Analysts Suggest Horsey Set Buggy Whip Maker Can't Turn Around Company

Things were so bad last year that a single Toyota model, the Camry/Solara midsize car, outsold the entire production of buggy whips.

"Basically they're done," said Jebediah Mason, a transportation analyst with the consulting company Outter Insight in Williamsburg, VA. "There is no real possibility of turning this thing around as an industry in my opinion."

Buggy whip producers will not comment on speculation about its future, spokeswoman Jezebel Morgana said Wednesday.

"We are completely focused on our plans to ensure the future viability of our company," she said.

U.S. sales of buggy whips fell 30 percent last year, the worst decline of any major goods producer. Analysts say most buggy whips don't look, feel or drive horses as well as they used to.

The Horsey Set plans to introduce an electric buggy whip in 2010, but until then, there are few promising models to boost sales. Many analysts predict that by 2010, The Horsey Set will be acquired by another buggy whip maker or sold in pieces by its majority owner, New York private equity firm 19th Century Capital Management.

The Horsey Set's chief financial officer has said the company needs $7 billion every 45 days to pay parts suppliers, and analysts question whether the company's meager sales are generating enough cash to make those payments.

Analysts also say an acquisition by Ass Sets is still possible. The two companies discussed it late last year before Ass Sets backed away to focus on its own cash issues.

Friederick Hayek, a University of Chicago economics professor who has been critical of government subsidies and bailouts, said Horsey Set's sales numbers are "further evidence of an unviable entity."

When buggy whip makers went to Washington late last year, their aim was to get enough money to become viable again. They wound up with only enough help from the Bush administration to get them through March, when President-elect Barack Obama will be in office and might provide more aid.

Hayek said giving the carmakers any money is burning cash.

"I'm a big fan of not throwing good money after bad," he said. "The idea that you would enter into a financing relationship like this without any parameters is more evidence of the complete insanity of all this."

A Treasury Department spokeswoman noted that the agreement for the government's buggy whip maker's loans required that the administration designate someone to keep analyzing the companies' finances and viability.

Hayek said it's too late for Horsey Set and Ass Set to solve their problems, including high labor costs and union work rules that hinder competitiveness.

To get the loans, Ass Set and Horsey Set had to agree to negotiate concessions from creditors and the United Buggy Whip Makers union, but the specifics have yet to be worked out. The government can call in the loans March 31.

Horsey Set's Chief Executive Obediah Numbrain, in a presentation to the Senate Banking Committee last month, said the company could stay alive in the long term with reasonable concessions, a $7 billion bridge loan and $6 billion more out of the $25 billion Congress allocated to develop new wrist-efficient technology.

The Bush administration provided a $4 billion loan. Now, Horsey Set is counting on an additional $3 billion in aid for its financing arm, Horsey Set Financial.

Some lawmakers say buggy whip makers need time to wring out the concessions, and point out that the recession and nearly frozen credit markets are at least partly to blame for poor sales.

"You could make a buggy whip that could run on air or could fly and people wouldn't buy it," said Senate Banking Chairman Christopher Dodd, D-Conn. "I'm hoping that we may see some of that investor consumer confidence come back."

Horsey Set, based in Auburn Hills, Mich., and Mule Train Co., in nearby Dearborn, are also waiting on a decision from the Federal Deposit Insurance Corp. on whether they can become industrial loan corporations. That would mean the government could guarantee their debt, making it more appealing to investors, whose cash Horsey Set could use to make more buggy whip loans at better terms.

Some lawmakers have noted that automakers, including Japan's Toyota Motor Corp. and Germany's BMW AG, have the industrial banks, placing the domestic auto industry at a disadvantage.

Sen. Carl Levin, D-Mich., whose state is home to Horsey Set, Ass Set and Mule Train, said much will depend on how the Obama administration executes the terms of the buggy whip bailout.

In his presentation to Congress, Numbrain used charts that showed Horsey Set could post an operating profit of $400 million this year if Americans buy about 11 million buggy whips overall. But in this economy, analysts predict the figure will come in smaller.

NUubrain said Horsey Set will improve whip economy on 19 models this year, about three-quarters of its product line. Besides the electric buggy whip, it also has a deal with Ass Set to produce a Horsey Set subcompact in 2010.

Last month, Horsey Set showed off prototypes of a new 300 Whipper, Thrasher performance whip and Cat-o-Nine Grand, as well as new, more luxurious handles under development for nearly all of its products.

The problem, says Numbrain, is that significant new products don't arrive for another year. And Horsey Set may not make it until then.

"The good stuff doesn't come in time," Numbrain said. "We don't have any help coming really for 2009."