Economic Recovery

Everything Must GO!

Everything Must GO!

So how is the economic recovery doing in California? Not so good…

I sometimes drive down “Auto Row” here to look at the new car deals. It is right at a freeway off ramp so it’s easy to reach in just a minutes of driving. They had built this area about 30 years ago as a brand new shopping destination for car dealers. All new dealers, all big buildings, all Top Drawer. And for a couple of decades it did very well. Realize that it is STILL the biggest nicest “Auto Row” near San Jose. It’s not the area that has declined, it’s the auto market. As recently as 5 years ago this was still ‘fully booked’. Some dealers, like the now missing Dodge Dealer, had been here from the ground floor. Literally, they built the dealership and moved into the new building.

So looking at the place now, it just shouts “jobless recovery, if any recovery at all” to me. Why? Because there is no business at all in these buildings to do the hiring. So no sales. So no one who needs to build the cars, or tune them up, or wash them, or be the gardeners and janitors, or…

One interesting example is the Toyota Dealer. They now have 2 adjacent dealership properties they have picked up (undoubtedly at distressed prices and for strategic reasons). They are being used as used car lots. So they are slowly building a monopoly on one intersection having 2 or 3 of the corners already. But that is being funded from sales outside the area, not from here. Honda and Mitsubishi have added large ‘USED’ lots as well to lock down real estate.

Toyota Lot #2 - Used Cars

Toyota Lot #2 - Used Cars

Toyota Lot #3 - Used Cars

Toyota Lot #3 - Used Cars

So what does the place look like overall?

Auto Row

Here is a broad perspective. You can click on this and make it quite large, but realize that pretty much everything is an auto dealership. At the very far end, near the freeway, is a gas station or two and a fast food place (hey, they need to gas the cars and get lunch) but not much else. This shot is from about 1/4 of the way from the far end looking toward the freeway off ramp in the distance.

Auto Row San Jose

Auto Row San Jose

Each flag tends to be a dealership, though some places may have more than one.

The Saturn Dealership

Saturn Dealership

Saturn Dealership

The Dodge Dealership

Dodge Dealership

Dodge Dealership

Notice the browning turf? You don’t give up on the landscaping when trying to lease a building unless it’s been a while and it’s pretty desperate.

The Jeep Dealer

I’m pretty sure this was a dedicated Jeep dealership, but it might have been some other brand in the last couple of years. I’d not been here recently enough to be sure.

Jeep Dealership

Jeep Dealership

Not just a MOPAR thing

And this is not just a MOPAR / Chrysler thing either. I don’t remember what the two dealerships were that are now Toyota “USED” lots, but they were not always Toyota. And at the far end on the left there was a very large Volvo lot. Some years back it got turned into a FORD lot (when Ford absorbed Volvo), now it is a Honda USED car lot. Ford is now just the small older place they started in 30 some years ago. The one with the “Everything Must Go” dismal eagle out front.

Honda USED car lot, was Volvo, then Ford

Honda USED car lot, was Volvo, then Ford

But even if downsized, FORD did survive:

FORD Dealership

FORD Dealership

Gone are many of the various GM types. I’ve lost track of their comings and goings. But I’m pretty sure one was a Buick dealership (as I’d done a test drive there about a decade ago) and I’m not finding the Cadillac dealer either. Oldsmobile is, of course, gone too. And I vaguely remember a GMC Truck dealer, but that could be from some other auto row. What does Government Motors have to work with now? One Chevy dealer who’s hedging his bets with some Korean imports.

Chevy Kia Dealer

Chevy Kia Dealer

And looking from the front we see a lot of Kia marketing / signs, Chevy not so much…

Kia Dealer, Chevy Pole Sign

Kia Dealer, Chevy Pole Sign

So exactly HOW will a ‘recovering GM’ sell those cars?

Germans any better?

There is no BMW nor a Mercedes dealer here (though I think they were not here to begin with, having established dealerships in high end cities up the peninsula, which is where I go most of the time. But the VW dealer is interesting. Over time, he has branched out a bit trying to survive:

Suzuki, Hyundai, VW Dealer

Suzuki, Hyundai, VW Dealer

Conclusion

So think about it for a minute. All those used lots do not require anyone to have a manufacturing job. All the empty lots too. And the ones that are in business? Not selling much. So where will all these ‘good manufacturing jobs’ that are supposed to magically happen sell their wares? Who is playing for position to own this turf?

Clearly the major Japanese makers. They will likely source a lot of parts from China (perhaps whole vehicles eventually). Auto Row might as well be designated Asian Row. That is where the manufacturing will be done. And with those sales will also go the financing and maintenance (replacement parts, rebuilding) income as well.

So I’d like our Governator and Mr. Obama to take just a couple of minutes to think about what they would do if they had to put their own personal money into starting a car maker or dealership. Would they do it here, with our present taxes, laws, and regulations? Or would they put that money into Japanese dealers and Chinese manufacturing?

And will paving the streets again with “shovel ready projects” put more Government Motors cars on them? From what dealership? Sold to whom? Bought with what paycheck?

And gone with those sales are all the sales taxes, estate taxes, registration fees, etc. All that lovely lucre on which your government social manipulation depends. It’s your bird, and you have cooked it. No more golden eggs for you.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged , . Bookmark the permalink.

11 Responses to Economic Recovery

  1. mrpkw says:

    “Economic recovery” BWAHAHAHA !

    We drove past the auto dealer that we have purchased 5 cars in the past 20 years and s the lot used to be jam packed. It was less then half full.

    I was on the list to be closed but somehow they missed the cut.
    We just got a mailer from the dealer saying that they were only going to deal in used cars until after this economic downturn.

    Thanks Obama, we don’t need any more help.

  2. E.M.Smith says:

    Well I’m glad at least one person liked this posting enough to comment!

    I was doing my usual “retail site visit” to assess what was likely to be good in retail and thought doing a photo essay was a very effective way to illustrate it. Yet met with silence (until now).

    This is something I do regularly. Walk the mall looking for who’s carrying bags from where, and what stores are just empty. Very helpful for making stock decisions prior to earnings announcements. Spouse and I toured during the “crash” and noticed a fair number of Macy’s bags. So she got a load of the stock at killer prices.

    Touring the dealers showed a lot of used car lots (so autoparts stocks ought to do well) and showed that Toyota and Honda were ‘playing for board position’ – that puts HMC and TM on my shopping list. That FORD survived and the GM dealer is selling Kia leans me away from the GM “IPO” and toward FORD. Chrysler / Jeep / Eagle / Dodge (whatever) all consolidated into one dealership, but the stock was sold to Fiat (IIRC) and that conglomerate has to prove itself before I’m interested.

    So this isn’t just a political rant about Government Motors. It’s also a general Economic Status measurement AND a particular stock screen.

    How, just HOW can GM post better sales with no sales outlets to speak of? When Honda has 4 time the area of FORD and right near the freeway offramp, who has best “field position”? And with TM racking up all sides of the main stop light / intersection, who will be staring at Toyotas for years to come?

    ASSUMING this is being repeated nationally, it sure looks to me like TM and HMC come out winners. GM and Chrysler losers. FORD ‘hanging in there’.

  3. tckev says:

    Vehicle market generally are not doing well. Looking at various news feeds (outside the US) around the globe shows that European car market is flat-lining, the Russian market has bombed.
    In the Far East Japan’s market is still relatively buoyant and the Chinese market has slowed but this seems to be a blip in an otherwise very active market.

    http://www.marketwatch.com/story/eu-car-sales-losing-streak-reaches-three-2010-07-15

    http://en.rian.ru/business/20100310/158144982.html

    http://www.jama-english.jp/statistics/production_export/2010/100730.html

    http://www.chinacartimes.com/2010/08/11/its-not-meltdown-its-slowdown/

  4. mrpkw says:

    I heard a story like this today on WSJ radio:

    http://www.tribtoday.com/page/content.detail/id/546273/Used-vehicle-sales-fall.html?nav=5003

    “The federal government’s Cash for Clunkers program that started in early August 2009 and ran into September gave as much as $4,500 to owners of older, gas-guzzling vehicles to send those vehicles to the crusher and buy more efficient cars.

    The program led to 690,114 dealer sales and cost the government $2.88 billion in rebates. It boosted new-vehicle sales, but it also eliminated cars that filled the need of buyers who can’t afford or get credit for newer, costlier autos.

    The program hurt smaller auto dealers, Dykes said.

    “They took tax dollars and gave it to my competitors – the new-car lots – to increase their business but damage my business,” he said. “That’s not right in my mind.””

    Most of the people I spoke with when Cash for Clunkers was being proposed, knew this would happen.

    Butt me knot smart nuff too bee politician.

  5. j ferguson says:

    Let me make sure I understand this. Getting old cars off the road doesn’t increase the value of the old cars that are left? Was anyone prevented during this program from buying an old car?

    Obviously it warped the playing field, but…..

  6. Chuckles says:

    E.M.,
    It is an excellent post, but I think that you and much of your readership were too exercised – discussing the Memorial Mile religious teleconnections, action at a distance, and the appropriate cordon sanitaire for emotionally charged venues – to apply any thought to the economy.
    Sadly, I think the titanic levels of incompetence, stupidity, venality and cupidity that have been applied to accounting, economics, politics etc will ensure that there is no recovery, although I’d be very happy to be proved wrong.

    I personally was too overcome with nostalgia, as those streets pictured look remarkably like parts of Sunnyvale, Cupertino, Palo Alto and Santa Clara that I drove through in the late 70’s and early 80’s, visiting various HP facilities and factories from far distant lands.

  7. E.M.Smith says:

    @J Ferguson:

    Yes, reducing the supply of old cars raises the price of the remaining old cars (a little). And that is part of the problem.

    While “cash for clunkers” sounds good, it does harm. In many ways.

    The major impact was on folks wanting to BUY a workable old car cheap. Folks with little money. Having the old cars gone and raising the price of what is left harms them. Greatly.

    This impact gets focused into the used car lots, especially the ‘lower tier’ ones. Their ‘inventory’ evaporates and their customers leave.

    Yes, the rich get a ‘bonus’ for crushing that perfectly good car, and yes, some of the middle class get a ‘handout’ to buy a new car rather than a nearly new used one. But the damage is not done there.

    And example:

    About 1980 a friend desperately needed a job. She was just graduating school and had no car. A neighbor sold her a workable old chevy for $75. (It had a dead battery) For a total of $100 she ‘had wheels’ and could look for (and got) and commute to her new job. After about a year, she sold the car to another needy person and bought a newer-used car. Then a few years later bought a new one.

    Break the first run on that ladder and what happens?

    And no, an unemployed college kid with no job history and no income will NOT be able to buy a new car on credit ( or if a fool is found who will sell to them, not be able to make the payments).

    But there are ‘knock on’ effects. At the ‘end of the line’ cars used to go to junk yards. You could get LOTS of parts pretty darned cheap. Sucking all those used worn out cars to the crusher also sucked away the parts supply. This really whacks poor folks as they can NOT afford to buy parts at the dealer (who may not have them anyway).

    To the GreenShirts who foisted this law on the economy this is a ‘feature’ as if forces even more cars to the crusher sooner. To the poor folks driving those cars, to find out they have no wheels anymore AND must come up with the purchase price of a new car (rather than an old distributor) can be heartbreaking.

    No, I’m not being excessive in this.

    On one occasion I went to collect the rent from a 2 months late tenant in a house I’d inherited. She was frying strips of dough to feed her two very young children (about 1 and 2 years old). That was all she could afford. I asked about what was going on. Her husband was in jail because a street fight broke out in front of his home and he tried to stop it. Yeah, he would be ‘out’ in a week or two, but by then, no job. I knew these folks. They were good folks. Just not the “sharpest tool in the shed”, and this guy who though he was doing the right thing was now screwed.

    The USA is full of folks trying to make a meal out of a scrap of flour and old grease, with no paycheck and kids to feed. These are the folks who hold their cars together with used parts and hope. These are the folks crushed with the clunkers.

    To say I’m adamantly against “cash for clunkers” is an understatement.

    FWIW, I said to the tenant that I understood, and would expect the rent when she was in a position to pay it. Then never asked again. A month later her husband was out of jail (with a “don’t do it again”) and they had moved away ( I heard the moved into some relatives garage). I sold the property a while later, realizing I was not cut out to be a land lord.

    The the rich elite in our government have no clue that these kinds of good folks exist in bad circumstances and they they are damaged by elite ideas of what ought to be grieves me greatly.

  8. j ferguson says:

    E.M.
    When I went over to Dublin in 2000, I expected to see a variety of neat old cars soldiering on. I didn’t. Almost all cars were very recent. There was the very occasional mini and a guy drove a very tidy 2CV past the hotel during the morning rush hours.

    I asked.

    The answer was the scrappage program. I probably don’t have the details quite right but in brief, a strict inspection program had been instituted which made it uneconomical to keep a car on the street that was more than 11 years old. At the same time, they provided a SIGNIFICANT incentive to trade in the “clunker” on a new car. And the clunker was then destroyed.

    They had an escape of some sort for collector cars. One could see them on the country roads south of Dublin of a Sunday morning – Morrises, Austin 7s, Rileys, MG’s and so forth out for the club breakfast.

    I think the less affluent had to resort to public transportation, which over there was pretty reliable. Obviously, this would work in only a few municipal areas in the US.

    Miami is an excellent example of how commuting to work might not be very efficient depending on where you live and where you work. Despite a rapid transit line and extensive bus routes and even dedicated roads so that buses can pretend to be light rail, you can still find yourself facing a 2 hour or more trip each way to cover a very reasonable route – one that might connect a lower cost residential area with the places their occupants might work. And they are riding these things, and spending the 4 hours/day commuting to make ends meet.

    It’s not entirely the cost of the car, though. It’s also insurance which is required there and is a bit hard to dodge, fuel, maintenance etc. They don’t have inspection anymore and some of the folks there have prowess in keeping old cars running that you wouldn’t believe – rotor carved out of piece of wood with the wiper nailed to the top – guy said that would work for about 1,000 miles and then short out because the wood would char.

    But all this is pretty obvious. The real question is did the cash for clunkers really put a dent in the marginal car supply?

    It could be that the margin is so twitchy that a car goes through it going from usable to beyond repair within a short period and if this margin is where the cars are for the folks you are discussing, then the clunker program might have really added to their burdens by taking these marginal cars off the road.

    But do you really know that this was a problem?

  9. tckev says:

    IMHO paraphrasing John F. Kennedy’s famous quote –

    Ask not what industry can do for you – ask what your industry can do for your country.

  10. E.M.Smith says:

    Yes, I know it was a problem. It’s become harder for ME to get parts for my cars and visits to the junk yards have shown them very much more sparse.

    Also, the local used car lots were having major issues during the hight of the program. (I watched the supply of old Diesels in particular evaporate…)

    And I tend to keep an eye on the cost of old used cars. The ‘bottom tier’ is now ‘cut off’ at the price paid for ‘clunkers’. There are no $200 or $400 cars that run anymore. Only broken ones that can’t pass the “must drive x feet” test. Anything that actually works has a price floor higher than it was in the past by several hundred dollars. For folks with nearly no money, that’s a problem.

    Maybe I’m the only one who cares about desperately poor folks. But I grew up watching them and I do care. I watched the ‘migrant farm workers’ (prior to Mexicans taking over that turf) show up in their Hudsons and Packards with the family living in the rear seat, staying at the migrant labor camp outside of town. Picking enough peaches to hopefully feed their kids. Buying used tires with 2/10 tread on them to replace bald tires, self installed.

    Folks in that tier are crushed by the need to pay a few hundred extra for a working car.

    And no, ‘take the bus’ is not an adequate substitute.

    You can’t take the bus to a farm to pick. You can’t take the bus to a construction site to build or clean up. The list goes on.

    Crushing old cars is just an indirect subsidy to the rich selling new cars. It damages the poor. It damages the used car sellers. It damages the repair parts sellers. The only winners are new car makers.

  11. gorgeouskim says:

    hi there hows it going

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