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October 28th, 2008
01:49 PM ET

Major speed bump ahead

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/10/28/art.vert.volvo.jpg width=292 height=320]
Tim Lister
CNN Executive Editor

If there was any doubt that somehow the global economy could avoid following US financial institutions into deep crisis, one recent news item may have dispelled it. And it came from Sweden. Volvo disclosed last week that in the third quarter of the year it received a total of 115 orders for its trucks in Europe.

Yes, that's a total of 115 trucks - for all of Europe. The comparable figure for 2007: 41,970 orders.

The American motor industry is hemorrhaging cash and slashing production, but it is clearly not alone. Last week, the Financial Times was able to fill a whole page with gloom from the world’s vehicle makers. Daimler, Fiat and Renault all drastically reduced their profit forecasts for 2009, predicting that even demand in emerging markets like India and Brazil would fall. Renault said it would cut production of cars by 20 per cent in the current quarter and has already idled several plants in France; Peugeot-Citroen planned “massive“ production cuts. Volkswagen fretted that some of its suppliers would go belly-up – unable to secure financing in the midst of the credit crunch. And the elite are not spared: the chief executive of Porsche said there was a “real danger of a conflagration for the whole industry.”

Even Japanese giant Toyota has not been spared from the carnage, despite more fuel-efficient models. Toyota’s sales in the US declined by one-third last month, compared to September 2007. For a company that prides itself on never having made a single worker in North America redundant, the bell may be about to toll. As it is the company is paying 4,000 of its US workers not to make vehicles. The resurgence of the yen will also eat into Japanese car companies’ overseas profits.

But despite all the gnashing of teeth, most of these companies still hope to make profits in 2009, albeit much smaller ones than this year. The US auto industry can only dream of returning to the black. General Motors is burning its dwindling cash reserves at a rate of $1 billion a month and is trying to mortgage or sell its Detroit headquarters. Its financing arm is due to repay $1 billion in debt on January 14th next year – some analysts are not convinced it can though GM insists it will meet its obligations. Bankers say Ford may consider selling a chunk of its stake in Japanese carmaker Mazda to raise cash. One stark consequence of the US companies’ malaise: unemployment in Motown is already at 13 per cent.

If there is a silver lining in this worldwide stall it may be for the makers of fuel-efficient and hybrid cars. Korea’s Hyundai is not immune from the global trend, but still made $180 million in the latest quarter and expects its compact cars to help it weather the crisis. Honda is pressing ahead with introducing its compact Jazz model in Europe. And Toyota is converting a plant it’s building in Mississippi to produce the Prius hybrid hatchback rather than the Highlander SUV. However, even that strategy requires the price of oil not to continue its freefall.


Filed under: Economy • Tim Lister
soundoff (9 Responses)
  1. Mary V., Salt Lake City, UT

    Sadly, the American auto industry lived in denial for many years. Their CEO's and Boards did not have a vision. As long as the "big wigs" got their bonuses and big salaries it did not matter that American cars were losing ground each year to foreign cars!

    We have owned a Ford and a Chevy, which we bought against our better judgement, in order to support the "made in America" companies. Both those cars were absolute LEMONS! Terrible through and through.

    We have been buying foreign since, we do not have the money to pour into car repairs!

    If Toyota can build cars and trucks that get excellent gas mileage and have an excellent record for lasting over 10 years, why can't the Big Three do the same?!

    Pathetic.

    October 28, 2008 at 7:21 pm |
  2. Vegas

    Annie Kate

    Welcome to a Democrat Congress... and it's only going to get worse!

    October 28, 2008 at 6:37 pm |
  3. rotto rutter ralf

    Reagan took me out with Black Monday and I haven't been able to buy a new rig since 1994. It's not like I'm happy being frugal but other should try it. It's not to bad.

    October 28, 2008 at 6:33 pm |
  4. Annie Kate

    What happened to the 700 billion bailout package? Is it ever going to help or was it just throwing more money in a ever deepening hole? If the bailout package hasn't been distributed yet then why is there no more rush to this than seems to be there – they certainly were singing the "time is of the essence" chorus when asking for the money.

    Annie Kate
    Birmingham AL

    October 28, 2008 at 6:00 pm |
  5. shrek

    well no one is buying cars or trucks because consumer confidence is down, the fact that everyone is listening to the doom and gloom being reported 24/7 might have something to do with it. The fact is recessions usually last 150-200 days and we are well into this one. Everyone knows things are bad, do we really need to be told about the 24/7.

    October 28, 2008 at 5:25 pm |
  6. Vegas

    Don't worry though... I'm sure increased taxes on large corps will fix the probme.... LMAO

    October 28, 2008 at 3:58 pm |
  7. Travis

    Hmmm. Let's see. The big three continue to produce vehicles that get only slightly higher gas mileage than a Model T did 100 years ago. They promised their employees "cradle to grave" benefits. They produced inferior products for nearly a generation to asian automakers. I can't for the life of me understand why business is bad.

    October 28, 2008 at 3:51 pm |
  8. Joanne, Syracuse, NY

    Here's the thing!...I have invested for 20 years in financial instruments: 40K, IRAs, Annunities...in the mid-cap sector...now I've lost 30% of my 20 year investment! The question is this: how long before I even.....break even?????

    October 28, 2008 at 2:24 pm |
  9. Cindy

    Well what do these big car companies expect!? They have the prices of these cars and trucks jacked up so high it is ridiculous! It takes no where near what they charge to build these things. If they want to sell more of their products they need to stop gouging every one.

    Cindy...Ga.

    October 28, 2008 at 2:08 pm |