| We've already stated our belief that that 2007 will see | | | | market share, and we see continued declining market |
| Americans buying several hundred thousand less cars | | | | share. The Chairman has verbalized nothing that deals |
| than they will purchase in 2006. We are looking for 16.8 | | | | with the issue of quality, and upgrading the consumer's |
| million vehicle sales this year. Let's get into the | | | | consciousness to consider GM cars when it comes to |
| numbers, and see what the implications are. When you, | | | | quality. Even Mercedes marvels at Japan's ability to |
| or I buy a car for our personal use, we pay on | | | | produce the quality they do for the dollar it costs. |
| average about $25,000 per car. The car rental | | | | Mercedes doesn't understand how Japan does it at |
| companies in the United States purchase more cars | | | | their price points. |
| than any other group. They buy American cars, and | | | | We took a close look at Ford (where "Quality is |
| pay an average of $15,000 per car. We don't see any | | | | number 1", and "Ford has a better idea"), and found |
| big profits from this market segment. | | | | their restructuring plan isn't substantial enough to get |
| Let's look at the dealerships, and sort out how the | | | | the job done. They call it the "Way Forward Plan". We |
| Japanese do against the Americans. A Chrysler dealer | | | | call it the "Lost in the Wind" plan. They are taking total |
| last year on average sold about 225 cars. If you were | | | | charges of $3.4 billion in 06. They expect to be |
| a Ford dealer, you averaged almost 700 cars per | | | | profitable in 08, why, we ask? What's going to change |
| dealer. GM's Chevrolet dealerships came in under 650 | | | | between now and 08? They believe they can save |
| cars per dealer. Would you be surprised to learn that | | | | almost $6 billion in costs. We don't see it, and if they |
| Toyota sold more than 1600 cars per dealership last | | | | were able to do it, don't you think Japan would jump on |
| year? | | | | the bandwagon and do whatever they have to do to |
| Now you know why American car dealers are | | | | drag their already low costs lower. |
| complaining and going out of business. In the last year | | | | Did you know that when GM, or Ford produce an |
| GM lost 200 plus dealers while Ford lost 40, and | | | | interesting car, Japan buys the car immediately, rips it |
| Chrysler lost more than 110. This is happening on our | | | | apart, part by part in Japan, and than takes any |
| home turf, folks. This is not the Japanese and the | | | | interesting technology and applies it to their cars almost |
| Americans slugging it out on European soil for control | | | | immediately. Japan can put out a car in one-third the |
| of European markets. This is the American consumer | | | | time it takes GM, or Ford to design a car by |
| choosing to buy Japanese over American made | | | | committee. South Korea can go from design to |
| products on American soil. People are voting with their | | | | showroom in even a shorter time span. |
| feet. | | | | Ford's restructuring efforts in our opinion are clearly |
| Here's the next big question. If American car dealers | | | | overstating the bottom-line results. We see a |
| are closing their doors at this rate, what kind of shape | | | | headwind coming, where Ford thinks it's got a tailwind |
| can the rest of them be in? Can the owners be putting | | | | at its back. It's going to get tougher for Ford, and this is |
| big bucks into their dealerships while their friend's | | | | being overlooked because GM and its troubles are |
| dealerships are folding up? We think not. Will the | | | | getting the headlines. With the employees departing |
| friendly banker be willing to finance their car inventories | | | | from both companies how do you think the guy down |
| when the bank sees other domestic dealers closing | | | | on the assembly line is feeling? Do you think he's a |
| their doors? We don't see it. This means that | | | | loyal, lets get it done type of individual? Do you think |
| American car dealers can only finance through the car | | | | he's wondering if he's going to be there 2 or 3 years |
| manufacturer's financing arm, and that's not good | | | | down the road? Will his pension benefits be safe? Will |
| when the dealer has only one choice. We estimate | | | | he ever get a pension? Will he even have a future at |
| that half of Ford's dealers are not making a penny. We | | | | either of these two companies that were once the |
| think for General Motors, it could be as high as 25% | | | | unquestioned leaders of American managerial know |
| are unprofitable. What's the customer experience | | | | how? |
| going to be like in a dealer that's losing money on | | | | Henry Ford wrote the book on manufacturing, and |
| every car he sells? Is anybody listening in Detroit? | | | | GM's Alfred P. Sloan wrote the book on building a |
| Every time GM loses a point of market share, they | | | | company that is still studied at Harvard Business |
| have to implement plans to dismiss 20,000 people from | | | | School, and MIT today. Somehow in the last 3 |
| their jobs. We see the necessity for GM to cut | | | | decades, the bean counters in Detroit forgot how to |
| another 60,000 jobs that they haven't announced to | | | | make cars. They literally forgot what business they |
| establish break-even 12 to 18 months from today. With | | | | were in. They instead thought only about the money. |
| all the talk about GM in the news in the last 60 days, | | | | Labor became a cog in the wheel, not an integral |
| has anybody at GM or Ford uttered a word about | | | | meaningful partner in the process. To turn this |
| their real problem, QUALITY? The American | | | | American industry around will involve a different level |
| consumer does not want to buy American made cars | | | | of intelligence than the intelligence (used advisedly) that |
| in any quantity that would allow Detroit to make | | | | got them into trouble in the first place. Einstein was |
| money. | | | | right. |
| We believe that GM will be unprofitable until 2008 at a | | | | Goodbye and good luck |
| minimum, and 08 can only be profitable if they maintain | | | | Richard C. |