Steve Funk

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    • Mon Nov 17th 13:29 PM
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      Consider 'Pull' Rather Than 'Push' for the Auto Industry
      Ms. Rogers brings out some interesting facts but misses the bigger picture regarding a domestic auto industry. The lack of understanding is pervasive in the many columns being written as well as the uninformed comments.

      The reasons for the demise of the domestic auto industry are complex and cannot be summarized in a short column. To do so trivializes the issue and is typical of the current American attitude toward manufacturing. This cavalier attitude and misunderstanding about $48/hour jobs (do you really believe people are clocking hours at $48?).

      The truth is that this tradgedy has been unfolding for decades and no one but Lou Dobbs seems to care. I suspect our legislators (who share the blame but get a free pass in every column written), will try to put Humptey back together again but it will be too little too late. GM has some interesting facts about the economic impact of the auto industry on their web site, and say what you will about GM but few would call them grand standers. The repercussions of our failed industries will be alarming and a tradgedy.
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    • Tue Nov 11th 15:10 PM
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      The Failure to Admit Failure
      Mr. Merkel is clearly upset about everyone bellying up to the $700B piggy trough. I don't blame him. He should, however, take his own advice that we be thoughtful about doleing out the money.

      Since very few analysts or financial reporters have covered the auto industry in the last two decades there are very few experts to talk about this issue. Mr. Merkel's easy answer that "they" (auto industry) simply be allowed to go out of business is a very glib answer that does not begin to address the repercussions of such a catastrophe. First, he assumes that there will be a Chapter 11 bankruptcy, if it comes to that. Who pays the billions per month in negative cash flow while all the issues are sorted out in bankruptcy court? GM is a very large military contractor and still owns large stakes in Hughes (military satellites). If those interests are sold quickly to the highest bidder probably the only ones with cash will be foreign investors. Is it wise to sell large stakes in a top secret military company? Is it legal? The Pension Benefit Guarantee Corp (i.e. taxpayers) will surely wind up supporting (at least partially) the hundreds of thousands of retireees who will be left high and dry. What of the fallout from dozens of very large corporations being crippled or bankrupted (Lear, Johnson Controls, USX, American Axle, Detroit Diesel, you get the idea).

      I don't have the answers to these questions and I don't think anyone does. What does irks me is how glib many are about the auto industry going bankrupt. It shows a total lack of understanding of how industrial complex works. That is not surprising since many believe that we can continue to be a strong economy without producing anything. The second thing that never is mentioned in the many articles like Mr. Merkel's is the huge hand that government regulation and Wall Street have had in the demise of the auto industry. Check into the 1957 Supreme Court ruling that forced GM to divest itself of DuPont (it's proprietary paint supplier) and forced resignation of the Board of Directors. Even in the 1980's engineers were being told that it was illegal to talk out of work with a Ford or Chrysler engineer due to anti-trust rulings. In the 1960's and 1970's the government had a huge hand in backing the Union demands for wages and benefits and unemployment benefits that is at least part of the fixed cost problem that the domestic industry is facing. GM has been coerced by government officials into keeping unprofitable plants open because of local economic concerns.

      Obviously a book could be written (and many will) on how the auto industry stumbled. To simply blame it on management and unions is beyond short sighted. I can only hope that our brilliant legislators who brought us to this point will not be as cavalier about the choices we face as Mr. Merkel.
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    • Wed Nov 5th 12:33 PM
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      Nationalizing Detroit? It's a Good Idea
      The time to take the auto industry seriously was in, oh, about 1982. No one thought it important then, and now the industry is gutted. Even with a bailout much of the core competency of the industry is gone. Tool & die, mold making, steel making, engineering education infrastructure, and manufacturing capability are all gone or greatly diminished in capacity. We could not make a whole car with US manufacturing and know how if we wanted to. This has been going on for decades and now that we are at the final spectacular point of industry collapse everyone is starting to think about what we have done. It is too late. All we can do is pick up the pieces.

      One popular myth needs addressing first. To those in this column and everywhere else in the popular press who attribute this problem to bad products and bad management: give me data. Here is some to start with. For over twenty years Toyota has had a joint venture with GM (NUMMI). There is one plant in the joint venture in California. They have always produced a Toyota designed small car with Toyota management and Toyota parts. The production is split between a model badged as a Toyota and the other model has had various GM badges. There is no mechanical difference between the two cars, only upholstery and dash design and a much lower price on the GM badged car. If car buyers are rational why would the Toyota consistenly out sell the GM by a wide margin. The fact is the auto industry has become a fashion industry. Just as Levi struggles to sell jeans against Buckle, GM cannot overcome a fashion bias by Americans. This is not an isolated example. Read Lee Iacoca's book about Chrysler's struggle with the similar Mitsubishi joint venture in Illinois.

      How does this impact investing? Hard to tell but one of the numbers you have forgotten is the several hundred thousand retiree's living off GM pension, health benefits, and stock dividends (more than active workers). This will definitely bankrupt the Pension Benefit Guarantee Corp when this happens. Something will have to be done quickly because when little old ladies in Saginaw start losing their homes, income and medical benefits you can bet it will make national news. Michael Moore will be first in line to tell the story. I think that this could be Obama's first opportunity to expand the Pension Guarantee program, Medicare, and Social Security all at once.



      There might be some investment opportunities there, but it sure is not in the auto industry.
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    • Mon Oct 13th 10:43 AM
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      GM-Chrysler Merger: A Disastrous Deal?
      "31 October" is right. GM has some exciting technology. But they were first to market with an electric vehicle (I believe '94 MY) and look where that has got them. GM has had many good cars for years now, but they are "Levi's" and everyone wants "Lucky" jeans. I don't know how you turn that around in an industry that takes 3-4 years for a product change and billions in tooling. I like GM, but I don't see their way out of this one.

      There is one last ditch possibility. Perhaps this is not a bone headed business move (GM has long disdained Chrysler), but a desparate political move. If GM really is on the ropes, they might as well make a "too big to fail" organisation. Combining with Chrysler pretty much makes Congress choose whether or not they want US car companies. In the current wave of nationalisation they will very likely come under the protection of the Federal government. If you think product cycles are slow now, just wait until that happens. With so much uncertainty I am not sure why anyone would still be in auto stocks.

      Just a side note. No one ever talks about the special controlling class of stock that the Ford family owns. There are now hundreds of trust fund Ford families living off this stock dividend. A vote to merge would certainly be a vote to cut off all funds to the Ford family who have not worked for generations (except Bill). They will choose to go down with the Titanic hoping there will be a lifeboat in it for them. I wish them luck.
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    • Mon Aug 4th 11:41 AM
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      Default Risk of U.S. Automaker Debt: Too Big to Fail?
      All the standard cliches' here about "dumb executives" and marketing mistakes are arguments that ignore the macro environment of the auto industry. I have worked with GM executives and they are some of the brightest and best trained you will find. I have also been in a key GM plant years ago during an important strike during an election year. The plant manager was paged for an "urgent phone call from Washington" and the strike was over in an hour. Let's not forget the Justice Department decree against GM in the 60's. That was truly the beginning of the end. The government has has their hand in every major shift in the auto industry, and we all know how adept Senators are at business. I think this article is spot on, as in the past, the future of the auto industry will be determined by Washington, not the skill of industry managers. Since the current trend is psuedo-nationalisation and government arranged marriages, why not force Honda and Toyota to absorb the Big 3?
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    • Mon Aug 4th 10:59 AM
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      Lithium-Ion Batteries and Centerfolds: The Final Chapter
      Great article. As an engineer who has worked with battery storage I can tell you that engineers have talked about this very issue for years. Engineeers just aren't very good at predicting when. The fact is batteries in mobile gear are expensive and it doesn't look like they will come down fast without completely new technology. The problem is one of chemistry facts that are too easily overlooked by our Senators. Electric cars were tried 100 years ago, again by GM in the 1990's, and all were abandoned for engineering/ marketing reasons that have not changed and won't change with even 10-20% improvements in current technology. BTW, don't overlook pumped water storage where water is plentiful. Detroit Edison has been doing that on the shores of Lake Michigan for 20+ years.
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    • Thu Jul 10th 12:22 PM
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      Troubled VMWare's Lowest Close Ever
      I have lived through all of the changes that you mention and have dabbled in the different stocks mentioned along the way. Since the beginning of the computer industry it seems that the technology has been over estimated and the business systems behind the companies and the market forces have been greatly underestimated. Microsoft's growing server market share and proven marketing prowess make it dangerous to bet against them with VMWare stock. Besides, VMWare can actually help boost Microsoft Server sales (and Oracle). MS wins either way and lives to try again if they come up short. They have done this over and over again. VMWare probably has peaked in market share.

      Instead of technology, you should consider barrier's to entry in the marketplace. Ultimately that is what did in Netscape. If you have enough time and money (as MS does), these software technologies just are not that hard to duplicate and if priced right managers are not going to count CPU cycles before buying a particular technology. It is all about the marketing and I have not seen VMWare be proactive in their marketing plans. I think that EMC cashed out at the right time and investors are now beginning to realize that. This will be just another good software company with good cash flow, low dividends, and constant market threats that make the stock volatile. Not a great investment.
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    • Mon Jun 30th 11:06 AM
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      How I Plan to Trade My Depressed GM Stock
      Just looking at this forum is enough to tell me to stay out of auto stocks for now. People who have never seen a full JD Power quality survey are comparing BMW's and GM's and inferring what the stock will do (btw, BMW has a terrible reliability record, much worse than GM). Clearly there are many investors who drive cars and think they understand the auto business. When the crazies are investing on emotion it is time to get out.

      GM has pulled off miracles of fund raising in the past (1992) but it looks even harder this time. All auto companies burn cash at high rates due to hard capital and labor laws cannot reduce those expenses quickly. If GM cannot raise capital by this fall they will have to be taken private like Chrysler and there will be no stock bounce. (Bill Gates could write a check for GM right now).
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    • Mon Jun 30th 10:38 AM
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      Is General Motors Closer to a Default?
      Kudo's to The Gavster. Most of the previous posts show little understanding of the auto industry, and I thought this forum was about the industry and investing in it. Bottom line is these comments show that the auto industry has become much like the jeans industry and much less like the hard goods industry. No one complains that Levi's are poor quality, they just like Buckle better and the stock reflects it. These are whims and the money goes to the new guy with cache. When you have the burden of history like GM and Levi you just can't get out from under it, no matter how good your product.

      As for investing, there has to be someone looking at taking GM private. Serberos could combine GM and Chrysler and actually start getting some economies out of the deal. Ford would be a candidate, but the Ford family has shown themselves time and again to put their trust fund ahead of good business judgement, and they own controlling stock. Until this shakes out the auto stocks are way too dangerous. And that does not have anything to do with EV1 (which could not sell) or dealer performance.
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    • Fri Jun 6th 10:30 AM
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      Why Microsoft Will Never Win (Again)
      Mr. Ingram has some good insights and interesting history pieces. I do think that he is rearranging these little bits of history in the wrong order and drawing financial conclusions based on the "religious" beliefs of the anti-Microsoft techies.

      First, with such high market penetration in the OS and Office market there really is nowhere to go but down in market share. The only question is how far and how fast they will go down. IBM and GM are good studies in this respect. All three have had dominating market postions, then a Justice Department decree, then the struggle to hold on to market share.

      No one mentions the fact that Obama has declared that he will strengthen anti-trust enforcement. Any question who is on his target short list? That will have a bigger impact than technology shifts or Google.

      All of the "religious" discussions, such as OpenOffice.org, discount Microsoft's impeccable P&L and balance sheet. In the end the one with the most cash and best management to put that cash to good use will win. Unless there are government interventions.
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