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