they are all on sale.
You probably could not pick a better time to go out and buy a large SUV or pickup truck. The dealers and the auto makers are giving us every kind of incentive to pick one up despite the gas prices. And lets be real here, if you can afford a full size SUV and/or pickup truck - you are more than likely able to afford the gas bill that comes with that.
Everything is on sale at GM - its employee pricing for everyone! Again! Check out AutoNation.com - its right on their homepage. GM, Ford and Chrysler just need to sell vehicles any way they can - so that they can start to move things in the right direction.
Anyway, that’s all for now, we have not been posting too much recently because we have been busy with improving the search engine!
Ethanol’s Enemies
Is not necessarily hybrids themselves but more of a geo-political thing along with profits.
Except for possibly Russia, China and India, no other country has the geographical mass that America has. In other words most countries do not posses the amount of real estate that we do, thus they do not have the same kind of agricultural power that we do. Now whether we use all of our agricultural power is another thing. And being that in most forms, the raw ingredients needed for making ethanol must be grown -ethanol would not be the first choice due to obvious reasons.
So because we have the potential to grow the raw ingredients needed to manufacture ethanol and be much much more self reliant for our energy needs it is not exactly the most popular thing in our “politically correct” world in which we live. Even though ethanol is by far the superior choice for America as we transition from oil to a new primary source of energy to fuel our vehicles, it is meeting with great resistance because of its absolute pros for our country.
The second enemy of ethanol is profits. Big Oil profits namely. Big Oil has been the main player for a hundred years now - not just the main player but pretty much the dominator. Their reign however is coming to an end and they know it - so they are doing everything in their power to procrastinate the inevitable - the fall of oil. They are doing this by mainly supporting the efforts of and joining the hyrid battery bandwagon.
We still believe that if Big Oil were to take the lead in transitioing America from oil to ethanol - not only would they still remain a huge player in the energy industry but also be a “public hero” and acting as a responsible corporate citizen.
The federal government is slowly beginning to take some stands and establish some standards and regulations with recently passed legislation - but its really going to take a huge player in the energy industry to accelerate ethanol’s pros for our country and the transition.
