Thursday, July 30, 2009

New auto factories?

This is a clear proof that financial heads still rule the automobile companies. They have been very successful in taking their companies' towards financial disasters and have not seemed to have learnt anything out of it. Check this link

In spite of the existing recession and the low capacity utilisation of the auto industry, Honda and Nissan have announced setting up of new plants in China. The article says that they are doing this to end the slump. Wow! Ever heard a dietitian tell her obese client to eat more? That is what is exactly happening here. Logically the move makes no sense. But finance has nothing to do with logic.

The way I see it, setting up new plants in China to sell cars in China will impact the transportation costs. Instead of importing vehicles from Japan or any other part of the world, the cars can be made and sold locally. They would also benefit from the low labour rates in China. Wonderful - the cost per car comes down. But, what about the capital cost of setting up the new plant? Well, that could very easily be engineered to reflect as depreciation at a low level. This way, the Chinese venture would easily show profits. And the existing plants? Again, the finance wizards are sure to have done something here also. They would probably defer the depreciation for the existing plants or hive them off as a separate company and ensure that the parent company 'shows' profits.

The first thing that makes me sad is that banks do not seem to realise this game. They seem to merely look at ratios and freely lend to companies. So, an over leveraged company can easily pass of its debts to another subsidiary and present themselves to banks for new loans. And, most of these companies do get the new loans they had applied for.

The worse thing is that the manufacturing companies themselves do not recognise their follies. Sometime everything is going to catch up. The recession is here and nothing has happened to make it go away. Some people never seem to learn.

Cheaper way to get energy efficiency

Energy efficient processes have for long been peddled as expensive applications with high pay back periods. The manufacturers of such devices have always lobbied for government support in the form of lower taxes and support. They would then devious devious spreadsheets and use novel jargons to justify and promote their products. Somewhere this is what has prevented these manufacturers from making their products mass based.

Check this link

A company is designing new homes that are supposed to be energy efficient. They would save the user around USD 40 per year in terms of energy costs. Most important part, they are also cheaper than the regular homes.

This is what the energy efficient products should be. Their capital cost should be at least equal, if not lower than the regular products they seek to replace. That is the only way they are ever going to build up some mass appeal. Rather than using 'clean energy' as a marketing pull they should use the plain simple total cost of ownership concept.

Sunday, July 26, 2009

Toyota closing the NUMMI plant

It seems that after the pull out of GM, Toyota is considering 'closing' the NUMMI plant. See the link.

The article says it all actually. Workers have willingly given suggestions because they have been guaranteed jobs. And when one facility is closed the motivation in others is surely going to take a hit.

My take is that there is something more than what is in print in this case. I still feel that Toyota can definitely bear the loss making plant for around a year at least. May be this is a ploy to get the unionised workers to the bargaining table. Maybe it could be to prompt the government to dole out sops.

That the plant was a joint venture with GM, and it survived so long is itself a surprise in a way. GM and Toyota have totally different cultures. Now with GM gone, Toyota should have been very happy. So, this announcement of 'closing' comes as a surprise. Somehow I cannot see this happening. We can wait and watch, the drama should climax soon.