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This is classic Sergio, and it is written as he would see things, as a financier working w/ first-tier automakers. His observations are spot-on, and it's true
by linksnapzz 7y ago
This is classic Sergio, and it is written as he would see things, as a financier working w/ first-tier automakers.
His observations are spot-on, and it's true that half of what you're paying for in the development of a new car are things that are invisible to most consumers. Quick, can you name the company that made the AC system for your car?
Things that make carmaking expensive/difficult:
1.) Huge regulatory burden (safety & environmental) on R&D
2.) Low margins (for mainstream cars)
3.) Vast capital requirements
4.) Very vulnerable to consumer confidence
5.) Globally segregated market (much as we might wish it away...)
6.) Mature market
If I knew nothing else, this would make carmaker stock unappealing from a growth perspective. If that's the only way you can get more capital, then that's a problem. For a cost-productivity sake, you'd want one or two giant companies that each make one car, but under multiple brands. Then you rely on marketing to tell customers that there's a difference. This would drive down the overhead involved in many manufacturers making different models, and push the growth potential of automaker stock more towards consumer products in general.
We sorta had this, in the US, with GM in the '60s and '70s.
It was so big it was almost a monopoly...and yet, in the long term, that didn't last. Mostly, for reasons that escaped Fred Donner and Jim Roche back then, and that I don't think Sergio ever grasped.
In the end, a global auto oligopoly that answers to Wall St. and to gov't regulators, and to only those two, is going to be bad for consumers in the long term.
- nordsieck 7y ago> For a cost-productivity sake, you'd want one or two giant companies that each make one car, but under multiple brands. Then you rely on marketing to tell customers that there's a difference. This would drive down the overhead involved in many manufacturers making different models, and push the growth potential of automaker stock more towards consumer products in general. The common term for this is "badge engineering" and it doesn't really work long term for the simple reason that there are just too many car enthusiasts who figure out the truth pretty quickly. This problem is compounded by the fact that there is a large overlap between enthusiasts and people who buy more expensive cars.
- linksnapzz 7y agoExactly. If you were an economist or a banker, you might not get that until it was too late.
- 7532yahoogmail 7y agoHow does the Japanese of the 80s and early 90s (before their problems recently) differ from now? JP took some 30pct of the US market in an industry that is/was largely beholden to the same constraints you mention. Honda and Toyota we're good investments then.
- linksnapzz 7y agoThey had (have) some advantages that American car companies don't. Those companies are good investments, if you are interested in holding stock for a long time, and have the patience to wait out what is a cyclical market. One of the reasons why GM & Chrysler had to go to the gov't for loans in 2009 was that they literally hadn't enough money on hand to fund operations until normal lending from banks resumed...Ford didn't need a bailout (initially), b/c Mullaly had negotiated for a huge line of credit before the crisis, and Toyota didn't, b/c they were sitting on $50 billion in cash and could pay for operations with that. Wall St. routinely loses its shit when a publicly-traded company accumulates cash like that...that money should go to buying back stock to drive up the price, or returned to the shareholders. Long term contingency planning...not so much. Japanese, OTOH... Likewise, as exporters into the US market, they can depend on a favorable monetary policy at home to make their products look more affordable, and they haven't the sort of labor-management dynamic that has been foisted on the US mfg. industry since the 1930s, either.