Billionaires turn their backs at Detroit while Chinese women buy new cars with 3 months of breastfeeding. By Bertel Schmitt, CEO Sinamotive Group (HK) Limited.
This is low. So low, this must be the bottom: Turn-around artists are turning their backs on Detroit's auto makers. Billionaire Kirk Kerkorian sells his holdings in Ford Motor Co. , after his nearly one billion dollar investment (made when he thought Ford was way underpriced) lost two thirds of its value. Kerkorian had to put up 50 million shares of his MGM Mirage Casino to secure the credit line he used to buy into Ford. It's panic city when supposedly recession-proof investments in CASINOS are pledged to prop up auto makers. (However, even casinos aren't the sure bet they used to be. )
Stephen Feinberg's Cerberus, urged by JPMorgan Chase & Co. and Citigroup Inc., which hold a lot of the debt from Cerberus's purchase of Chrysler from Germany's (then) DaimlerChrysler AG in August 2007, is desperately trying to unload Chrysler and foist it upon GM. Cerberus is also talking with Nissan Motor Co. and Renault SA about a linkup, but that's just viewed as a side show to lend more urgency to the wedding with GM. The Chrysler/GM nuptials have been talked up in the mainstream press as a gift from heaven, as a "win-win" situation full of "synergy" potential. These words rank big in the Dictionary of Corporate Bullshit - the smart make a runner for the door when these words are used. In a particularly apt analogy, our friends over at liken the Chrysler/GM shotgun wedding to the "Titanic rescuing the Lusitania." (If Google is an indicator , they should trademark the term.)
"Typical investors, and Cerberus is anything but typical, are running from the automotive industry," Warren Feder , partner at Carl Marks Advisory Group LLC in New York, said. "It's hard to see any upside with a degree of comfort, and you need that to make an equity investment."
Next year, China could buy more cars than Americans
JPMorgan Chase & Co, who should have a vested (see above) interest in painting a rosy of the auto industry, just did otherwise. U.S. auto deliveries may fall to an annual rate as low as 10 million vehicles this quarter and as low as 11 million next year, Himanshu Patel, an analyst at JPMorgan Chase & Co. in New York, wrote in a report on October 21, 2008 . A few days before, J.D. Power and Associates still had estimated 13.2 units sold in the U.S. for 2009. Patel's 2009 estimate would be the lowest rate since 1982. The predictions get worse by the day.
Next year, China could buy more cars than Americans
If Patel is right (and, see above, his firm has an intimate knowledge of the auto business,) and if China maintains a - by Chinese standards - rather benign growth rate, come 2009, the Chinese auto market might be the same size or even larger than the U.S. In the beginning of this year, the China Association of Automobile Manufacturers, had already predicted 10 million units for 2008. With growth slowing in China, the Chinese may not quite reach that target this year - or maybe they will. Next year, unless the sky will fall, 11 million cars sold in Chinas are entirely doable.
Babies are starving - not in China.
Bloomberg says that the exit of Kerkorian, Cerberus & Co. "may leave the U.S. auto industry without new funding just as sales head to a 26-year low."
Here comes a really disturbing bit of data: "Most consumers are worried about: 'Will I have enough to put food on the table so my family can eat?' Eduardo Castro-Wright, President and CEO of Wal-Mart's U.S. operations told attendees of a luncheon sponsored by Town Hall Los Angeles. His stores see spikes of sales of baby formula when paychecks come in, "suggesting consumers are rushing to buy such necessities as soon as they have the cash," Reuters reported. "As the economy worsens, Wal-Mart's customers have increasingly shown signs of living paycheck to paycheck. Wal-Mart's sales typically surge around pay periods at the beginning and middle of the month. Castro-Wright said that spike has become more pronounced as consumers' budgets become more stressed."
3 months of breastfeeding buys a new car
Contrast this to China. In the wake of the milk worries, affluent Chinese parents of babies more and more turn to "milk mothers" or "Nai Ma" who breast feed their new-born if the real mother doesn't want or can. Baby formula? No, thank you. Or "bu, xie, xie," as they say. They want the real thing for their one child only. In Beijing, a milk mother from the provinces can make between $300 and $1600 a month, with free room and board. A secretary in Beijing starts at around $300 a month, and must use the money to pay for food and shelter.
Back to topic #1: If a family can barely feed their babies, the likelihood of buying a new car is nil or worse. The Chinese milk mother can buy a new car for cash with three or 5 months earnings (if she opts for a better model.) The International Breastfeeding Committee of WHO/Unicef recommends breastfeeding for six months. Chinese hospitals recommend a year or more. After a year of watching TV and feeding the baby, the milk mother will have two or three cars to take home. Meanwhile, back in the U.S.A., parents need parts to keep their cars running, at least twice a month, for a trip to Wal-Mart.
This is low. So low, this must be the bottom: Turn-around artists are turning their backs on Detroit's auto makers. Billionaire Kirk Kerkorian sells his holdings in Ford Motor Co. , after his nearly one billion dollar investment (made when he thought Ford was way underpriced) lost two thirds of its value. Kerkorian had to put up 50 million shares of his MGM Mirage Casino to secure the credit line he used to buy into Ford. It's panic city when supposedly recession-proof investments in CASINOS are pledged to prop up auto makers. (However, even casinos aren't the sure bet they used to be. )
Stephen Feinberg's Cerberus, urged by JPMorgan Chase & Co. and Citigroup Inc., which hold a lot of the debt from Cerberus's purchase of Chrysler from Germany's (then) DaimlerChrysler AG in August 2007, is desperately trying to unload Chrysler and foist it upon GM. Cerberus is also talking with Nissan Motor Co. and Renault SA about a linkup, but that's just viewed as a side show to lend more urgency to the wedding with GM. The Chrysler/GM nuptials have been talked up in the mainstream press as a gift from heaven, as a "win-win" situation full of "synergy" potential. These words rank big in the Dictionary of Corporate Bullshit - the smart make a runner for the door when these words are used. In a particularly apt analogy, our friends over at liken the Chrysler/GM shotgun wedding to the "Titanic rescuing the Lusitania." (If Google is an indicator , they should trademark the term.)
"Typical investors, and Cerberus is anything but typical, are running from the automotive industry," Warren Feder , partner at Carl Marks Advisory Group LLC in New York, said. "It's hard to see any upside with a degree of comfort, and you need that to make an equity investment."
Next year, China could buy more cars than Americans
JPMorgan Chase & Co, who should have a vested (see above) interest in painting a rosy of the auto industry, just did otherwise. U.S. auto deliveries may fall to an annual rate as low as 10 million vehicles this quarter and as low as 11 million next year, Himanshu Patel, an analyst at JPMorgan Chase & Co. in New York, wrote in a report on October 21, 2008 . A few days before, J.D. Power and Associates still had estimated 13.2 units sold in the U.S. for 2009. Patel's 2009 estimate would be the lowest rate since 1982. The predictions get worse by the day.
Next year, China could buy more cars than Americans
If Patel is right (and, see above, his firm has an intimate knowledge of the auto business,) and if China maintains a - by Chinese standards - rather benign growth rate, come 2009, the Chinese auto market might be the same size or even larger than the U.S. In the beginning of this year, the China Association of Automobile Manufacturers, had already predicted 10 million units for 2008. With growth slowing in China, the Chinese may not quite reach that target this year - or maybe they will. Next year, unless the sky will fall, 11 million cars sold in Chinas are entirely doable.
Babies are starving - not in China.
Bloomberg says that the exit of Kerkorian, Cerberus & Co. "may leave the U.S. auto industry without new funding just as sales head to a 26-year low."
Here comes a really disturbing bit of data: "Most consumers are worried about: 'Will I have enough to put food on the table so my family can eat?' Eduardo Castro-Wright, President and CEO of Wal-Mart's U.S. operations told attendees of a luncheon sponsored by Town Hall Los Angeles. His stores see spikes of sales of baby formula when paychecks come in, "suggesting consumers are rushing to buy such necessities as soon as they have the cash," Reuters reported. "As the economy worsens, Wal-Mart's customers have increasingly shown signs of living paycheck to paycheck. Wal-Mart's sales typically surge around pay periods at the beginning and middle of the month. Castro-Wright said that spike has become more pronounced as consumers' budgets become more stressed."
3 months of breastfeeding buys a new car
Contrast this to China. In the wake of the milk worries, affluent Chinese parents of babies more and more turn to "milk mothers" or "Nai Ma" who breast feed their new-born if the real mother doesn't want or can. Baby formula? No, thank you. Or "bu, xie, xie," as they say. They want the real thing for their one child only. In Beijing, a milk mother from the provinces can make between $300 and $1600 a month, with free room and board. A secretary in Beijing starts at around $300 a month, and must use the money to pay for food and shelter.
Back to topic #1: If a family can barely feed their babies, the likelihood of buying a new car is nil or worse. The Chinese milk mother can buy a new car for cash with three or 5 months earnings (if she opts for a better model.) The International Breastfeeding Committee of WHO/Unicef recommends breastfeeding for six months. Chinese hospitals recommend a year or more. After a year of watching TV and feeding the baby, the milk mother will have two or three cars to take home. Meanwhile, back in the U.S.A., parents need parts to keep their cars running, at least twice a month, for a trip to Wal-Mart.
About the Author:
Author Bertel Schmitt is CEO of Sinamotive, a company sourcing low cost , high quality auto parts from China. The company is backed by U.S. venture capital. Before founding Sinamotive, Mr. Schmitt worked for 30 years as a marketing consultant to Volkswagen AG. Schmitt also is author of a blog about the Chinese auto industry.
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