[BC69]

I don't think you can really pinpoint the time in which sales began to drop, it has been ever increasing over a period of time. I read an article today in the Wall Street Journal about Mercedes Benz, and trying to regain the top spot after some reliability issues. They stated that is is easy to fix the actual mechanical reliability problems, but its alot hard to fix peoples opinions after that. The US auto manufacturers have faced that exact problem.

What I believe has been the biggest issue behind their current decline is not a drop in sales, but an increase in the liabilities of the company. Insurance and pention benefits have skyrocketed. The "Jobs Bank" has become a 10 billion dollar liability and is only getting worse as they cut more workers. It is outdated and needs to be slashed. So I would say the number one reason is the increase in worker liabilities that they need to cover, and because of this, they began making less and less off of each car.

Another big reason is their inventory and manufacturing plans of the past. It was always cheaper to build as many cars as possible, rather than pay idle workers on the line. This backfired because as sales dropped they began to have to pay for huge inventory, especially with the SUV and truck lines. The cars were not selling, but they continued to make them at a high rate because they did not want to pay for workers to do nothing. This is beginning to change now because they are adopting "Just in time" Inventory and only building what they know they can sell. This results in cutting assembly line workers and plants, because they no longer are trying to build as much as possible, but as much as they can sell instead. In the short term this hurts the workers and looks bad, but it is a good strategy I believe. Once they get a good product line out there, to use a form of "just in time" inventory they will make more money off of each car.

Overall this is a long time coming, and consolidation is necessary for the US companies.

MY FINAL THOUGHT: This is a lapse in the business cycle...they will be back on top, for many reasons I wont get into...but they will be. So BUY THE STOCK!!! and the Bonds...they are Junk grade right now so they are selling at discount...10 years we can resell them for premium plus get 10 years of coupon payments off of them.


Hope it helps
Tim