Fiscal Crisis Auto Bailouts

Forgetting recent bailouts and the financial crisis automakers expect unlimited growth


Irrational exuberance returns as automakers having had one good year in 5 expect the coming years to show double digit growth. Meanwhile the US economy shrank last quarter.

A few years back after the house of cards we called the financial crisis fell we all looked around at one another in the circular firing squad and wondered how we could ever be so dumb as to think we would all keep getting richer next year without actually creating anything more than we did last year. We all decided we would name this “irrational exuberance.”

After the stock market halved its value, General Motors went through bankruptcy, and the housing market tanked, we auto buyers kept our heads down. Even those who could afford a new luxury car were not going to buy one. Who wants to look like the show-off stickin’ it to the little guy? We all held off buying cars for a variety of reasons. Then the government gave us all a bunch of our money if we would simply bring in our old beater and trade up to a 15 mpg truck. Of course we had to trade a 14 mpg truck, but that is what we all call progress. Then we all stopped buying cars again for a bit. Old Betsy finally gave up the ghost this year and off we all went again and we bought new cars. 14 million of us did it. More than most years in modern history.

There is just one small problem. Look at any press release from any major manufacturer and it reads something like “We just increased sales a brazillion percent! Everyone must love our cars (just our cars). Therefore, we are building two new factories, hiring a raft of union laborers we will never be able to stop paying, and we are going to pay off the government all those billions they “loaned” us. Oh, wait, except that last part.” That’s right, from GM to BMW, every car maker in the world is forecasting huge sales increase again this year, after having huge sales increases. The fact that everybody they might sell a new car to just bought one is not a problem.
Let’s look at some specific examples.

Mr. Takanobu Ito of Honda at a press conference January 15th said the company will aspire to “grow from 4 million to 6 million vehicles annually between now and 2017.” Honda is coming off a 23.7 percent increase in sales year over year. The prediction therefore is that it took Honda 65 years to get to four million cars, but heck they can get to 6 million in the next three or four. Mr. Ito could be right.

Ian Robertson, Member of the Board of BMW AG, Sales and Marketing BMW said this month "We are confident that we will continue our success in our largest single market in 2013. Here and worldwide, we are expanding our global vehicle portfolio with attractive new models such as the BMW M6 Gran Coupé and the BMW 4 Series Coupé.” Commenting on the general health of the US auto market Mr. Robertson said "In 2013 we expect a growth of approximately 5% in the total (US) market to approximately 15 million units."

Ludwig Willisch, President and CEO, BMW of North America; “The post-recession sales momentum that started in 2010 reached an unprecedented level in December, making us strongly confident and optimistic as we enter 2013.”

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Comments

Thanks John, good points. I always hit the roof when I see future projections and the tail-between-legs apologies at the end of the year when numbers haven't been met. I never read anyone asking, who came up with these unrealistic numbers and what were they based on? I even wrote today if the numbers are based on the pre-2008 champagne parties numbers then I can outright dismiss them but if they were made up looking at today's economic quagmire then it seems a few financials gurus should bared from opening their mouths. The lack of humility some carmakers show after having come this close to extinction is dumbfounding, but if you think about it high-ranking officers got off with bonuses and a slap on the wrist, nothing harsh and certainly no lesson to learn. The older I get, the more excited I am about startups and the few mainstream carmakers who truly think outside the box. Thanks, Nicolas
Reg; "bailouts due to coming overcapacity?" That is a leap, based on what? MFG's are deliberately limiting production to keep supplies at demand levels and the price at, or near full retail. Walk into a dealership and try to deal on a new car...Good luck with that these days.

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