Monthly Archives: December 2008

now the crisis even hits Toyota

Toyota, which surpassed General Motors as the world’s largest car maker this year, has a fairly good reputation in Japan and all over the world. Toyota stands for efficiency, quality, profitability and with the hybrid car Prius being a smash hit in America, Toyota has also a reputation as a green car maker.

800px-2nd_prius-photographed-by-kentaro-matsui-public-domain

But in these harsh economic times, not even Japan’s number one that has become accustomed to success for several decades can continue business as usual. Actually this should not be to anyone’s surprise. Car sales plunged in the U.S. and around the world. Logically, this also affects the market leader. For the first time in about 70 years, Toyota will have to report an annual operating loss. Toyota projects a $1.66 billion operating loss for the financial year ending in March 2009. It looks like Toyota sold 1.4 million cars less than expected a year ago.

On the one hand, Toyota’s Prius and Camry are still fairly popular. However, a drop in the availability of consumer credit also hits potential buyers of these cars and the company which managed to build up a green image in recent years. But Toyota was also making lots of money with gas-guzzling SUVs like the Toyota Sequoia and the Highlander. Since this year’s oil price spike and sky-high gasoline prices earlier this year, drivers have become more conscious about fuel economy.

800px-2008_toyota_sequoia_platinum-public-domain

In addition, the surge of the Japanese yen against the dollar as well as the euro made Toyota’s cars more expensive outside of Japan and eroded profits generated there. Japan is an export-oriented economy, Toyota is also heavily reliant on exports, especially to the U.S.

Now that the crisis has come to Toyota, the prefecture of Aichi around the city of Nagoya is hit painfully. Though Toyota’s full time employees’ jobs are safe, temporary workers are going to be laid off. Suppliers are already feeling the impact, but he worst is probably still to come for car makers. The entire region is seeing its tax revenue vanishing. At the same time, unemployment is going up and welfare expenditures are rising.

Katsuaki Watanabe, Toyota’s president, said that this were a crisis that “comes once in a hundred years”. He didn’t even give a forecast for the next year. The planned expansion of the production capacity is put on hold. Nevertheless, investments are still being made.

Japanese companies tend to be focused on their long-term goals. Therefore, Toyota is concentrating on research and development as well as on restructuring.  The company should still be profitable if its sales fell to 7 million cars a year from now 8.96 million. The workforce is to be trained while new ideas will be tested. In Watanabe’s opinion, the car of the future will be small, affordable, friendly to the environment and efficient. Hybrid technology will play a central role in the reorientation process, but electric cars will also be important. A car running purely on electricity is to be presented at the North American International Auto Show next year. (http://www.freep.com/article/20081223/BUSINESS01/81223038) It was already announced that the electric car will be smaller than the Prius, which combines an electric motor with a gas engine. Toyota knows that in order to maintain the technology leadership, the car of tomorrow needs to be developed today.

Electric vehicles are competitive with gasoline-diven vehicles

This car is hot! – Tesla Motors’ electric sportscar

 

I wish you a merry Christmas!!

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Who cares about OPEC?

OPEC once again proved unable to stabilize oil prices. The Organization of Petroleum Exporting Countries could not prevent oil prices from skyrocketing in the first half of 2008, nor can it stop them from falling sharply to a level where almost all oil exporters struggle to balance off their budgets.

Even after OPEC announced an additional gigantic production cut last week, oil prices even fell below $35  per barrel to a four-year-low. Though oil prices recovered a bit and returned to slightly above 40 dollars due to OPEC’s desperate confirmation of the intention to boost oil prices at all costs as well as the dollar’s decline against the euro, oil is far from where OPEC wants it to be. Saudi Arabia considers $75 a barrel a “fair price”. It’d be interesting to know whether Saudi Arabia also thinks that the $147 we had in summer were unfair!

Officially, OPEC’s members are willing to scale back their output decisively. Russia, which is not a member, also announced plans to slash its output in solidarity. But it remains to be seen whether their oil production is reduced by 2.2 million barrels a day. As it’s always been the case, some OPEC members are cheating on their quotas. That’s why the real oil output is much higher than the official quota set by OPEC. After all, a production cut means at first less money flowing in from abroad. Therefore, some countries could feel the need to compensate for the income loss by exporting more.

Of course, the production cut should help bring prices back again to at least $80 a barrel if everything works out for OPEC, but stockpiles e.g at the “Pipeline Crossroads of the World” in Cushing, Oklahoma are at a 19-month high. Cushing holds about 10% of U.S. crude stockpiles which means it has a decisive impact on oil prices.

For more information on oil and gasoline prices, check out my overview of gasoline prices worldwide , take a look at the poll and read my summary of the World Energy Outook 2008

crude oil prices 1998-2008

crude oil prices 1998-2008

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What’s next for Detroit?

The global financial crisis continues, so does the auto crisis. After Congress rejected the $14 billion bailout for General Motors, Chrysler and Ford, which originally demanded a $34 billion rescue plan, the future of the U.S. auto industry is uncertain. Especially GM and Chrysler are in a precarious financial situation. Without government intervention, they will run out of cash around New Year’s Day.

The consequences of a GM bankruptcy would be dire: Large numbers of GM employees would lose their jobs, suppliers and dealerships would have to shut down. The massive jobs losses would also spread to GM subsidiaries on other continents. General Motors has about 55,000 employees in Europe, most of them in Germany and Sweden. GM’s Opel brand asked the German government for a loan guarantee, Sweden agreed to a multi-billion dollar bailout for Volvo and Saab. Canada also announced an auto industry aid plan worth about 3 billion USD. Detroit’s car makers also have assembly plants and suppliers in neighboring Ontario. Though Ford is still in better shape than Chrysler and GM, Ford could find itself on the verge of collapse shortly after a bankruptcy of a competitor. Ford employs about 70.000 workers in Europe where demand for new cars has also fallen decisively. Therefore, European car makers like BMW and Mercedes-Benz are cutting part-time jobs and cutting their production. GM also takes further action. The company is going to slash its production by 250,000 cars. Besides, the Hummer, Saab and Saturn brands are to be sold. But I cannot imagine who could want to buy any of these brands given the current situation?

Now it’s up to President Bush. The White House is considering to tap funds from the Troubled Assets Relief Program in order to prevent a collapse. The decision is to be announced as early as this weekend or early next week. But even if a last-minute credit extension could enable GM and Chrysler to continue their operations for a couple of months more, it would most likely be “a bridge to nowhere”. Bankruptcy would give General Motors and Chrysler the possibility to reorganize and restructure their business plan which is absolutely necessary. A delayed bankruptcy wouldn’t help a lot to heal the economy, nor could it save a single worker’s job. You can read what I think must be done to make sure that the American auto industry will recover and grow again in “How to save the American auto industry? No time for baby steps!” from November 3oth.

As Dieter Zetsche, CEO of Daimler, the parent company of Mercedes-Benz admitted, auto makers must reinvent the automobile, not only because of the financial crisis and the recession in 21 of the 30 OECD countries.

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Gasoline prices worldwide

As oil prices have nosedived since July, gasoline prices have also come down considerably. In the matter of months, the situation has changed dramatically. In July, oil reached the record level of $147 per barrel. This week, oil prices slid below $40. As you can read in my post “Crude oil prices dropped below $50 per barrel hitting a three-year low” , almost all oil exporting countries need oil prices far above $50 a barrel to be able to pay their bills. Venezuela and Iran even depend on $95 per barrel to balance their budgets. But their latest output cut could not stop the oil price slump. Now, an energy analyst from Merrill Lynch even predicts that oil might temporarily drop below $25 in 2009 given the bad shape of the global economy. The analyst expects this scenario if the recession spread to China. Though I doubt that China’s economy will contract, Chinese growth rates have fallen sharply in recent months. If oil prices really came down to $25 a barrel, gasoline prices would be below $1 per gallon.

Today, I don’t want to make any short-term predictions about how oil prices might develop over the next few months. Actually, I think it is unprofessional to make short-term predictions at this moment given all the uncertainty of these days. Things are likely to turn out contrary to what we expect today. Anything could happen between now and spring.

Nevertheless, I’d like to know your thoughts on this. I’d appreciate it  if you shared your views:

 

So, let’s come back to gasoline prices. As I announced last week, I spend hours on Internet research to give you an overview of gasoline prices in some of the most important countries. I converted all prices into USD/gallon:

gasoline prices worldwide

gasoline prices worldwide

This is an overview of the gasoline price development in the United States by the Energy Information Administration:

As you can see, gasoline prices in the U.S. and around the world have fallen even steeper than stock markets. While drivers in America have to pay less than  50% of July’s prices, the price fall in other countries is less impressive either due to extremely high taxes or b/c the government dictates the price at the gas station. Countries subsidizing gasoline like China and India can reduce their spending on gasoline subsidies now.

On the one hand, falling gasoline and heating oil prices benefit hundreds of millions of consumers around the world. Inflationary pressure has also eased off giving central banks space to cut interest rates. However, on the other hand, this extreme price plunge is as damaging as the spike earlier this year. Necessary investments into new production capacities are being delayed, renewable energy projects appear to be uneconomic. This is a dangerous situation as a supply shortage will be the inevitable consequence once the economy rebounds. In all likelihood, we gonna see demand outstrip supply in about 18 months from now. An even more spectacular price hike will be the consequence. As OPEC proves to be unable to stop the price decline as markets are driven by fear and some OPEC members cheat on their quotas, OPEC will struggle to raise oil production when the supply side crunch is coming.  Since the end of  World War II, oil price spikes preceded most recessions. Our dependence on the black gold is the root of all evil.

If you’re interested in how we can become independent of OPEC oil, check out some of my posts. Though I cannot predict where oil prices will be in March, I can assure you that oil will rise above $150 per barrel within the next 5 years, depending on the severity of the current recession. After all, the United States’ oil consumption is down by more than 1.2 million barrels a day. (now 19.3 million barrels a day from last year’s 20.5 million barrels per day) The challenge is to prevent oil consumption from  rising again when the economy does better. In order to reduce dependence on OPEC oil and to counteract global warming, we need to invest billions into the energy technology sector, increase efficiency and save energy.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aqvLPt.tTAk4&refer=home

http://www.bizjournals.com/losangeles/stories/2008/12/01/daily38.html?jst=b_ln_hl

The Air Car could revolutionize transportation – an electric car without an electric motor

WORLD ENERGY OUTLOOK 2008 – “What we need is nothing short of an energy revolution”

Our prosperity hangs by a thread as it is based on a limited resource – oil

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