BYD to Slash Salesforce By 70%!

[Parsad]

I've never understood this investment and I don't think this is going to help either.  BYD is cutting their salesforce by about 70%.  From 2,600 down to 800! 

 

Either they never needed 2,600 sales people in the first place, or they are going to kill their level of customer service when compared to their competitors.  It doesn't make management look good whatever way you cut it.  Cheers!

 

http://www.reuters.com/article/2011/08/30/byd-idUSL4E7JU0RW20110830?feedType=RSS&feedName=financialsSector&rpc=43

[Ben Graham]

I've never understood this investment and I don't think this is going to help either.  BYD is cutting their salesforce by about 70%.  From 2,600 down to 800! 

 

Either they never needed 2,600 sales people in the first place, or they are going to kill their level of customer service when compared to their competitors.  It doesn't make management look good whatever way you cut it.  Cheers!

 

http://www.reuters.com/article/2011/08/30/byd-idUSL4E7JU0RW20110830?feedType=RSS&feedName=financialsSector&rpc=43

 

 

I think billionaires have the luxury of having a time horizon of 100 years. (Munger/Buffett)

 

BYD is waiting for the internet ecosystem to become complete before it can build the electric car that can totally accommodate  all the bandwidth apps that will be installed in the vehicles.

 

Cars can become nodes on Muni-Wi-Fi networks, Wi-Fi hotspots, and home Wi-Fi networks. The possibilities are nearly limitless for what that could mean.

 

Here is an old article explaing what I mean: http://www.readwriteweb.com/archives/the_next_node_on_the_net_your_car.php

[rijk]

what about the 20,000 engineers? munger commented to be very impressed with byd having 20,000 engineers on the payroll that work very hard when they encounter problems........

 

regards

rijk

[Packer16]

I think this was a technology bet plain and simple more akin to VC investing.  Not the typical Berkshire fair.

 

Packer

[dual_bid]

I've never understood this investment and I don't think this is going to help either.  BYD is cutting their salesforce by about 70%.  From 2,600 down to 800! 

 

Either they never needed 2,600 sales people in the first place, or they are going to kill their level of customer service when compared to their competitors.  It doesn't make management look good whatever way you cut it.  Cheers!

 

http://www.reuters.com/article/2011/08/30/byd-idUSL4E7JU0RW20110830?feedType=RSS&feedName=financialsSector&rpc=43

 

There's an excelent book on the history of Toyota Motor Corp. called Against All Odds. Think it will help you understand. It doesn't help to generally know the story of Toyota. One needs to know its detailed history. So many times it looked hopeless...

[Guest]

I would like to believe Buffett isn't "losing it".  Maybe he is and maybe he isn't. I certainly think he's still much, much smarter than the vast majority of people out there. I don't think he has the same edge he used to though either. Fisher in his later years was certainly losing it.

 

I say that for a few reasons. He was wrong about mortgages (one of the biggest things to happen to our country in decades), he was wrong about oil (buying COP right before things dropped), Sokol, and now possibly BYD. He was right about the economy/market in 2008 with his NY Times article. He was right so far with Iscar, etc. He has been right about a ton of stuff too.

 

I guess I'm hoping that someone here with more Buffett knowledge will tell me I'm wrong and that he is as bright as ever. :)

[DCG]

He was right about the economy/market in 2008 with his NY Times article.

 

er..not really. The Dow dropped another 3,000 points after he wrote that article.

[hyten1]

i thought i recall (correct me if i am wrong) that when Berkshire invested in BYD, buffett said that this is completely munger thing. berkshire invested because munger said they should.  I don't believe Buffett ever said he would invest on his own?

[txlaw]

Keep in mind that when Buffett bought into BYD, he got the low cost IT manufacturing business plus auto business at a earnings yield of about 7%.  So there was a lot of optionality with respect to growth of the auto and new battery tech side of the business.  This was also a strategic decision for MidAm that has a number of benefits, since battery tech will be hugely important to MidAm going forward.

 

The auto story at BYD has always been inflated by the media.  The real story is that this is a materials science/chemistry company that is attracting top engineering talent from Chinese universities, that has a manager in place that Munger has described as Edison/Welch-like, and that focuses on process innovation.

 

It's also in a space that is hugely important -- manufacturing green technology that will allay Chinese concerns about oil dependence and the environmental impact of so many combustion engines coming online.  The Chinese will subsidize building out an EV infrastructure and purchases of EVs for fleets because they have to be worried about this big problem.

 

The downsizing of the sales force makes sense.  It doesn't make sense to try to compete against other car companies for sales, as EVs are high cost vehicles that don't have as great a range as normal cars.  BYD vehicles should be fleet vehicles for the government and for companies.  The recent announcement that BYD, Hertz, and GE will expand their EV leasing business in several Chinese cities is a step in the right direction.

 

I don't own any BYD at the moment, but I consider it a Phil Fisher stock.  It's a company that you buy at a reasonable price and hold onto for the long run.

[Vish_ram]

here is a solution for BYD

 

Hire Steve Jobs as CEO. He would come up with iCar (that uses iBattery). The IC engines will go the way of horse and buggy, newspapers and CD's. The car will feature a special radio linked to itunes. Everytime you do an  oil change or any service, 30% of what you pay will go to Apple.

 

one serious option for them is to focus on battery and technology, leaving car making to more established players.

[Parsad]

one serious option for them is to focus on battery and technology, leaving car making to more established players.

 

Yes, this would make more sense.  Less capital intensive and they would have a much larger universe of customers.  Cheers!

[Guest]

He was right about the economy/market in 2008 with his NY Times article.

 

er..not really. The Dow dropped another 3,000 points after he wrote that article.

 

haha. true, true. :)

[txlaw]

He was right about the economy/market in 2008 with his NY Times article.

 

er..not really. The Dow dropped another 3,000 points after he wrote that article.

 

haha. true, true. :)

 

From that article you referenced:

 

In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

 

. . .

 

But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.

 

. . .

 

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

 

. . .

 

In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

 

-----

 

I'd say he was spot on.

[Rabbitisrich]

No kidding. That article was 37% ago! If anyone has a good method for predicting March 2009 moves, please pm me.

[Ballinvarosig Investors]

Apparently the company have denied the accusation - http://www.marketwatch.com/story/byd-sales-department-restructuring-but-no-layoffs-2011-08-30

 

Something seriously wrong is happening at BYD for their auto sales to be collapsing when their Chinese competitors are increasing their sales. I suspect that BYD cars must be really awful if they can't even compete in the domestic market.

 

[Ballinvarosig Investors]

I've never understood this investment and I don't think this is going to help either.

I have to say I'm with you on this, I just don't understand this investment at all. I know here in Europe, it has taken the Korean automakers nearly 20 years to try and get a toehold into the European market (they went bankrupt in the process and needed a state bailout). Even now, the likes of Kia are selling only a fraction of the vehicles that VW and Toyota sell, despite the fact they're cheaper, as reliable and in some instances even better-specced. BYD are going to have the same problem even if they can make a car as good as the likes of Toyota or VW. I reckon it would take another 10 years after continuously delivering quality cars, that people would take them seriously in the West, and that's on top of another decade they'll probably need to actually get to the level of Toyota/VW.

 

If BYD are going to compete on price instead, then they're up against Tata, who are selling a petrol car for $2,500, and a fuel efficient diesel model for $2,700. If that's the future of the auto industry, then BYD might as well get out now, as no one will ever make any money in selling a car for so little.

[Vish_ram]

I think BYD faces significant challenges that wont end anytime soon.

 

1) From a perception of quality point of view, look at American car story. The detroit had deservedly low reputation for decades, but in last 15 years, they dramatically improved it and are almost on par with imports. But public perception of quality is an entirely different story. BYD can't escape this phenomenon.

 

2) The collective high IQ of engineers dramatically doesn't improve quality low level factory workers. This is process driven and it involves continuous improvements. It's like climbing a mountain, BYD lags a lot and has much to catch up. TATA has been in automotive for decades, and many of their competitors.

 

3) Auto mfg is all about economies of scale, with slashed salesforce & subsequent reduced sales, their margins will shrink

 

4) People make pure economic decisions and give a rats behind (the common ones) to environment. I don't pay extra 6K for hybrid camry. With so much power cuts in china, why would a typical chinese buy high priced electric cars?

 

This situation is kind of similar to SHLD. you have some great brands (value) trapped in stinking biz. The stink is only worsening. What do you do?

[AZ_Value]

Anybody ever found WEB's reaction to this investment a bit "peculiar"

I've listened to him answer questions about BYD for a few years now under different contexts from the General Meeting in Omaha to CNBC and everything in between, and every single time we get a version of the same answer (I think):

"You really have to ask my partner Charlie as he is much smarter than I am in these things"

My personal translation: I have nothing to do with this thing, Charlie is the one who decided to swing and I went along and I've been trying to distance myself for a few years now.

[vinod1]

Anybody ever found WEB's reaction to this investment a bit "peculiar"

I've listened to him answer questions about BYD for a few years now under different contexts from the General Meeting in Omaha to CNBC and everything in between, and every single time we get a version of the same answer (I think):

"You really have to ask my partner Charlie as he is much smarter than I am in these things"

My personal translation: I have nothing to do with this thing, Charlie is the one who decided to swing and I went along and I've been trying to distance myself for a few years now.

 

That is exactly the impression I get. I wondered about it whenever I hear his comments on BYD. He clearly seems to distance himself and associate BYD to Charlie.

 

Vinod

[Parsad]

That is exactly the impression I get. I wondered about it whenever I hear his comments on BYD. He clearly seems to distance himself and associate BYD to Charlie.

 

I get the same feeling about Li Lu as well.  But not Todd Combs.  I think Buffett hand-picked Combs.  Cheers!