June 1, 2009

As they say down here in the south, y’all best hang on cause it’s gonna be a bumpy ride! This economy of our isn’t responding like some text book case the administration studied in Harvard or any of the other fine universities that helped shape their thinking. This may be your Great Grandfathers recession.

Since the 1930’s we lost a bunch of car companies and no one seemed to care. DeSoto, Plymouth, Imperial, Oldsmobile (Ransom E. Olds (REO Trucks)) and we will lose Pontiac and Hummer and GM is desperately trying to sell Saturn and SAAB and OPEL (it’s foreign brands). Saturn was originally started from scratch by GM to be the new business model for the future. It was exactly the right thing to do. What happened? The power of the Status Quo in GM eventually crushed it until it just became a Chevy with different trim. We lost entire companies like Tucker, Studebaker, Packard, Willys and American Motors which was formed through the merger of Nash-Kelvinator and Hudson in 1954. Nash pioneered unitary construction (1941), also a heating and ventilation system whose operating principles are now universally utilized (1938), seat belts (1950) and the manufacture of cars in the compact (1950), subcompact (1970) and muscle car (1957) categories.[1]. Why? One mans opinion is that they wanted to do what needs to be done in the automotive world, innovate. The powers of Status Quo crushed them. Tucker had innovation galore. Headlights that swiveled in the direction you were turning, for example. Just now coming on stream in high end imports. The Tucker was introduced in 1949. The demise is attributed to negative publicity put out by the big three (Chrysler, GM and Ford). Studebaker began in 1902 in the auto industry and lasted until 1966. They collapsed because they offered smaller, more economical cars of advanced design. In 1954 the Studebaker line had small V8’s available with an electric overdrive, making them much more fuel efficient than their competitors. They had rear seat heating when no one in the industry was offering such a system. They went away in 1966 just a couple of years before the first oil crisis, which would have made them the hero’s of the auto industry just as the Prius did for Toyota recently. Timing, they say, is everything. Packard was around from 1899 until 1958 when it succumbed after introducing the first Ultramatic transmission with locking torque converter, the forerunner of today’s automatic transmissions. The Hudson which was around from 1909 until 1955 and was retired after being a racing champion for years due to its light weight construction techniques and powerful, reliable motors. Kaiser-Frazer was born in 1945 and reorganized in 1953 as the Kaiser Motors Corp. shortly before it acquired the assets of the Willys-Overland Corporation the makers of Willy’s cars and, pay attention here, Jeep products. So Jeep stated out as a Willys, got bought by Kaiser, got bought by American Motors, got bought by Chrysler who in turn got bought by Daimler Benz who spit them out like bad wine, got bought by a private investors group who went broke and will now be run by Fiat of Italy.

The pattern I’m trying to establish is that (except for the big two GM and Ford) car companies come and go. They have since the invention of cars. Ford is still OK, not needing Government intervention. Let it be the survivor. Let GM survive if it can and die if it can’t. Chrysler now belongs to the Government and the Italians (FIAT). I sincerely wish them all the best of luck. That is going to be one interesting marriage. GM is in negotiations with FIAT to off load OPEL. FIAT wants OPEL because, with Chrysler, they will be large enough to be a world player (6.5 million cars per year).

This country has been the birth place of businesses and product innovation simply because we allowed people to try. Ebay, Skype, Google, Sightspeed, Twitter, Tesla Motors and so many more. Whether they fail or succeed, they had the opportunity to try. There are several that are trying right now. Tesla, www.teslamotors.com has a great all electric sports car. It is developing a sedan. Why aren’t we helping them? Daimler (maker of Mercedes Benz and Smart) has begun to work with them on an electric version of the Smart Car and bought a 10% interest in Tesla Motors. We’re throwing Billions of tax payer dollars at companies with failed business models. Zap is another all electric car company. Why aren’t we helping them? Didn’t these guys and gals in the administration learn anything at Harvard, the school that invented case studies, or any of the other fine institutions of higher learning attended by various members of the administration?

The debt the Obama administration has already piled up has the dollar down to $1.41 to the Euro (5/29/09) a drop of 6% in a month. You can measure inflation any way you choose. But when a dollar buys 6% less oil, gold, or imported car than it did a month ago it is time to get very worried. And the stimulus package crafted by Congress (not the administration) doesn’t seem to be stimulating much of anything. Maybe its because it was full of “re-elect me” pork instead of true stimulus programs.

GM will file bankruptcy and when it does the dominoes of company failures in the auto parts industry will be dramatic and far reaching. It will leave the administration at way less than ground zero after a mere six months in office. Government debt is now massive, having something like doubled since they took over and unemployment is still rising with 631,000 more people filing for unemployment this week. Bringing the total new unemployment claims to over 12,968,000 people. If and how many of them have found new jobs I don’t know. How many started up little businesses of their own or simply filed for Social Security and gave up I can’t tell. The economy is continuing to shrink. No wonder, our economy is 70% consumer driven. When the consumer is out of work or afraid they may soon be, they don’t spend. Even a small decline in 70% of the economy translates to big numbers.

By way of an update, have you noticed gasoline prices? Current wholesale markets, (real or manipulated) are now at $1.93 per gallon. Add between $.80 and $.90 per gallon for transportation, retailer margin and state and local taxes and you can see what the price of regular will be in a week or so. Average price here locally I think is about $2.339. So look for another 25 – 30 cents in the next week or three.

As I said in my opening commentary, y’all best hang on cause it’s gonna be a bumpy ride!