Archive for December 2nd, 2008

Detroit 3 says "smaller more efficient cars" … even if they’re unprofitable ?

December 2, 2008

Excerpted from WSJ, Ford Plans Shift to Small Fuel-Efficient Cars, Dec 2, 2008

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Ford plans to tell Congress it is retooling itself to build small fuel-efficient cars and break from the past strategy of focusing mainly on large pick up trucks and sport-utility vehicles.

Ford’s plan would likely emphasize its new fuel-efficient gasoline turbocharged direct-injection engines across its lineup and plans to bring popular, high-mileage cars from its European operations to the U.S

GM’s plan includes cutting brands and focusing on new fuel-efficient vehicles …  to meet new stringent federal mileage rules. GM hopes to have an electric plug-in car, the Chevrolet Volt, on the road sometime in 2010.

Ford, like GM, will likely express a willingness to seek further cost-cuts and concessions from the United Auto Workers union

Ford has concerns about the payments it’s already made to a new health care trust for retiree union workers. GM owes the fund $7.5 billion by 2010 – an amount many suspect the auto maker cannot afford – while Ford just paid more than $4 billion in its similar obligation earlier this year.

With regard to possible concessions by the UAW. UAW President Ron Gettelfinger is open to eliminating the jobs bank, the program that pays workers most of their wages even when they are laid off and no longer work in plants.

[Ken’s Note: the job bank — laid-off workers getting near full-pay to play cards or do crossword puzzles in a congregating hall — costs the Detroit 3 over $1.5 billion annually — about over $600 per car sold — making their total labor cost disadvantage (vs. ‘transplant’ carmakers in the South) over $1,500 per car]

But Mr. Gettelfinger wants to see management sacrifices in return, and some kind of future retraining program to help laid-off workers get high-tech jobs in areas such as battery development for electric vehicles.

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Auto companies were also devising alternative travel plans after lawmakers excoriated Detroit’s CEOs for previously using expensive corporate jets to make their way to Capitol Hill. Mr. Wagoner is considering driving from Detroit to Washington in one of GM’s hybrid models.

Full article:
http://online.wsj.com/article/SB122817144031770385.html?mod=testMod

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The American auto industry you rarely read about … the profitable one

December 2, 2008

Excerpted from WSJ, “America’s Other Auto Industry”, Dec. 1, 2008

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There are the 12 “foreign,” or so-called transplant, producers making cars across America’s South and Midwest.  Ths “other” American car industry is a model for how to do it.

Toyota, BMW, Kia and others now make 54% of the cars Americans buy … and employ some 113,000 Americans, compared with 239,000 at U.S.-owned carmakers.

Detroit has already adopted some of its efficiency and employment strategies, though not yet enough. To put it concisely, the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.

Consider labor costs. Take-home wages at the U.S. car makers average $28.42 an hour,that’s on par with $26 at Toyota, $24 at Honda and $21 at Hyundai.

But include benefits, and the picture changes. Hourly labor costs are $44.20 on average for the non-Detroit producers, but are $73.21 for Detroit.

In 1995, a GM car took 46 hours to make, Chrysler 43 and Toyota 29.4. By 2006,  GM had moved it to 32.4 hours per vehicle and Chrysler 32.9. Toyota stayed at 29.9. 

[Ken’s Note: [That’s about $2,400 of labor in each Detroit car; about $1,300 in each transplant car; over $1,000 difference per car in “applied labor”.  And that doesn’t include the costs of the UAW “job bank” Laid-off workers get nearly full-pay to play cards or do crossword puzzles in a congregating hall.  That program costs the Detroit 3 over $1.5 billion annually — about over $600 per car sold. So, their total labor cost disadvantage (vs. ‘transplant’ carmakers in the South) is more than $1,500 per car.  UGH !]

Over the decades the United Auto Workers won pension and health-care benefits far more generous than in almost any other American industry. As a result, for every UAW member working at a U.S. car maker today, three retirees collect benefits; at GM, the ratio is 4.6 to one.

The international producers’ relatively recent arrival has spared them these legacy burdens. They also located in investment-friendly states. The South proved especially attractive, offering tax breaks and a low-cost, nonunion labor pool.

The absence of the UAW also gives car producers the flexibility to deploy employees as needed.  At Detroit’s plants, electricians or mechanics tend to perform certain narrow tasks and often sit idle. That rarely happens outside Michigan.

Attempts to unionize foreign-owned factories have generally been unsuccessful; their workers know too well what that has meant for their UAW peers.

Another transplant advantage: Their factories are newer and production process simpler. As a result, they can switch their assembly lines to different models in minutes. Such a change would take weeks at UAW plants.

[Review & Outlook]

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Full article:
http://online.wsj.com/article_email/SB122809320261867867-lMyQjAxMDI4MjA4MTAwOTEzWj.html

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What percentage of mortgages are subprime?

December 2, 2008

In the early 1990s, subprime mortgages were virtually unheard of.

By 2000  they made up more than 9% of the market for mortgage originations.

Today they’re 20%.

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Excerpted from IBD, “Stop Covering Up And Kill The CRA”, November 28, 2008
http://www.ibdeditorials.com/IBDArticles.aspx?id=312766781716725

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High "Volt"-age? Can Their New Hybrid Jump Start GM?

December 2, 2008

Excerpted from the New York Times, “G.M.’s Latest Great Green Hope Is a Tall Order”, by Micheline Maynard, November 22, 2008

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The Chevrolet Volt, a plug-in hybrid, will not arrive in showrooms until late 2010. But it is already straining under the weight of an entire company.

Executives at GM are using the Volt as the centerpiece of their case to a skeptical Congress that their business plan for a turnaround is strong, and that a federal bailout would be a good investment in G.M.’s future.

But whether the Volt can live up to its billing is already a matter of debate. And some industry analysts note that GM has a poor track record of introducing green technology to the market.

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The Volt is a big long-term bet. New vehicles typically cost $1 billion to develop, and the Volt requires new technology that probably inflated that price tag even more.

G.M. says the car, which is scheduled to arrive in showrooms two years from now, will be able to travel 40 miles on a charge, but it will also have a small gas engine to extend the range to as much as 640 miles using both the battery and gasoline. It is expected to cost about $40,000.

To some, the Volt will remain a niche vehicle until its cost drops sharply and its range rises dramatically.

“If you’re the affluent individual who wants to make a statement, it’s one thing.”  “If you’re Joe the Commuter, you’re not going to spend $40,000 on an electric car. It’s insane.”

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Once it arrives, GM believes, customers will adjust more rapidly to the Volt than they did to the Prius, Toyota’s hybrid gas-electric car. “I don’t think that’s going to be that big a deal for most people to get their heads around.”

“We’ve turned into a plug-in society. We’ve got cellphones, PDAs, you name it, that are all plugged in. To a certain extent, it’s not much more complicated conceptually than coming in and plugging in your cellphone.”

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The Volt is not General Motors’ first electric vehicle. In 1996, G.M. started leasing the EV1, an electric car, to customers in California. Although its few hundred owners loved it, the EV1 was discontinued just three years later.

G.M. reportedly spent about $1 billion in the 1990s to develop the EV1, which it dropped after saying it could not make money on the cars. The EV1, which was available only in lease deals, sold for the equivalent of up to $44,000 but cost G.M. about $80,000 apiece to make.

Other efforts to earn green bragging rights have missed the mark, too. Only two years ago, G.M. promoted flexible fuel cars that run on E85, a blend of ethanol and gasoline, as the way to wean Americans off gasoline. But interest in ethanol has waned amid concerns about the environmental impact of using corn for fuel rather than food.

The company is building its largest sport utility vehicles with hybrid gas-electric power trains as well, but they have sold poorly.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/11/22/business/22volt.html?pagewanted=print

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From Business Week, a compendium of articles re: Hybrid Cars
http://bx.businessweek.com/hybrid-cars/

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CPG’s ask: What are they thinking?

December 2, 2008

Excerpted from Marketing Daily “Understanding, Leveraging Consumers’ Five CPG Mindsets” by Karlene Lukovitz, October 16, 2008

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Consumers approach different categories of consumer packaged goods with different mindsets, and marketers that understand and leverage these can enhance their products’ performance.

CPG marketers “don’t want to get it wrong in the fleeting nano-second of purchase decision  … Marketers need to know what buttons to press to influence their shoppers and win on the ultimate marketing battleground–the store aisle.”

Here’s a summary of the five CPG mindsets and how marketers can best exploit these. The insights apply across all retail channels where CPG’s are sold, including grocery, drug stores, convenience stores, mass merchandisers and club stores.

Indifferent auto-pilot and blinkered auto-pilot mindsets: When it comes to products like bathroom cleaners, bar soaps, dishwashing soap and cotton swabs, consumers’ pilot buttons are set to “indifferent.” Rather than spend time on decisions, they automatically reach for the brands they usually buy, generally without comparing prices. Since there’s low brand-attachment, consumers have no problem switching if their usual brands aren’t available.

To avoid such switches, marketers of leading brands in these CPG categories need to ensure against out-of-stocks or visibility and distribution issues … The overall key to influencing consumers on auto pilot lies in knowing when and how that mindset can be disrupted by external stimuli, so that they are ready to consider alternatives and new offers…

Browser mindset: Consumers are more engaged with products such as shampoo and conditioner, body washes, and toothpaste and brushes–they check out labels and packaging, sniff and test these. This means that marketers need to provide a wide product assortment and realize that packaging innovations can be persuasive in decisions.

Buzz mindset: Hand and body lotions, air fresheners and baby toiletries are among the product categories that are “buzz-activated.” Shoppers actively seek out information about these.

Constant innovation in packaging and new product attributes–introduction of attention-grabbers such as “age-defying,” “shimmering,” tanning and aromatherapy, for example–combined with exciting advertising and new product introductions, are the keys for these categories.

Bargain-activated mindset: Unless there’s hot news about some brand, shoppers tend to switch brands on toilet paper, laundry detergent, paper towels, facial tissues, liquid hand soaps and batteries based on which are on sale or appear to be bargains.

Edit by SAC

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Full article:
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=92836

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