Regular readers will know I take a gloomy view of the current economic situation and expect things to get considerably worse, before they get better.
There are many reasons for this, but the short answer is that the fraud – and repackaging a bad debtor loan as an asset is fraud – which has been encouraged by governments and banks alike over the last decade, will have to be paid for by us, ordinary people.
Expect huge taxe hikes in 2009, government subsidies to ailing industries, multinational companies etc. plus the blatant theft of savings/investments by greedy banks and bankrupt countries like Iceland, Russia, Saudis/Dubai China and others who have no qualms about stealing from the poor to keep the rich in lobster thermidor.
For motorcycle manufacturers things look OK at present, sales have dipped slightly, but the demand for small bikes and scooters in a recession will provide some revenue. I said last week that the CBF125 Honda is a crucial lifesaver for Honda – events will prove me right in 2009, and beyond.
2009 honda cbr600 RR
For the Japanese there is a safety net. Honda, Yamaha, and Suzuki have the ultimate backing of their government if things get really bad. The Japanese government once knocked the heads of some 100 motorcycle companies together in the mid 1950s, to force some to quit the market, so that others, like Honda could expand, export and prosper. In the 60s, the same process winnowed out Bridgestone for example.
When things unravel in 2009, Japan will stay focussed on small bikes, scooters, light utility vehicles and partnership with low wage subsidiary builders to survive, but Kawasaki may have to be sacrificed as its sales depend largely on enthusiasts riders, not peasant farmers in Vietnam or shoe factory workers in Romania. For the big K, bikes are ultimately, a hobby, as its real business is heavy engineering projects – now sadly, that side of things will require large government subsidies to survive this recession, and the government of Japan will demand less frippery, less flagship speed machines cluttering up dealerships in EU/US markets, for their/taxpayers money. Japan has no oil, no arable land to feed its people – it must sell things overseas, or die. That harsh truth will prompt firm action.
Meanwhile, let’s look at Harley. Consider this; H-D finance deals are down 38%, sales are dropping rapidly in Europe, as well as the US. H-D are now using their own cash reserves to loan people money to buy their bikes, via their in-house finance arm. Like everyone else, they can’t borrow money on the Libor system. So, how long can the risky practice of loaning H-D money, and new H-D bikes, simultaneously, to customers who might lose their jobs soon, continue before the panic button is pushed in the boardroom?
I would predict around 6-9 months, depending on the default ratio of their existing loan book and the short term inter-bank lending rates.
Banks still aren’t lending, why? Fact is, banks are playing a waiting game, hoarding cash for the inevitable day when another of their rivals goes pop, and they can move in, like a vulture at a battlefield, and pick off the prime cuts. That leaves companies living off their immediate cashflow, or cash reserves, or selling off assets, to survive. Grim.
Harley’s purchase of MV Agusta couldn’t have happened at a worse time – how can they invest in new MV/Cagiva models, dealerships, parts, accessories, branded clothing etc when nobody wants to spend money, or lend money? That dream doesn’t add up right now.
Triumph are in a trickier position than H-D. On the upside, a private company, not answerable to shareholders always has room to make tough decisions, but without open credit lines, cannot survive.
But John Bloor is not Bill Gates, or the Sultan of Brunei, so at some point soon, his expansion plans in Thailand will require underwriting by the Thai or UK government to proceed, Triumph must borrow money to expand. Depending on the politics surrounding the Thai plants, that may proceed via government subsidy, or a strategic, last minute cash injection by BMW, Kawasaki or maybe the Chinese government. Hard to see the British government underwriting expansion that exports yet more British jobs isn’t it?
So much depends on the politics now, not the hard facts of a company’s balance sheet. Your past profits mean nothing, only your deep pockets and political friends can help you now.
You see, to all intents and purposes, most large banks are bankrupt, they don’t know how much they owe, but it’s a huuuge amount, exceeding deposits by a massive margin in most cases. That’s what happens when you lend imaginary money that you haven’t actually got.
Yet they are being propped up because we cannot revert to medieval barter – money must have a value, it is like religion or love, it only exists if we believe in it, so a banknote must have a guarantee behind it, otherwise it is just a fancy fire-lighter. But banks won’t lend govt cash – they need it to grab control of weaker rivals, as mentioned before. That leaves manufacturers left out in the wind – unable to invest in the future beyond next month, never mind next year.
Those motorcycle manufactures who wish to ride out this recession must curry favor with politicians in Brussels, Beijing Berlin, Rome and Washington to ensure they make it to the other side of the depression. They will need help. It will be bad. Food riots will occur, power cuts, bank accounts will be frozen. Some 5-6 million jobs will vanish in the US, another 3-4 million in Europe in the next 12 months.
But people need shelter, food, clothing and desire treats – we reward ourselves with things, like bikes – so that basic level of economic activity, that desire-driven demand, will pull us out the mire, eventually. The manufacturers who bag the government cash, and are seen as allies, not beggars, will be the ones who stay in business. The rest, will join Bridgestone, and many others, in the history books.
Meanwhile, fasten your crash helmets, polish up your CV and buy tinned food and candles. It’s going to be a bumpy ride.
insider.
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