The Economic Downturn: A Look on the Bright Side

In a recent article published on CNN, a possible silver lining has emerged from our national economic crisis.  With citizens losing money and faith in their economy, they have become much more frugal with their money.  Customers are less willing to pay large amounts of money for a new car, opting instead to keep their old ones.  This means that the large automakers have had major drops in sales that they are trying to remedy with new models.  And because most people have stopped going to the dealer to keep their cars running longer, automotive repair shops have seen their business increase since the downturn.

According to the Automotive Service Association, "their members' sales were up 16 percent over the last year" (CNN, "US Car Repair Shops Getting Milage out of Thriftier Times").  This means that more people are looking to mechanics and auto-parts stores for their repairs, rather than relying on the dealership.

Prices at the dealer are often higher than most outside sources, because they charge for conveniences, for reliability and for a guarantee of their service.  However, other mechanics are able to offer many of those same perks, at a much lower price.  Also, the parts are typically purchased for a lower price, resulting in a lesser cost overall for the customer.

Just as people like to bargain shop for groceries and other necessities, they are bargain shopping for their auto repairs.  This may not be the desired outcome for the automakers or dealers, but the small businesses that have seen their business grow are loving the shift in trend.  Most people are worried about the security of small businesses in a downturn, but as this instance shows, businesses in the right industry can prosper.

Suppliers Getting Help

Yesterday, I discussed the potential problems that would arise if the government failed to assist the auto-parts suppliers.  Well, today on Bloomberg, I found a newly published article that says the government has promised nearly $5 billion in support for the auto-parts suppliers, as well as GM, Chrysler and Ford.

This drastically needed step will ensure that the smaller suppliers will be paid for their services, even if their customers suffer losses.  Without this assistance, "as many as one third of the more than 4,000 US auto suppliers face 'imminent financial distress'" (Bloomberg, "Auto Suppliers Getting $5 Billion in US Assistance").  Luckily the government has stepped in to protect these smaller companies.  

So far, GM and Chrysler have also accepted the terms of this new package, while Ford Motor Co. has not yet commented on whether it will participate.  However, despite the help this will provide for the industry, many jobs will still be lost and many companies may still fail.

I believe that this will prevent the chain reaction of failures that I expected prior to the government's announcement, but the auto industry will most likely be thinned out and still lose many of the smaller upstarts.  We won't be able to completely erase the damage, but we can try to lessen the impact.

Automakers Not the Only Ones At Risk

With all of the focus on General Motors, Ford and Chrysler, we have failed to see another sector of the automotive industry that is at risk of failing as well.  We have failed to see how the economic crisis is effecting the auto-parts suppliers and makers.

In an article from Business Week published last week, a top consultancy firm used by President Obama, Grant Thornton International, has concluded that nearly 500 auto-parts firms are at risk of bankruptcy and failure.  Though they have declined to reveal which firms are most at risk, the recommendation given by Grant Thornton is to also provide stimulus money for these firms.  The fear is that if we let these companies fail, it will start a chain of events that can potentially ruin the major automakers as well.

The fact that we are only now realizing this potential catastrophe shocks me.  It simply shows that we don't know as much about this economic downturn as we previously believed.  If a business fails, whether in the automotive industry or not, there will no doubt be a chain reaction that causes others to fail.  If we have failed to account for this possibility in the previous stimulus plans, we may be stuck in this crisis for quite some time.

A "Better Place" in the Near Future?

Imagine standing on street corner in New York City.  Cars whiz by, only you can't hear them.  Why?  The cars whizzing by you are electric.  This may become reality if Shai Agassi has his way.  

Recently, CBS Sunday Morning  ran an article about Shai Agassi and his company, Better Place.  The company has three main goals that they have set out to accomplish:

1.  Get car companies to make cars that can use swappable electric batteries

2.  Convince governments to place charging stations throughout the country

3.  Build swapping stations for longer drives (basically an electric "gas-station")

These goals are extremely ambitious, but Agassi has managed to find investors willing to support his company and 25 countries willing to make the change.  Nearly $300 million has been invested in his company and Nissan and Renault are among the first car companies willing to produce the swappable electric cars.  

So far, this idea has come under major scrutiny.  The infrastructure overhaul that would be needed, is too much for many countries to handle.  For example, in the United States, there are millions of gasoline powered vehicles on the road.  It is going to take a very long time to switch and transition to the new electric cars.  Agassi's plans would also require most parking lots to add charging stations.  With the economy in its weakened state and government spending under scrutiny, attempting to invest large amounts into a new infrastructure may appear frivolous. 

One must be very optimistic in order to make such a plan succeed.  It seems as if all the forces of the world are going against this plan.  The oil companies are reluctant, the car companies are reluctant, and worst of all, the citizens will be reluctant.  There are some select supporters, but if Agassi plans to succeed, I believe he will need to spend more money educating the world.  "About nine out of ten people say it's crazy!" says Agassi.  When we finally realize the necessity of these actions, we may finally support this ambitious entrepreneur. 

By 2011, Israel, Denmark and Hawaii plan to have charging stations ready to try out with Nissan's prototype cars.  Only time will tell if this plan will be successful, but it is obviously a much needed step in the right direction.

The Muscle Car Revival

Since 1972, there has not been a true "muscle-car" available from the US automakers.  When the oil embargo hit the United States, gas prices went up, and the muscle-car era of the 60s and early 70s died.  However, car companies today are struggling to find something to rejuvenate their markets.  So, despite high gas prices, the weak economy and new emissions standards, the nameplates of the classic muscle-car era are making a return.

The Ford Mustang never left the market, but with its recent styling update, has found new popularity once again.  GM also hopped on board with its revival of the GTO a few years ago.  Unfortunately, this was not a successful venture and the vehicle was put on hold.   Not to be outdone however, GM quickly began work on their famed Camaro.  Expected to hit markets by the end of this year, the car takes styling cues from the 60s, but includes the modern comforts to which we have become accustomed.

The Dodge Challenger has also returned to the market with styling derived from the original car of the 60s as well.

I find it quite odd that our automakers are attempting to revive the muscle-car era at a time when things are so unstable and uncertain.  Perhaps this move will prove to be useful, and may eventually pull these companies out of the debt and possible bankruptcy they face.  However, as much as I admit these cars are amazingly beautiful and fun to drive, I believe it is irresponsible for these companies to be focusing on sports cars.  

These cars will have much better gas milage (the basic Camaro is expected to get 29 mpg highway) than they did in the 60s, but are still no where near what many European vehicles have been able to accomplish for years (BMW has produced a diesel engine capable of 40+ mpg).  If the Big Three want to impress me, they will need to mature as companies and realize that in today's economic climate, we need fuel economy and efficiency.  Times have changed, and while there will always be a demand for fun, fast cars, the primary focus must be sustainability.

To learn more about the muscle-car era and today's revival, CLICK HERE.

BMW Leading the Way towards the Electric Car

As the world economy suffers and our national automakers stumble, foreign companies like BMW are looking to take advantage.  For years, the electric/hybrid car has been a goal of many automakers.  In the movie, "Who Killed the Electric Car?" we see that GM had developed an electric car a few years ago, that they eventually pulled from market.  Since that time, the focus shifted from electric vehicles to hybrid vehicles.  This means the car would be able to run on both gasoline and electricity.  

Gas prices are unstable, as is the US economy.  World markets have also felt the pinch, but many were regulated better than our stock market.  As a result, BMW has chosen to take the lead in electric vehicles.  BMW has already perfected its diesel engine, making it extremely efficient, and has also developed an engine that runs on Hydrogen and emits only water (they have tested this engine in the 7-series).  And, according to an article from Business Week, they are trying a test run of 500 Mini Coopers that are made to be purely electric.

Available in New York and Los Angeles, the cars have been in high demand.  In fact, BMW states they have had no problem finding people to lease the vehicles at $850 a month.  For comparison, this amount is higher than it would cost to lease a gasoline-powered BMW 5-series.  

Many fear that the technology is not going to be cheap enough to put into mass produced vehicles.  However, these steps show that the recent problems with the world economy have caused a possible shift in business-as-usual.  For years, the oil companies had control over automakers, but it appears as if they are finally ready to break free.

General Motors: Do they Deserve Help?

In a recent article from Bloomberg.com, published on March 8th, there was a discussion as to whether or not General Motors deserved any more bailout money.  For those that don't know, last year GM asked for $10 to $12 billion from Congress.  Congress decided to give that money to GM, and yet GM is still asking for more.  But not just more, $16 billion more.  

Many Republicans are now beginning to believe that perhaps Chapter 11 bankruptcy would be the best idea for General Motors.  By filing for bankruptcy, they believe GM would be able to reorganize their company and reduce debts.  In fact, Arizona Senator John McCain believes that bankruptcy would allow General Motors to emerge, "stronger, better, leaner".

Perhaps I don't know enough about the economy, but I don't see this as a positive step.  Even though GM has been fighting bankruptcy speculation since 2004, I believe this would be a major step back for our economy.  Nearly 47,000 jobs have been cut by GM this year alone, as a result of their major losses.

If GM files for bankruptcy, the country's confidence in our automakers will plummet.  The stock market will take a major hit, and our economy will tank yet again.  Just as the government is working to keep AIG afloat, they must attempt to keep General Motors afloat.  If we can't keep the people confident in our industries, we will have a very difficult time overcoming this recession.  

To view the article, CLICK HERE