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Emperor’s New Clothes and Chicken Little

by Michael Pistol

“Chicken Little was in the forest one day when an acorn fell right on her head. Scared senseless, she started to cry: Help! Help! The sky is falling, I have to tell the king…”

As the credit and financial crisis continues unabated, many are forgiven for believing that the sky is really falling, especially onto the automotive world.
Without question, the profits of the past are gone forever while the consolidation and the search for liquidity will continue at a break-neck pace.

Canadians, so far fairly sheltered from the massive financial turmoil that’s engulfing the entire world, have finally opened their eyes to the reality. And it’s not a pretty one.
The proverbial acorn, is just starting to hit home: Due to the tremendous volatility in all financial markets, the Canadian dollar – a typical commodity currency - last week fell under the 80 US cents mark, dropping 16% since Sept. 30, the most in a month since 1950, according to BoC. It may help exporters but certainly not the consumers.

The recent wave of layoffs in the US are starting to reach this side of the border – Chrysler is cutting its salaried white-collar workforce by 25%, which will translate into the disappearance of nearly 240 jobs here in Canada. Chrysler’s Windsor minivan complex is also affected this month by cuts - one shift for two weeks or even three, depending on the market outlook. Still with Chrysler, the merger talks with GM/ Nissan-Renault Alliance, if successful, are said to result in additional 40,000 job losses in N. America alone.

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Ipso Facto - Fundamentals October 2008

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