Automotive News - June 30, 2008 - (Page 1)

autonews.com ® JUNE 30, 2008 Entire contents © 2008 Crain Communications Inc. All rights reserved. $155/YEAR; $5/COPY Desperate times, desperate measures Companies squeezed in vise of rising materials prices, falling vehicle sales April Wortham awortham@crain.com Ripple effect The price of polypropylene, used for plastics, has soared. $1.10 1.00 Pirce per pound Stagflation — perhaps the worstcase scenario for automakers and suppliers — is roiling the auto industry. Suppliers of raw materials such as oil, rubber, steel and plastic resins are imposing huge price increases as vehicle sales collapse. Automakers appear helpless to fend off those rising materials costs. And it seems unlikely that they can pass along the increases to consumers in such a weak market. Consider these developments: Polypropylene, a resin commonly used in plastic parts, is 45 percent more expensive than it was a year and a half ago. Tire prices have risen nearly 20 percent over the past three months. Oil for petrochemical feedstocks costs $136 a barrel on the futures market. That’s up 39 percent since the first week of January. The price of natural gas, another raw material used to make resins, is up 63 percent since January. The type of steel used to make bumpers, wheels and frames has topped $1,000 per ton, nearly double its price last December. Particularly vulnerable are interior component suppliers such as International Automotive Components Group in suburban Detroit. The company uses huge quantities of petroleum-based resins to make instrument panels, cockpits, door panels, headliners, exterior fascia and trim. Company founder Wilbur Ross said The Detroit 3 cash crunch: How bad is it? David Barkholz, Jamie LaReau and Bradford Wernle dbarkholz@crain.com news ANALYSIS .90 .80 .70 .60 0 01/07 10/07 06/08 Source: Plastics News this month that he had been able to resist most commodity price pressee INFLATION, Page 8 Can the Detroit 3 hang on? The startling collapse in sales since April means the three automakers are burning through cash reserves at a terrifying rate. Suddenly they have far more urgent deadlines for fixing their businesses. And they are considering a new range of actions that a few months ago were not on the table. Investors are voting with their feet. Share prices for General Motors and Ford Motor Co. plunged last week — in GM’s case, to a five-decade low. And privately held Chrysler last week was forced to tamp down rumors that it is about to declare bankruptcy. The desperate Detroit 3 need to come up with enough cash, or access to cash, to limp to 2010, when they realize a combined $8.5 billion in savings from new contracts with the UAW. Here are the key questions: How rapidly are the Detroit 3 burning cash? When might they run out? GM will burn through about $1 billion a month this year and $6.3 billion next year, says Patrick Archambault, an analyst for the investment bank Goldman Sachs Group Inc. That would leave an anemic $8.7 billion in cash by the end of 2009 unless GM dumps assets or adds new debt, he said. see CASH, Page 38 Chrysler’s makeover As gasoline prices soar, Chrysler’s planners are considering proposals to kill duplicate “clone” cars for each brand. They are upgrading interiors, introducing hybrid powerplants and finding partners to design small cars. This week, Automotive News begins its annual future product series with Chrysler’s plans for the 2009-12 model years. Turn to Page 24. Tata, on tour, wins kudos from dealers He asks. He listens. He hugs. Ratan Tata, took a whirlwind tour after his Indian company acquired Jaguar and Land Rover. He got high marks from dealers who say they have new enthusiasm about their franchise. | PAGE 3 | Mercedes has high hopes for Bluetec Despite $5-agallon diesel fuel, Mercedes predicts its clean, 50-state Bluetec diesels will account for at least 15 percent of SUV and crossover sales. They go on sale in October. | PAGE 4 | RICK KRANZ That thing gotta Hemi? Nope. The coupe is the price leader for the ’09 Challenger line. This fall, the V-6 equipped SE will sell for $21,995 including shipping. New-car losses soar; dealers’ 3rd year of red ink Donna Harris dharris@crain.com The average U.S. auto dealer has lost money on new-vehicle sales for two years and is headed for another, much deeper loss in 2008. Through April, the average loss in the new-vehicle department had doubled compared with the same period of last year, according to the National Automobile Dealers Association. “It’s been tough in the new-car de- partments,” said Russ Darrow Jr., who owns 15 dealerships in Wisconsin that sell various brands. “Dealer volumes are down, and grosses are down, and expenses are up all at the same time.” It has been a long losing streak. Never before has the average newvehicle department lost money for three consecutive years. NADA says the only other years with new-vehicle losses were 1990, 1991 and 1995. This year, NADA says, net losses are averaging $136 per new vehicle, compared with a $61 average loss in the first four months of 2007. The figures include finance and insurance operations, which are profitable. As recently as 2004, the average profit per vehicle was $176. On the Web This week at www.autonews.com: Today: Automotive News Data Center posts U.S. certified pre-owned sales data for May and the year to date along with data on Mexico sales and wholesale prices. Tuesday: Automakers report U.S. light-vehicle sales for June and the year to date. ‘Toughest times’ “We are looking at some of the toughest times we have ever seen,” said Laine Diffee, vice president of Diffee Ford-Lincoln-Mercury in El Reno, Okla. “If we relied strictly on new cars, we’d be in trouble. The see DEALERS, Page 38 NEWSPAPER http://www.autonews.com http://www.autonews.com

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Automotive News - June 30, 2008

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