Again and again we end up talking about energy independence and the blindness of our leaders. Now as the price of oil is coming down, mainly because America is driving less and being more conscious about how much energy the country uses, one thing that worries me is that the green revolution may head to an abrupt end.
Now that G.M. and Ford are closing some of the factories that produces big trucks, one thing that comes to my head is that the market will go on the opposite way. Why? They are too dumb to be right.
If the world economy slows and Brazil starts producing those hundreds of thousands of barrels of oil a day from off shore platforms, we may see the price of gasoline drop significantly in the US market, meaning that people will stop thinking about saving and will go to their Hummers again.
This may seems like a fairy tale but it is not. People will go after their personal interest rather than the collectives ones, that is why unless you tax gas – yes Friedman again – no entrepreneurs will be able to invest large amounts of money on alternative energy, Mr. Pickens will lose billions of dollars and Mr. Gates won´t be putting a cent in the company Pacific Ethanol.
If prices fall that fast all the green spirit will turn black, oil addiction will prevail and the Middle East will keep on building ridiculous islands just to show that they don’t know what to do with those extra trillions that they have.
The following picture is blinding the world of economists. We are too worry about inflation fears, Fanny and Freddy, City and Bear, Iraq and Israel, if Bernanke call it recession or a slow down, or if hurricanes will affect the Gulf of Mexico, that we don´t understand that all of them are correlated to two critical problems.
Where are the dollars heading?
To the countries that produce petroleum.
Which country is taking advantage of the current situation?
Those who produce petroleum, plus the ones creating green energy.
If you think you are smart enough – and since I won´t be writing for a while – let me propose this. I will place two scenarios for the future and you will tell how they are going to be, then we can actually believe if all those macroeconomic formulas work in the real word.
If you want to trust your instinct they you are welcome too, just try to put some words on what you think about it.
a- Oil prices will fall below $100 (inflation adjusted) before 2008 ends. The world economy will recover by the first quarter of 2009 and things will seem like 2002. That is low interest rates, more consumption, low energy prices, a housing market picking up, more exports from Asia, a bigger India and a strong Brazil. The main consequence… oil consumption will grow again and big cars will crowd our roads.
b- Oil prices will be at records high, touching $200 (inflation adjusted) the world economy will hung while green technologies and energy savings keep the US and Europe afloat. Both will embrace current wind farms and solar panels while China sinks into a black smoke air that is polluting its cities. The world economy will almost face recession but it will recover by the third quarter of 2009 when these technologies hit the market and be the engine of big companies.
Two tricks on this, first you have to guess if Obama will win over McCain, both candidate´s policies are opposite when it comes to energy. Second you have to embrace or reject the idea that China can grow without the US and Europe buying its “toys”. This is the difference between having a hungry Asian and a starving one.
Maybe you are really smart... who knows.
miércoles, 30 de julio de 2008
lunes, 7 de julio de 2008
G.M. and the Bankrupt Nightmare
Like any big company that holds a lousy CEO and some blind car dealers – in the US – the future looks dark and dangerous. Not long ago intellectuals where laughing at the proposal of giving rebates and paying for gas to the big SUV buyers, not long ago car dealers across the country sent their support to Wagoner, not long ago the Prius became the car to buy, while the Ford F-150 series and the Hummer where symbols of inefficient fuel burn monsters. The conundrum of the big three just began, people where taking about the Japanese cars being better.
Ford made the same mistakes as G.M. did when the prices of oil where climbing fast, Chrysler is out of the talk because it will soon disappear. The problem with Ford is that is not as great as G.M. nor as powerful, also it seems that it begrudge the cash on hand that G.M. has; which could be devastating taking into account that the credit market is tight, and no major institution is lending without collateral.
G.M. was the brand, the model to follow, and the American pride on how to do business, even now that its international operations are performing great in developing countries, the North American ones are burning money on a breaking point basis.
Japan parlays its ability to be flexible when producing new cars using that leverage to create more sales which translates into more money, while G.M. is selling the Hummer, Ford the Jaguar and Chrysler, well it was bought by Cerberus Capital Management.
G.M. is worth $5.6 billion, has about $20 billion on cash and it is burning $1 billion a month, so you have a company that has more cash on hand than stock value, that is losing money faster than any turn around could fix, that is stuck with big SUV unsold, and that is competing with the “low cost hungry of growth” Asians. My vitriolic criticism comes from the fact that this has gone far enough, none of the intellectual elite were taken aback by this crisis, but when they spoke against Wagoner they were trashed by a lousy and mediocre P.R.
With the gallon of gas over $4 and the price of oil over $140 a barrel you can say bye bye to the good all days where contamination through burning fossil fuels was cheap enough to drive wherever you want to with little money.
Really?
When I live in the U.S 8 years ago this was already a problem, the price of gas was going up and people were complaining about the cost of heating their houses and filling their tanks. It was not as bad as it is now, but I heard them complain.
So why Detroit kept producing those monsters?
The profit on SUVs is much higher for automakers and car dealers than small fuel efficient cars. What they didn´t get is that the profit for small fuel efficient cars is better than losing money over unsold SUVs.
But what can I say, I never liked Wagoner and now that the company has been torn apart I see the brand that I admired for so long, lost into indecision and hesitation of a lame duck leader that could not take the right path when the Japanese did.
G.M. sales in June felt by 18% according to the Economist, and while they rush to make fuel efficient vehicles, on the same article a car dealer explains that people still prefers fuel efficient Japanese cars over the American ones.
This means a lot of trouble, since we think that a Toyota is fuel efficient while a Chevy is not, people will have on their top of mind a Prius instead of a Cobalt.
Some rumors about the split up of the North American operation of G.M. – which loses money every month – and the international operation are getting bigger. But this won´t fix the main problem, how to make people buy their cars.
A company that lacks a genius on its ranks, with no serious change of direction for the future, is doom to be bought – like Chrysler – or sent to bankruptcy.
While most of us can´t stop thinking about the soon to come 3G iphone – and have seen Steve Job´s presentation a thousand times –many others are thinking about the new Corolla and how Google will help Yahoo on its fight against a Microsoft´s takeover.
G.M. is out of the picture when it comes to entrepreneur spirit, innovation, development and growth. That could reflect not only a change in a company structure, but how they ersatz towards the Japanese auto models to see if America can catch up.
For connoisseurs of G.M. failures the tricky point is this, fight to get a new direction on the company, or fight to see it fall into Tata´s hands in few more years. Either way the new leader will be Toyota, who saw an interesting opportunity selling fuel efficient cars, when the big three saw nothing but a waste of time and money.
We cannot be tickled by the current events, not when we always looked at G.M. as the number one, the undisputable leader that sold more than anyone else. This may not be right to say, but I feel that the same is happening to the US. For some reason people cling to the wrong leaders until things fall apart, instead of embracing change when things can improve.
We are not looking for cars to be beau ideal we want fuel efficient ones, we want comfort and a good engine, that uses less gas than our old pickup truck, Wagoner may know how to jargon to their believers, what he can´t do is convince the rest of us that he should stay one more day.
You may not agree that G.M will file for bankruptcy in the near future, but you may like to think about which car you are looking to buy next.
You may ask for a picture of my new to be bought Yaris, but only after you send me one of your new Prius. That is the way that Thomas Friedman drives.
Ford made the same mistakes as G.M. did when the prices of oil where climbing fast, Chrysler is out of the talk because it will soon disappear. The problem with Ford is that is not as great as G.M. nor as powerful, also it seems that it begrudge the cash on hand that G.M. has; which could be devastating taking into account that the credit market is tight, and no major institution is lending without collateral.
G.M. was the brand, the model to follow, and the American pride on how to do business, even now that its international operations are performing great in developing countries, the North American ones are burning money on a breaking point basis.
Japan parlays its ability to be flexible when producing new cars using that leverage to create more sales which translates into more money, while G.M. is selling the Hummer, Ford the Jaguar and Chrysler, well it was bought by Cerberus Capital Management.
G.M. is worth $5.6 billion, has about $20 billion on cash and it is burning $1 billion a month, so you have a company that has more cash on hand than stock value, that is losing money faster than any turn around could fix, that is stuck with big SUV unsold, and that is competing with the “low cost hungry of growth” Asians. My vitriolic criticism comes from the fact that this has gone far enough, none of the intellectual elite were taken aback by this crisis, but when they spoke against Wagoner they were trashed by a lousy and mediocre P.R.
With the gallon of gas over $4 and the price of oil over $140 a barrel you can say bye bye to the good all days where contamination through burning fossil fuels was cheap enough to drive wherever you want to with little money.
Really?
When I live in the U.S 8 years ago this was already a problem, the price of gas was going up and people were complaining about the cost of heating their houses and filling their tanks. It was not as bad as it is now, but I heard them complain.
So why Detroit kept producing those monsters?
The profit on SUVs is much higher for automakers and car dealers than small fuel efficient cars. What they didn´t get is that the profit for small fuel efficient cars is better than losing money over unsold SUVs.
But what can I say, I never liked Wagoner and now that the company has been torn apart I see the brand that I admired for so long, lost into indecision and hesitation of a lame duck leader that could not take the right path when the Japanese did.
G.M. sales in June felt by 18% according to the Economist, and while they rush to make fuel efficient vehicles, on the same article a car dealer explains that people still prefers fuel efficient Japanese cars over the American ones.
This means a lot of trouble, since we think that a Toyota is fuel efficient while a Chevy is not, people will have on their top of mind a Prius instead of a Cobalt.
Some rumors about the split up of the North American operation of G.M. – which loses money every month – and the international operation are getting bigger. But this won´t fix the main problem, how to make people buy their cars.
A company that lacks a genius on its ranks, with no serious change of direction for the future, is doom to be bought – like Chrysler – or sent to bankruptcy.
While most of us can´t stop thinking about the soon to come 3G iphone – and have seen Steve Job´s presentation a thousand times –many others are thinking about the new Corolla and how Google will help Yahoo on its fight against a Microsoft´s takeover.
G.M. is out of the picture when it comes to entrepreneur spirit, innovation, development and growth. That could reflect not only a change in a company structure, but how they ersatz towards the Japanese auto models to see if America can catch up.
For connoisseurs of G.M. failures the tricky point is this, fight to get a new direction on the company, or fight to see it fall into Tata´s hands in few more years. Either way the new leader will be Toyota, who saw an interesting opportunity selling fuel efficient cars, when the big three saw nothing but a waste of time and money.
We cannot be tickled by the current events, not when we always looked at G.M. as the number one, the undisputable leader that sold more than anyone else. This may not be right to say, but I feel that the same is happening to the US. For some reason people cling to the wrong leaders until things fall apart, instead of embracing change when things can improve.
We are not looking for cars to be beau ideal we want fuel efficient ones, we want comfort and a good engine, that uses less gas than our old pickup truck, Wagoner may know how to jargon to their believers, what he can´t do is convince the rest of us that he should stay one more day.
You may not agree that G.M will file for bankruptcy in the near future, but you may like to think about which car you are looking to buy next.
You may ask for a picture of my new to be bought Yaris, but only after you send me one of your new Prius. That is the way that Thomas Friedman drives.
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