The Wall Street Journal-20080112-The Week Ahead - Our Take On Coming Events
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The Week Ahead / Our Take On Coming Events
Detroit Auto Show:
Behind the Glitz of New Models,
Big Three Brace for Rocky 2008
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By Josee Valcourt and Stephen Power
The auto industry gathers in Detroit next week to tout its latest models and innovations, but from a global perspective there's not much reason for cheer.
The U.S. and Western European markets -- the two biggest markets for the world's established auto makers -- are both headed for sluggish or declining sales this year.
This is bad news for Detroit's Big Three and even some foreign auto makers that are scrambling to boost profits because it leaves them without a solid base where they can count on healthy profits.
Kimberly Davis Rodriguez, a restructuring consultant with Grant Thornton in Southfield, Mich., said companies with the most balanced global footprints are best positioned to weather the storm. "That by definition is not the domestics," she said, referring to General Motors Corp., Ford Motor Co. and Chrysler LLC.
GM and Ford both get roughly 80% of their sales from North America and Europe. Chrysler gets about 90% of its sales from just North America.
U.S. auto sales are forecast to fall to 15.5 million vehicles this year, from 16.1 million in 2007.
In Western Europe, auto makers are bracing for another year of weak demand and cutthroat competition. CSM Worldwide, a Detroit-based sales-forecasting firm, expects overall sales of new automobiles in Western Europe to total 17.3 million in 2008, compared with 16.8 million last year. That will pressure Renault SA, PSA Peugeot Citroen SA and Fiat SpA, which are heavily dependent on their home market.
"All over [Western] Europe, at least in the big countries, people are prepared for a very slow year," said Walt Madeira, manager of vehicle sales forecasts for CSM in its London office.
Even highly profitable auto makers are likely to feel the pinch. For years the profit growth at Toyota Motor Corp. and Honda Motor Co. has been driven by increasing sales in the U.S. and Europe.
Developing markets such as China, India and Russia are expanding rapidly enough to ensure that global auto sales will increase this year. Falk Frey, a senior vice president for Moody's Investors Service in Frankfurt, predicts demand for cars and trucks to surge at about 3% yearly over the next five years. But profit margins in those countries are significantly narrower, and the bulk of sales are made up of inexpensive vehicles. Just last week, India's Tata Motors Ltd. took the wraps off a four-seat car priced to sell for about $2,500.
Car makers, says Ms. Rodriguez, "have to realize that they're going to be dealing with much different competition now" in the global marketplace "and they have to restructure their thought process and game plan accordingly."
Technology:
The Downside to Apple's Frequent Product Updates
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By Nick Wingfield
If there is a downside to the pace of innovation at Apple Inc., the Fox comedy show "MADtv" captured it recently in a spoof of an iPod advertising campaign featuring the musician Feist. In the segment, a look-alike for the Canadian singer croons about her unhappiness after a $400 iPod purchase at an Apple store.
"And just after my purchase was done," she sings, "those Apple b- introduced a new one."
Those sentiments are likely to be shared by some Apple customers after this coming week's Macworld conference in San Francisco, where Apple Chief Executive Steve Jobs is set to take to the stage on Tuesday to unveil an array of spiffy new gadgets. Indeed, the torrent of new products from Apple in recent years -- the iPhone, the ever- changing iPod family, the latest iMacs -- has been embraced heartily by consumers, who have pushed company sales to new heights.
By constantly redesigning its products, introducing new ones and trumpeting the changes in high-profile marketing campaigns, Apple has habituated many of its customers to living in a semipermanent upgrade cycle for new gadgets. The risk is in disappointing consumers who feel their new purchases are instantly outmoded. Someone who got a Mac laptop over the holidays, for example, could feel bitter if Apple, as expected, introduces a new portable Mac at Macworld.
Mr. Jobs addressed this feeling last year in an open letter to iPhone customers, in which he apologized for disappointing early adopters of the device by quickly lowering its price $200 after it was introduced. "This is life in the technology lane," he wrote. "If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product because there is always something better and less expensive on the horizon."
Apple users may feel the sting of obsolescence more acutely than those of other companies' products. In recent years, Apple has averaged about one major new release of its Mac operating system a year. In contrast, about five years passed between major releases of Microsoft Corp.'s Windows XP and Vista operating systems.
"Given the fact that the pace of Apple product improvements is between two times and four times faster than PC-based products, Apple buyers will always have a higher degree of buyer's remorse," says Gene Munster, an analyst at Piper Jaffray.
Some Apple watchers have come up with elaborate methods of reducing the risk of badly timed purchases. MacRumors, an Apple news site, has a buyer's guide (http://buyersguide.macrumors.com/) that discusses the probability of imminent upgrades to Apple products, based on historic product announcements by the company.
The site's recommendation for people interested in Apple's MacBook Pro laptop: "Don't Buy -- Updates soon."
Campaign '08:
Romney Bets
On Michigan
For Momentum
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By Elizabeth Holmes
In Michigan, it's win or go home for Mitt Romney. The Republican presidential hopeful must carry the state's primary on Tuesday to stand a chance of being nominated, say veteran campaign watchers.
It won't be easy for the former Massachusetts governor, who despite outspending and outworking his opponents, was handed two decisive losses -- in Iowa to former Arkansas Gov. Mike Huckabee and in New Hampshire to Sen. John McCain of Arizona. Polls show the three in a statistical dead heat in Michigan.
The GOP candidates face a new set of challenges in Michigan, where, unlike other early states, the economy will take top billing. Michigan has the highest unemployment rate in the country, at 7.4% as of November, according to the Bureau of Labor Statistics. The jobless rates in Iowa and New Hampshire are 3.9% and 3.4%, respectively. Michigan lost more than 76,000 jobs in the past year, many of them in the auto industry.
Mr. Romney, the wealthiest candidate in the race, spent 25 years in the private sector and is campaigning throughout Michigan as Mr. Fix- It. "I'm the one guy in this race who really understands how the private sector works, who understands the nature of international trade," Mr. Romney told reporters Wednesday before boarding his chartered flight to Grand Rapids, Mich.
He faces a tough opponent in Mr. McCain, who received endorsements from both the Detroit News and the Detroit Free Press, now featured in a television advertisement. Mr. McCain will be campaigning in Michigan through Tuesday afternoon, forgoing an election-night party there to get an early jump on South Carolina, where the Republican primary will be held Saturday.
Mr. Huckabee will also join the pack in Michigan, though the ordained Baptist minister has pinned his hopes on South Carolina, where he is courting evangelical voters, a bloc that led him to victory in Iowa. Former New York Mayor Rudy Giuliani has no plans to be in Michigan before the primary. Though largely considered to have a solid shot of placing well there, he will spend his time in Florida instead where he has slipped in recent polls.
The lack of a clear national favorite gives Mr. Romney hope. If he can pull off a victory Tuesday, he'll gain momentum going into the South Carolina and Nevada contests on Jan. 19, and in the lead-up to Florida's Jan. 29 primary and the crucial "Tsunami Tuesday" Feb. 5. Mr. Romney will be in Michigan through Tuesday, offering his ideas on how to lift Michigan out of a "one-state recession."
Mr. Romney has somewhat of a home-court advantage in Michigan, where his father, George Romney, was governor, 1963-69. During a campaign stop in Michigan last week, Mr. Romney momentarily choked up when a woman recalled his dad. "He was a great man and I miss him dearly," Mr. Romney said.
