I have to admire your creativity. Too bad it’s wasted.
Brush up on cost accounting. Lots of games to be played, none of which I created.
-in the mid 1980s, Amway got caught understating the value of the products it exported to Canadian distributors, to cheat the Canadian government out of import duty.
-When Curtiss-Wright bought Studebaker-Packard’s defense business in 1956, they were interested in the commercial potential of a line of marine diesels Packard was building for the Navy. A Packard engineer, who came over to C-W, wrote a response that said, among other things, that Packard was charging so much of corporate overhead to the Navy program that a customer could buy a perfectly suitable engine from Cummins, for just what Packard had been charging the Navy for overhead. (Defense contracts then were cost plus a guaranteed profit, so the more “cost” Packard could fob off on the Navy, the more profit they made, while having the Navy effectively subsidize the rest of the company)
-Sticks in my mind that, just recently, a large US company (Apple?) was playing games with transfer pricing, so that all the profit was recognized in the jurisdiction where tax rates were the lowest, regardless where the products were actually made, or sold.
When I was in grad school, forty years ago, I did a term paper on cost accounting. The source material made for fascinating reading on how companies manipulated cost and revenue to get the numbers they wanted, where they wanted them.
This is Shinyland. Bankruptcy isn’t failure, it’s a business strategy.
When someone goes bankrupt you have two choices:
1.- Put them in jail
2.- Forgive the debt
The one thing in common between the two is that you are not going to get your money back. Choice one costs money and deprives the debtor of a second chance.
Choice two is what differentiates Shinyland from lesser economic nations, failure is not shameful which allows people to be more creative since they are less hampered by tradition and ritual. If at first you don’t succeed try and try again.
At first I liked neither choice based on feelings but clear thinking favors debt forgiveness.
There are lots of rumors about Ford, since right now it is the only real competitor (in the USA) to Tesla, so that is understandable. I suspect that Ford has a few issues: 1. They can’t build EVs fast enough. They’ve stopped taking even reservations for the F-150 Lightning for many months now (I try to reserve one periodically with no success).
I can understand that they built out their production lines for both the Mach-e and F-150 Lightning to modest sizes not knowing how big the demand would be.
But my two issues with this are:
They publicly say they will be competing with Tesla, yet they only size their EV production capacity, years ahead, to such a small number. (Same thing for GM)
For the capacity they do build out they seem to not have locked in supplier battery prices and this causes them to get hit with huge price increases. Seems like an amatuer mistake for a 100+ year old company that prided itself on vertical integration 100 years ago and seem to be beaten at their own game by startup Tesla who has built a lot of their battery capacity and has multiple suppliers with multiple chemistries.
But my two issues with this are: 1. They publicly say they will be competing with Tesla, yet they only size their EV production capacity, years ahead, to such a small number. (Same thing for GM) 2. For the capacity they do build out they seem to not have locked in supplier battery prices and this causes them to get hit with huge price increases. Seems like an amatuer mistake for a 100+ year old company
So, can one conclude from this that Ford is not serious about EVs?
So, can one conclude from this that Ford is not serious about EVs?
No. Ford is not just one brain but a collection of competing interests some who favor EVs while others want to keep doing what has been profitable for them. This is part of the theme of The Innovator’s Dilemma. Jim Farley wants to take Ford to EVland against quite a bit of opposition. Same for Herbert Diess at VW where he is opposed by large shareholders like the Porsche family.
This is one of the reasons why it is so difficult to catch Tesla.
At Lockheed they solved the problem with The Skunk Works
Steve, your “Brush up on cost accounting” post reminded me of a court case. A young man was accused of making moonshine because he has a still in his home.
Judge: “You have a still in your home.”
Fellow: “Yes your honor but it is only a conversation piece.”
Judge: “Possession of the still is proof enough that you are making moonshine.”
Fellow: “Your honor, you’ll have to charge me with rape. I went on a date with your daughter.”
Judge: “You RAPED my DAUGHTER?”
Fellow: “No your honor, I did not, but I do have the equipment.”
Steve, your “Brush up on cost accounting” post reminded me of a court case.
A cute story. This is reality:
The Real Story On Apple’s Tax Avoidance: How Ordinary It Is
To achieve these twin goals, Apple mostly relied on the three golden goodies of international tax avoidance: deferral, transfer pricing, and check-the-box.
As for bankruptcy, we have discussed here, for some time, the “private equity” business model: buy control of a company, with no intention of running the company for the long term, suck all the capital out of the company with management fees and consulting fees to “earn” a return on the PE firm’s investment, until the company has been hollowed out and collapses into bankruptcy. Then the PE group walks away. I have posted here before, how a profitable Michigan based furniture retailer was taken over by a PE group, bled into bankruptcy in only 3 years, leaving millions in unpaid debts, then the stores were bought by another PE group, who bled the chain into bankruptcy in only a year, leaving millions in unpaid debts to vendors, again. In many countries this would be fraud by conversion, but here, it’s shiny.
You should see what oil companies do! As an OPEC country citizen I have followed the industry quite closely.
I’m not saying they are saints, I’m saying that holding cost accounting responsible is plain silly! Just like holding guns responsible. It’s going after the tools, not the perps.
Still, theses criminal companies have made the American Economy the greatest in the world. Maybe there are benefits to Capitalism, warts and all.
1. They publicly say they will be competing with Tesla, yet they only size their EV production capacity, years ahead, to such a small number. (Same thing for GM) 2. For the capacity they do build out they seem to not have locked in supplier battery prices and this causes them to get hit with huge price increases. Seems like an amateur mistake for a 100+ year old company that prided itself on vertical integration 100 years ago and seem to be beaten at their own game by startup Tesla who has built a lot of their battery capacity and has multiple suppliers with multiple chemistries.
These are indeed issues, but you have to remember that Tesla IS the leader in EVs by far right now. Tesla has been building and selling EVs for 10+ years longer than Ford or GM, so it will take some time for them to catch up.
I suspect that Ford and GM chose capacity with the assumption that their first generation EVs won’t quite be quite good enough to win over the competition, and they will probably increase capacity for their next generation EVs (since they will be better and much more competitive). For GM, this indeed has been shown to be true. For Ford, well, we have to wait and see, the F-150 Lightning appears to be VERY impressive, now we have to wait for real customer impressions and a year or two of real-world experience and results.
These are indeed issues, but you have to remember that Tesla IS the leader in EVs by far right now. Tesla has been building and selling EVs for 10+ years longer than Ford or GM, so it will take some time for them to catch up.
I suspect that Ford and GM chose capacity with the assumption that their first generation EVs won’t quite be quite good enough to win over the competition, and they will probably increase capacity for their next generation EVs (since they will be better and much more competitive). For GM, this indeed has been shown to be true. For Ford, well, we have to wait and see, the F-150 Lightning appears to be VERY impressive, now we have to wait for real customer impressions and a year or two of real-world experience and results.
Plus, F is very much a truck company, easily as much as it is a car company - half their product output by units are trucks, while fewer than 10% of their products are passenger cars/sedans (the rest are SUV’s). Tesla didn’t really start offering a competing product line to Ford’s offerings until the Model Y in 2020 - and even then, I’m not sure how much the Y is really in the same market segment as the Escape or Explorer.
Despite Tesla’s huge headstart, Ford’s managed to beat Tesla to market with a pickup truck…which is much more significant to Ford than it would be to other automakers (like VW) who let Tesla get a huge jump on them. Based on Musk’s latest statements about Cybertruck, Tesla is looking at a mid-2023 release date - which gives Ford about a full year of sales before Tesla begins delivery of their product. It will be interesting to see how broadly consumers accept Tesla’s very unique design of the Cybertruck (which looks little like other Tesla offerings or other pickup trucks) - Tesla has much more experience with the electric vehicle part, but F’s got a lot more experience designing the user experience of a truck.
Ford Motor has set its sights on topping Tesla in the race to become the global leader in electric vehicles, CEO Jim Farley said Tuesday.
Later he says they plan on being No. 2 by mid decade.
I predict they will be further behind Tesla by then, but selling some EVs that Ford enthusiasts and some non-Tesla fans like.
The private equity model relies on the idiocy of lenders as well. Oh,wait they will bundle and securitize the debt, never mind :).
It isn’t just banks that are hurt by the private equity MO. When the Michigan furniture chain went under, for the second time, the local Detroit media was talking to some of it’s creditors who were getting rogered: furniture vendors like La-Z-Boy, and small businesses, like the local company that made the signage for the store, and the customers that did not receive furniture they had paid for.
Mar 19, 2021 Some Loves Furniture customers left without furniture or a refund months after bankruptcy filing
Michael and Stefanie Coesens started the new year of 2021 with a visit to the Shelby Township Loves Furniture store…The grand total? $2,857.76 – paid in full on January first with their debit card.
They received an email from Loves Customer Care on January 21, 2021 that said:
…Per the direction of the courts, all orders placed on or prior to January 6, 2021 are to be canceled, we have therefore canceled your order.
We have noted that your order was placed with a credit card – it is the recommendation of the bankruptcy courts, that you file a dispute with your credit card company for any funds owed to you.
Hopefully. I have one on order. I am doubtful if it will ship in quantity anytime before 2024.
which gives Ford about a full year of sales before Tesla begins delivery of their product.
I have to wonder exactly how many F-150 Ls have been delivered so far. I’ve tried ordering/reserving one every couple of weeks since April or May with no success. They simply aren’t taking reservations anymore. I wouldn’t be surprised if they sold all they can make for MY22, and won’t be able to make all of them until MY23, so they will have an issue of somehow getting trucks to people who ordered a 22 at 22 prices, but in 23 perhaps as a MY23. I don’t know how they will deal with it.
Ford has claimed that it’s developing production capacity for the Lightning with a 150K annual run rate, or a little over 10K per month. They’re certainly going to be early in their ramp up for a while, since production only started back in April. But given the size of their reservation list, it wouldn’t be shocking if they managed to sell at least half that annual number (75K) from now through mid-year 2023.
Those aren’t Tesla-league numbers, of course - Tesla was selling more EV’s to the U.S. market than that back in 2019. But they might be high enough to keep F even with Tesla in terms of U.S. pickup truck sales, which would a pretty solid accomplishment for them, I think.
In order to slow down the rampart rogering of smaller public companies by private equity, you MUST require lenders to hold the paper for the entire length of the loan,no exceptions. Underwriting would be much more conservative,bk would be less frequent. The off loading of risk,and the slicing and dicing of loans,is reprehensible.
The financialization of everything will do damage to an entire generation of people if it cannot be reversed.
… you MUST require lenders to hold the paper for the entire length of the loan,no exceptions.
It wasn’t necessarily only bank paper. The stakeholders that were rogered by the furniture store were owed trade debts. The furniture vendors stopped delivering furniture because they had not been paid in months. The logistics company that did the warehousing and delivery quit, because it had not been paid in months. The couple in the article I posted finally got their money back, from the credit card company. What if they had paid cash? They would be another unsecured creditor in the bankruptcy, along with all the trade creditors. The store was into La-Z-Boy for millions. And where did all the money go from the sale of the furniture the store never paid for, and the warehouse and delivery services the store never paid for? Into the PE pockets.
Ford has claimed that it’s developing production capacity for the Lightning with a 150K annual run rate, or a little over 10K per month. They’re certainly going to be early in their ramp up for a while, since production only started back in April. But given the size of their reservation list, it wouldn’t be shocking if they managed to sell at least half that annual number (75K) from now through mid-year 2023.
I still wonder why they won’t open the reservation list for future model years? I assume they could structure it in a way that it is more predictive of how many will actually buy.
Those aren’t Tesla-league numbers, of course - Tesla was selling more EV’s to the U.S. market than that back in 2019. But they might be high enough to keep F even with Tesla in terms of U.S. pickup truck sales, which would a pretty solid accomplishment for them, I think.
I suspect that Ford is a little fearful. They are now going through a painful recall on their Mach-e model. Painful, because it requires both software, which is easy and affordable to install, and hardware, which is difficult and very costly to install (also painful because it can lead to bad PR and expensive lawsuits). Luckily they only sold a few tens of thousands of the Mach-e before the problem was discovered. Can you imagine a similar recall after 400k or 500k F-150 Lightnings have been sold?
I think Tesla made a strategic choice - they can either produce 3 and Y full out or they can begin production of the cybertruck (yes, it’s weird looking, but somehow people seem to want it, even I have one on order) and produce a lesser number of 3 and Y models. Time will tell if that was the correct choice, but it probably was the correct choice for a small new automaker with limited resources.
(I say 3 and Y because at this point S and X are just small niche products for Tesla.)
I still wonder why they won’t open the reservation list for future model years? I assume they could structure it in a way that it is more predictive of how many will actually buy.
Pricing! Inflation creates a lot of uncertainty in future costs making it risky to set the price now. Reservations are typically at a fixed price.