Quote Of The Day: Car Makers Are Huge Users Of Cash
“Car makers are huge users of cash – we use cash because we are big employers, big investors and because we have huge supply chain systems. So the working capital is necessary to make the company work. And if all of a sudden the banks stop lending or are frozen, you have a serious problem. A very serious, immediate problem.”
Nissan/Renault CEO Carlos Ghosn at the Japan Society, New York City, November 17, 2011
This is a quote which every carmaker, especially the budding ones, should frame and hang on the wall in a spot where it is seen daily. If you want to invest in a new car company, or buy an old car company because it is very cheap, you should write this sentence down by hand 100 times.
Repeat if you still feel the itch.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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Ergo the reason for the bailout. There were no banks willing and able to loan to GM and Chrysler after the financial system crash. The government became the lender of last resort. Ford had serendipitously placed its entire infrastructure in hock prior to the crash and thus was able to continue to borrow. As a retired specialty-crop farmer, I've had personal experience with trying to maintain an operation with high cash flow needs and uneven revenue streams. Luckily, most of the time I was able to act as my own banker, operating on my own cash reserves rather than relying on a commercial line of credit. When an auto manufacturer sets aside large cash reserves, it opens itself up to takeover, as happened with Chrysler when Daimler took it over and raided its cash reserves.
There is an old joke - How do you make a small fortune in the automobile industry? Start with a large one.
Just as a hint to Mr. Ghosn; if what you proposing to do with the cash you are asking for looks reasonably profitable, banks, or other investors, will furnish you the money, either as debt or as equity or as inbetweens. Whining about frozen banking systems is nothing more than an attempt to get economically illiterate voters to support government making cash available at below market rates.