Concerns About Pricing of New Camaro

[sselie]

An article appeared in yesterday's National Post that caused me great concern, as it points out a number of conditions that have evolved lately which are raising more than a few eyebrows in the Canadian automotive manufacturing sector and as I see it, can't help but have an adverse effect on the final pricing of the new Camaro.
http://www.canada.com/nationalpost/...96-6fbbfcee252e

Most of the article deals with the more general issue of the potential for the declining health of the Canadian automotive manufacturing sector, but I've highlighted the section that can't help but have an adverse effect on the pricing of the new Camaro...

Originally Posted by The National Post

'Wild ride' ahead, carmakers tell Ottawa


Nicolas Van Praet, Financial Post

Published: Wednesday, November 21, 2007
Canadian auto manufacturers issued the starkest warning yet that their industry is headed for a deep crisis, telling federal lawmakers yesterday the loonie's fast rise and other factors have made Canada the most-expensive place in the world to make cars.
"Today we are witnessing a perfect storm demarcated by several threats and one which will make for a wild ride," Mark Nantais, president of the Canadian Vehicle Manufacturers Association, told members of the government's standing committee on finance.
"This perfect storm has a significant impact on Canada's ability to attract and maintain automotive investment and could severely impact our industry's footprint in Canada."


New-vehicle sales in the country are tracking at near levels and that's a positive, Mr. Nantais told the committee, mandated to probe the effects on a higher Canadian dollar on business.

But the overall industry, dependent on exports to the United States, is in much worse shape, he said. His group represents Detroit-based automakers in Canada.
Ford Motor Co., General Motors Corp. and Chrysler LLC are all cutting output as they attempt to downsize their business in the face of rising competition and a softening U.S. market.
By the end of 2007, auto production will have dropped by 1.2 million vehicles over the past four years in Canada and the United States. Things could get worse. Lehman Brothers issued a report on Monday suggesting U.S. car-loan delinquencies have increased significantly.
If lenders tighten credit further, many consumers won't be able to buy cars. Suppliers, hurt by the rapid acceleration of the Canadian dollar and by volume cuts, are also cutting output and jobs.
Canada's parts sector alone has shed more than 20,000 jobs in the past few years and the Conference Board forecasts another 11,000 will be lost this year.
The latest is Southfield, Mich.-based Lear Corp. , which told workers yesterday it is closing its Windsor, Ont., plant and nixing 160 jobs, according to the Canadian Auto Workers union.
"All sectors of the automotive industry -- assembly, parts manufacturing and vehicle sales -- have been and will continue to be, adversely affected by the rapid appreciation of the Canadian dollar,"
David Adams, president of the Association of International Automobile Manufacturers of Canada, told the committee. The AIAMC represents Honda Canada, Mazda and others.
Canada used to be considered a medium-cost jurisdiction for auto production within North America, Mr. Nantais said. While it was not as cheap to make a car here as in Mexico, it was less expensive than the United States, due largely to a lower Canadian dollar against the U.S. dollar, and savings from universal health care.
But newly negotiated agreements between the Detroit automakers and the United Auto Workers union that lowers their health-care and labour bills, plus the 19% rise of the loonie against the greenback since Jan. 1, has changed the equation, Mr. Nantais said.
"Today as a result, Canada is the highest-cost jurisdiction globally for many auto manufacturers to operate," he said. "This reality leaves Canada at a competitive disadvantage in attracting the ongoing investments needed to remain globally competitive."
Auto-industry representatives called on Ottawa to take several steps immediately to help the industry, including harmonizing regulatory and vehicle standards for North America [Canada has different standards for bumpers, for example], signalling clearly the appropriate medium-term value of the loonie, and simplifying border crossings.


© National Post 2007

"Perfect Storm" = rising value of Canadian dollar + new deal with the UAW in the U.S that relieves the manufacturer of the burden of paying the workers' health care costs.


I'd always thought that one of the major reasons for GM's decision to build the car in Oshawa, was to capitalize on the significant price advantage of building the car in Canada.
Since it now appears that it could very well be more expensive to build the car (or any car, for that matter) in Canada, I gotta wonder the degree to which these circumstances will impact the price of the Camaro and/or the content level of equipment.
I'm sure this is what GM did not want to have to deal with...

Best regardSS,

Elie

[guionM]

Just ask yourself a question.

Does the value of the vehicles made here in the US by GM going to Canada equal or offset the value of the cars coming from Canada here to the US?

Another question might be can GM sell enough cars manufactured in Canada to other countries where the currency isn't in a state of collaspe make a profit?

The United States is the worlds biggest automotive market (possibly behind China, now). As long as there are profit margins in what comes from Canada to the US, volume should still make the cars profitable.

Keep in mind, the entire Zeta development program was one of the cheapest new vehicle programs in recent years. It cost roughly a billion for the basic car, and seems to be costing not much more than 100-200 million for each variation of the chassis, including Camaro.

To give you a perspective, the '98 Camaro front end cost about 250 million, and a typical sheetmetal reskinning costs in the neighborhood of 250-500 million.

From a labor perspective, I think this has more bearing on future products than anything currently scheduled. Ironically, it isn't Canada that's getting more expensive. It's that the dollar is falling to the point we may as well start calling it the US Peso, since we're the only currency in the world that's tanking like this.

GM, fortunately, is a multi-national company. It's European, Australian, Korean, Central and South American operations are unaffected by the falling dollar. However, it may make a good case for producing more vehicles here for foreign markets, especially when we start bucking Mexico as far as value of currency.

[sselie]

Originally Posted by guionM

Just ask yourself a question.

Does the value of the vehicles made here in the US by GM going to Canada equal or offset the value of the cars coming from Canada here to the US?

Absolutely!

Originally Posted by guionM;

Another question might be can GM sell enough cars manufactured in Canada to other countries where the currency isn't in a state of collaspe make a profit?

Not so sure about the answer to that question...

Originally Posted by guionM;

The United States is the worlds biggest automotive market (possibly behind China, now). As long as there are profit margins in what comes from Canada to the US, volume should still make the cars profitable.

I think you may be hitting the nail on the head with this question... the key being, what is an acceptable profit margin for GM?
I'm extremely happy to hear that building Zeta platform cars is highly cost efficient, and perhaps, as a result, there is some "wiggle room" in there for GM - even with the turnabout in the circumstances involving building this car in Canada.
I'm only hoping that if this is in fact the case, that it will help GM find a way to keep the different iterations of the Camaro competitively priced.
Thanks for your comments and perspective! (I feel much better now!)

Best regardSS,

Elie

[GTOJack]

GM believes that the Mustang is the closest competition to the new Camaro and continues to say it will be priced accordingly. The Mustang base price is going up every year, which isnt a surprise, but the reskinned 09 Mustang will probably increase more than the average of the 07 to 08 price increase. Ford has to recoup some of the $250-$500 million for the refreshing of the Mustang. Those new prices for the 09 Mustang will be known by the fall of 08 before the release of the new Camaro. Since GM has stated that the new Camaro will be produced in the first quarter of 09 as a 2010 model, I think its only logical that it will be priced higher than a similarly equipped 09 Mustang.