VW Exasperates Ford's and Others Already Worsening Capacity Problems

[FordBuyer]

Interesting read:

 

Click here: Marchionne is right to nail VW on price war | The Detroit News | detroitnews.com

[Edstock]

Meh. Indications are that car sales are slowing in China, so the VW "miracle" might actually start to run out of steam. Time will tell. As RJ has mentioned, VW is "creative" with its accounting, and sometimes, creativity bites . . .

[Anthony]

He's right, too, that chattering among automakers and analysts in Europe and the United States contends VW is using profits earned outside of Europe to subsidize a price war in its local market to buy share from struggling rivals — the familiar road to ruin for Detroit and, to some degree, that Japanese juggernaut called Toyota Motor Corp.

 

"VW is using super-normal Chinese profits to subsidize a price war in Europe, and since it operates in the same currency as competitors, it no longer has the old 'natural brake' of a rising Deutschmark to slow its export success," Max Warburton, analyst for Bernstein Research, wrote in a report dated July 18. "VW's gains in Europe look strangely reminiscent of Japanese gains in the U.S. in the 1990s."

 

I love it. Marchionne calls out VW and they want him to resign.

 

All of this is apparently too much for the guys running VW, tightly focused as they are on their lofty goal to bury GM and Toyota on their way to producing 10 million cars and trucks worldwide in a single year:

 

"Mr. Marchionne is unbearable as president of ACEA," Stephan Gruehsem, the German automaker's head of corporate communication, told the Wall Street Journal. "We call for him to resign."

[Harley Lover]

exacerbates

[hawaiicarguy]

exacerbates

Here Here !

[RichardJensen]

The odd thing about Europe is watching things go wrong very slowly over there, vs. the rapid way in which things fell apart stateside in late '08.

[jpd80]

The odd thing about Europe is watching things go wrong very slowly over there, vs. the rapid way in which things fell apart stateside in late '08.

USA is one country where as Europe is multiple failing countries, unfortunately the cures put into place in the US

will not completely work there as the failure is duel to Greece, Spain, Italy and others not controlling teir debt and spending.

 

A good time for Ford do do a strong restructure.

[RichardJensen]

While both the EU and US saw confidence crises, the nature of the US crisis was tied to, among other things, the ability to secure very short term financing (as short a term as overnight repo deals), whereas GIIPS debt rolls over on a much slower basis

[jpd80]

While both the EU and US saw confidence crises, the nature of the US crisis was tied to, among other things, the ability to secure very short term financing (as short a term as overnight repo deals), whereas GIIPS debt rolls over on a much slower basis

And the big difference is that those countries' problems are long term systemic failures of fiscal governance

with doubtful income to service additional credit extensions, completely different to a short term lending crisis.

 

The EU is like the Titanic after it struck the iceberg with debt pouring in along financial fractures from bow to stern...

At some stage Germany, UK and France are going to call it a day and walk away from the whole mess, it has to happen..

Edited July 28, 2012 by jpd80

[RichardJensen]

John Carney @ CNBC.com has written some pretty interesting stuff about the crisis.

 

 

His take, supported by ECB data, is this:

 

Some guy in Spain buys a TV made in Korea. Korea gets paid in Euros. You can't spend Euros in Korea, so you have to invest the Euros in something denominated in Euros. That something is probably not going to be stock issued by Spanish companies or bonds issued by the Spanish government (at least not at a low rate of return). Thus, you have a gradual but ultimately devastating decline in capital in the GIIPS, and 'what me worry?' in the healthier EU countries, as they're benefiting from capital flight out of the GIIPS countries they're expected to help.

 

UK doesn't factor because they issue their own currency. They can sit on the sidelines and be glad that a plebiscite saved them from monetary union.

 

There are no good solutions, and kicking the can down the road makes default more and more inevitable. Revenues will not increase faster than expenses are cut, which means ongoing deficit spending, which means greater and greater debt load making each debt issue more risky (and expensive) than the previous, eventually reaching a point where default is a thoroughly palatable notion (shoot Greek democracy was founded on, among other things, debt repudiation). Alternatively, a surprisingly strong recovery could paper over this problem briefly, and delay the reckoning.

 

Monetary union didn't change a thing in the GIIPS countries. Before EMU the Mediterranean countries were aging, they had a culture of tax evasion, they had inflexible workforces and laws, and after EMU it was basically the same. It briefly brought an influx of currency (retirement village construction in Spain, tourism in Greece, etc.) But when the economic slowdown hit, it made the flight to quality that much easier.

 

Point being: unless the fundamentals change, the Mediterranean countries are not well served by a unified currency. If Italy goes back to the Lira at least they can be sure that their current accounts deficits will be repatriated at some point, and not invested in Germany or France.

Edited July 28, 2012 by RichardJensen

[jpd80]

John Carney @ CNBC.com has written some pretty interesting stuff about the crisis.

 

 

His take, supported by ECB data, is this:

 

Some guy in Spain buys a TV made in Korea. Korea gets paid in Euros. You can't spend Euros in Korea, so you have to invest the Euros in something denominated in Euros. That something is probably not going to be stock issued by Spanish companies or bonds issued by the Spanish government (at least not at a low rate of return). Thus, you have a gradual but ultimately devastating decline in capital in the GIIPS, and 'what me worry?' in the healthier EU countries, as they're benefiting from capital flight out of the GIIPS countries they're expected to help.

 

UK doesn't factor because they issue their own currency. They can sit on the sidelines and be glad that a plebiscite saved them from monetary union.

 

There are no good solutions, and kicking the can down the road makes default more and more inevitable. Revenues will not increase faster than expenses are cut, which means ongoing deficit spending, which means greater and greater debt load making each debt issue more risky (and expensive) than the previous, eventually reaching a point where default is a thoroughly palatable notion (shoot Greek democracy was founded on, among other things, debt repudiation). Alternatively, a surprisingly strong recovery could paper over this problem briefly, and delay the reckoning.

 

Monetary union didn't change a thing in the GIIPS countries. Before EMU the Mediterranean countries were aging, they had a culture of tax evasion, they had inflexible workforces and laws, and after EMU it was basically the same. It briefly brought an influx of currency (retirement village construction in Spain, tourism in Greece, etc.) But when the economic slowdown hit, it made the flight to quality that much easier.

 

Point being: unless the fundamentals change, the Mediterranean countries are not well served by a unified currency. If Italy goes back to the Lira at least they can be sure that their current accounts deficits will be repatriated at some point, and not invested in Germany or France.

 

And the EU is really throwing good money after bad trying to rescue these miscreant states.They either leave like Greece

or make pretend promises to reform just to get the cash.

 

Not long ago, maybe last November the EU was demanding the UK give them 25 billion pounds for bail out, not sure if they did..

If Cameron was smart he would have resisted every overture from Merkel and her gang...

[RichardJensen]

I wouldn't go so far as to call them 'miscreant' states. I wouldn't be too quick to buy into the portrayal of the GIIPS as beggars and undisciplined spendthrifts. In fifty years of postwar history leading up to the EMU, none of those states defaulted on their debts.

 

The Germans, for instance, are quite happy to take the good that comes with fiscal union and quite unwilling to accept the bad; in that respect they are very like the GIIPS. The only difference being their ability, as lenders, to stake out a moral high ground and lecture other countries. In fact, they want the euro to continue to make their exports attractive, while refusing to pay the costs that go with it.

Edited July 28, 2012 by RichardJensen

[Biker16]

I wouldn't go so far as to call them 'miscreant' states. I wouldn't be too quick to buy into the portrayal of the GIIPS as beggars and undisciplined spendthrifts. In fifty years of postwar history leading up to the EMU, none of those states defaulted on their debts.

 

The Germans, for instance, are quite happy to take the good that comes with fiscal union and quite unwilling to accept the bad; in that respect they are very like the GIIPS. The only difference being their ability, as lenders, to stake out a moral high ground and lecture other countries. In fact, they want the euro to continue to make their exports attractive, while refusing to pay the costs that go with it.

 

monetary union without fiscal union is insanity. you are correct Germany want all the benefits of the euro but none of the bad.

 

they need to deflate the currency, by printing more Euros.

[RichardJensen]

Deflating the currency won't stop currency flight out of the GIIPS. You'll still have monetary union without fiscal union.

[jpd80]

I wouldn't go so far as to call them 'miscreant' states. I wouldn't be too quick to buy into the portrayal of the GIIPS as beggars and undisciplined spendthrifts. In fifty years of postwar history leading up to the EMU, none of those states defaulted on their debts.

 

The Germans, for instance, are quite happy to take the good that comes with fiscal union and quite unwilling to accept the bad; in that respect they are very like the GIIPS. The only difference being their ability, as lenders, to stake out a moral high ground and lecture other countries. In fact, they want the euro to continue to make their exports attractive, while refusing to pay the costs that go with it.

Maybe I was a bit hard on GIIPS states but clearly, there is a huge imbalance in the system, Germany is leading the charge on the Euro

and most would say it's set up to their advantage with their strong economic base, their failure to recognize why lesser states would

struggle .with a unified currency and the financial discipline required is at the center of this (IMO)

 

UK was smart enough to see the reaps and pit falls of a common currency without the necessary underpinning combined monetary policy.

 

 

Deflating the currency won't stop currency flight out of the GIIPS. You'll still have monetary union without fiscal union.

And this is why getting the "United States Of Europe" anywhere near as cohesive as the USA is so much harder, maybe impossible.

Edited July 28, 2012 by jpd80

[RichardJensen]

Well, it's not exactly a question of financial discipline per se. A reasonable amount of deficit spending will be sustained as long as currency must be repatriated.

 

Where one can avoid repatriation (cf. Argentina's fixed dollar to peso exchange rate and the absolute convertibility of pesos for dollars), a shaky economy will be sent into a death spiral.

 

And one should recall that the Blair administration was very very pro-Euro, and was saved (in retrospect) by a fairly John Bull-ish popular sentiment that opposed the Euro on nationalistic grounds, rather than reasoned consideration of the risk of monetary union without fiscal union.

Edited July 28, 2012 by RichardJensen

[jpd80]

Well, it's not exactly a question of financial discipline per se. A reasonable amount of deficit spending will be sustained as long as currency must be repatriated.

 

Where one can avoid repatriation (cf. Argentina's fixed dollar to peso exchange rate and the absolute convertibility of pesos for dollars), a shaky economy will be sent into a death spiral.

 

And one should recall that the Blair administration was very very pro-Euro, and was saved (in retrospect) by a fairly John Bull-ish popular sentiment that opposed the Euro on nationalistic grounds, rather than reasoned consideration of the risk of monetary union without fiscal union.

Yes and I remember how hard Tony Blair was pushing for it, and how in the end he bowed to the will of the electorate

who saw it as losing control of their pound, rooted in the sense of what could go wrong with the money flow and

ultimately control of their countries financial affairs, (being held accountable and liable by other countries)

 

By my words it's obvious I don't fully understand monetary flow in the various countries but IMO,

Germans and others tried to push too many countries in when they were not ready to join

[Joe771476]

Ford should have bought VW when they were considering it decades ago and dismantled it!

[jasonj80]

Germans and others tried to push too many countries in when they were not ready to join

 

The Euro was Germany's way to concur Europe without firing a shot. It is in Greece's and Spain's best long term health to dump the Euro. Greece wouldn't be in the shape it is in if they had their own currency - giving up currency is a major part of a county's ability to be an independent body. Freely traded currency's allow country to fix its economy in a much faster rate. It is when there is outside intervention (China) that you end up dragging out problems.

 

Ford should have bought VW when they were considering it decades ago and dismantled it!

 

They stopped as they knew it would never happen, Anti-Trust Regulators in the US and Europe - along with every major auto company and Union would have screamed.

Edited July 29, 2012 by jasonj80

[Noah Harbinger]

Where one can avoid repatriation (cf. Argentina's fixed dollar to peso exchange rate and the absolute convertibility of pesos for dollars), a shaky economy will be sent into a death spiral.

 

As I understand it, Argentina has placed significant restrictions on purchasing dollars.

 

This sent the black-market rate for dollars soaring. Argentines now pay about 5.95 pesos per dollar on the black market while the official rate is 4.53.

 

… which is in line with what my friend said she's experienced. Argentina's doing a lot to try to improve their foreign reserve woes - you can't buy an iphone since it's not made in Argentina - but it sounds like things are pretty bad (even as their employment situation looks far rosier than in the US).

Edited July 29, 2012 by Noah Harbinger

[RichardJensen]

I was referring to the dollar peg that was abandoned shortly before Argentina's default.

[jpd80]

The Euro was Germany's way to concur Europe without firing a shot. It is in Greece's and Spain's best long term health to dump the Euro. Greece wouldn't be in the shape it is in if they had their own currency - giving up currency is a major part of a county's ability to be an independent body. Freely traded currency's allow country to fix its economy in a much faster rate. It is when there is outside intervention (China) that you end up dragging out problems.

Yes, In Greece's case, they have serious monetary problems because their GDP is low and tax avoidance is rampant there

As said earlier with a Euro currency flow, the money does not flow back to them but with local currency, more stays in Greece.

 

They stopped as they knew it would never happen, Anti-Trust Regulators in the US and Europe - along with every major auto company and Union would have screamed.

We sometimes forget that companies are not free to buy up other companies, especially when Euro states have a vested interest

or are at least influenced by unions and public opinion on foreign investment in German companies particularly..

but it's OK for Daimler to own and control Chrysler......

Edited July 29, 2012 by jpd80

[Edstock]

but it's OK for Daimler to own and control Chrysler......

 

The two of them deserved each other, but unfortunately it was the Chrysler dealers and shareholders who were caught in the Crossfire of management strife as product development at Chrysler went into the toilet. . . .

[jasonj80]

The two of them deserved each other, but unfortunately it was the Chrysler dealers and shareholders who were caught in the Crossfire of management strife as product development at Chrysler went into the toilet. . . .

 

Product development at Chrysler was in the toilet when they got bought by Daimler. Their current vehicles were selling but in terms of the new product, there wasn't much.