Check Your Mirrors

Odds and Ends about Cars and the Car Business

By Brendan Moore

06.27.2008

HOME buyers and apartment renters say that they would like to live closer to work in increasing numbers. The number of people considering a move to a city has also jumped way up. The reason, of course, is $4 a gallon gasoline. In just one example of many, a recent survey of 900 Coldwell Banker agents showed that 96% of those agents said that rising gas prices were (surprisingly) a concern to their clients, and a just as surprising 78% of those clients said higher fuel costs are increasing their desire for city living. Here at Autosavant, we have also noted the same sentiment from consumers about moving. When we’ve asked them about what car they’ll buy next in the face of $4 and up gasoline, many of them tell us the sort of vehicle they have in mind and then throw in, “and I’m thinking about moving a lot closer to work, too”. Most consumers now seem to believe that gasoline will never be cheap again, and most of that group believes that the price of gasoline will rise further in the years to come. They are making their decisons about transportation and residence location accordingly.

$7 a gallon gasoline will be a reality in the U.S. in 2010, according to a new forecast out this week from Jeff Rubin at Canadian brokerage CIBC World Markets. But Mr. Rubin did not confine his remarks to just that forecast. He also said: “Over the next four years, we are likely to witness the greatest mass exodus of vehicles off America’s highways in history. By 2012, there should be some 10 million fewer vehicles on American roadways than there are today—a decline that dwarfs all previous adjustments including those during the two OPEC oil shocks.” Mr. Rubin says that gasoline at $7 a gallon begins to approach what Europeans pay for gasoline, and when that happens, a lot of Americans will start acting like Europeans, that is parking their cars. Mr. Rubin estimates that 57 million households in America that have access to some level of mass transit will start using that mass transit as much as possible, particularly if they are lower-income. He goes on to say, “Our analysis suggests that about half of the number of cars coming off the road in the next four years will be from low income households who have access to public transit. At their current driving habits, filling up the tank will have risen from about 7% of their income to 20%, an increase that will see many start taking the bus.” And what about the lower-income people that don’t have access to mass transit? Mr. Rubin doesn’t spend a lot of time on them, but our take-away is that they are going to be in a very, very bad way if this forecast proves out.



VW said it has started selling its Lavida sedan in China. The Lavida, based on the automaker’s fourth-generation Golf model, and set to replace the aging Santana model, is the first model entirely designed and developed by its Chinese joint venture, Shanghai VW. The launch of the Lavida sedan was announced to much fanfare at the Beijing auto show in April. VW expects sales in China to go over 1 million vehicles this year.

CHRYSLER fought off rumors of impending bankruptcy by releasing a statement saying stories that the company was close to insolvency were “without merit”. Chrysler lost $1.6 billion in 2007 but has previously stated that it closed out the year with $9 billion in cash. Its U.S. sales in 2008 are getting killed, falling 23 percent so far this year. Chrysler activated a $2 billion credit line from Cerberus and Daimler AG earlier in the week. Under the terms of their sale from Daimler AG to Cerberus, Chrysler had until August to draw on the blended credit line, which included a lion’s share $1.5 billion contribution from Daimler. The credit line requires Chrysler pay interest fixed at 7 percentage points above the London interbank rate, Daimler noted.

GM is getting knocked around pretty good in the markets this week with their share price dropping to lows not seen since the mid-70’s. Goldman Sachs issued a report on GM, saying, “”We expect GM shares to continue to under perform as market fundamentals deteriorate which exacerbates liquidity concerns. We think GM’s automotive cash flow burn this year and next is likely to lead it to look to raise capital, which we believe could lead to significant shareholder dilution and/or a cut to the company’s dividend.” GM was on the road back to recovery until the recent gas crunch, and they must be wondering just what kind of bad magic has hit them. The Hummer brand is a definite goner and GMC may be next at this rate. GM will start to realize massive savings from their reduced labor and healthcare costs in 2010, but the question now is whether they can make it until then. Regarding same, David Cole, chairman of the Center for Automotive Research was quoted as stating, “The big question is whether they have enough cash to make it from here to there. It is going to be tough, and it depends on the economy. Once they start to realize their labor savings, we may see profits increase like we have never seen from GM.”


HONDA had planned on selling 30,000 2009 Fits in the U.S. That turned out to be far short of what consumers were demanding. So they upped production to 60,000 units. That wasn’t enough, either, so now Honda has increased production of the Fit to 80,000 and says that will have to be enough because there is no more production available after that number. Worldwide capacity of the Fit (Jazz and City in Europe) is 500,000 units. Every Fit sold in the U.S. is made in Japan. The 2008 Fit costs $14,620 USD base price and gets 34 mpg on the highway and 28 mpg in the city. There is currently an average three-month waiting list for a Fit at most metro area Honda dealerships.

COPYRIGHT Autosavant.net – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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6 Comments

  1. Sounds like now is the time to buy real estate in the city.

  2. I thnk Honda could sell 500,000 fits in the US alone. It’s just a question of supply, because there is obviously plenty of demand. And the demand will keep going up in tandem with the price of gas.

  3. hbeziir, I’ll pay for the gasoline gladly if the other choice is to live in a city. Ugh.

  4. That Chinese VW is kinda fugly. Maybe they should let the Germans design the next one.

  5. The Honda Fit they sell in Europe (ehich is called the Jazz) is actually made in China.

  6. Chrysler shut down their biggest minivan plant today “indefinitely”.

    That doesn’t exactly shout solvency.

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