Germany's Cash For Clunkers

Germany launched their Cash for Clunkers program earlier in the year. It has been a major success....registrations of new cars are up 40% in May over last year at the same time. Car dealers are excited that there is so much show room traffic....although the German manufacturers are less excited.

The German government appears to be pleased with the response to the program. Over one million prospective new car buyers have applied for the $3500 willing to trade in a car over 9 years old. The German government has increased the budget from $2.1 billion to $7 billion.

Today's world is very different than the past, multinational corporations are all over the globe. Manufacturing is done in a number of different countries. One of the problems that I have had with all the government bailouts.....is who are we bailing out! It turns out that we have bailed U.S. based companies but a lot of the money is paying obligations to other governments, foreign corporations, foreign nationals. But, at the same time it is our money.....so that is the complexity for governments today.

The Cash for Clunkers program apparently has substantial leakage. Leakage is an economic term....translated it means that the the governments financial efforts to stimulate demand benefits auto manufacturers in other countries. Apparently, only 24% of the money spend into the program has gone to German manufacturers...primarily Volkswagen and Opel.

Germans are apparently going for smaller less expensive cars...the balance of 76% has been spent on Hyundai's, Renault's, Skoda's and other foreign brands. An example of a Skoda Fabia is shown above.

There is an interesting story about a beneficiary of the German Cash for Clunkers program. The company is Skoda...which is a Czechoslovakian company. Six months ago they cut back a number of workers, reduced the work week to four days ...when the German Cash For Clunkers program was announced they rehired some of the the laidoff staff and are working five day work weeks with three full shifts.

SUMMARY

A program like the Cash for Clunkers can be an advantageous program if it is implemented properly. Congress should learn from the mistakes of other countries and not repeat them.

Wages in Eastern Europe are much lower than wages in the rest of Europe...therefore the selling price of the Skoda autos is much cheaper. In difficult economic times people will by the cheapest product available.

If a country wants to help the automobile companies in that country..... they have to limit the incentives to cars built in that country.....without regard to manufacturer.

To open the coffers to imports does not make any sense to me! The German plan will mainly help out the dealers especially the lower priced vehicles.....but does not have the same impact on manufacturers.

GM to Sell Opel and Vauxhall to Magna

General Motors (GM) is working feverishly on a number of projects related to the bankruptcy. GM has scheduled an announcement for Monday morning....it is anticipated that they will declare a chapter eleven bankruptcy. The government had given them until June 1st to resolve their financial issues or file for bankruptcy. Presently, bond holders have withheld their approval of the deal to give them shares in GM in exchange for the bond debt. The United Automobile Workers have already reached an agreement with GM.

GM is also working on the sale of GM Europe to Magna International (MI). Magna International is a Canadian company based in Aurora, Ontario. It is Canada's largest automobile parts manufacturer and one of the country's largest companies. MI is a business to business company...with a name that is not well know to the public. They manufacturer parts for the Big 3 U.S. auto manufacturers in addition to Volkswagen, BMW, and Toyota.

The German government has requested that the GM subsidiary Opel be shielded from the parent GM's U.S. bankruptcy. The German government apparently be willing to put up 1.5 billion Euros($2.1 billion) for a bridge loan that would be repaid when the deal is closed.

It appears that Fiat has withdrawn from bidding on GM Europe, due to the German governments demand for emergency funds during the transition. Apparently, Fiat does not have the ability to fund the transaction.

Today, a memorandum of understanding was signed outlining a plan for the future ownership of the Opel and Vauxhall assets. The assets are to be transferred to a new company, which Magna International will take a 20 per cent stake and Sberbank, a Russian bank, will take a 35 per cent stake, giving their consortium a majority. GM will retain a 35 per cent holding, while the remaining 10 per cent will go to Opel employees.

The fate of Saab has not been resolved, but as soon as I have information I will advise!

Fiat's Grand Design

Fiat S.p.A.(Fiat), an acronym for Fabrica Italiana Automobili Torino, is an Italian automobile manufacturer, financial and industrial group based in Turin, Italy. Founded in 1899, Fiat based cars are constructed around the world in Brazil, Argentina, and Poland. Fiat currently owned the Fiat, Alfa Romeo, Maserati, and Ferrari brands. The auto shown above is 2009 Ferrari California!

Fiat and Chrysler LLC announced that they were going to form a global alliance. Under the terms of the agreement, Fiat would take a 20% stake in Chrysler and gain access to its North American dealer network. Chrysler in exchange will get the platforms to build smaller, more fuel-efficient vehicles in the US and reciprocal access to Fiat's global distribution network.

Fiat would have the option of increasing that to as much as 55%, when the government loans are repaid. Fiat would not put cash into Chrysler, but will pay for the cost of retooling a Chrysler plant to produce one or more Fiat models, which will be sold in the us. Fiat would also provide engine and transmission technology to help Chrysler introduce new, fuel-efficient small cars.

The deal is the latest maneuver by Fiat's chief, Sergio Marchionne, who has pulled the Italian company back from the brink of collapse since taking over in 2004. The partnership would provide each company with economies of scale and geographical reach at a time when both are struggling to compete with larger and more global rivals like Toyota, Volkswagen and the alliance of Renault S.A. and Nissan.

The auto shown below is a 2008 Fiat 500, which won the 2008 European Car of the Year Award. This car will probably be one of the vehicles manufactured in the U.S.

In every difficult financial time, there are tremendous opportunities to profit! Since this is such a severe downturn, the opportunities are magnified. Car companies that would have sold for substantial amounts of money are being sold a fraction of the previous value.

The Chrysler acquisition is only part of Sergio Machionne's plan. Fiat is attempting to buy General Motors (GM) European operations. Those operations include GM's German Opel division, British Vauxhall and Swedish carmaker Saab.

It is anticipated that Fiat would have to spin off the current auto business into a core of a new company, then add the new additions Chrysler and GM Europe. It will take a substantial amount of capital to realize Machionne's plan. Another suitor Magna International, Inc. of Canada has submitted a plan for the purchase of GM's Opel unit.

Shown below is a Alfa Romeo 159!


My take on this is that with every severe financial downturn opportunities like this come up. The corporations that have the cash and the financial backing to pull this off will succeed. Fiat would go from bring a side-line player to a major player on the world automotive stage.

Information via Wikipedia!