Prius or Pickups?
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Here's one for all those dimbulbs in Washington who think running a car company ain't that hard: If you were in charge of Toyota, would you have halted work this week on the $1.3 billion factory near Tupelo, Mississippi, that was intended to build the new Prius hybrid? After all, the Prius is precisely the sort of fuel-efficient car you've said the Detroit automakers should be building, at labor costs you've said they should be paying.
Except there's one small problem: Sales of the Prius last month were about half the level they were in November 2007. Meantime, helped by deep discounts -- up to $6000 on some 2008 models -- Ford F-150 sales for November were down just 18.5% compared with November last year, while Chevy Silverado sales were down just 22%.
Obviously, the meltdown in the economy accounts for some of the fall-off in Prius sales: Toyota's total volume in November was down 32% as fearful, credit-crunched customers stayed away from dealerships in droves. But the fact that gas in the U.S. now costs, on average, less than half as much as it did in the summer, is undoubtedly having an effect. The 8660 Priuses Toyota sold last month compares starkly with the 21,000-plus it sold in April as gas raced toward the $4/gallon mark. It also compares starkly with the 37,911 F-150s and 29,534 Silverados shifted by Ford and Chevy dealers in November despite frozen credit and swirling rumors of bankruptcy.
The Prius problem highlights the major challenge facing any bailout of the Detroit Three. If Toyota, allegedly the smartest guys in the room when it comes to the auto biz, can't figure out what American consumers want one month to the next (as of a few months back the Tupelo plant was actually slated to build Highlander SUVs) how on earth is Capitol Hill, or any so-called "car czar" for that matter, going to be able to figure out which direction Detroit's salvation lies? Building Prius clones? Or pickups? Which will give us the best chance of getting our loan money paid back?
There's no question gas prices will rise again once the global economy climbs out of the crater and demand for oil picks up. But as of right now, no one has any idea when that might happen and how fast gas prices might rise. Goldman Sachs recently forecast oil would slump to $30 a barrel, but these are the same geniuses who predicted it would hit $200 a barrel earlier this year. So it's anyone's guess, although futures for deliveries beyond 2013 are trading above $75 a barrel.
Against that background, full-size pickup trucks look like they could still be profitable business for a leaner, lower cost, slimmed-down Detroit for a few years yet.
As has been widely reported, it now looks likely President Bush will allow some of the TARP bank bailout funds to be used to throw GM and Chrysler a financial lifeline. The specter of a massive jump in unemployment -- and what that would do to an economy already reeling from a collapse in consumer confidence -- seems to have gotten the attention of even the hardliners in the White House. "If the auto industry goes belly up now," Vice President Dick Cheney told talk show host Rush Limbaugh, "there's a deep concern that would be a major shock to the system." D'oh...
Of course, any money doled out by the White House this week won't solve the problem. All it will do it buy time -- little more than three months -- to leave the freshly minted Obama administration between a rock (letting the Detroit Three fail and dealing with the grim social and economic cost of 12% unemployment within two years) and a hard place (pouring what has been estimated at $75 to $125 billion into creating a retooled Detroit that will almost certainly be composed of fewer companies making fewer vehicles).
President-elect Obama has said he won't let the American auto industry fail. But will he see pickup trucks as part of the solution? Or part of the problem that got Detroit in this mess in the first place.
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