Posts filed under 'Economy'
November 13th, 2008
While the debate goes on about whether the government should bail out GM, I’ll weigh in with my opinion.
Yes, the industry has made many mistakes and I blame management for the majority of them. Many jobs are at stake when you add in all the suppliers and service organizations.
GM has expanded into key growth markets like China and Russia and also committed major blunders, including a costly alliance with Italy’s Fiat SpA, heavy use of margin-eating sales incentives, a push by its finance arm into subprime mortgages and a turnaround plan that was based on steady truck sales and left the company vulnerable when gas prices soared.In the meantime, the foreign companies are building new plants in the U.S. and taking market share from the “Big Three”
Maybe GM, Ford and Chrysler should sell off all their foreign owned companies and ventures and focus strictly on the North American market. If you can’t be successful in your home market, why play in somebody else’s yard?
Fix the U.S. market and forget the rest until you’re healthy.
Sometimes “bigger, more” isn’t the answer.
November 13th, 2008
Just saw this on OEM News, an e-mail newsletter….further supports my earlier blogs about GM, Ford and Chrysler!
Toyota Begins Venza Production in Kentucky
$350 Million Investment Leads to New Vehicle Production at Georgetown Plant
11/10/2008
November 10, 2008 - Georgetown, KY - Team members from Toyota Motor Manufacturing, Kentucky, Inc. (TMMK) along with company officials and community leaders celebrated the official launch of the Venza, Toyota’s new, versatile five-passenger vehicle.
Venza couples the styling and comfort of a passenger car with the flexibility of a sport utility vehicle (SUV), to give customers a stylish alternative to the traditional sedan.
“It’s always exciting to launch a new product,” stated Steve St. Angelo, President of TMMK and senior vice-president of Toyota Motor Engineering & Manufacturing, North America (TEMA). “For Toyota to select TMMK as the production site is a real tribute to our team members and the experience of working side-by-side with our design and engineering groups has been very valuable.”
All aspects of Venza’s engineering and design were targeted specifically for the North American market, where it will be sold exclusively. Venza was primarily engineered at Toyota Technical Center in Ann Arbor, Mich., and designed at Toyota’s Calty Design studios in Newport Beach, Calif. and Ann Arbor. Venza will be exclusively assembled at TMMK.
TMMK has the capacity to build about 70,000 Venzas annually. The plant’s manufacturing flexibility allows the Venza to be built on the same assembly line with the Camry, Camry Hybrid and Solara convertible. More than 30 Kentucky-based suppliers will supply parts for the Venza including seats and glass components. Venza’s overall domestic content is approximately 70 percent.
TMMK is Toyota’s largest plant in North America employing about 7,000 team members with the annual capacity to produce 500,000 engines and vehicles.
Toyota (NYSE:TM) established operations in North America in 1957 and currently operates 13 manufacturing plants. In addition, new plants are under construction in Ontario, Canada and Mississippi. There are more than 1,700 Toyota, Lexus and Scion dealerships in North America which sold more than 2.9 million vehicles in 2007. Toyota directly employs over 43,000 in North America and its investment here is currently valued at more than $21 billion, including sales and manufacturing operations, research and development, financial services and design. Toyota’s annual purchasing of parts, materials, goods and services from North American suppliers totals more than $30 billion per year.
Toyota currently produces 11 vehicles in North America, including the Avalon, Camry, Corolla, Matrix, Sienna, Solara, Sequoia, Tacoma, Tundra, Venza and the Lexus RX 350. When production begins in Ontario and Mississippi, Toyota will have 15 manufacturing plants with the annual capacity to build approximately 2.2 million cars and trucks, 1.49 million engines and 425,000 automatic transmissions. For more information about Toyota, visit www.toyota.com.
November 12th, 2008
China’s government on Wednesday announced a slew of measures, including approval of infrastructure projects and a further rise in export rebates, in a wide-ranging attempt to stimulate the economy and stave off the effects of the global financial crisis.
The State Council, or cabinet, approved projects with a combined investment of more than 200 billion yuan (29 billion U.S. dollars), designed to help boost domestic demand and offset slowing exports.
At executive meeting presided over by Premier Wen Jiabao, State Councilors agreed to raise export rebates on more than 3,700 items — Â mainly labor-intensive, mechanical and electrical products and other items vulnerable to weakening overseas demand – from next month, the third such move in the second half.
The infrastructure projects included a gas pipeline from the northwestern Ningxia Hui Autonomous Region to the southern economic hubs of Guangzhou and Hong Kong, at an investment of 93 billion yuan.
State Councilors also approved the building of the Guangdong Yangjiang nuclear power plant and the expansion of the Zhejiang Qinshan nuclear power plant at a combined cost of 95.5 billion yuan.
Another 17.4 billion yuan would go to water conservancy projects in regions of Xinjiang, Guizhou and Jiangxi and civil airports in north China’s Inner Mongolia Autonomous Region and east China’s Anhui Province.
The 300-billion-yuan reconstruction central government fund dedicated to 51 hard-hit areas in Sichuan, Gansu and Shaanxi provinces would provide the main financing for the May 12 quake zone.
The forestry industry, ravaged by the severe winter weather at the start of the year and the earthquake, would receive support for restoration by 2010. “Proper subsidies” would be given to forestry workers to help rebuild their damaged homes.
Councilors called for “protective prices” on the purchase of damaged bamboo and lumber and urged financial institutions to give favorable support or write off bad loans due to disasters in the sector.
The measures followed a massive stimulus package worth 4 trillion yuan (570 billion U.S. dollars) unveiled on Sunday.
China’s economy slowed sharply in the third quarter because of slowing  exports and investment growth. Gross domestic product was up 9 percent from the same period last year, compared with 10.1 percent in the second quarter and 10.6 percent in the first quarter.
The package would finance programs over the next two years in 10 major areas, including affordable housing, rural infrastructure, water, electricity, transport, the environment, technological innovation and rebuilding after disasters, most notably the May 12 earthquake.
China will start work on new airport infrastructure worth 250 billion yuan (36.6 billion US dollars) in 2010, the nation’s top aviation official said on Wednesday.
Total investment in airports under construction this year is expected to reach 100 billion after the launch of additional new projects and will double next year, Li Jiaxiang, head of the Civil Aviation Administration of China, told Xinhua.
The agency will increase investment on projects mainly in the southwest this year, Li said, without providing any figures.
The spending is part of the 4 trillion yuan stimulus package unveiled by the State Council, or cabinet, on Sunday to spur economic growth.
The agency planned to kickstart construction of airport infrastructure in large cities including Chengdu, Xi’an and Guangzhou and more than 40 other mid-sized cities in 2009.
It also planned to build new airport facilities in Shanghai, Wuhan and Nanjing and more than 20 other mid-sized cities in 2010.
China had 152 civilian airports as of the end of 2007. The number will reach 190 in 2010 and 244 in 2020, under a government plan released early this year.
Source: China Daily
November 11th, 2008
Now here is a way to spend the stimulus money AND create JOBS. Just think if Illinois could take advantage of the federal money already approved and put it to better use!! Blago needs to approve a Capital Plan and not lose the Federal match!!
Here’s what China is doing…source: WSJ, Nov. 11, 2008:
“As more of the world falls into financial turmoil, China is hoping that an infrastructure spending spree can help sustain its long record of expansion and rising prosperity.
Much of the $586 billion stimulus package China unveiled this week will go toward building highways, railroads and airports. Already, according to official estimates, infrastructure spending had been increasing by an average of 20% annually for the past 30 years — a tried and true engine that has helped power the Chinese economy’s explosive growth.”
November 11th, 2008
Here’s one industry that shows strength as it does in the U.S. Source: Guardian, U.K.
The UK’s aerospace and defence industry turned in a strong performance last year and has the resilience to weather the global financial crisis, claims a report out today.
Orders rose 65% to a record £43.8bn in 2007, though sales were only 1% higher at £19.8bn, the Society of British Aerospace Companies (SBAC) said. Growth had been held back by exchange-rate fluctuations between sterling, in which UK companies report figures, and the dollar.
The SBAC’s annual survey also showed research and development spending had risen sharply, climbing from £2.5bn in 2006 to £2.9bn last year when the aerospace and defence industry contributed £628m to the UK balance of payments. The society’s chief executive, Ian Godden, said: “At a time of gathering clouds in other major business sectors, the industry continues to deliver for Britain.”
Godden warned that, despite its strengths, the UK industry was “at a crossroads” and would not escape the financial crisis unscathed, but added, “providing liquidity is maintained in the sector, it should play a major role in the recovery of the UK economy”.
The SBAC said competition was becoming more global and fiercer, while recruiting, retaining and developing skilled workers was becoming more difficult. “If the UK industry is to maintain its position of strength, it is essential industry and government work together to address the challenges we face, especially in terms of investment in the future,” Godden said.
November 10th, 2008
I must admit that I’m not sure what I would recommend what to do to fix the auto industry. The following article is similar to others that I’ve seen written by people who study this industry for a living. Yes, the industry has made many mistakes and I blame management for the majority of them. Yet, many jobs are at stake when you add in all the suppliers and service organizations.
Maybe GM, Ford and Chrysler should sell off all their foreign owned companies and ventures and focus strictly on the North American market. Sometimes “bigger, more” isn’t the answer.
Anyway, here’s one story from the Associated Press:
At Ford Motor Co. they called it “Blue,” a team set up around the year 2000 to design an array of small, fuel-efficient cars to compete with the Japanese. It didn’t get far because no one could figure out how to make money on low-priced compacts with Ford’s high labor costs.
Besides, the automaker was racking up billions in profits by selling pickups and sport utility vehicles. Times were good and gas was cheap.
Critics say leaders over the years at Ford Motor Co., General Motors Corp. and what is now Chrysler LLC were slow to take on unions, failed to invest enough in new products, ceded the car market to the Japanese and were ill-prepared for the inevitable rise in gas prices that would make their trucks and SUVs obsolete.”There’s been 30 years of denial,” said Noel Tichy, a University of Michigan business professor and author who ran General Electric Co.’s leadership program from 1985-87 and once worked as a consultant for Ford. “They did not make themselves competitive. They didn’t deal with the union issues, the cost structures long ago, everything that makes a successful company.”
Industry representatives, however, say their critics are simplistic, giving them no credit for huge progress this decade in cutting costs, raising productivity, and building competitive cars while handling multiple government regulations and a powerful labor union.
“In the last five years, there’s been more restructuring done in the automotive business than any other business in the history of the United States,” said Tony Cervone, a GM vice president of communications.
Whatever the reasons, the Detroit Three are closer to collapse than ever, and likely won’t make it without billions in government loans.
On Friday, GM posted a $2.5 billion third-quarter loss and ominously said it could run out of money before the end of the year. The company spent $6.9 billion more than it took in for the quarter and reported that it had $16.2 billion in cash available at the end of September.
Ford reported a $129 million loss but said it burned up $7.7 billion in cash for the period. It had $18.9 billion on hand as of Sept. 30. Its chief financial officer says he’s confident Ford will make it through 2009, but that’s because the company took out a huge loan last year.
Industry analysts believe Chrysler, now a private company that does not have to open its books, is as bad off as GM as U.S. sales continue to plummet because of tight credit and lack of consumer confidence due to the economy.
To survive, automakers are pressing Washington for $50 billion in low-interest loans on top of $25 billion already approved to build more fuel-efficient vehicles. The $25 billion, though, is gummed up in Energy Department regulations and may not be available until next year.
The industry’s path to cliff’s edge is a complex one that even critics say is intertwined with government fuel economy and safety regulations and the United Auto Workers union.
The demise started in the 80s when Toyota Motor Corp. and Honda Motor Co. mastered building reliable and efficient cars while the Detroit Three lagged behind.
As GM, Ford and Chrysler saw their market share start to slip, the 90s arrived and high profits returned as Americans snapped up pickup trucks and SUVs.
As Honda and Toyota took over the small and mid-size car markets, Ford, GM and Chrysler put most of their resources into trucks and SUVs, which brought in billions in profits that covered growing health care, pension and labor costs.
“In a market-based economy when you have to try to be profitable, you go where the money is,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
When times were good, the automakers did not take on the UAW, which the companies say drove up their labor costs to $30 per hour more than Japanese companies paid their workers. The figure includes pension and health care costs for hundreds of thousands of retirees.
When GM pushed for changes in 1998, the union went on strike at two key Flint, Mich., parts plants, shutting down the company and costing it about $2 billion in profits.
“They were making money and the union had a monopoly,” Cole said. “They’d shut them down. That’s why they had some very lengthy strikes that were very painful.”
But when the SUV and truck market started to fade in the mid-2000s, executives realized their business model would no longer work and began globalizing their vehicles, streamlining manufacturing processes and developing new and better cars.
The UAW, realizing that the companies were in trouble, agreed to a landmark new contract last year that nearly eliminated the labor cost difference between the Detroit Three and the Japanese, shifting retiree health care costs to a union-administered trust fund.
But just as the cost cuts started to take hold and new products were rolling out, gas prices rose rapidly to around $4 per gallon and Wall Street collapsed, virtually eliminating credit which 60 percent of car buyers need.
“A lot of things sort of coalesced simultaneously,” said Tom Libby, senior director of industry analysis for J.D. Power and Associates.
Automakers have all said bankruptcy is not an option because people would not buy cars from a company that might not exist in a few years. But if the car companies run out of money and can’t pay the bills, bankruptcy could be forced on them, according to industry analysts.
GM’s statements that it may run out of cash this year or next likely will have an effect on sales, Libby said.
“It doesn’t help, and they know that,” he said.
The current crisis, Cervone says, is not unique to the domestics. Honda and Toyota, he says, also have seen huge sales drops in the U.S. in recent months.
If Detroit gets federal help, the companies that do survive should become profitable next year, Cole said, if the credit market thaws out.
Cole says there’s no way at this point the Detroit automakers can survive without federal aid. But if they get it, the ones that do survive should become profitable again next year if the credit markets thaw out.
“They’ll get out of it,” says Libby. “They’ve got to do what they’ve got to do. They’re backed up against the wall.”
“Blue” is only a small blip in automotive history, but it tells a big part of the story about why Detroit automakers are in a mess so critical they could be only months away from bankruptcy.
Democratic leaders in Congress asked the Bush administration on Saturday to provide more aid to the struggling auto industry, which is bleeding cash and jobs as sales have dropped to their lowest level in a quarter-century.House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.
November 6th, 2008
In this second issue of Globalization issues that were presented at the recent Global Conference at Eclipse, the question for many small-medium sized companies is: How do we figure out the locations that we should select to expand our global business? As we heard, research is important at this step and here are the key Criteria:
1. Where is the market today and in the future…it of course depends on your product or service so getting good population/industry information is an important step. In the case of Boeing, take a look at the New Airplane Demand (previous post) and you can see that the Asia-Pacific region holds the most promise for them.
2. Where are your global customers…if you were selling to Caterpillar, take a look at where they have manufacturing locations and that would be a good clue.
3. What are the Opportunities…sometimes they just appear, so take a good look. They may lead you into new business that you didn’t plan.
4. What Barriers to entry would there be…an example would be Brazil, where it is more difficult to get you money out of the country, for you, this may be a bog factor,
5. What are the risks…could be employees (can’t get them), financial (cost to set up), political (want to try Venezuela) and others that may be important to your company,
6. Employee living conditions…if you want strong representation from your HQ with Americans, you’d want to be in a good location; who wouldn’t want to live in Florence, Italy, for example?
These would be some of the most important criteria, they will vary based on each individual companies assessment. Doing your “homework” first is Job One.  Assistance can be obtained from the local Trade Assistance organizations from the Federal and State level as well.
Once you’ve decided to Go Global and you’ve done your Homework, it will be time to examine the important Issues of Globalozation…and that will be next in this series.
November 1st, 2008
Now here is something to feel good about!
“The annual World Competitiveness Yearbook from Swiss business school IMD ranks 55 countries on 323 criteria, ranging from the per capita GDP and economic growth to exports, computer penetration, and even the cost of mobile phone service. It also includes qualitative assessments of dozens of factors, such as the level of corruption, state support for education, attitudes towards globalization, and the regulatory framework.”
As a country, the U.S. tops the list at #1…
See the rankings here…
http://bwnt.businessweek.com/interactive_reports/comp_countries/
November 1st, 2008
At a recent Globalization Conference at Eclipse sponsored by the Rockford Chamber of Commerce, Eclipse shared some of their experiences with the attendees. Thanks to Paul Carpenter, he’s agreed to allow me to pass these on to our blog, and I will do so in several issues.
The first topic discussed was: Advantages, why go global?
1. Growth…obviously we all look (or should look) to grow our companies
2. New Markets…geographically
3. Product Development Ideas…often come out of discussions with others
4. Access to Talent…other countries have people that are well trained, know the local market, etc.
5. Support Global Customers…if your local customer is exporting or has facilities abroad, you can serve him better by following him
6. Hedge against exchange fluctuations…weak dollar means strong international currency and more dollars to come back home
7. Hedge against Regional Economic Downturns…if U.S. softens and you sell into an international market that is still strong, then you get better balance
8. Network to support Global Sourcing…with presence in global markets, you can also find new global suppliers.
While there are many advantages, it does take some thinking to determine where to locate and that will be the topic for the next issue of Globalization.
October 31st, 2008
For many of our small-medium size manufacturing companies that are S-Corps, this has significance….
“For the second time in a week, a prominent Democrat has downgraded Barack Obama’s definition of the middle class — leading Republicans to question whether he’ll stick to his promise not to raise taxes on anyone making under $250,000.
The latest hiccup in the campaign message came Friday morning on KOA-AM, when New Mexico Gov. Bill Richardson pegged the middle class as those making $120,000 and under.
http://elections.foxnews.com/2008/10/31/low-richardson-pegs-middle-class-making/
Click here to listen to Richardson talk about Obama’s tax plan.Â
“What Obama wants to do is he is basically looking at $120,000 and under among those that are in the middle class, and there is a tax cut for those,” Richardson said in the interview, according to a clip posted on YouTube.
There’s no indication that Obama has changed his tax policy, which states that anyone making under $200,000 would get a tax cut under his administration, and nobody making under $250,000 would be hit with a tax increase. Richardson actually recited that part of Obama’s plan correctly earlier in his radio interview.
But the Republican National Committee quickly blasted out an e-mail saying, “At this rate, it won’t take long until Obama is again raising taxes on Americans making as little as $42,000 a year.”
“When Barack Obama comes to your door this Halloween, there will be no treats — just taxes,” the e-mail said.
Joe Biden caused headaches for the campaign Monday when he told a Scranton, Pa., TV station that Obama’s tax break “should go to middle class people — people making under $150,000 a year.”
John McCain said the tax threshold was “creeping down,” while the Obama campaign accused him of lying about Obama’s tax policies. “
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