Q: Greg, a little over a year ago, you wrote a column on the history of American car companies. Could you give us your opinion of how the work stoppage from the Covid-19 pandemic will affect these corporations, long term, and give a summary of your car company history column? Thanks much, Jeff K., St. Johns, FL.
A: Jeff, I’m happy to oblige and keep in mind this is one auto writer’s opinion.
The most critical aspect of your question is the wording “long term,” as the Covid-19 work stoppage not only affects car companies, it hits every business everywhere.
Let’s take as an example that every business out there hires a “juggler” to handle all of the income and expense “balls” that make a successful business.
Each month, the company juggler (usually known as the accountant) juggles balls labeled income, payroll, direct expense, indirect expense and a fifth ball called EBITDA, which stands for earnings before interest, taxes, depreciation and amortization. This EDTDA ball mirrors the company’s cash flow strength position, and perhaps is the most important ball juggled in the group. The EBITA can tell a “juggler” if the owner of a business spends money frivolously, fails in needed capital investments, is cheap when it comes to salaries and, thankfully, just the opposite. If everything goes well with a proper owner, the accountant juggles all five balls in fine fashion and things are good for the new and used car dealership.
However, while doing his monthly juggling duties, if even one of the balls hit the floor, trouble will start. And, in the case of the current virus work stoppage, even the best of owners and jugglers can’t make financials work. With car sales down, fewer service customers than ever, showrooms closed and many workers on furlough, the future is dubious until we overcome this nasty, worldwide killer virus of both humans and economies across the world. It’s both a humanitarian and financial calamity that I pray about every single day.
We must knock this virus out as quickly as possible for the very survival of so many businesses, especially automotive, airline and the huge vacation/entertainment/dining/retail businesses everywhere.
Further, every auto dealership utilizes a bank or the manufacturer’s lending arm to underwrite its inventory, known as the “floor plan” in auto jargon. The floor plan loans are short term as dealers expect to sell a new car in 30 to 90 days, and the sooner the better. The banks usually send an employee to check the dealer inventory against its floor plan loan obligations to make sure all is well. At this point, the loan company expects payment and dealers with stronger cash flows do better than those that don’t have strong bottom lines.
So, depending on the length of the current Covid-19 work stoppage, most dealers are operating in “survival mode” as inventories are very high and the company juggler is doing his/her best to ward off financial woe. In summary, it’s going to be a tough few months ahead.
As for the car company history, from 1900 to 1919 there were up to 2,000 American companies involved in the construction of motor vehicles. Henry Ford introduced the first mass-produced car in 1908 with the Model T.
General Motors was founded in 1908 with its Buick line, becoming a giant thanks to better production methods than Ford. Ford adapted well to GM’s threat, and the two went head-to-head for superiority.
A third powerhouse, Maxwell was founded in 1904 and continued its climb to become Chrysler Corporation in 1925. It then purchased Dodge in 1928. Ford, GM and Chrysler formed the “Big Three” that we know today.
With the Big Three taking most sales, the number of U.S. car companies shrunk to 98 by 1929. During the 1930s in the midst of the Great Depression this number dwindled to 44.
At the beginning of the 1940s, The Big Three accounted for 90-percent of all U.S. car sales, with the rest divided between Packard, Hudson, Nash-Kelvinator, Checker, American Bantam/Austin, Studebaker, Crosley and Willys-Overland/Jeep.
In the early ’50s, Tucker, Muntz and Kaiser-Frazer joined the fray while Nash-Kelvinator, which produced the Rambler, merged with Hudson to become American Motors in 1954. Studebaker and Packard also joined forces in 1954, and lasted until 1963.
Crosley closed its doors in 1952, American Austin closed in 1954 as did Earl “Madman” Muntz with his Muntz Jet. Kaiser purchased Willys-Overland, concentrated on Jeep and sold out in 1970 to American Motors. Preston Tucker made just 51 of his famous car until he closed following a lawsuit, and recounted in the movie “Tucker” that I recommend viewing.
By 1976, only 11 car companies were left as many consolidated. Checker Motor Company, famous for its taxi cabs, hung on until 1982 as one of the final independents.
Chrysler gobbled up American Motors in 1987, acquiring the popular Jeep line and after several sales and mergers is now owned by Fiat and today operates as Fiat Chrysler Automobiles. California-based electric car manufacturer Tesla has joined American manufacturing and makes a fine all electric automobile and soon to arrive pickup. Further, many foreign car companies including Toyota, Honda, Nissan and Mercedes-Benz also build cars in the United States but are still listed as official foreign car companies. These car companies employ thousands of American workers, but most are not building cars at present due to the virus.
In ending, we all must listen to the professional medical people and take a non-political stance to better fend off this nasty Covid-19.
Hope this all helps and thanks for your letter, Jeff.
God bless America.