Explaining Southern California's economy

Suzuki is ending auto sales in the U.S., distributor declaring bankruptcy

Suzuki has decided to abandon the hyper-competitive U.S. market, after yet another month of dismal sales.

I've been arguing for a while now that at least one seriously underperforming carmaker is going to exit the U.S. market. October U.S. auto sales gave me an opportunity to revisit this issue and again name the two most likely candidates: Mitsubishi or Suzuki.

Well, Suzuki it is. The company announced Monday that it's ending vehicle sales in the United States. But it's sticking with motorcycle, ATV, and "marine boat sales," Reuters reports. Its U.S. distributor, American Suzuki Motor Corp., plans to declare bankruptcy.

Suzuki has a respectable lineup of vehicles, but it isn't even remotely competitive on sales in the U.S. — it sold barely more than 2,000 cars and trucks in October and ended the month with a 0.2 percent market share. That's almost statistically insignificant and a complete disaster for a mass-market automaker. I haven't been able to confirm it, but I don't think the company has a single remaining dealer in the Los Angeles area. 

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The bad news in the good jobs news

A jobs sign hangs above the entrance to

KAREN BLEIER/AFP/Getty Images

A jobs sign hangs above the entrance to the US Chamber of Commerce building in Washington, DC.

Today's jobs report was pretty solid. Not supergood, but miles from superbad. I went on "AirTalk" with Larry Mantle this morning to hash it all out with Christ Thornberg of Beacon Economics.

There were indications in the BLS data that consumer spending is weakening a bit, due to fewer jobs being added in the retail sector. Robert Reich thinks it's worse that, even as the rough pace of 245,000 jobs on averge persists:

[W]hether even that good rate continues depends largely on whether consumer demand can be revived. Spending by American consumers is 70 percent of U.S. economic activity. But so far, spending is anemic.

American consumers have replaced worn-out cars and appliances, but little else. They haven't had the dough. Their wages are still falling, adjusted for inflation. The value of their homes - most consumers' single biggest asset -- continues to drop.

[...]

Corporate profits are up but the money isn't flowing to American workers. The ratio of profits to wages is the highest on record -- since the government began keeping track in 1947. Not only has the median wage continued to drop, adjusted for inflation, but a far smaller share of working-age Americans is now employed (58.6 percent) than was employed five years ago (63.3 percent). Today's employment-to-population ratio isn't much higher than it was at its lowest point last summer, when it dropped to 58.2 percent.

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Los Angeles' Gores Group spends heavily to acquire Pep Boys

Pep Boys Store

Dwight Burdette/Wikimedia Commons

Pep Boys has been purchased by The Gores Group, a private-equity firm in Los Angeles.

Pep Boys, the auto parts and service chain, is leaving the public markets and leaping into the arms of private equity firm The Gores Group, based in Los Angeles. This is from the LA Times:

Manny, Moe & Jack are going private: Aftermarket auto parts chain Pep Boys is selling itself to Los Angeles investment firm Gores Group for $791 million in cash.

Expansion-minded Pep Boys executives say the total enterprise value of the deal is about $1 billion. The $15-per-share price reflects a 24% premium on Pep Boys’ Friday closing price of $12.08.

Philadelphia-based Pep Boys, which has benefitted from a trend of drivers holding on to their existing cars rather than buying new ones, watched its stock jump 23% to nearly $15 during midday trading Monday.

This is both interesting and worrying. First the interesting. The Gores Group has been around since 1987 and has made, as may private-equity firms have, many millions if not billions of dollars between now and then. The firm closed a third fund early last year, amounting to $2 billion. Now it's buying Pep Boys, all in cash (debt brings the value of the deal up to $1 billion). As the Wall Street Journal points out, the purchase price amounts to $15 per share, but it's been more than two years since Pep Boys closed at that level.

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