Tuesday, February 17, 2009

Auto Industry Update

To get a perspective on just how bad the auto industry is hurting right now, look at this graph from Calculated Risk.

It's monthly the total auto fleet in the united states divided by auto sales, which gives you the turnover rate, basically a measure of how long it would take to replace every car on the road right now.

It's gone from 10 years to 23.9 years, meaning that if this were baseline sales, the average age of the auto fleet would reach 29.9 years.

It's clear that something, either auto sales, or the number of cars on the road, or both, will have to give, but this is just nuts.

It's not surprising then that unions for GM subsidiaries in Europe want the car maker to spin-off of Opel and Saab. They know that they are viable, but that they will be sacrificed by the folks in Detroit.

So, while all this is going on, GM and Chrysler have to make their pitches for their recovery plan today, in order to get federal money.

At this point, there is only one thing that I know, any bailout should make Cerberus pay. The private equity firm that now owns Chrysler were looking for a quick flip on their investment, and they are unwilling to put any skin in the game.

As a first step, Cerberus must open its books to regulators.

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