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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (478)	7/10/1998 6:33:00 PM
From: Axel Gunderson	Respond to of 1722

Mostly Off-Topic Lunatic Ravings. Just a couple of comments on the analysis of the GM history: In the aftermath of the run up in oil prices, Japanese autos began showing up in quantity on U.S. shores. Suddenly, U.S. consumers, though they lacked the collective bargaining power of capital and labor, could choose to buy cars from companies where fuel-efficiency and quality were top priorities. On the issue of quality. The problem was not confined to auto makers, but was endemic to american manufacturing in general. There was a widespread problem with worn tooling (which makes it pretty difficult to maintain tolerances) coupled with increased production resulting from the robust economy (the go-go years). Depreciation was not as aggressive then, and so tooling replacement was rather sluggish. At least partly because of this, from an SPC standpoint, where quality is the degree of adherence to a range of acceptable values, the Japanese cars were superior. But in terms of engineering design, it isn't as clear cut. The early Hondas had bodies that would rust if you carried salt home in a grocery bag. The Mazda engines arriving here in the 70s had so many problems that to this day some folks (of the ilk who actually get grease under their nails) wonder how they managed to get established here. Meanwhile the Vega was routinely running up 200,000 miles on test tracks without problems. Unfortunately the price would have been too high, and after cheaper materials were substituted, and other costs cuts, you saw what we got. Totally off-topic musing - it seems a shame that the american manufacturers abandoned the V-8 technology when they moved to producing small cars. Part of this was due to materials limitations, I know. But it is not entirely inconceivable that they could produce a short stroke, more central plug V-8 of as small as a liter - two liters would be easy - and they would have a fairly interesting vehicle. [Reader:] Yet somehow [GADR argues that] GM has the highest free cash flow. Fortunately for all parties concerned, GM's North American Operations are not the totality of GM. GM's Latin American operations are doing well, showing that GM's management can build desirable cars, and do so profitably. And GM Hughes, after being turned around by Michael Armstrong (who now heads AT&T), is also doing well. In the current economic environment that is favorable to financial companies, GM's finance arm, GMAC, is doing well too. I have posted a review of the free cash generated recently by each of the auto manufacturers, which may be found on the GM thread. Over the past three years, GM has had the highest free cash generated as a percentage of revenues. But I am still waiting to see if anybody will analyze the numbers I have posted. Meanwhile, the Value Line Rating and Reports of today (10 July) covers Hughes. I think even the most cursory review of that will cast doubt that Hughes deserves much credit for the free cash generated. Keep in mind the "other" operations (see post on GM thread) have shown negative earnings. Can the Latin American operations and the finance divisions really account for the differences between GM Nortamericano and the other domestic auto makers? Or do those differences result from some of the mysterious accounting that Wayne points out? Is it conceivable that GM's US operations are not as inefficient as perceived? In fact, there is a sense in which the North American Operation sells the cars at just above cost -- and makes its profit from financing their sale. But, that's no way to run a car company This is futuristic, what if? musing. Battelle has predicted that in the future appliances will all be leased. (This isn't a lease such as those with which we are familiar.) Manufacturers will handle all maintenance, and will remove the product when it is time, etcetera. This effectively reduces the user's responsibilities and risks, while the manufacturer becomes more of a service organization, yet while having greater "control" over the physical resources. It seems to me that this is not unthinkable for autos. Axel