Good News in July 5, 2006 Wall Street Journal

GM Lifts Sales, Market Share in China

By GORDON FAIRCLOUGH July 4, 2006 2:24 p.m.

SHANGHAI -- General Motors Corp., beset by slumping sales in its home market, said that, together with its local affiliates, it sold 47% more cars and trucks in China during the first half of 2006 than it did a year earlier.

The increase was ahead of sales growth for the booming China automotive industry as a whole, GM said Tuesday, allowing the company to boost its share of the market by nearly two percentage points to 12.5%.

China is one of GM's most important profit sources, though its Chinese revenue is only a fraction of its North American revenue. The company is struggling to reverse its decline in North America and is under pressure from activist shareholder Kirk Kerkorian to consider an alliance with Renault SA of France and its Japanese partner, Nissan Motor Co.

GM said it expects annual sales growth in China this year to top 20% as it continues to roll out new models.

"We expect vehicle sales in China to remain steady through the end of 2006 and top last year's record," said Kevin Wale, president of the GM China Group.

In the first five months of the year, China's vehicle sales rose nearly 31%, while passenger-car sales climbed more than 44%, making the country the fastest-growing major auto market in the world. National six-month figures haven't been released.

"The whole industry is going up very strongly. Demand is robust," said Kate Zhu, an auto analyst at Morgan Stanley in Hong Kong.

Still, China's auto market is also becoming increasingly competitive. Price wars have broken out as the world's major car makers and their joint-venture partners battle with each other and a growing number of local Chinese manufacturers.

GM has gained by aggressively redesigning its vehicles to satisfy local tastes. The Chinese version of the Buick LaCrosse, launched this year, for example, has a restyled exterior, fancier interior and more fuel-efficient engine than the version sold in the U.S.

Volkswagen AG said Tuesday that sales by the company and its two Chinese affiliates rose a combined 30.2% in the year's first six months, giving Volkswagen a 17.1% share of the passenger-car market.

On Monday, PSA Peugeot Citroen said its Chinese venture posted a 38% sales increase in the first half of the year.

GM said its joint venture with Shanghai Automotive Industry Corp. sold 201,901 Buicks, Chevrolets and Cadillacs from the start of January through the end of June.

The company's three-way tie-up with Shanghai Automotive and Wuling Automotive, which makes the Chevrolet Spark compact car as well as minivans and small commercial vehicles, raised sales 45.1% to 250,066 vehicles.

Shanghai Automotive recently hired the former head of GM's business in China, Phil Murtaugh, to oversee its international vehicle operations. The company, a large state-owned enterprise, said earlier this year that it would begin making a line of cars under its own brand name for sale in the domestic market and for export.

Article in Detroit Free Press June 30, 2006

I happen to agree with the sentiments of this article. Now IS a great time to buy in metro Detroit. Prices can and will go only so low, and I believe that we are nearing the end of the price depreciation that has plagued this market for the last few years. In terms of economic reality, I think the worst of what we are to suffer is behind us. Now it becomes a matter of public perception. As the old saying goes, "perception IS reality," so the main thing that has to happen now is for people to start seeing that the market has bottomed out. Once that happens, people will start seeing the incredible bargains that exist everywhere around metro Detroit. Once that happens, people will start buying again. Once that happens, the market will stablize. Once that happens, the market will return to normal. The statistics mentioned below might be indicative of a change back toward the direction of normalcy in real estate in this town. Let's hope it is!

SUZETTE HACKNEY: Stress positives in slow times

June 30, 2006

FREE PRESS REAL ESTATE WRITER

I've always known metro Detroiters are smart people. It never takes us long to see the upside of what initially seems like a down situation.

We all know southeast Michigan has a struggling real estate market right now. Communities are saturated with homes that are slow to sell, and when they do, they often yield less money than they once would have.

But when we're given lemons, we make lemonade.

In real estate terms, that means embracing this market as one in which we can find a dream home for less money.

In an April poll commissioned by RE/MAX of Southeastern Michigan, 55% of metro Detroiters said they strongly agree or somewhat agree that now is a good time to buy a new home. The poll, surveying 604 people, was done by W.K. Greene & Associates in Royal Oak and had a margin of error of plus or minus 4 percentage points.

The majority of the people surveyed cited overall favorable conditions like having many houses to choose from at good prices and a belief the market is heading for a rebound. That's clear thinking, folks. Despite the uptick in interest rates, this is a great time to buy if you want the most house for your buck.

I am astounded by some of the deals that are out there. I see neighborhoods that used to be way out of my price range, but where I can afford to buy now. I read the Real Estate ads and visit open houses and am amazed at the type of house I could get today on my budget, compared to the one I got when I bought three years ago.
There are so many homes out there to choose from; just the prospect of shopping is enough to make me want to upgrade. I probably won't, though, for some of the reasons the people in the RE/MAX poll cited.

About 45% of the respondents said uncertainty about the economy made them feel this is not a good time to buy a home.

Those who thought buying right now is a mistake viewed market conditions as depressed overall, said houses are not moving quickly and that it's tough to sell the homes they have. I know there are sellers in our market who feel no one will ever buy their houses. I interview them almost on a daily basis.

According to the poll, though, homeowners are realistic about the amount of time it would take to sell a home in metro Detroit. Respondents were asked to estimate how long they thought their home would sit on the market. The largest portion, 26%, did not know; 16%, said they believed the house would be on the market five to six months -- a pretty accurate guess right now, according to multiple-listing services.

In a strong market, a home would be listed 30 or fewer days, but no more than 60.

For now, though, the frenzied buying days are gone in metro Detroit.

But remember, this is all about accentuating the positive. If you're a buyer and not a seller, you might be able to sip that lemonade on your new front porch or deck by summer's end.

Article in Wall Street Journal June 28, 2006

A quarter of a billion dollars is a fairly substantial gamble for any organization, no matter how deep its pockets. While there remains a significant amount of pessimism in the market, I view the move Lightstone Group made a few days ago as a positive sign that there are some who believe that the bad times may be coming to an end. As noted in the third paragraph below, fear leads to panic, and panic leads to occasionally illogical behavior, which can create opportunities for others not drawn to the herd mentality. Only time will tell if this was a smart or a foolish move. I'm betting on the former...

In Detroit, Lightstone Group Is Bullish About a Contrarian Gamble

By JENNIFER S. FORSYTH June 28, 2006

David Lichtenstein is placing a big, contrarian bet on Detroit -- an area that has lost more than 200,000 jobs in the last five years.

His Lightstone Group is expected to close today on a purchase of 19 apartment complexes in the Detroit suburbs from Home Properties Inc., a publicly traded real-estate investment trust, in a transaction valued at $260 million including closing costs and capital improvements.

"There's no doubt that Detroit is not the rosiest of markets," concedes Mr. Lichtenstein, president and founder of Lakewood, N.J.-based Lightstone, one of the nation's largest private owners of real estate. "Panic sets in and everybody runs to the door at the same time. That represents fear. And fear represents a good buying opportunity."

As of May, Detroit led all major metropolitan areas in unemployment, at 6.9%, according to the U.S. Bureau of Labor Statistics. The national unemployment rate was 4.5%. The best guess of Moody's Economy.com is that the area will lose another 40,000 jobs by the end of 2007 -- the ripple effect of labor-force paring by auto manufacturers and their suppliers.

In many ways, things don't look much brighter for apartment landlords. A report published in April by Boston-based Property & Portfolio Research Inc. points out that apartment vacancies remain near cyclically high levels, with increased construction adding to the woes. Population growth in the area is stagnant, adds Jim Rhein, a labor-market analyst for the Michigan Department of Labor & Economic Growth.

Little wonder, then, that Home Properties wanted to dump its Detroit properties, totaling about 4 million square feet. "Their analysts were killing them," Mr. Lichtenstein says. Charis Warshof, vice president of investor relations for Rochester, N.Y.-based Home Properties, says the sale is motivated by the company's focus on the East Coast, but agrees the Detroit market "has been soft and that the portfolio has not been performing as well as others of ours recently."

Here is Lightstone's view: The company is acquiring the properties at a 7.75% capitalization rate -- the return on investment in the first year of ownership -- which Mr. Lichtenstein argues is two percentage points higher than similar properties across the nation. So the risk has been factored in. Plus, the occupancy rate for the properties averages 90%, with only about one out of 10 residents employed in the auto industry, he says. Moreover, rising interest rates are benefiting apartment owners everywhere as consumers debating whether to buy a home or rent lean toward renting.

Mr. Lichtenstein acknowledges people would rightfully believe he is out of his mind if he put 100% of his firm's assets into the Detroit market. But this purchase will be pooled with properties in more than 30 markets across the country, blunting the potential blow from any one area. Lightstone's Detroit properties will now make up about 20% of its apartment portfolio, but only about 5% of its total holdings, which include office and retail properties.

As for this particular investment, Mr. Lichtenstein suggests "you should mark this on your calendar and in three years say, 'David, were you insane or were you a genius?'"