Musing on Toyota's Financials

[RichardJensen]

(unfortunatley he has a tendency to get very confused and befuddled by facts)

Uh.

 

Who posted a link to a howler of a Washington Post article containing this little factoid:

 

It's little wonder that money-losing Ford doesn't have the funds to invest in new technologies and is asking Washington for help.

 

For 2004, Ford's R&D budget was $7.4B, 5% of automotive revenue.

 

For FY 2005, Toyota's R&D budget was $7B, 4.3% of automotive revenue.

 

Yeah. I'm the guy that gets very confused and befuddled by facts.

 

...

Edited December 6, 2005 by RichardJensen

[PolarBear]

Japanese companies are usually heavily leveraged because for cultural reasons they tend to finance with debt, not equity. It's nothing unusual.

 

Toyota isn't in any fiscal trouble... if they have any common sense they won't keep going down this track... you can't take 1 or 2 year trends and extend them 3, 4, 5 years into the future. If the company kept doing that, they'd be committing business hara-kiri. I really don't think they are that dumb.

 

Fact is, Ford and GM are in incredibly much worse financial shape, and most importantly of all, you'll see the Japanese government saving Toyota 100 times quicker than the US government would save GM or Ford.

 

There's one number on Toyotas Balance sheet that you guys missed, and it's huge. Retained earnings. This is a Microsoft type ploy- taking surplus earnings and socking it away as a reserve against future expenses. How much, you ask? $87 Billion- $84 of it in LT investments. That's $40 billion more than they had 3 short years ago. Microsoft ran afoul of the IRS a few years ago for doing the same thing. It's a strategy that only companies awash in cash implement.

[marc-o]

I hadn't seen your earlier post.

 

Interestingly, Honda's cash on hand is about 4x their short term debt.

 

Also, I figure there is advantage in using short term loans at low rates instead of holding the cash (Toyota's financials say that their average APR for their short term notes is 1.58%, and their CP rates are about 2.81%). All Toyota has to do is squirrel a similar amount of money in highly liquid securities, and make money off the differential. If they did that with the $22.1B they hold in CP and short term loans, they'd be making $884M per year off a 4% difference.

 

Still, it seems that Toyota is extending themselves perhaps farther than is wise. Although I agree that the Japanese gov't (and Japanese banks) would intervene in Toyota's behalf long before similar action would be taken in GM's behalf here.

 

I say this because if Toyota becomes overly accustomed to this means of doing business, they could find themselves unable to work well in a capital crunch.

 

Another issue is, as you put it, a company does not go from doing well to doing poorly quickly. However, bad business practices can be tough to pick out if everything seems to be going your way. It's the old trap of "exceptionalism", that the rules don't apply to you for some not quite clearly definable reason.

 

...

 

 

yeah i know, that's why i reposted it

 

I think they are extending themselves right now because they figure they can give it a big push to unseat GM... a couple of years ago a lot of people in business were wondering what yota would do with all its excess cash... it didnt seem to be doing anything yet there didn't seem to be any worthwhile investments. I'm assuming they decided to use some of it to go all-out. I think the real question is will they be able to unseat GM and how much will it cost them - that depends on how long it takes them, assuming GM's turnaround doesn't pull through. If it's harder than they anticipated, they might burn through more money and put themselves at risk (not to mention their reputation), which would really hurt them in the long run. But as it is now, I think it's just a conscious effort to overthrow GM.

 

The thing is toyota is very far from a capital crunch, if they needed 10B$ right now they could get it no problem, at a much better rate than GM or Ford... sure it's possible the company goes nuts and does an exceptionally bad job financially, but i'm just saying it's way too soon to be making that call - and IMO that's not what is happening. If it is though, you'll get credit for being the first one to call it :D

 

There's one number on Toyotas Balance sheet that you guys missed, and it's huge. Retained earnings. This is a Microsoft type ploy- taking surplus earnings and socking it away as a reserve against future expenses. How much, you ask? $87 Billion- $84 of it in LT investments. That's $40 billion more than they had 3 short years ago. Microsoft ran afoul of the IRS a few years ago for doing the same thing. It's a strategy that only companies awash in cash implement.

 

Yeah but is IRS Japan going to do something about it? I don't even know if it would be a problem in Japan... unless all that money is in the US (something I doubt), but even then, they might have paid attention to what happened to Microsoft and done it differently.

[PolarBear]

I'd imagine a good percentage of that money is in the US. Toyota (and Honda) are traded on the NYSE, so they have to comply with SEC disclosure regulations. On that same note- have you noticed that, instead of trying to compete with us, what they really want is to be us? I remember reading a few years ago that Honda was seriously considering moving it's main operations (Corporate Headquarters, etc) to California?

Edited December 6, 2005 by PolarBear

[RichardJensen]

I'm assuming they decided to use some of it to go all-out. I think the real question is will they be able to unseat GM and how much will it cost them - that depends on how long it takes them, assuming GM's turnaround doesn't pull through. If it's harder than they anticipated, they might burn through more money and put themselves at risk (not to mention their reputation), which would really hurt them in the long run. But as it is now, I think it's just a conscious effort to overthrow GM.

I think that's a huge mistake. GM may not be too big to fail, but it certainly is too big for the government to ignore.

 

1M employees and retirees and $200+B in revenue... I don't think the gov't will just let them fail to prove some ideological point. You'd have rioting in the streets throughout the rust belt, people would get killed. You'd have total anarchy in some places.

 

Toyota's miscalculation is assuming that they can push GM to the limit here in the states with minimal gov't intervention. All the lobbying in the world won't shield the hundreds of Congressmen elected from union districts from the consequences of letting GM fail. I think Toyota fails to grasp that. I think they don't understand that lobbying will not get a Congressman to do something that will cost him his job. And standing by and letting GM fail will cost darn near every representative in Michigan and Ohio their jobs.

 

Toyota's also miscalculating the potential threat to their business posed by the Koreans.

 

Yeah, they do have quite a cash pile, but it's worth noting that Toyota's retained earnings could well be offsetting a lot of crap at Japanese banks. Toyota may not have quite the ready access to that capital that one might imagine. They've got about another $10B in credit facilities available, give or take.

 

Bottom line is, I think they've gambled incorrectly about the gov't's willingness to bailout GM, and I think they've gambled incorrectly about the impact competitive offerings from Ford and Hyundai/KIA will have on sales of the Camry.

 

...

Edited December 6, 2005 by RichardJensen

[marc-o]

Well, I think you'd see riots if GM went completely out of business, which wouldn't happen, realistically. I can see the company going into bankrupty, slashing jobs, but it wouldn't be wiped out of existence and it would still employ tens of thousands of people.

 

Normally, i'd say you're right about the government not letting GM fail but given its just plain lousy fiscal position right now i'm not sure sure... I mean i have no doubt they'd put up some kind of bailout for GM, but they are not going to be able to turn it into a state-run automaker (essentially a welfare agency that gives people a check in exchange for building a vehicle). The government is already stretched thin and there isn't the same kind of unanimous support for GM (or Detroit) as there was 20 or more years ago. With interest rates creeping higher, the government isn't going to be in a huge rush to tack on more billions to the deficit.

 

I'm not sure that Toyota is trying to destroy GM (right now i mean), they might just be trying to speed up the process to becoming #1 in the world. I think they are taking a big risk doing that because they got to #2 by taking the slow and steady approach, and this last push so to speak isn't a good way to go about it, but hey that's up to them. Either way i'm sure it's all for bragging rights and nothing more... they could wait for GM to keep going down (which in my opinion it will keep shrinking, according to Wagoner until at least 2008), but they've decided they're too impatient for that. That's fine, they just aren't going to get any pity from me if they screw up in the process, just as they aren't getting any sympathy from me now trying to push for #1. However, no guts no glory, no pain no gain, businesses succeed by being aggressive and bold (for the most part), and if they didn't take this risk a lot of people in their camp might think they're missing the opportunity of the century. If they lose the gamble, so be it, otherwise people might be taking shots at them in a few years for not slaying the general when they had the chance. From [their] standpoint, I think it makes sense.

 

Obviously though, you perceive the risk very differently for them Rich

[one2gamble]

I have actually been thinking about this a little bit. Depending on the extent of GMs fall I wont ignore the chance of a government bailout but if GM shrinks back to say the size of Ford it may be enough to force the US government to take a long hard look at Japans trade practices as well as how open our own borders have become to outside forces. A government bailout of GM would hardly be the worst outcome for toy if GM does fall.

 

The first brick was laid when China attempted to buy one of our oil companies. GM's falter could begin to build the wall.

[RichardJensen]

no guts no glory, no pain no gain, businesses succeed by being aggressive and bold (for the most part)

See, my opinion is that this is valid only in growing industries or when you're trying to rescue a failing concern. To just go all out for the heck of it... here we agree. Not a wise practice.

 

I think the best that GM could expect from the gov't is assumption of some pension liabilities through--essentially--long term IOUs from GM something like 15-30 year notes held by the gov't, paid by GM at a spread above current treasury yields, so the pension bailout doesn't "cost" the gov't anything. Also the gov't may be willing to guarantee loans to GM (as an alternative to simply loaning the money, a la Chrysler in the 80s).

 

And to all the people making noise about GWB's "let them eat cake" response, remember that a Republican controlled Senate (IIRC), and a Republican President signed off on the Chrysler bailout, and a Republican Congress and a Republican President (same one, in fact) signed off on the post 9/11 airline bailout.

 

...

[Bluecon]

The new Toyota RAV4

http://www.detnews.com/apps/pbcs.dll/artic...306/1149/AUTO01

 

 

There is no secret to Toyotas success--sell cars and trucks at a profit and the rest of the financial situation

will take care of itself.

[marc-o]

The new Toyota RAV4

http://www.detnews.com/apps/pbcs.dll/artic...306/1149/AUTO01

There is no secret to Toyotas success--sell cars and trucks at a profit and the rest of the financial situation

will take care of itself.

 

 

yeah there's a lot of truth in that simple logic. but it's not all truth... not when you get into the nitty-gritty accounting, and start thinking about cash flow. in any case, in the end yes making money on what you sell is all you need to do.

[RichardJensen]

The new Toyota RAV4

http://www.detnews.com/apps/pbcs.dll/artic...306/1149/AUTO01

There is no secret to Toyotas success--sell cars and trucks at a profit and the rest of the financial situation

will take care of itself.

Point missed by media here:

 

Toyota is no longer building a vehicle that competes with the Ford Escape.

 

Instead, they are building a vehicle that will compete with the Ford Edge.

 

...

[llog215]

Point missed by media here:

 

Toyota is no longer building a vehicle that competes with the Ford Escape.

 

Instead, they are building a vehicle that will compete with the Ford Edge.

 

...

 

Will the Edge be sold with a third row option? I was under the impression that a third row would not be made available. Not that the thrid row in the RAV4 is useable by adults, but I think it will give Toyota an advantage if Ford doesn't offer one in the Edge.

[Bluecon]

Point missed by media here:

 

Toyota is no longer building a vehicle that competes with the Ford Escape.

 

Instead, they are building a vehicle that will compete with the Ford Edge.

 

...

The number one trade in vehicle for the Escape is the Explorer.

 

When will the Edge be on the market? One year?

Way to long to convert a plant to a new product.

[RichardJensen]

The number one trade in vehicle for the Escape is the Explorer.

 

When will the Edge be on the market? One year?

Way to long to convert a plant to a new product.

Yeah. the number one trade in vehicle for the Freestyle is also the Explorer.

 

The Edge will be on the market next year, at about this time.

 

As far as saying that this is "way too long to convert a plant to a new product"...

 

Well, why don't you invest a few hundred million in Ford's VEBA, so that they dump more money into OAC now.

 

Ford has to balance the need to fund their pension obligations with the need to develop and launch new product. There is no "right" balance, nor is there a balance which can be certain, ahead of time, to be the optimal one.

 

With more and more companies abandoning the traditional September launch, Ford may come under increasing pressure to pull ahead new product launches.

 

But that concession aside, it seems highly unlikely that an additional 7 months of V6 RAV4 production will impede the ability of the Edge to compete. I would say that it's quite likely the Edge in its first year, will outsell the RAV4.

 

After all, as has been noted before, the existing RAV4 is a colossal disappointment, and the new RAV4 marks Toyota's surrender of the compact CUV market to Ford, Honda, and Hyundai/KIA.

 

...

[Bluecon]

Yeah. the number one trade in vehicle for the Freestyle is also the Explorer.

 

The Edge will be on the market next year, at about this time.

 

As far as saying that this is "way too long to convert a plant to a new product"...

 

Well, why don't you invest a few hundred million in Ford's VEBA, so that they dump more money into OAC now.

 

Ford has to balance the need to fund their pension obligations with the need to develop and launch new product. There is no "right" balance, nor is there a balance which can be certain, ahead of time, to be the optimal one.

 

With more and more companies abandoning the traditional September launch, Ford may come under increasing pressure to pull ahead new product launches.

 

But that concession aside, it seems highly unlikely that an additional 7 months of V6 RAV4 production will impede the ability of the Edge to compete. I would say that it's quite likely the Edge in its first year, will outsell the RAV4.

 

After all, as has been noted before, the existing RAV4 is a colossal disappointment, and the new RAV4 marks Toyota's surrender of the compact CUV market to Ford, Honda, and Hyundai/KIA.

 

...

 

Of course that is the big problem Ford and GM and to a lesser extent Chrysler face. Toyota has the cash for development and they keep taking a marketshare a point at a time. One percent of marketshare in the NA market is an assembly plant.

 

The market is just so competetive. This compact CUV market also has a new product coming from Chrysler and the GM SUVs' built at CAMI.

[RichardJensen]

Of course that is the big problem Ford and GM and to a lesser extent Chrysler face. Toyota has the cash for development and they keep taking a marketshare a point at a time. One percent of marketshare in the NA market is an assembly plant.

 

The market is just so competetive. This compact CUV market also has a new product coming from Chrysler and the GM SUVs' built at CAMI.

Ford has consistently over the past four years outspent Toyota on R&D; that Toyota outspends Ford on product development is a myth. Ford spends more in actual dollars, and more as a percentage of automotive revenue.

 

They have just gotten less back from their investment.

 

That aside, it will be important for Ford to develop revenue streams comparable to the revenue stream Toyota enjoys from its home market. The Japanese market is, essentially, impenetrable. Not just because of gov't restrictions. In fact there need be no gov't restrictions. The barrier to entry, compared to profit potential, is insurmountable. Land costs a fortune so distribution would be extremely expensive. Getting dealers would cost a fortune, and for what? To sell a comparable product at a comparable price, with no real incentive to switch?

 

Ford needs to counter the advantage that Toyota enjoys because they are based in Japan. IMO they can do this by investing in their financing arm. They need to see Ford Credit as an "equalizer", not as a crutch. I think too many people at Ford are ashamed of the company's reliance on the credit arm for profits. I say that's misplaced pride. Better they should be proud of having the best run financing arm in the industry.

 

...

[Bluecon]

Ford has consistently over the past four years outspent Toyota on R&D; that Toyota outspends Ford on product development is a myth. Ford spends more in actual dollars, and more as a percentage of automotive revenue.

 

They have just gotten less back from their investment.

 

That aside, it will be important for Ford to develop revenue streams comparable to the revenue stream Toyota enjoys from its home market. The Japanese market is, essentially, impenetrable. Not just because of gov't restrictions. In fact there need be no gov't restrictions. The barrier to entry, compared to profit potential, is insurmountable. Land costs a fortune so distribution would be extremely expensive. Getting dealers would cost a fortune, and for what? To sell a comparable product at a comparable price, with no real incentive to switch?

 

Ford needs to counter the advantage that Toyota enjoys because they are based in Japan. IMO they can do this by investing in their financing arm. They need to see Ford Credit as an "equalizer", not as a crutch. I think too many people at Ford are ashamed of the company's reliance on the credit arm for profits. I say that's misplaced pride. Better they should be proud of having the best run financing arm in the industry.

 

...

Ford should try to enter the Japanese market thru the Mazda dealer network.

It took Toyota and Honda many years to succeed in NA.

 

All these numbers on R&D mean nothing. Ford has 19 assembly plants in NA and plans on closing up to 10.

Toyota is building plants and increasing market share.

[RichardJensen]

Ford should try to enter the Japanese market thru the Mazda dealer network.

It took Toyota and Honda many years to succeed in NA.

The roadblocks to success in Japan did not exist in the U.S.

 

Toyota and Honda had product in high demand that the domestics could not/did not supply.

 

Another difference is that land is "dirt" cheap in the U.S., it's huge, it's population is (compared to Japan) not highly centralized nor is it ethnically cohesive, and there is no cultural barrier to imported goods (although, IMO, the cultural barrier in Japan is highly exaggerated).

 

There are a 'million' ways into the U.S. market that don't exist in Japan.

 

But it can't be stressed enough that the Japanese car companies have done a far better job meeting the needs of their passenger car customers than the U.S. automakers were doing in the 70s and 80s (except for a brief flash with the Taurus), the 90s, and even today.

 

---

 

Also, do not assume that Ford can get an "in" through Mazda. All that gives them is a point of sale. They still have no production facilities, no distribution points, no product to sell (that's worth buying) not to mention that the Japanese car market is fairly static. Like the U.S. in the 50s and 60s, the biggest players are entrenched largely through their dealership networks, and it is very difficult to get in, even on the back of one of the existing players.

 

Rather, instead of fighting upstream to try to "take the battle to Toyota", a vainglorious pursuit, Ford should take the easy route. This country has the biggest, best banks in the world, and the transparency of U.S. financial institutions, and U.S. financial markets is the absolute global gold standard. Why should Ford try to fight their way into the Japanese car market, when they can build on a profitable business well suited to one of the key strengths of the U.S. economy: its capital markets.

 

As far as this report of "10" plants: you are quoting the number of assembly plants, whereas the "10" plants include stamping and powertrain plants as well. Moreover, that number is likely at the high end of the numbers being considered. I put no stock in it, other than to file it away as a number more plausible than, say 15 or 2.

 

And yes, Toyota is building plants, but they are building one (the San Antonio plant) to supply production in excess of current demand for a product that has not fully proven itself (the Tundra).

 

...

Edited December 10, 2005 by RichardJensen

[Bluecon]

The roadblocks to success in Japan did not exist in the U.S.

 

Toyota and Honda had product in high demand that the domestics could not/did not supply.

 

Another difference is that land is "dirt" cheap in the U.S., it's huge, it's population is (compared to Japan) not highly centralized nor is it ethnically cohesive, and there is no cultural barrier to imported goods (although, IMO, the cultural barrier in Japan is highly exaggerated).

 

There are a 'million' ways into the U.S. market that don't exist in Japan.

 

But it can't be stressed enough that the Japanese car companies have done a far better job meeting the needs of their passenger car customers than the U.S. automakers were doing in the 70s and 80s (except for a brief flash with the Taurus), the 90s, and even today.

 

---

 

Also, do not assume that Ford can get an "in" through Mazda. All that gives them is a point of sale. They still have no production facilities, no distribution points, no product to sell (that's worth buying) not to mention that the Japanese car market is fairly static. Like the U.S. in the 50s and 60s, the biggest players are entrenched largely through their dealership networks, and it is very difficult to get in, even on the back of one of the existing players.

 

Rather, instead of fighting upstream to try to "take the battle to Toyota", a vainglorious pursuit, Ford should take the easy route. This country has the biggest, best banks in the world, and the transparency of U.S. financial institutions, and U.S. financial markets is the absolute global gold standard. Why should Ford try to fight their way into the Japanese car market, when they can build on a profitable business well suited to one of the key strengths of the U.S. economy: its capital markets.

 

As far as this report of "10" plants: you are quoting the number of assembly plants, whereas the "10" plants include stamping and powertrain plants as well. Moreover, that number is likely at the high end of the numbers being considered. I put no stock in it, other than to file it away as a number more plausible than, say 15 or 2.

 

And yes, Toyota is building plants, but they are building one (the San Antonio plant) to supply production in excess of current demand for a product that has not fully proven itself (the Tundra).

 

...

SLAP, STAP, Wixom, Atlanta, Mexican truck plant, One plant in Ohio, St. Paul.

I can only think of 7.

 

http://www.businessweek.com/investor/conte..._1617_pi036.htm

 

What are you saying--Ford should stop making cars and become a bank?

[RichardJensen]

What are you saying--Ford should stop making cars and become a bank?

I'm saying they should make cars and be a better, bigger bank. It's not impossible.

 

I also think they should aim to become a global leader in industrial pollution management. They're doing all this home-grown skunkworks stuff like putting wind turbines up at Dagenham and setting up solid waste incinerators, and I figure, why just do that in-house? Cultivate a market for it, and sell the expertise developed at Ford.

 

I mean seriously, they can't compete with Toyota on a car by car basis. They just can't. There are too many obstacles on their end, and too many advantages enjoyed by Toyota (the cheese has been moved, so to speak).

 

The way I see it, they've got two choices: They can waste a lot of resources trying to maximize every dime of profit from vehicle manufacturing and still fall behind Toyota. Or... they can improve their product, and diversify their revenue stream. Now I'm not saying that Ford should cut back on vehicle development. I'm saying that they should not look to their automotive operations as the primary source of profits for the company.

 

A change in attitude like that, where they are seeking profit from automotive ops, but not on a life-or-death basis enables them to be more daring, more aggressive. They can add content and lower prices because they don't ***need*** profit from their automotive ops.

 

Of course, I'm not suggesting that they act irresponsibly and sell their vehicles at a loss just to make money on the financing end. But if they free themselves of the idea (and the reality) that their success as a company depends on their ability to eke out another $1.00 of savings on this interior or that engine or this other paint process, they can begin to make some radical strides here.

 

GE has been doing this for years. IBM too. When IBM was forced to acknowledge that servers were becoming a commodity, and that the market for proprietary mainframes was going away, they changed the way they do business. They still make proprietary mainframes but they derive a greater percentage of revenue from other areas (services and software), and that greatly diversified revenue stream has supported their mainframe division, which is the best in the industry.

 

...

Edited December 10, 2005 by RichardJensen

[Bluecon]

I'm saying they should make cars and be a better, bigger bank. It's not impossible.

 

I also think they should aim to become a global leader in industrial pollution management. They're doing all this home-grown skunkworks stuff like putting wind turbines up at Dagenham and setting up solid waste incinerators, and I figure, why just do that in-house? Cultivate a market for it, and sell the expertise developed at Ford.

 

I mean seriously, they can't compete with Toyota on a car by car basis. They just can't. There are too many obstacles on their end, and too many advantages enjoyed by Toyota (the cheese has been moved, so to speak).

 

The way I see it, they've got two choices: They can waste a lot of resources trying to maximize every dime of profit from vehicle manufacturing and still fall behind Toyota. Or... they can improve their product, and diversify their revenue stream. Now I'm not saying that Ford should cut back on vehicle development. I'm saying that they should not look to their automotive operations as the primary source of profits for the company.

 

A change in attitude like that, where they are seeking profit from automotive ops, but not on a life-or-death basis enables them to be more daring, more aggressive. They can add content and lower prices because they don't ***need*** profit from their automotive ops.

 

Of course, I'm not suggesting that they act irresponsibly and sell their vehicles at a loss just to make money on the financing end. But if they free themselves of the idea (and the reality) that their success as a company depends on their ability to eke out another $1.00 of savings on this interior or that engine or this other paint process, they can begin to make some radical strides here.

 

GE has been doing this for years. IBM too. When IBM was forced to acknowledge that servers were becoming a commodity, and that the market for proprietary mainframes was going away, they changed the way they do business. They still make proprietary mainframes but they derive a greater percentage of revenue from other areas (services and software), and that greatly diversified revenue stream has supported their mainframe division, which is the best in the industry.

 

...

I was working at Chryslers in the late 70's when they crashed and it was a lot worse than this.

They had a great leader in Iacocca and the minivan saved them. They also made a lot of tough decisions along the way. Something I think Bill Ford will not/cannot do. All this gen pool, buyouts, 30 and out are not affordable. Make the cuts or lose the whole company. They need short term pain for long term gain.

 

If you look at Chryslers they are fighting and succeeding. Lasorda is a plant guy and he knows what it takes to run a plant. Ford is very weak at managing their plants.

[RichardJensen]

I was working at Chryslers in the late 70's when they crashed and it was a lot worse than this.

They had a great leader in Iacocca and the minivan saved them. They also made a lot of tough decisions along the way. Something I think Bill Ford will not/cannot do. All this gen pool, buyouts, 30 and out are not affordable. Make the cuts or lose the whole company. They need short term pain for long term gain.

 

If you look at Chryslers they are fighting and succeeding. Lasorda is a plant guy and he knows what it takes to run a plant. Ford is very weak at managing their plants.

Chrysler is owned by DCX. And they were in pretty sore straits in the early 90s to boot. Iaccoca did not save them; he got them an 10 year extension before they had to pay the piper.

 

Chrysler being owned by DCX eliminates them from any comparison with Ford; Chrysler through DCX has access to diversified revenue streams based on DCX's broader transport business (Freightliner, Sterling, Western Star, etc.), and DCX's steady revenue from Germany (where they do indeed face stiffer competition than Toyota does in Japan, but where they also benefit from a very slow moving economy).

 

See, that's the thing: Chrysler has advantages that come from not being reliant (ha!) on the NA car market, or even the NA and EU car market. Although those advantages still come (as they do with Toyota) from manufacturing vehicles, the result to Chrysler is the same as it is to Toyota's NA operations. Greater access to development capital and higher budgets per car, especially during cyclical downturns.

 

If Ford develops Ford credit, even though the cause will be different, the effect will be the same. More capital available, and more leeway for 'mistakes' in the U.S. market.

 

I think any company of Ford's size cannot make it as exclusively an industrial company, or even primarily as an industrial company. Not in this industry. Not with this cost structure.

 

To acknowledge this is not an admission of defeat. It is an acknowledgement of the possibilities at Ford Motor that lie outside the well trodden path of auto manufacturing.

 

Furthermore, I believe that the day of reckoning is coming for DCX. It will probably not come soon, but it will come eventually. They have taken their core market (Germany) too much for granted for too long. It will be a while before we see the results of it, but we will see consequences that will affect Chrysler in the U.S. as well.

 

...

[Bluecon]

Chrysler is owned by DCX. And they were in pretty sore straits in the early 90s to boot. Iaccoca did not save them; he got them an 10 year extension before they had to pay the piper.

 

Chrysler being owned by DCX eliminates them from any comparison with Ford; Chrysler through DCX has access to diversified revenue streams based on DCX's broader transport business (Freightliner, Sterling, Western Star, etc.), and DCX's steady revenue from Germany (where they do indeed face stiffer competition than Toyota does in Japan, but where they also benefit from a very slow moving economy).

 

See, that's the thing: Chrysler has advantages that come from not being reliant (ha!) on the NA car market, or even the NA and EU car market. Although those advantages still come (as they do with Toyota) from manufacturing vehicles, the result to Chrysler is the same as it is to Toyota's NA operations. Greater access to development capital and higher budgets per car, especially during cyclical downturns.

 

If Ford develops Ford credit, even though the cause will be different, the effect will be the same. More capital available, and more leeway for 'mistakes' in the U.S. market.

 

I think any company of Ford's size cannot make it as exclusively an industrial company, or even primarily as an industrial company. Not in this industry. Not with this cost structure.

 

To acknowledge this is not an admission of defeat. It is an acknowledgement of the possibilities at Ford Motor that lie outside the well trodden path of auto manufacturing.

 

Furthermore, I believe that the day of reckoning is coming for DCX. It will probably not come soon, but it will come eventually. They have taken their core market (Germany) too much for granted for too long. It will be a while before we see the results of it, but we will see consequences that will affect Chrysler in the U.S. as well.

 

...

Compared to the late 70's and early 80's the 90's were barely a hiccup for Chryslers.

One thing about Iacocca he never sat there and said we can't do it and made excuses--I think his performance speaks for itself.

 

I work at both Chrysler and Ford engine plants. Chrysler is years ahead of Ford at getting production per person. They are running a much better operation than Ford.

 

Mercedes has already taken a beating in Germany. (and the German economy is a mess)

[RichardJensen]

Compared to the late 70's and early 80's the 90's were barely a hiccup for Chryslers.

One thing about Iacocca he never sat there and said we can't do it and made excuses--I think his performance speaks for itself.

 

I work at both Chrysler and Ford engine plants. Chrysler is years ahead of Ford at getting production per person. They are running a much better operation than Ford.

 

Mercedes has already taken a beating in Germany. (and the German economy is a mess)

See, that attitude will kill Ford.

 

"he never sat there and said we can't do it and made excuses"

 

Right. He just got the company to the brink of another disaster, and then watched his handpicked successors sell out to Mercedes. He offered no long term generational solution to the problem of high fixed costs in a capital intensive cyclical indsustry with a long and expensive product development cycle.

 

All Iacocca did was get Chrysler enough money to make it to the next crisis. True, the next crisis wasn't as bad as the first, but it was a crisis. Did Toyota have a crisis during that time? No. Did they take advantage of Chrysler's problems to gain an even stronger foothold in the U.S. market?

 

And yes. MB is taking a beating in Germany, but that's not due to declining market share, plus, their heavy truck operations have been quite profitable this year. And that's my point. Diversified revenue streams.

 

This is what I don't understand:

 

If a sustainable, viable, profitable alternative to reliance on a cyclical industry with high fixed costs is available, what is wrong with taking it?

 

Is it an admission of 'failure'? Or is it seizing an opportunity?

 

The potential is there, regardless of your outlook. You can either turn up your nose at it, because it would, in your own mind, constitute "making excuses" and saying "we can't do it".

 

Or you can say, "This will stabilize our company, this will let us shift our focus away from the bottom line."

 

Where would Chrysler be, if they had a steady source of profit from a high margin industry like banking available to them in the early 90s?

 

Would they have sold out to Mercedes in a laughable "merger of equals"?

 

Or would they have remained master of their own fate?

 

...

Edited December 10, 2005 by RichardJensen

[Bluecon]

See, that attitude will kill Ford.

 

"he never sat there and said we can't do it and made excuses"

 

Right. He just got the company to the brink of another disaster, and then watched his handpicked successors sell out to Mercedes. He offered no long term generational solution to the problem of high fixed costs in a capital intensive cyclical indsustry with a long and expensive product development cycle.

 

All Iacocca did was get Chrysler enough money to make it to the next crisis. True, the next crisis wasn't as bad as the first, but it was a crisis. Did Toyota have a crisis during that time? No. Did they take advantage of Chrysler's problems to gain an even stronger foothold in the U.S. market?

 

And yes. MB is taking a beating in Germany, but that's not due to declining market share, plus, their heavy truck operations have been quite profitable this year. And that's my point. Diversified revenue streams.

 

This is what I don't understand:

 

If a sustainable, viable, profitable alternative to reliance on a cyclical industry with high fixed costs is available, what is wrong with taking it?

 

Is it an admission of 'failure'? Or is it seizing an opportunity?

 

The potential is there, regardless of your outlook. You can either turn up your nose at it, because it would, in your own mind, constitute "making excuses" and saying "we can't do it".

 

Or you can say, "This will stabilize our company, this will let us shift our focus away from the bottom line."

 

Where would Chrysler be, if they had a steady source of profit from a high margin industry like banking available to them in the early 90s?

 

Would they have sold out to Mercedes in a laughable "merger of equals"?

 

Or would they have remained master of their own fate?

 

...

You have not a clue what the American auto industry was like in the late 70's.

Where do you get this info on the history of Chryslers? As I remember Chrysler was not at all in financial trouble when they were bought out by Daimler. And Chrysler management did sell out. The financial problems at Chrysler came after the Germans had control.

 

Of course the real target of Daimler was Ford Motor Company. The Ford family would not sell out, preferring to run the company into the ground themselves.