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David Harrington-Wright September 23, 2008 4:00 PM

How long can this go on? Where does the government of whatever country draw the line in supporting failing businesses?

What about the knock on effect on small business - will there be any assistance for them to borrow at the same rates as the big boys - I doubt it - one rule for one, one for another. No one is saying anything about the massive profits that have been made in previous years, just throwing hands up now things are a bit tough.

Admittedly for the American big 3, along with some other global motor players, times are very hard. But Ford, GM and Chrysler have spent far too long relying on Americans to buy huge has guzzlers without a second thought, and they have "relatively" spent little on developing alternative size vehicles. In a few years I think we will only have Japanese and Far eastern owned companies, who have thought about what happens after oil...it will be farewell GM, Ford, Chrysler, and no doubt some European brands as well.

horseandcart September 23, 2008 4:51 PM

DHW 4pm,

you're right but you must realise that outside of dusty academic textbooks there never was or is a 'free market' or perfect competition. What you have is always monopolistic competition and now the final stages of corporatism and cronyism, oligarchism pretty much worldwide; that is the ownership and cornering of all genuine assets into the hands of the very few who can then set their own prices. See electricity and gas for instance.

The Yanks have had it basically. Both the auto makers there and the whole country is insolvent, bust. The Big Three were just weeks back looking for $50bn, double the quoted $25bn. Whatever, be sure that this 'loan' will be rolled over again and again, and will like the cash 'injections' of taxpayer money as loans to Wall Street, never be repaid. Hence the fear of hyperinflation and the collapse of what's left of the dollar's value, due to printing up this fiat, funny money. It's all just a short-term fix to get through the US general election period anyway; but even that won't work.

On the remaining car makers point, I disagree with you. Yes the US Big Three are all basket cases. Chrysler was always the classic shell company, who took in and burnt Daimler badly. It's now owned by sharks, hedge fund types out of New York. A total write off within couple of years I guarantee. Ford is already mortgaged to the hilt with the banks. GM makes biggest ever corporate loss but keeps trading. They must all die. There's next to nothing worth saving there. Yes the European arms have value, Ford of Europe, read Ford Werke AG and Opel, but that's because they're European, er, German really, and there's your answer as to why they make half decent motors, as opposed to the mainly rubbish by their American parents. In fact America has not since the sixties turned out good cars. The so and so high ups in Detroit sold out to the money men and bean counters and the car men, engineers retired or gave up. The loss of American auto manufacture in its present set up would not be missed by the world.

However, as much as you see strength in Japan and Asia I see the continued dominance of Germany above all. This is the real home of auto making and most things mechanical enginneering. VW Group will continue to be a global player. BMW and Daimler will survive too. They have survived one and two world wars respectively already. The best bits of Ford and GM Opel will be subsumed into these German makers once the Yanks go bust finally and there is a liquidation of assets.

The biggest threat to the German auto industry is actually from the lawmakers, particularly the EU in Brussels. Their CO2 laws and similar are skewing the market too fast away from the larger, more powerful German cars. Plus laws like in France charging anything over c.225g/km CO2 a purchase tax of £2,000 or so is killing sales of nearly all German makes. The Germans will nevertheless respond as they always have done.

Lastly, I can see trouble closer to home in UK before anything else. The Tata owned Jag/Land Rover is in serious trouble. Unlike Mini, Bentley and so on in UK, Tata does not have deep pockets as a parent to tide over these two makes and I predict that both could well be asking UK govt. for preferential loans, whatever, within six months. In fact I can foresee bankruptcy and dismissal for most of the c.20,000 workforce in the near term.

W124 September 23, 2008 5:27 PM

One of the big three will have to go - GM are, as you say,  forcing the issue and hope to leverage the consequences of their going under against the cheaper (in terms of the overall cost to the US economy) option of the treasury lending out money at lower rates than the conventional sources.  GM seem to be actively engaging with the problem.  The Volt is a brave move I reckon.  Whether they are or not, they don't look panicked.  Chrysler look unsettled and don't have the experience of energy efficient cars that GM and Ford have with their worldwide operations.  Ford also have yet to show their hand in terms of small, energy efficient product for the internal market - interesting times...  One good (or bad) advertising campaign could settle it!  Get it wrong and it's goodnight Vienna.

horseandcart September 23, 2008 6:51 PM

Jaguar, Land Rover Units Posted $383 Million Loss, Tata Says

By Vipin V. Nair and M.C. Govardhana Rangan

Sept. 23 (Bloomberg) -- Tata Motors Ltd., the Indian automaker that bought Jaguar and Land Rover from Ford Motor Co. said the luxury units had a loss of $383 million between January and June 1.

www.bloomberg.com/.../news

Bloody Hell! I didn't know this when I wrote the above about 'JLR being in serious trouble'(4:51pm). This is VERY serious trouble. That's almost $800 million annualised, and with the strong likelihood that the rate of loss will have accelerated into the second half of 2008.

On a per vehicle output basis this $800bn loss would equate to about $30 billion for a GM-size company. This is huge!

Expect in next few weeks behind the scenes meetings of Rajan Tata with Brown/Darling and Co. hawking the bowl for major bailout funds, from the UK taxpayer of course. The UK govt., whether blue or red colour, will not allow 15,000 job losses plus at least as many again in supply base, in predominant marginal areas, West Mids. especially, to disappear. I'd go further and say that the loss or closure of Jag or LR or even both would be a major psychological blow to whole of UK and the ordinary person, possibly causing a collpase of what remains of consumer confidence and belief in Govt. to get UK out of its depression.

There's high, high stakes to be played here, but rest assured the begging bowl, for billion pounds level bailout, will come to the door of UK taxpayer very shortly and will further decimate the value of the pound for everyone. If I was working at Solihull, Castle Brom., Halewood or even Gaydon and Whitley I would be very afraid.

PS I did predict this would happen to JLR back in early 2007 when Ford first confirmed they wished to dispose.

horseandcart September 23, 2008 7:16 PM

corrrection:

I misread. I scanned it as half year, i.e. till end of June results, not June 1, i.e. only five months. So this is worse still. Almost $1,000 million loss annualised!

horseandcart September 23, 2008 7:29 PM

Interesting, relevant article by the owner of a well-known W.Mids component supplier to Land Rover/Jag on Sky News website:

news.sky.com/.../200809415104972

W124 September 23, 2008 9:51 PM

JLR make very high end cars in a very expensive labour market which they then export to their main markets.  Their competitors do the exact opposite when they can. I wonder at what point (and why) Ford realised they couldn't (or decided they wouldn't) do the same.  It will be interesting to see where Ford/Volvo produce the next XC90.  

horseandcart September 24, 2008 9:14 AM

W124 9:51pm,

would you care to give examples of JLR competitors 'doing the exact opposite'?

The three main luxury class cars in the world are made solely in Germany. Not only Germany, with its above average EU wage levels but the states of Baden-Wuerttemberg and Bayern(Bavaria) with their above average German wage levels and general standard of living. Tha Audi A8 in Neckarsulm, the M-B S Class in Sindelfingen and the 7 series in Dingolfing. Should not these three be bankrupting themselves due to 'expensive labour markets'? Should not all cars be consequently made in Vietnam or the Phillippines. Would you or your family like to move across the world to go where the work is and repeat this possibly every ten maybe five years when the next country undercuts wages further? Have you thought this through?

RobotBoogie September 24, 2008 12:09 PM

It's difficult to disagree with any of this. The US big three and JLR have struggled even in the recent boom years. It's difficult to see a future for any of them as chiller economic winds start to blow, and maybe it is time that the collective towels were thrown in. If they are kept going, it will be for political purposes rather than because the market actually demands their products in sufficient quantities.

As for the fact that the market is being skewed in Europe by legislation too quickly for German and other car manufacturers - well, they have only themselves to blame. The EU first bounced around the voluntary 130 g/sm agreement in the 1990s, and the German motor industry decided to ride roughshod over it because it was run by motor enthusiasts who were in love with 500bhp five metre saloons.

W124 September 24, 2008 1:04 PM

The X5 and the ML are both made in the States.  BMW and Mercedes do well out of bringing them back and selling them in Europe.  Volvo have done very well with the XC90 in the US but hey haven't really made any money because they are produced in Sweden.  Thus they, and JLR, have to charge a great deal of money for the product but they don't reap any of this in profit.  

The point I'm making is that Ford did not try to move ANY of the PAG's production to the US.  I'd just like to know why.  Perhaps because they did not see (as many of us did not) what might happen to the exchange rate.  I'm wondering if uncertainty about this might have been one of the factors that did for whole grand scheme.  I know Mercedes ran into all sorts of trouble with the B-Class for related reasons.  

If Mercedes, BMW, and VAG only made 'luxury class' vehicles for export markets they might well be bankrupting themselves.   As it is BMW are losing share in the US.  I think you are absolutely right about the German manufacturers surviving the downturn though.  They seem to be slightly ahead of the game.  I still think it's a bit early to write off GM and Ford - None of the Germans (in fact nobody) makes anything as radical as the Volt.   All respect to GM, they have come out fighting.

Car manufacturers do balance labour costs with transport costs don't they?  Fiat are building in Serbia now,  VW in Mexico, South Africa and Eastern Europe - such is late period capitalism.

I haven't though it through for sure, that much is certainly true.

horseandcart September 24, 2008 1:04 PM

RobotBoogie 12:09pm,

I would agree except I maintain that the influence of the French in particular in formulating EU-wide emissions/tax legislation to the obvious benefit of Renault and PSA should not be underestimated.

The French auto industry has major problems and will of course welcome the lifeline thrown to them of the artificial boost of such measures as the effective purchase tax, of up to €2,600, on vehicles emitting more than 160g/km of CO2 by the French Govt., in effect since January I believe. But their deep-seated problems remain and they did not have to suffer the productivity-raising shakeout that the whole German car industry went through pretty much since the collapse of the post-reunification boom in the early 90s up until 2005 or so. The French Govt. is by the way thinking of increasing again the levy tax on 'gas-guzzlers' as the net tax take has fallen so much by people buying so many smaller cars than before.

RobotBoogie September 24, 2008 2:30 PM

Maybe, horseandcart, except Governments all over Europe have been cracking down on gas guzzlers lately. There are new rules in Spain and Italy, new ones forthcoming in Germany, and we in the UK have been doing some tinkering to the capital allowances system for company cars that makes anything with over 160 g/km pretty unattractive. The French do seem to have steered things in their domestic market generally in favour of PSA and Renault (quelle surprise) but EU car makers have known that these measures were likely for a decade or longer. Which makes it all the more puzzling that manufacturers like JLR have done absolutely nothing - repeat, nothing - to make their vehicles more economical and improve their emissions.

W124 September 24, 2008 4:46 PM

Jaguar and Land Rover have been fixated on the US market.  Maybe they have been less concerned with emissions for this reason.  International circumstances have really hit them hard but I wouldn't write them off just yet.  I'm sure all of this will have occurred to Tata who will have seen more of the figures than any of us.

horseandcart September 24, 2008 4:53 PM

JLR right on cue:

www.birminghammail.net/.../jobs-axe-fear-at-land-rover-97319-21890431

'Jobs axe fear at Land Rover' Birmingham Post&Mail newspaper

Ed (Keohane), look elsewhere. Yes the US story of the Big Three taxpayer bailout is a fact but this Land Rover story is on your doorstep and has been brewing for months, in fact since before Tata Motors took over, as confirmed above by RobotBoogie('they did nothing, absolutely nothing...').

Land Rover in particular have been guilty of churning out many press releases about 'just around the corner' new, breakthrough, lightweight, smaller models etc. plus a lot of flannel about 600 new engineering posts etc. at time of Tata's takeover. Who were they trying to kid? Themselves it would seem in hindsight. Pride before a fall as they say.

Plus Ed, in today's stories is the related news of Tata Motors making a rights issue of almost $1bn in order to get cash quickly to pay off the bridging loan taken out by them to pay part of the $2.3bn purchase price for JLR to Ford. Reading between the lines I can see a credit crunch at Tata Motors; a bridging loan will be very expensive and what chance of success with a rights issue in the current climate. Plus the much vaunted Nano has got thus far precisely, nowhere. Hopelessly over budget and no fixed date still for start of mass production. This is all very, very bad news for JLR's acute need for funds now. As I say expect JLR/Tata representatives to quickly approach UK Taxpayer with their hands out

Go to it Ed, there's a major story brewing on your own patch, not 3,000 miles away in now United Socialist States of Amerika.

Chips September 25, 2008 12:29 PM

Armchair experts and motor industry analysts - read this :

www.autocar.co.uk/.../235148

horseandcart September 25, 2008 2:58 PM

Chips 12:29pm,

I'm not sure what point you're pointing forward, but if you are using the term 'armchair experts' in a derogatory way, and that Mr Keohane's statement in his piece you that you have linked to:

" Analysts’ recent concern over Jaguar’s US sales figures has proved unfounded."

should put to bed any concerns over the financial state of JLR, then I think both you and Mr Keohane are wrong. The vast bulk of JLR sales is Land Rover.

Mr Keohane in the same piece gives the figures showing the massive decline of LR's sales in NAmerica to date this year against 2007. Plus, as I linked to previously here, the local paper to JLR's two main plants, the Birmingham Mail, has already reported on possible large scale job cuts at the Solihull(LR) plant. The only thing that was holding this fact back until now was the early success of the XF model which temporarily allowed the JLR management to bus workers from Solihull to CBromwich to meet XF line demand and soak up surplus labour at slack-ordered LR Solihull plant.

These are all facts of the matter. The US and UK markets are in a freefall for all cars, but particularly large SUVs/4x4s. It  is only a matter of time before JLR bites the bullet. I fully expect up to 1,000 redundancies at Solihull, out of 5,000 or so current, before Christmas, with more to follow soon in the New Year. If I were a betting man, and not an 'armchair expert' I would lay a wager with you, so confident am I of this happening.