Friday, November 7, 2008

Pass on by.

"Boys and Girls Clubs Halting Service," Bulletin, Nov.7, 2008: Oh, oh. Might explain the swarms of kids I had come into the store yesterday. I'm really uncomfortable with swarms. Pass on by.

Small side story in the business section: "Retail Sales Weak:" "....the weakest October in at least 39 years." You think? IN 39 YEARS! Pass on by.

Graphs showing the housing and labor forecasts: Nice U shape. Of course, only the downside of the U has actually happened, and the upside of the U seems completely guesswork. Just cause they make a graph of a U doesn't mean it will happen. It seems more likely to me that it will look like an L. Even the timeline seems really optimistic. And the idea that we'll escape the worse because of less subprime mortgages. Then again, did they forget we were the most overpriced market in America for a couple of years? Pass on by.

"Big Three Press Legislators for Aid": Where the hell is all the money they made from making big expensive gass-guzzling SUV's for the last 10 years? Can I get a handout too? No? Pass on by.

"Mattel to Cut 1,000 Jobs." Wait. I thought toys were the one thing that would sell this Christmas? Pass on by.

"Tourism Report Gives Bleak Outlook for '09." "During the last five months, Central Oregon's leisure business has dropped 8 to 10 percent..." Pass on by.


RDC said...

"Big Three Press Legislators for Aid": Where the hell is all the money they made from making big expensive gass-guzzling SUV's for the last 10 years?"

Largely into a unsupportable expense structure. For every current employee they support 5-6 ex-employees, must of which were on pay scales higher then any new employees that they bring on board today. Too much manufacturing capacity. Too high of costs when they take capacity out of the system. They need high sales and high margins just to survive and those sales numbers and margins are not likely to return in the near future.

Bankruptcy would be the logical choice. However, the current credit situation would seem to preclude a standard debtor in possession bankruptcy approach that would normally be used to allow them to restructure.

Even if the government dumps in billions I do not think that they will survive long term without that degree of restructuring.

The government would probably be better oof to force a bankruptcy. Use the billions to support the Pension Guarentee Funds, instead of trying to prop up an unsupportable business model. With that said I expect that the money will be supplied, because it is not just the auto companies asking, but the UAW as well, and a restructuring that would make the companies viable would be at the expense of the UAW.

In the end there will not be three surviving. There is a high probability we will be down to one.

RDC said...

The drops in business for retail, tourism, etc. are signs that the borrow and spend paradigm of the recent years is changing in a sudden, forced way. While many people sill have access to credit and have their finances in reasonable shape, the amount of easy money is substantially reduced. They can not continue to support their life style by deficit spending and must dial back their spending to match their incomes.

That is why I do not think that this will be the normal quick drop followed by a quick bounce back to the previous level. The debt level is too high. Too much money is permanently gone from the system. I expect this to be a stairstep down to a new base level and then a normal growth pattern resuming.

blackdog said...

"The government would probably be better oof to force a bankruptcy. Use the billions to support the Pension Guarentee Funds, instead of trying to prop up an unsupportable business model."

For once I find myself in complete agreement with RDC.

blackdog said...

RDC, or anyone who has the answer, how did the Japanese auto companies make it through their prolonged recession? Maybe there are lessons for us there.

RDC said...

If you look at their 1990 timeframe their stock market had run up to 39000 and then crashed to 7500 in 1994. If you look at timing the US was in technical recession starting in late 1990 through the start of 1991. But it was during that time that the Japanese were gaining market share around the world.

"By contrast, the heads of Japan's Big Three -- Shoichiro Toyoda of Toyota, Nobuhiko Kawamoto of Honda and Yutaka Kume of Nissan -- earned a total of $1.8 million, counting bonuses. Moreover, while the Japanese execs are presiding over thriving enterprises, the U.S. auto industry is coming off one of its worst years ever. Sales of American-made cars plunged 12.6%, to 8.7 million, in 1991; more than 40,000 autoworkers lost their jobs, and GM announced plans to eliminate 74,000 jobs by 1995; and the Big Three rolled up financial losses that analysts predict could exceed $6 billion."

This article indicates that the Japanese auto industry was thriving in 1990. Keep in mind that the Japanese business model has always been to make their profits on foreign sales.

So I would expect that their cost structures and focus on market share gains in foreign markets helped them to remain in good shape, even with the collapse of the Japanese real estate market.

Keep in mind that Ford is in the best shape of the three and they have probably the best developed foreign presence. Also note that even in 1991 the US companies were under pressure.

RDC said...

If the Japanese and Europeans can produce high-quality vehicles, many in the United States, and can do so profitably, why are the U.S. companies struggling? In a recent paper, one of us found that the U.S. manufacturers' loss in market share over the past decade can be explained almost entirely by changes in basic vehicle attributes: price, size, power, operating cost and body type. That is, while the U.S. manufacturers have improved their vehicles along these lines, they have not narrowed the gap with the Japanese and European manufacturers. This finding suggests that the American firms face serious problems in product design, engineering and management-labor relations that they simply have not been able to solve.

Detroit cannot look to Washington to mask these problems. In 1984, the federal government could slow the imports of cars from Japan. Today, it cannot slow the imports of Japanese or European cars and trucks from Kentucky, Ohio, Tennessee or Alabama into the rest of the country without a constitutional amendment to repeal the Commerce Clause.

The federal government tried to help by subsidizing development of new fuel-savings technologies, but this project came up empty when the U.S. companies used the money on trying — thus far unsuccessfully — to develop electric cars and fuel cells while the unsubsidized Japanese companies developed hybrid vehicles.

Whatever the government does to reform health care may help the U.S. companies, but it will also benefit the Japanese companies who now use American labor to produce most of the vehicles they sell here.

Anonymous said...

RDC Nazi's are about to get sent to prison.

For Immediate Release: November 6, 2008

New study reveals more violations of the law by CDFA

Environmental groups, citizen advocates react to results of environmental monitoring during aerial spraying for Light Brown Apple Moth (LBAM)

Santa Cruz, CA. (November 6, 2008) Just a few days before the one-year anniversary of the aerial spraying for Light Brown Apple Moth (LBAM) in Santa Cruz, the California Department of Food and Agriculture (CDFA) released a report by the Department for Pesticide Regulations (DPR) about the results of environmental monitoring during pesticide applications in Monterey and Santa Cruz counties.

While CDFA claims that this study proves the safety of the chemicals used, environmental groups and citizen advocates say that statement is misleading and point out fundamental shortcomings of the report. Rather, they argue, the report reveals another breach of the law by CDFA as it states that considerable drift occurred during aerial spraying in 2007. The study also confirms observations made by affected residents of inconsistencies in the dosage of the pesticides, creating whole clusters of illness. Detailed reactions follow.

1. The study is inadequate in determining toxicity of the chemicals sprayed, as it takes into account only the active ingredient of the pesticides, a synthetic pheromone. The so-called inert ingredients are not being examined, although those ingredients are of great concern. Some inert ingredients have established carcinogenic, mutagenic, and reproductive toxicities, others are toxic to aquatic species.

Says Santa Cruz resident Paulina Borsook “This report persists CDFA’s disingenuous practice of looking at the most benign components of the spray only and then calling the whole product ‘safe’. The agency’s behavior is completely irresponsible. CDFA continues to put families, pets, wildlife and fragile ecosystems at risk, and insults those that already have been hurt.”

Quote: “The Check Mate products also contain several inert ingredients, but these were not monitored.” (p. 2)

2. While deficient in determining toxicity of the spray, the new study conducted by DPR, reveals evidence of further abuses of the law by CDFA. The report states that pesticide drift was measured as far as 3.3 miles outside of the spray zone. This is a clear violation of section 12972 in the California Agriculture Code: “The use of any pesticide by any person shall be in such a manner as to prevent substantial drift to nontarget areas.”

Quote: “Drift of the product was detected at considerable distance from the application boundary, 3.97 ug/ft2 (1.15 percent of the target application rate) at 17,400 feet in one instance.” ( p. 12)

Says Soquel resident Isabelle Jenniches “I live outside the spray zone, but we could feel and smell the spray. My husband and I had red eyes, dry mouths, and accelerated heart rates for days. My neighbor suffered a terrible asthma attack, the first in years. It is a well-known fact that airborne pesticides can drift for miles. This dangerous practice has to stop for good!”

During aerial spray operations last year, the pilots were to leave buffer zones around waterways and along the ocean. The now confirmed pesticide drift rendered these buffer zones meaningless. Storm run-off made things worse: after the spraying a thick yellow foam was observed in the water. Surfers reported the worst red tide in 40 years, which may have been fueled by phosphates and surfactants in the spray.

Says Frank Egger, president of the North Coast River Alliance “When I saw the photographs of thick yellow foam in the ocean after spraying, I knew that our waters had been contaminated. We now have proof of this. This is an outrageous violation of both state and federal laws and further puts endangered species such as steelhead trout and Coho salmon in jeopardy.”

3. The study also finds that pesticide capsules were not evenly distributed within the carrier substance (water), leading to inconsistent deposition rates of the spray. This may explain why some entire families became very ill when neighbors across the street did not. One property received a much larger exposure to chemicals than the other.

Quote: “The tank sample results showed a large amount of variability between samples for the same treatment and even within analysis of a single sample. […]The cause of the variability could be due to several factors. It was noticed that the microcapsules tend to separate out of the mixture quickly and require constant mixing.” (pp. 9 & 10)

The deposition study by the Department of Pesticide Regulations can be found at the CDFA website

Anonymous said...

If the Japanese and Europeans can produce high-quality vehicles, many in the United States, and can do so profitably, why are the U.S. companies struggling?


I'll answer having followed this 30+ years. Here is the reason.

GM, Ford, ... all got into finance over twenty years ago.

They only made 8% or less ROI on producing Auto's. So GM created GM-Acceptance, and Ford created their own loan company. For years these finance company's made 15%/yr on their ROI. Auto's became a shell, the real money, the real clout was credit-cards, and other short-term corporate/private financing at high interest rates.

For 20+ years nobody invested in auto, why? what is the point on 8% ROI. Big Auto has been about finance for over twenty years.

Flint Michigan was dying over ten years ago.

Now today 'bailouts' are in the air, everybody wants them, including dunc ( pass me by :< ).

Now with Obama elected, GM/FORD will lobby for $60M, with another $40B coming ( $100B package ), courtesy of PELOSI and OBAMA-fastrack. Why is GM/FORD broke?? Because they're a bank, and like all the banks in recent years they had too much exposed risk.

Nobody that I know buys US cars, does anyone here? Let's all just admit what BIG-AUTO already knows, that the US auto is already here, and its Honda, Toyota, Hyundai. Ok, I admit I buy big US trucks, but those are tools, not consumer items.

Toss in the retirement debt that big auto can't possibly meet, remember that those billions of pension obligation were used to play the finance game back in the 1980's, and all that money has been lost, another reason why BIG-AUTO wants $100B from Pelosi/Obama. Today PENSION cash is just IOU's, IOU's with no back, because the real cash was raided years ago.

"Nobody knew, nobody saw it coming", .. ad-nauseum. Everybody saw it coming, everybody knew that post 2006 the baby-boom was over, and that kids would no longer be buying autos every few years. It's over, smart people would let it die, but politicians know that the pension obligations MUST be paid, so we bail out the BIG-AUTO-BANKS.

blackdog said...

"This finding suggests that the American firms face serious problems in product design, engineering and management-labor relations that they simply have not been able to solve."

Despite having had about 40 years to solve them. I dunno, maybe the best thing is to let US automakers go bankrupt and let the Japanese and Germans buy them at bargain-basement prices.

Bend Economy Man said...

As to how Honda, Toyota, Nissan etc. have been able to make cars profitably in the US: (1) they didn't double-down on SUVs and were well-positioned when gas got more expensive, (2) their plants are set up to be able to produce cars and trucks on different platforms in the same plant, while the Big Three's plants aren't flexible (one plant produces one platform and has to be totally redone from the bottom up to make anything else), (3) the Japanese automakers don't have legacy defined-benefit pension commitments and they set up shop in the South, where unions never took hold and worker bargaining power is weak.

RDC said...

Actually keep in mind that Toyota, Nissan and other foreign manufacturers have also been producing large numbers of SUV's and trucks out of their US facilities.

The biggest difference is that the big three that are failing are unionized. Their suppliers are unionized. They have the legagy costs and the contracts severly limit their flexibility.

The foreign manufacturers that have profitable US operations are not unionized

Draw your own conclusions.

As far as the financial arms they have enabled the auto companies to survive as long as they have. Those divisions have supplied the income that has allowed them to survive this long. Now that those departments have been taken out you get to see just how bad of shape the car companies are in.