By on November 18, 2011

“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.

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6 Comments on “Quote Of The Day: Car Makers Are Huge Users Of Cash...”

  • avatar
    fred schumacher

    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.

    • 0 avatar

      And yet that’s exactly what you need to do. The cash reserves enabled VW and BMW, for example, to continue investing throughout the economic downturn, and they are now reaping the benefits through increased sales and improved efficiencies.

      • 0 avatar
        fred schumacher

        That’s exactly right. It’s the advice I gave a friend who was new in farming in a year that he had good yields and prices were high. I told him to pay off his bills, set money aside, and don’t buy anything new, because it would be ten years before he had excess capital again.

        If Daimler had understood the American market and hadn’t broken Chrysler’s successful product development methodologies, Chrysler could have rebuilt its cash reserves before the crash. That of course did not happen.

    • 0 avatar

      Fred, having grown up on a farm i know exactly what you are talking about, one of the reasons that I didn’t stay on the farm was looking at the endless cycle of debt that many farmers find themselves in seemed like no way to try and make a living.

  • avatar

    There is an old joke – How do you make a small fortune in the automobile industry? Start with a large one.

  • avatar

    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.

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