Watching the auto bailout hearings the past couple of days has been riveting. I believe business history will record this episode as a low point for both capitalism and unions. Business schools will teach the story for decades to come about the classic demise of a mature business devastated by abuse and failed leadership. Everyone from management to unions were resting on past success and their entitlements so hard, they forgot to protect and nurture their franchise.
But as Rick Wagoner stands there with his well-manicured-hands out to the American taxpayers I would love someone to ask him one question from me:
“Ricko, why in 2005 did GM systematically collect and crush its fleet of EV-1 electric cars?
It was among the fastest, most efficient production cars ever built. It ran on electricity, produced no emissions and catapulted American technology to the forefront of the automotive industry. The lucky few who drove it never wanted to give it up. What the hell were you thinking?”
(If you haven't seen the documentary “Who killed the Electric Car?” yet watch it now and be amazed.)
I am very torn on what the government should do now. My intuition is that they should not bail these top heavy, sub-standard companies out. I think any money given to the big 3 will ultimately be money (they don't have) thrown down the drain. For sure, the executives should be summarily fired for the failed leadership they have offered to this cause. My hesitation though is about the 700b they have promised to the banking sector. The banking sector has also been hopelessly flawed and scandalously led for many years. These failures are at the very root of our present global angst. Why should they be saved while the bluer collar auto workers get the punt?
In the end, as painful as it is, I think that the auto makers do need to go down. If there are other American car companies to come they will have to rise out of the ashes by starting with new energy, innovation and lean work ethic.
The government should spend money helping the auto workers to re-learn and re-train to a new, productive and sustainable career. It will be hard for many, but in the end this change has been a long time coming and in many ways stubbornly earned.
Meanwhile the TSX broke through 8,000 today. Over the past many months we have watched as the TSX declined but always a few thousand points above the DOW. I suspected the Canadian market would ultimately catch up and overtake the DOW to the downside. Today it met the Dow as they both broke through 8000.
Other world markets have now already achieved their 2002 low. The TSX today at 7745 still has a couple of thousand points to go before it will re-test the 5678 level of the last cyclical Bear. Time will tell, but I see no reason why the Canadian market would break ranks and not achieve this down side re-test.
Hopefully the indices will hold at the ’02 lows. If this secular bear is like 1966 to 1982, they will not. They will break to a fresh low this cycle below 5678 on the TSX and 7400 on the Dow.
At 750 this afternoon, the S&P today broke through its 2002 low of 776. I am afraid it is leading the way for Canada. And where it will stop, we cannot yet know.
Follow
____________________________
;
Two points.
1. Heard BNN commentators say they were getting a lot of mail complimenting Danielle on her warnings to investors. We're listening Danielle!
2.A floor based commentator on CNBC said “This is the end of a 20 year Ponzi scheme. Sound familiar?
BillB
First, I must say I am glad that I listened to your advice and got out of the market a few months ago. I have been officially deprogrammed from the “hold, hold, hold, the market always wins in the end” mantra the industry likes to spew out. Thanks. My question is, if you feel the TSX still has a big drop to go, is it likely have a fairly rapid descent in order to catch up to the rest of the world, as all the major indices seem to basically move in tandem these days,or are we going to ultimately see other indices moving upward while the TSX lags behind and continues to fall? (Although I must say that I think with the current market sentiment we are more likely than not to be hitting fresh lows all around, there has got to be a lot of smaller investors who have been hanging on by a thread, and days like today may be what causes that thread to break) BTW- Fire these arrogant, incompetent, over paid auto CEO's already! But offer some help to the hard working blue collar employees who will be the ones to pay the price in the end.
Today the earnings for the SP 500 is 65.00. At the average 100year PE of 17 this puts the SP500 at 1105. Well above the actual number. Company earnings are deteriorating. Assuming a reasonable decrease in earnings of 20% for next year. earnings will be 52.00. There is much less risk investing when the PE is single digits. 9 times 52.00 is SP 500 at 468. Waiting for 468 before investing seems like a wise idea. Today there is virtually no hope for the US economy. Assuming a decrease equivalent to the 80% decrease of the greatest bear of all time, the SP500 will be 304. However, there is fresh news and change everyday, and for whatever reason the market may start to march upward unexpectedly as markets do.
These hard working bue collar workers are recorded as an expense at $74.00 an hour(wage, pension and all benefits), at Toyota $50.00 an hour(perhaps why Toyota is profitable). My family doctor makes about $50.00 after all expenses. Slightly more than the assembly line worker. After 7 years of med school. An assembly line worker paid at 74.00/hr is unrealistic. I will be outraged if my tax dollars are used to continue GM, Ford, Chysler as it is.
The labour unions also want protectionism from imports. To block import cars for being sold in this country. This will only lead to further complancency and unproductivity.
I know two Ford workers. I have seen them more than once shopping at Wal Mart. I see, it is okay for them to buy imported goods(obviously do not care about any other Canadian's job, only their own jobs) but want us to be blocked from buying imported cars.
I agree that a lot of these workers get paid very handsomely, especially when you add pensions into the equation. However, that is not their fault; if somebody offers me a job that pays me much more than it arguably should then I am going to gladly accept it, because otherwise the next guy will. My father was in a union for most of his life(not auto) and he would have agreed that he got paid 'too much', but workers are not about to go against the union and suggest that they are overcompensated even if some of them realize that at some point in the future it could actually be their undoing, because then they will quickly be out of a job in the present. It is the auto companies, and the auto unions, and the whole culture of the industry that needs to be overhauled, and I agree that I would not be happy to see my tax dollars go to these companies without them offering up a fundamental change in how they operate. None of that changes the fact, however, that regardless of what transpires, be it the companies going down or being massively restructured, the head honchos of these companies who have failed miserably, will still be golden, and the employees will be left to suffer. And although you may not agree with how much they are paid(and I dont necessarialy blame you), they dont deserve to lose their jobs, they are honest workers and have families to support and bills to pay just like the rest of us. BTW – I am not an auto worker, nor do I have any affiliation with the industry whatsoever.
people really wanted those electric cars and went length to protest against GM taking them back at the end of the lease. what did GM do with them? they turned them into scrap metal 🙁
Ford had a fuel efficient diesel car, 65mpg, sold in the europe but they say it's unprofitable in U.S so they didn't bring it here. the story, “The 65 mpg Ford the U.S. Can't Have” cover by businessweek.com.
talk about mismanagement!
here's the link…
http://www.businessweek.com/magazine/content/08_37/b4099060491065.htm?chan=autos_autos+–+lifestyle+subindex+page_top+stories
Very interesting point re the EV1 electric car by GM some years ago. By the way it's spelled “Wagoner”.
Harry Hocquard
thanks Harry!
Just a warning. Retail gift certificates may not be redeemable in Jan. as some stores may declare bankruptcy, after an awfull Christmas selling season.
Danielle, unlike the S&P 500
The TSX was a different animal in 2002 than now.
Weightings are all different now. Different stocks too.
To get us to 5800 as you predict..
Are oil stocks going to drop another 30%?
Are bank stocks going to drop another 30%?
That would mean BMO is going to $20
Or SU is going to $18
There is a limit – can't be stuck in bear mode forever.
Just a thought…