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By Tom Murphy
WardsAuto.com, Jun 10, 2008 9:00 AM

Special Coverage
Ward’s Auto Interiors Show

DETROIT – Attendees at last week’s Ward’s Auto Interiors Show may have hoped for words of encouragement from billionaire investor Wilbur Ross Jr., but they found no silver lining in his keynote speech.

A dedicated student of economics who uses a vast array of financial indicators to guide his acquisitions of companies in various manufacturing sectors, Ross began his speech by talking about the fundamental problems facing the U.S. economy – and the auto industry, in particular, which has struggled through three bad years in a row.

The chairman and CEO of W.L. Ross & Co. LLC quoted a litany of economic statistics that left the crowd depressed, if not alarmed.

“Unfortunately, next year may be even more challenging,” says Ross, founder of International Automotive Components Group, a supplier of interior trim.

“Why am I pessimistic? After dropping by 400,000 units in each of 2006 and 2007, sales are likely to go down by more than 1 million units this year, and the mix will continue to move toward the small cars and away from pickups and SUVs,” Ross says.

In 2007, light-vehicle sales in the U.S. totaled 16 million units, down from 16.5 million in 2006, according to Ward’s data.

“Our automobile market is the most highly saturated in the world, with three cars for every four people of driving age,” Ross says. “When you eliminate those without licenses – the indigent, the physically or mentally impaired and those in prison – you have practically one car for every actual driver. It is essentially a replacement market.”
“The American consumer is both tapped out and burned out,” Wilbur Ross Jr. says.

And fewer people are replacing their vehicles as they lose their jobs, retire early or cope with stagnant wages or even pay cuts.

“Median per-capita income has stalled at about $61,000 for the last five years, putting middle America under severe economic pressure,” Ross says.

People have been borrowing to support a higher standard of living, but that trend, ironically, has had disastrous consequences as consumers have defaulted on loans, sparking the credit crunch.

Household debt has increased from $9.5 trillion in 2003 to $13.8 trillion in 2007, Ross says.

“We actually had a recent year when our nation spent more than we earned, so we had dis-saving for the first time since the Great Depression,” he says. “It’s not a sustainable phenomenon.”

http://wardsauto.com/reports/2008/interiors/silver_lining_ross/
 

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He makes some good points, but the successful people will look at things as glass half full to pull us out of this. I think part of his overall attitude is his business has been hit so hard. I don't see many ideas here, only complaining.
 

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He makes some good points, but the successful people will look at things as glass half full to pull us out of this. I think part of his overall attitude is his business has been hit so hard. I don't see many ideas here, only complaining.

Um, I'm one of the successful people and the glass has nothing in it. Most Americans are looking at the crusty crap leftover in the bottom of the glass and forcing themselves to see the glass as half-full. The problem is that Wall Street has gone to the dogs meaning that good business fundamentals are out the window and all that matters are showing lower costs and better growth. This forces public companies to cut costs by whatever means necessary, including stagnating (and often reducing) wages. This stagnation lowers the purchasing power of the majority of the US, thereby hurting the ability of the middle class to buy the goods and services that these corporations are producing. In order to simply maintain their standard of living, middle class families have been increasingly reliant on credit cards and home equity loans. This debt burden finally reached a tipping point in 2006-2007 creating the current credit crisis. Now, American families are trapped under a mountain of debt, inflation is rising (food, fuel, energy - the biggest costs outside of home and car), and wages are still not keeping up with inflation. The financial house of cards for millions of Americans is collapsing in a hurry, and that's not even discussing what is happening to everyone who is below "middle class".

All the while, the idiots on Wall Street keep pushing for growth and profit because they've turned into speculators and not investors. Investors recognize that the true measure of a company's success is cash flow and plowback ratio (how much of a company's earnings are put back into the business through capital spend and R&D). Speculators care about movement in the stock price to make money in the short term.
 

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Overpopulation of the world is finally really starting to catch up. We are using up, drying up and driving up comodities faster than ever along with China and India. Sad times indeed. And the speculators are only making things worse.
 

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Um, I'm one of the successful people and the glass has nothing in it. Most Americans are looking at the crusty crap leftover in the bottom of the glass and forcing themselves to see the glass as half-full. The problem is that Wall Street has gone to the dogs meaning that good business fundamentals are out the window and all that matters are showing lower costs and better growth. This forces public companies to cut costs by whatever means necessary, including stagnating (and often reducing) wages. This stagnation lowers the purchasing power of the majority of the US, thereby hurting the ability of the middle class to buy the goods and services that these corporations are producing. In order to simply maintain their standard of living, middle class families have been increasingly reliant on credit cards and home equity loans. This debt burden finally reached a tipping point in 2006-2007 creating the current credit crisis. Now, American families are trapped under a mountain of debt, inflation is rising (food, fuel, energy - the biggest costs outside of home and car), and wages are still not keeping up with inflation. The financial house of cards for millions of Americans is collapsing in a hurry, and that's not even discussing what is happening to everyone who is below "middle class".

All the while, the idiots on Wall Street keep pushing for growth and profit because they've turned into speculators and not investors. Investors recognize that the true measure of a company's success is cash flow and plowback ratio (how much of a company's earnings are put back into the business through capital spend and R&D). Speculators care about movement in the stock price to make money in the short term.
I couldn't have said it better myself :yup:
 

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Sounds like good times ahead...

I hate to oversimplify things but our society is in trouble.

Governments (Federal, State, Local) spending is out of control and our government give us petty tax breaks to cover their butts.

Banks lend irresponsibly to make billions and are suprised when things turn bad.

Credit card companies rape consumers with shortend bill cycles, random rate increases and tremendous fines.

Consumers leverage themselves to keep up with jones and buy foreign products without any concern for the trade deficits and loss of manufacturing this contirbutes to.

Big business is more then happy to throw everyone out on their ass if someone in a third world country can build it cheaper.

Meanwhile we drive around in some of the most inefficient vehicles and begrudge the mideast for wanting to make money on their one natural product that isn't sand.

How the hell did we expect this to work out well???
 

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Speculators are the reason a barrel of oil is headed to $150.00.:yup:
It's part of the reason. Demand is another part. Here's another even larger chunk:

http://finance.yahoo.com/currency/convert?amt=1&from=USD&to=EUR&submit=Convert

It takes more dollars to buy a barrel of oil, simply because the dollar is worth less than it used to be. Until the fed clamps down on the money supply, oil is just going to keep on going up and up. That won't happen until the politicians decide it's time for the country to take its medicine and go into a full-on recession.
 

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It's part of the reason. Demand is another part. Here's another even larger chunk:

http://finance.yahoo.com/currency/convert?amt=1&from=USD&to=EUR&submit=Convert

It takes more dollars to buy a barrel of oil, simply because the dollar is worth less than it used to be. Until the fed clamps down on the money supply, oil is just going to keep on going up and up. That won't happen until the politicians decide it's time for the country to take its medicine and go into a full-on recession.
I think that'll happen sooner than we all think. If it's not already here, the recession is coming in the blink of an eye. Obama nor McCain are going to pull our butts out of the fire.
 

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While this is not a cheery speech; I am heartened by the level of intelligence displayed in some of the replies. We can respond to these challenges.
I would like to add that we are seeing major changes in culture that affect our outlook, as well. This is especially so in education. We must value education anew and increase our ability to adapt to the rapid change of pace in the world.
Watching GM respond to the many challenges it has faced, and acknowledging that many lie ahead; we can see that motivated people can produce results. The success of the CTS and Malibu on the eve of the Volt's introduction are auguries of a bright future.
Cheers,
Ed Arcuri
There are three kinds of people in this world: those that are good at math and those that aren't.
 

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Um, I'm one of the successful people and the glass has nothing in it. Most Americans are looking at the crusty crap leftover in the bottom of the glass and forcing themselves to see the glass as half-full. The problem is that Wall Street has gone to the dogs meaning that good business fundamentals are out the window and all that matters are showing lower costs and better growth. This forces public companies to cut costs by whatever means necessary, including stagnating (and often reducing) wages. This stagnation lowers the purchasing power of the majority of the US, thereby hurting the ability of the middle class to buy the goods and services that these corporations are producing. In order to simply maintain their standard of living, middle class families have been increasingly reliant on credit cards and home equity loans. This debt burden finally reached a tipping point in 2006-2007 creating the current credit crisis. Now, American families are trapped under a mountain of debt, inflation is rising (food, fuel, energy - the biggest costs outside of home and car), and wages are still not keeping up with inflation. The financial house of cards for millions of Americans is collapsing in a hurry, and that's not even discussing what is happening to everyone who is below "middle class".

All the while, the idiots on Wall Street keep pushing for growth and profit because they've turned into speculators and not investors. Investors recognize that the true measure of a company's success is cash flow and plowback ratio (how much of a company's earnings are put back into the business through capital spend and R&D). Speculators care about movement in the stock price to make money in the short term.
Bravo! Excellent post. We have become a society that wants instant results, in just about every aspect of life. In my parents generation, ownership of shares were often transferred in wills, because they were the real "rainy day fund" which hopefully provided a hedge against inflation, and if not required,were never sold.
 

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Um, I'm one of the successful people and the glass has nothing in it. Most Americans are looking at the crusty crap leftover in the bottom of the glass and forcing themselves to see the glass as half-full. The problem is that Wall Street has gone to the dogs meaning that good business fundamentals are out the window and all that matters are showing lower costs and better growth. This forces public companies to cut costs by whatever means necessary, including stagnating (and often reducing) wages. This stagnation lowers the purchasing power of the majority of the US, thereby hurting the ability of the middle class to buy the goods and services that these corporations are producing. In order to simply maintain their standard of living, middle class families have been increasingly reliant on credit cards and home equity loans. This debt burden finally reached a tipping point in 2006-2007 creating the current credit crisis. Now, American families are trapped under a mountain of debt, inflation is rising (food, fuel, energy - the biggest costs outside of home and car), and wages are still not keeping up with inflation. The financial house of cards for millions of Americans is collapsing in a hurry, and that's not even discussing what is happening to everyone who is below "middle class".

All the while, the idiots on Wall Street keep pushing for growth and profit because they've turned into speculators and not investors. Investors recognize that the true measure of a company's success is cash flow and plowback ratio (how much of a company's earnings are put back into the business through capital spend and R&D). Speculators care about movement in the stock price to make money in the short term.
Pretty much sums it up.

It sucks that so many people were financially irresponsible over the past decade.
 

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Um, I'm one of the successful people and the glass has nothing in it. Most Americans are looking at the crusty crap leftover in the bottom of the glass and forcing themselves to see the glass as half-full. The problem is that Wall Street has gone to the dogs meaning that good business fundamentals are out the window and all that matters are showing lower costs and better growth. This forces public companies to cut costs by whatever means necessary, including stagnating (and often reducing) wages. This stagnation lowers the purchasing power of the majority of the US, thereby hurting the ability of the middle class to buy the goods and services that these corporations are producing. In order to simply maintain their standard of living, middle class families have been increasingly reliant on credit cards and home equity loans. This debt burden finally reached a tipping point in 2006-2007 creating the current credit crisis. Now, American families are trapped under a mountain of debt, inflation is rising (food, fuel, energy - the biggest costs outside of home and car), and wages are still not keeping up with inflation. The financial house of cards for millions of Americans is collapsing in a hurry, and that's not even discussing what is happening to everyone who is below "middle class".

All the while, the idiots on Wall Street keep pushing for growth and profit because they've turned into speculators and not investors. Investors recognize that the true measure of a company's success is cash flow and plowback ratio (how much of a company's earnings are put back into the business through capital spend and R&D). Speculators care about movement in the stock price to make money in the short term.
I respectfully disagree with you. The American glass has NEVER been empty,and saying MOST Americans are looking at the crusty crap at the bottom is overreaching at best. Yes many Americans are over-extended. Many bought houses they had no business buying with no investment of their own, without understanding, or in many cases, without reading their mortgage contract that clearly stated what the payments would be in a couple years time, without any actual cash investment of their own so they had no problem walking away since they had nothing in it to start with. What most of your post speaks about is Capitalism, pure and simple. Profit over loss. It is ingrained in our coulture, without it, we are socialists, which is what many in our political system want. I could go on and on and I'm sure you could too, that is what makes America great, different point's of view being allowed to express ourselves. And that's what will get us out of this mess, different ideas being brandied about. This is America, the #1 country on the planet and always will be! Downturn or not!
 

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There are legions of problems to deal with but lets start with #1. $600,000,000,000 dollars a year so we can play World Police Dept. but we have to borrow the money because we can't afford to pay our bills..........This is what an Empire looks like when it's falling apart. I heard stooge #1 McCain (stooge #2 is Obama) on the Today show saying we can stay in Iraq forever as long as there are no casualties. Great 12 billion a month forever in a country where over half the population wants us out. This is why we are going broke.
 

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By Tom Murphy
WardsAuto.com, Jun 10, 2008 9:00 AM

Special Coverage
Ward’s Auto Interiors Show

DETROIT – Attendees at last week’s Ward’s Auto Interiors Show may have hoped for words of encouragement from billionaire investor Wilbur Ross Jr., but they found no silver lining in his keynote speech.

A dedicated student of economics who uses a vast array of financial indicators to guide his acquisitions of companies in various manufacturing sectors, Ross began his speech by talking about the fundamental problems facing the U.S. economy – and the auto industry, in particular, which has struggled through three bad years in a row.

The chairman and CEO of W.L. Ross & Co. LLC quoted a litany of economic statistics that left the crowd depressed, if not alarmed.

“Unfortunately, next year may be even more challenging,” says Ross, founder of International Automotive Components Group, a supplier of interior trim.

“Why am I pessimistic? After dropping by 400,000 units in each of 2006 and 2007, sales are likely to go down by more than 1 million units this year, and the mix will continue to move toward the small cars and away from pickups and SUVs,” Ross says.

In 2007, light-vehicle sales in the U.S. totaled 16 million units, down from 16.5 million in 2006, according to Ward’s data.

“Our automobile market is the most highly saturated in the world, with three cars for every four people of driving age,” Ross says. “When you eliminate those without licenses – the indigent, the physically or mentally impaired and those in prison – you have practically one car for every actual driver. It is essentially a replacement market.”
“The American consumer is both tapped out and burned out,” Wilbur Ross Jr. says.

And fewer people are replacing their vehicles as they lose their jobs, retire early or cope with stagnant wages or even pay cuts.

“Median per-capita income has stalled at about $61,000 for the last five years, putting middle America under severe economic pressure,” Ross says.

People have been borrowing to support a higher standard of living, but that trend, ironically, has had disastrous consequences as consumers have defaulted on loans, sparking the credit crunch.

Household debt has increased from $9.5 trillion in 2003 to $13.8 trillion in 2007, Ross says.

“We actually had a recent year when our nation spent more than we earned, so we had dis-saving for the first time since the Great Depression,” he says. “It’s not a sustainable phenomenon.”

http://wardsauto.com/reports/2008/interiors/silver_lining_ross/
I just did a similar analysis for a presentation. It's exactly correct. Our mature market sales are based on the 'retirement rate' of our current fleet.

Just for comparison as he noted there is approximately one vehicle for every adult driver in the US. How many more can we each own/drive?

In China there are 5 times as many people as we are. But there is only 1 vehicle for every 7 driving adults.

In India there are 4 times as many people as we are. But there is only 1 vehicle for every 17 adult drivers.
 

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America still hasn't woken up from the bad trip called "outsourcing."

People can't keep buying cars and houses when they can't find a good job. Not everyone is cut out to be a MBA, doctor, engineer, or lawyer.
 

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I respectfully disagree with you. The American glass has NEVER been empty,and saying MOST Americans are looking at the crusty crap at the bottom is overreaching at best. Yes many Americans are over-extended. Many bought houses they had no business buying with no investment of their own, without understanding, or in many cases, without reading their mortgage contract that clearly stated what the payments would be in a couple years time, without any actual cash investment of their own so they had no problem walking away since they had nothing in it to start with. What most of your post speaks about is Capitalism, pure and simple. Profit over loss. It is ingrained in our coulture, without it, we are socialists, which is what many in our political system want. I could go on and on and I'm sure you could too, that is what makes America great, different point's of view being allowed to express ourselves. And that's what will get us out of this mess, different ideas being brandied about. This is America, the #1 country on the planet and always will be! Downturn or not!
Anbalanche,

I appreciate your opinion, and I do think that America is the best country in the world. Let me expand a little more on what I meant in my post.

I wasn't referring to Americans who were over-extended as viewing things that way. I was referring to everybody. Capitalism is great, and I absolutely love the ideals. The problems that are occurring though have nothing to do with capitalism and supply and demand. Instead, they have everything to do with terrible policy making by the government, be it the lack of oversight by the SEC, the poor monetary policy by the Federal Reserve (leading to the devaluation of the US dollar, the increase in inflationary pressures on all commodities, and the credit crunch), or the inane trade policies of the last 3 administrations in regards to the opening of our markets to foreign countries without recipricol agreements in place to open their markets to our goods. In effect, the government sold our economy down the river, pumped a ton of money in to try and prop it up, lowered interest rates so the spending spree could continue, and now seems shocked that everything has gone to hell.

Couple that with the attitude on Wall Street, which has been proliferated and precipitated by the lack of institutional control by the SEC and Federal Reserve, and you have the current disaster that we need to deal with. Companies were forced to place their emphasis on short-term profits because all of the hedge funds that popped into existence in the 90's demanded instant returns or they "shorted" your stock price to death. This emphasis led companies to cutting costs by whatever means necessary, including outsourcing to Mexico or China (thanks Bill Clinton). Was this ever in the country's best interests? Hell no! But guess what? If CEO's and leadership teams wanted to stay employed, they had to bow to the pressure of Wall Street. Nobody on earth thought that these strategies were good long term, but they were basically forced to put them into action in order to avert a massive disruption in their financial foundation. Boards are elected by shareholders, with the majority of votes residing with large institutional investors (think mutual funds, hedge funds, pension funds, etc). While pension funds have a long-term view, mutual funds and hedge funds only care about current returns and capital gains on the stock price. This puts a ton of pressure on boards and executive groups to deliver "above average" (read: unsustainable) returns not just once, but continually. If these funds and their managers don't get what they want, they not only sell THEIR shares, but they sell shares that they don't have yet (that's what it means to "short" a stock). This is allowed by the SEC and the various exchanges through the use of forward contracts and other derivatives. What that does is put significant downward pressure on the stock price because there is way more stock available than buyers given the size of the holdings that the mutual funds and hedge funds would liquidate. Driving down the price in this manner is also terrible for the pension funds because it devalues there holdings and puts them in trouble with their members. So while pension funds may have a long-term view, they've traditionally gone along with mutual funds and hedge funds to prevent this kind of event. To make it worse, the hedge funds make money off this nosedive in the stock when they close out their "short" position by buying the shares that they sold but didn't own at a lower price, thereby making money off of the "spread" or the difference in the price between the shares they sold (which they never owned) and the shares they bought later to cover those sales.

Can America recover? Sure. We did in the 1980's and we can again today. The only problem is that we no longer have a solid manufacturing base like we did in the 1980's. A service economy (make no mistake, that's what we've become) requires people to purchase the services that we want to sell. However, these services are quickly being provided at much lower costs by people in developing nations such as China, India, and Eastern Europe. The US needs to seriously revamp it's trade policies to put us back on par with the rest of the world. We are the only major country in the world where the government has literally thrown the door opened and invited everyone else in to take what we spent 50 years building after the Great Depression. Notice, it took us 50 years to build it and less than 20 to throw it all away.

The glass is empty. That's a reality. Now it's up to America to figure out how to re-fill it again. Hundreds of thousands of jobs have been lost to outsourcing. Wages in terms of purchasing power have stagnated and are falling. Our elementary and secondary educational systems are below average compared to those in other developed countries. Technical innovation and government funding for R&D as compared to GDP are at all-time lows. The gap between the top 1% of the income bracket and the other 99% is widening at an alarming rate. Sovereign wealth funds (fronts for foreign governments) are buying increasing numbers of hard assets in the United States. Our political parties are bought and paid for by special interests, and preach messages that they think people want to hear while offering only vagues solutions (or promises of solutions without any real plan).

I don't mean to sound alarmist or xenophobic. I believe that America is a great country and that open markets where everyone can invest are generally a good thing. However, I also believe that for too long we have looked at the world through rose-colored glasses believing that other countries wanted the same things we did: totally open markets and US prosperity. Instead, these countries care about their own prosperity and the prosperity of their people, and if they can use America to achieve that then they have and will. We open our markets, they take advantage, all-the-while keeping theirs closed to any meaningful imports from America. It's no accident that we have a huge trade imbalance, a massive budget deficit, and very little to show for it in terms of job creation and new growth. The vast majority of growth and development has taken place in the countries that took advantage of these bad trade policies: Japan, Mexico, China, and India primarily, with Thailand and Taiwan to a lesser extent. It's also no coincidence that these are countries whose governments spend a great deal of money on R&D to help keep their industries at the forefront, use their national monetary policy to help trade advantages, regulate their home markets to heavily favor domestic goods and limit foreign competition, and routinely work behind the scenes to influence US economic policy in their favor.
 
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