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Japan Jumps Ahead: The Honda/Toyota Hybrid War Leaves Detroit Playing Catch-Up

April 7, 2009

Excerpted from BusinessWeek, “Toyota, Honda Heat Up the Hybrid War”, by Ian Rowley, March 27, 2009

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Honda and Toyota are launching hybrid cars in quick succession—and neither one is skimping when it comes to generating hype. The Honda Insight boasts a sub-$20,000 sticker price, fuel economy of 40 miles per gallon in the city and 43 mpg on the highway, and is arguably more fun to drive. The latest Toyota Prius is larger than its Honda rival, gets better mileage, and (unlike the Insight) has an EV mode, where the driver instructs the car via the touch of a button to run solely on battery power. However, the soon-to-be-released Prius is expected to be more expensive, with a U.S. sticker price starting at around $23,000.

Toyota is also planning a smaller, cheaper hybrid based on its Yaris platform to take on the Insight. “We are going to compete by expanding our hybrid vehicle lineup to smaller hybrids.”

Toyota is also taking the unusual step of selling a cheaper version of the current Prius alongside the new one. “There will be demand for the two to co-exist,” Toyota said at the unveiling of the new car for the Japanese market. This cheaper Prius, like the Insight, will go on sale in Japan for less than $20,000.

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Analysts question, however, the impact of launching a cheap version of the old Prius alongside the new one. They worry the older Prius may eat into sales of the new Prius and similar-sized models such as the Corolla, or that it might force Toyota to cut prices of nonhybrid models.

The new Prius may go on sale in Japan for as little as $20,900, which would be $3,000 cheaper than the current model—even though the new Prius has a larger engine and is more luxurious.

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It is feasible, though, that both companies can win the hybrid war. For one thing, the rivalry is helping to bring the “hybrid premium”—the incremental cost of making hybrids compared with regular vehicles—down to levels where owning is as much about economic sense as sending an “I’m green” message.

Improved production efficiency is just as important. Honda can now make 250,000 hybrid cars a year at its Suzuka plant. Increased scale is making it easier to bring down costs. The company increased the number of workers assembling battery modules from 20 to 54. But by increasing automation, Honda now has the capacity to produce 1,000 packs a day, vs. about 250 before the Insight went into production.

At Toyota, engineers didn’t quite manage to reduce the size and cost of the Prius’ new-generation hybrid system by half, but both have been reduced by 25% to 35%, compared with the current second-generation model.

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In a deep recession, meeting sales targets will be tough for both companies. Still, even if sales disappoint, the new models will help the two Japanese companies maintain their dominant market share in hybrids. Although rivals are launching more gas-electric vehicles, no other automaker is yet close to producing hybrids in the hundreds of thousands.

Edit by DAF

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Full article:
http://www.businessweek.com/print/globalbiz/content/mar2009/gb20090327_626019.htm

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Automakers Promote A New Breed of Pony Cars … on the cheap, of course.

April 6, 2009

Excerpted from Ad Age, “How to Get Consumers to Pony up for Pony Cars? With Little Advertising” By Jean Halliday, March 26, 2009

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Question: How do you launch a big ad campaign for sexy sports car in the teeth of a recession? Answer: You don’t.

The pony car is back, as each of Detroit’s three carmakers revs up an entry in the segment for the first time in decades. General Motors is bringing back the Chevrolet Camaro, which it discontinued in 2002; Chrysler revived the Dodge Challenger last fall after a nearly 35-year absence … and Ford, which started the pony-car craze in 1964 with the Mustang, launches the newest version of the coupe in April.

Although the redone versions of the classic cars are getting good reviews from auto-buff books and car enthusiasts … the timing is awful as the industry tries to pull out of its worst sales year in decades. As a result, there won’t be high-profile national TV blitzes for the cars from Chevy or Dodge, which will rely more on nontraditional media.

Chevrolet, which started shipping the 2010-model Camaro to dealerships this week, activated a new microsite for the car … Much of the Camaro’s launch will be online … In addition, Chevrolet will back the new Camaro in co-branded ads for the movie “Transformer: Revenge of the Fallen” …

Ford teamed with the nonprofit Mustang Club of America for a long weekend of events in Birmingham, Ala., to celebrate the 45th anniversary of the pony car … Ford Racing also linked up with Miller Motorsports Park to develop a new racing series with Mustangs that will kick off there, complimented by a street party, a driving cruise for Mustang owners and a banquet …

Mike Accavitti, director-Dodge marketing, said the … there are no dedicated ads for the [Challenger]. He said the automaker plans to keep the car fresh by introducing special, limited-edition colors or racing-stripe packages … He figures the Challenger will get a boost from consumers also shopping for the Camaro. He doesn’t expect Chevrolet to bite into Challenger sales, at least for the first two months it’s on sale, because loyal Camaro fans will be the early buyers. “We’ll see a battleground after that … After 35 years, the three pony cars are back” …

U.S. sales across the entire mid-size sporty coupe segment last year only tallied 150,000 units … That compares to some 575,000 units sold in 1995, or 3.9% of all vehicles sold that year. J.D. Power projects the tally for the coupe category next year will total just more than 200,000 units, or 1.7% of all new vehicles sold.

“There’s been a shift in consumers’ taste, so the larger, sporty, two-door vehicles have fallen out of favor … But these two models are more practical than their predecessors.”

Practical maybe, but not inexpensive. The 2010 Camaro starts at $22,995 and the 2010 Mustang at $20,995, but the latter’s performance GT500 convertible version starts at $51,225. The Challenger starts at $22,545 but the souped-up R/T Classic version that went on sale early this year starts at $34,005.

Edit by SAC

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Full Article:
http://adage.com/article?article_id=135580

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Posted in Autos - Travel, Mktg - Promotion | 1 Comment »

Mail your warranty card to 1600 Pennsylvania Avenue … Attn: Mr. Obama

March 31, 2009

To me, the most stunning aspect of yesterday’s announcements re: GM and Chrysler wasn’t Rick Waggoner getting canned, or Chrysler being shotgun wed to Fiat (anybody out there own a Fiat ?) … it was Team O’s announcement that the Federal government would now be standing behind the car companies’ warranties.

First, I didn’t know that the Constitution gave a president the unilateral right to declare that my tax dollars will go to keeping somebody else’s shoddy car running for 5 or 10 years. 

More interesting: how exactly is the Federal government going to fulfill the warranty pledge?

Let’s pretend that both Chrysler & GM are headed to the junk heap.  Following them will be their dealers — the guys who currently provide warranty service.  Will they just put a couple of repair bays outside the White House?

More likely, it’ll just be an insurance program that reimburses independent garages who will be licensed to make repairs.  The process for handling the claims ? The reimbursement rates ? The fraud protection ?

And, many warranty repairs require parts.  Where will the parts come from? Answer: probably from China since domestic suppliers will crater soon after GM.

Does anybody in the administration give even a moment’s thought to implementation details?

I guess this program will be good practice for nationalized healthcare.  If they can do it for cars, they should be able to do it for human lives, right?

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This is tough love ?

March 31, 2009

Left leaning pundits were crowing yesterday about President Obama’s “ultimatum to the car companies” and his “tough love approach to the problem”.

Ken’s Take: “If your pulse isn’t revived, I’m going to declare you legally dead” isn’t tough love … it’s just politicizing the obvious.

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The American craving for small cars …

March 23, 2009

Ken’s Take: How often do you hear: “the Detroit 3 just make gas guzzlers … not the small, fuel efficient cars that Americans want.”  Maybe some day …

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Excerpted from WSJ, “Industry’s Big Hope for Small Cars Fades”, March 23, 2009

Last summer, when gas cost $4 a gallon, buyers snapped up small cars so fast that dealers couldn’t keep them in stock. Ford decided to convert some truck plants to make small cars. GM added an extra shift at its Lordstown, Ohio, plant that makes the Chevy Cobalt, a diminutive sedan. Import brands also pumped up their production of small models.

Now, with gas prices half that level, almost 500,000 fuel-thrifty models are piled up unsold around the country. Practically every small car in the market is stacked up at dealerships.

The turnabout comes at a bad time for the struggling U.S. car industry, which has revamped factories and shifted product plans to produce more small cars in coming years.

“I don’t think Americans really like small cars,” said Beau Boeckmann, whose family’s Galpin Ford in southern California is the country’s largest Ford dealer. “They drive them when they think they have to, when gas prices are high. But we’re big people and we like big cars.”

AutoWay Honda in Clearwater, Fla.,  has a whole row of Civic hybrids that draw little interest.

Over the five months ended in February, industrywide sales of small cars totaled 718,000. That was down 28% over the same period in 2008, but small cars grew to 18.4% of total market, up 2.1 points from the year-earlier period.

Full article:
http://online.wsj.com/article/SB123776430557508813.html#mod=testMod

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Posted in Autos - Travel, Environment - Green, Mktg - Consumer Behavior | 1 Comment »

The “Li-ion’s” Share of the Battery Business

March 11, 2009

Excerpted from Strategy & Business, “The Future Is Lithium”, by William J. Holstein, February 3, 2009

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The lithium ion battery, which is already widely used in consumer products, is viewed by the auto industry as the next great hope to power future-generation, energy-conscious extended-range electric cars and hybrids. Automakers and their suppliers on three continents are gearing up to determine who will dominate what could be a US$150 billion a year industry by 2030. 

Companies in Europe, Japan, South Korea, and China have clear leads in perfecting the battery, which can hold far more power for longer periods of time than the nickel metal hydride batteries now in use in hybrids. Whether the United States stays in the race largely depends on the future of the General Motors Corporation and its Chevrolet Volt extended-range electric vehicle. If GM, already on life support from the federal government, is forced into Chapter 11 bankruptcy or liquidation, U.S. prospects for securing a piece of the lithium ion industry could fall by the wayside.

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Toyota and GM are eyeing each other’s lithium ion intentions warily. GM was stung by Toyota’s success in the late 1990s with the Prius and is determined to leapfrog that generation of battery technology with a six-foot long, 400-pound lithium ion battery built to last 10 years.

As recently as a year ago, Toyota argued that it was too soon to consider using lithium ion because it was an unproven technology. Some experts believe that Toyota’s conclusion was in part motivated by its huge investment in three factories in Japan that made nickel batteries. “There is only one company that has a stranded cost in nickel and that’s Toyota.”

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Lithium ion industry advocates say that the U.S. government could play a pivotal role in determining how much of the battery business will be domestic by allocating to lithium suppliers a chunk of the $25 billion Congress approved for automobile alternative energy research and development. 

However, if the Obama administration spreads the $25 billion throughout the auto industry to the dozens of companies currently involved in alternative propulsion projects, “there’s the potential for the [money] to be so diffused that it wouldn’t do that much good in any one area. As large as that sum sounds, it could become ineffective.”

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Of course, any U.S. hopes for securing a chunk of the lithium ion industry would be dashed if GM’s Volt project were to fizzle out because of the automaker’s financial problems.

But even if the Americans don’t make the train, a future with more and more powerful lithium ion batteries is inevitable; after all, the rest of the world is already on board.

Edit by DAF

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Full article:
http://www.strategy-business.com/li/leadingideas/li00110?tid=230&pg=all

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Hyundai: Lose your job? Bring it back …delivers big results

March 5, 2009

Excerpted from New York Times, “Hyundai, Using a Safety Net, Wins Market Share”, by Nick Bunkley, February 5, 2009

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In the midst of an industry-wide slump that has pushed some competitors to the brink of bankruptcy, Hyundai spent $3 million to tell Americans watching the Super Bowl how to say its name correctly.

The company’s market share nearly doubled last month as sales rose 14 percent, the largest year-over-year increase that any big automaker has posted in the United States since last May.

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One reason for the jump in January appears to be Hyundai’s new marketing strategy of promising to let buyers return their vehicles, at no cost in most cases and with no penalty to their credit rating, if they lose their job or income within a year.

“To their credit, they struck at the core of what’s bothering people, and that’s obviously uncertainty . . . It’s just the fear and the uncertainty that’s holding people back.”

“It gives them a whole new audience — people for whom it would have never popped up on their shopping list.”

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Sales of the Hyundai Sonata, a full-size sedan that costs less than $20,000, surged 85 percent in January, making it one of the country’s top-selling vehicles. And Hyundai sold more passenger cars last month than Chrysler, which has four times as many dealers.

Edit by DAF

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Full article:
http://www.nytimes.com/2009/02/05/business/media/05auto.html?_r=2&ref=business&pagewanted=print

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No Saturn? … What about the owner picnics in Tennessee ?

March 4, 2009

Ken’s Take: Talk about blowing a great franchise.  In the 1990s, Saturn had growing cult-like following, often being praised as a brand in the league of  Harley-Davidson.  GM squandered a valuable asset. 

My bet: there’s enough residual brand equity for Saturn to rise from the ashes.  In fact, if I were running GM, Saturn would be the nameplate I’d slap on all hybrid electrics.

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Excerpted from WSJ, ” Era Ends as GM Snubs Saturn”, Feb 19, 2009

For years, analysts have urged GM to pare its brands. But GM executives insisted it would be too expensive after spending an estimated $2 billion to wind down Oldsmobile earlier this decade. Yet cutting brands shaves operating costs because each brand requires a certain amount of spending on product development advertising, dealer support and other expenses.

Now, GM is turning its back on Saturn, Pontiac, Saab and Hummer, General Motors Corp. is abandoning a decades-old product strategy that once helped ensure its dominance.

Saturn, Hummer, Saab and Pontiac have all struggled to attract customers. That prompted GM to sell large numbers of them to car-rental concerns, corporate fleet buyers and GM’s own employees. Of the 504,000 vehicles sold under the four brands in 2008, 40% went to fleets and employees. Such sales generally are less profitable than those to consumer buyers.

Of the four brands being cut off, Saturn once held the most promise. GM created the line in 1985 as a completely separate company offering small cars that aimed to compete head-on with Toyota and Honda Motor Co.

Saturns featured dent-resistant plastic bodies, its dealers promised friendly, no-haggling sales and customers were invited to an annual “homecoming” cookout at the Saturn plant in Spring Hill, Tenn. For some customers, buying a Saturn was like joining a club.

But in the 1990s, GM starved Saturn for new products as it tried to revive Oldsmobile. After GM killed Olds, it turned to neglected Saturn. It spent billions to produce a range of new vehicles, many of them derivations of its Opel models from Europe. Some were hits; the Aura sedan was praised by many car reviewers.

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Some Saturn dealers now hope that instead of closing the brand, GM will spin it off as a separate company. A team of Saturn dealers is spending 60 days working with GM to evaluate the possibility. These dealers would sell vehicles under the Saturn brand made by other manufacturers, possibly from overseas.

“This is going to be somebody’s low-cost entry to the world’s largest car market.”

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Full article:
http://online.wsj.com/article/SB123500373416017943.html?mod=article-outset-box 

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Batteries are the key weapon in the battle for energy independence … too bad we’re losing the weapons race.

February 26, 2009

Ken’s Take: Lithium ion batteries are the projected heart of future hybrids electric cars.  Currently, the U.S. has no significant manufacturers of even small scale lithium ion batteries, and is behind in the R&D chase to develop auto-capable sizes. And, oh yeah, lithium is mined mostly in Argentina, Boliva, & Chile … not in the U.S.  This is a big deal

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Excerpted from Business Week, “Electric Car Battery Wars”, Feb 12, 2009

President Barack Obama has set a target of 1 million electric cars on U.S. roads by 2012. That will require about $40 billion worth of domestically produced batteries. Most experts agree that lithium ion, which can be used to create batteries that weigh far less and store more power than those in today’s hybrids, will be the dominant technology.

The big question is whether any U.S. battery maker will be a major player by the time a mass market develops for electric cars. The field is already crowded.

Some U.S. companies claim to have prototypes that work. They include A123 Systems, a Massachusetts Institute of Technology spin-off, and Franco-American venture Johnson Controls-Saft, which has snared contracts with Ford Motor, BMW, and Mercedes-Benz (DAI). But the Americans face Asian rivals with deeper pockets and far more lithium-ion experience.

The Asians can also better afford the hundreds of millions of dollars needed to build large, state-of-the-art factories. U.S. investors are unwilling to risk such sums for startups—especially now that the recession and cheap oil have dimmed the future of hybrid cars. After surging this fall, Ener1’s stock has fallen by half since mid- December, to around 4.

Should Uncle Sam provide billions in loans and grants to a promising but unproven business? Or should the government wait for the market to sort things out before it backs a U.S. company? The risk is that by then another major industry could go the way of memory chips, digital displays, the first solar panels, and the original lithium-ion batteries used in notebook PCs and cell phones. American scientists, funded by federal dollars, were at the forefront of each of those. Yet the industries—and the high-paying manufacturing jobs that go with them—quickly ended up in Asia. U.S. labor costs and taxes drove many operations abroad, but often industries fled simply because Asian governments, banks, and companies were more willing than Americans to risk big capital investments.

Battery makers are expected to get some of the $25 billion set aside last year under Washington’s Advanced Technology Vehicle Manufacturing Program to speed the commercialization of green cars.  Under the $790 billion stimulus package under debate in Congress, U.S. lithium-ion makers also could compete for $2 billion in grants to fund research and development and manufacturing.

Lithium ion is regarded as a core enabling technology for plug-in hybrid vehicles, which, unlike most current hybrids, can be recharged with normal household current and run much longer on electricity before a gas-powered engine takes over. Lithium-ion cells can store up to three times more juice and generate twice the power of the nickel-metal hydride batteries used in today’s hybrids.

General Motors and Ford both assert that a domestic lithium-ion industry is vital if the U.S. is to be a major player in green cars. Otherwise, Detroit’s fate would be in the hands of suppliers half a world away.

China has more than 10 manufacturers—Beijing has declared lithium ion a strategic industry.

Analysts say no U.S. or Asian contender has solved all of the challenges of producing lithium-ion car batteries that are safe, reliable, and affordable: Questions linger over the battery’s ability to last long enough to satisfy car buyers, for example.

The U.S. is still in the race. The Energy Dept. has poured some $600 million into lithium-ion research.

The strongest U.S. player right now is Johnson Controls. Its French partner Saft has a cell plant, while Johnson’s big edge is its supply and design relationships with the world’s top automakers. But lithium-ion technology is vastly more complex than that of lead-acid batteries.

Skeptics counsel caution. Some doubt there will be a mass market for electric cars within a decade. When gas cost $4 a gallon last summer, consumers who shelled out the extra $3,000 for a hybrid like the Prius, with nickel-metal hydride batteries, were close to breaking even. But next-generation lithium-ion batteries will add at least $8,000 to the price of a plug-in when all the electronics are included. For drivers to save money on the Volt, Anderman calculates production will have to reach 1million cars a year, and gas will have to pass $5 a gallon.

Lithium-ion car batteries are an exciting technology. Whether they will generate an exciting U.S. industry is anyone’s guess.

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The Players

Although a mainstream market for electric cars may be a decade or more away, governments and companies worldwide are spending massive amounts of money to gain an edge in supplying batteries for them. Here are some key players

A123 (U.S.)
This MIT spin-off has $250 million in venture capital. It supplies small quantities of batteries to Daimler, Volvo, and Chrysler and wants $1.8 billion in federal aid to build plants in the U.S.

AESC (Japan)
This joint venture between Nissan and NEC may have the deepest pockets. It plans to invest $275 million in facilities to produce lithium-ion cells for a wide range of vehicles.

BYD AUTO (China)
One of the world’s top battery makers, BYD already offers a $22,000 plug-in hybrid in China and hopes to sell cars in the U.S. soon. Warren Buffett owns 10%.

ENERDEL (U.S.)
Once part of Delphi, EnerDel has invested $200 million in an Indiana plant. Its biggest customer is struggling Norwegian hybrid carmaker Think. EnerDel wants $480 million in U.S. loans.

JOHNSON CONTROLS-SAFT (U.S.-France)
This joint venture has a factory in France and has deals with Mercedes, BMW, and Ford. Johnson Controls’ edge: It’s already a top supplier of conventional car batteries.

LG CHEM (Korea)
A leading maker of lithium-ion batteries for cell phones, LG outflanked U.S. rivals to win a deal to supply GM’s Chevy Volt plug-in. GM plans to assemble LG batteries in Michigan.

PANASONIC (Japan)
After buying Sanyo’s lithium-ion business, Panasonic may be the company to beat since it’s allied with mighty Toyota, which is planning an electric car for 2012.

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Full article:
http://www.businessweek.com/magazine/content/09_08/b4120052113533.htm 

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Posted in Autos - Travel, Batteries - Lithium Ion | 1 Comment »

Detroit 3 cut number of brands … oh, no so fast

February 19, 2009

Excerpted from  brandchannel.com, “Detriot’s Big Three: Car Brands a Pile-up ” by Dale Buss, February 9, 2009

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The Big 3 are looking to cut costs by eliminating brands, but it’s not quite that simple.  The incremental cost to maintain brands built on common manufacturing platforms may be minimal compared to the cost savings due to higher capacity utilization. Plus there are many other costs incurred by discontinuing brands.

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Despite its looming demise, the American auto industry dismissed demands for brand reduction in December 2008. Forced by the federal government into a mea culpa that was supposed to include plans for drastic cost-cutting and other reformative measures, GM was expected to agree to eliminate a handful of its brands.

But GM went no further than admitting it should streamline Pontiac, keep Hummer for sale and maybe ditch Saab. Saturn, GM said, faced an indeterminate future—but only in terms of its ownership, not existentially.

Consider Mercury, too: Everyone has talked down Ford’s secondary brand for decades as unnecessary. But given many chances to dump Mercury, Ford has kept it around.

And as Chrysler is widely considered to be in the most danger of imminent dissolution, only two aspects of the company are given a decent chance of surviving: its minivans and its brands. If Chrysler does go out of business, Jeep and its iconic identification with SUVs probably would survive.

Even the much-damaged Chrysler brand is given some respect in discussions about what a Fiat-Chrysler combination might do with Fiat-designed or -built small cars that could be imported to the United States under their new partnership. Almost invariably, industry experts predict such vehicles would be badged “Chrysler” rather than “Fiat”—a brand that has been missing from the American market for 27 years.

“Brands in the auto business are everything…and it’s a much more complex decision to either minimize or kill a brand than most people realize.”

For a variety of reasons – including historic loyalties, production strategies, internal politics and dealer investments – car brands possess a ton of inertia and are very difficult to kill even when there’s a clear business-school case to be made against them.

But profound challenges to Detroit’s automotive brands keep arising. They snuffed out Plymouth and Oldsmobile years ago. And today’s marketplace presents a strong apparent rationale for accelerated brand consolidation in the industry, including share shifts, segment disruption, the demands of developing new models more quickly and the huge costs of supporting a brand with marketing.

Add to that the extremely intensified imperative to cut costs that now is being shouldered by each of the Big Three.

“The rationale for decision-making now isn’t whether brands are strong or not—it’s that the business won’t support them,”

On the surface, it sure looks as though GM will have to say goodbye to some brands. In its business plan unveiled to Congress in December, GM said that it would slash US$ 600 million in marketing spending by 2012. It will reduce its vehicle nameplates to just 40 in 2012, down from 48 this year and 63 in 2004.

And GM told Congress that it will avidly support only half of its eight brands: Chevrolet, Cadillac, Buick and GMC. Those four account for 83 percent of GM’s US vehicle sales and much more than 83 percent of its profits.

Yet in the fine print, congressmen found that GM wasn’t actually as dedicated to brand elimination as first thought. GM CEO Rick Wagoner said that Pontiac will continue as a specialty niche brand within the Buick-GMC division—essentially, what it is now. Saab may go on the sale block along with Hummer, but since most of the brand’s vehicles are sold in Europe, GM’s evaluation of Saab is being done there.

And Saturn, GM executives told Congress, will be the subject of exploration of “alternatives” to a simple termination or sale of the brand, in large part because the company has unique franchise arrangements with Saturn dealers.

Pontiac’s manufacturing and product development already are highly integrated with those of Buick and GMC, so the marginal cost of maintaining Pontiac as a separate brand mainly lies in marketing. And the ongoing integration of Saturn’s lineup with that of Opel, the company’s leading brand in Europe, will help GM continue to build a case for preserving Saturn.

GM also is still smarting from the lessons of Oldsmobile, which it deep-sixed in 2004. First: Beware dealers. GM ended up spending an estimated US$ 2 billion in write-offs and settlements with Olds retailers.

Second, in nixing Oldsmobile, GM voluntarily sacrificed volume in the tens of thousands of units, partly in the expectation that its other brands would recover much of that. The problem was that “they gave up all that volume and it never went anywhere else inside the GM organization,”

The main reason that Mercury has survived has boiled down to the few extra points of market share that it gives Ford and how it helps the company’s overall manufacturing utilization.

At the same time, having to churn out Mercury-badged products as well as Fords “gives higher capacity utilization to Ford’s plants, maybe 95 percent with Mercury—which would be only 80 percent without it,” said David Cole, chairman of the Center for Automotive Research.

Edit by NRV

Full article: http://www.brandchannel.com/start1.asp?fa_id=463

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Congress and The Big Three: Marriage on the Rocks?

February 18, 2009

Excerpted from Washington Post, “Congress in the Driver’s Seat”, by Kimberly Kindy and Kendra Marr, February 4, 2009

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It is the end of an era — one in which automakers ruled Congress, easily deflected pressure to build fuel-efficient cars and packed their trademark shows with super-size SUVs perched on fake mountaintops.

There has been a gradual erosion of the auto industry’s clout in Washington and in state legislatures.

President Obama’s move last week to support strict California vehicle emission standards was another blow to the industry, already reeling from financial pressures and dismal sales.

For decades, Congressional advocates protected the industry from demands for more fuel-efficient vehicles, while sophisticated and expensive lobbying and legal strategies — some taxpayer-funded — also helped the carmakers fight off challenges.

But that kind of rock-solid support in Congress has worn away, as many members say they have been repeatedly misled by the companies’ promises of reform and complaints that new initiatives would spell financial ruin.

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In Washington, the auto industry spent $65 million last year to lobby Congress, ranking 16th among all industries, according to the Center for Responsive Politics. Its efforts largely focused on developing a national fuel economy and emissions standard weaker than the one proposed by California.

Industry leaders continue to argue that Congress is trying to force them to build cars Americans don’t want, at least as long as gas prices remain low.

They are asking Congress to pass laws that will spur consumers to buy such vehicles. Industry leaders said drivers in Europe are willing to own smaller cars because gas costs so much more there. Without such incentives, “it puts us in the industry in the position where we are at war with the customer.”

Regardless, some trade groups acknowledge that the landscape has changed, and they are promising to work more cooperatively.

“Has the industry lost its power to say no?” asked the president of the Alliance of Automobile Manufacturers. “The industry is saying, ‘Yes, however. . . . Yes, let’s work it out.’ It’s a different starting point in the discussion. The nature of the industry has changed.”

Edit by DAF

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/03/AR2009020303960_pf.html

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Economy does what the automakers can't … reduce number of dealers

February 18, 2009

Ken’s Take: It’s no secret that Detroit automakers have too many dealers in their distribution networks.  It’s  function of legacy overbuilding, and rigid laws (usually state) that restrict de-franchising.  Perhaps the bad economy is solving the problem for them.

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Excerpted from Knowledge @ Emory, “Car Dealers Suffer as Sales Stall “, Feb. 12, 2009

Automobile dealers, many of which are family-owned businesses, were hammered by high energy prices and the tight credit market, and are one of the economic downturn’s latest casualties.

Based on falling sales, about 5,000 car dealers across the U.S., or nearly 25 percent of the estimated total, would have to close in 2009 to enable average sales per dealer to match 2007’s results, according to a study released in January by the accounting firm Grant Thornton LLP.

http://knowledge.emory.edu/article.cfm?articleid=1218# 

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Follow the money from DC … to Detroit … to Sao Paulo.

February 10, 2009

Ken’s Take: You have to hand it to the  Detroit automakers … for their transparency … and their  humongous stones.

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Excerpted from Latin American Herald Tribune, “General Motors to Invest $1 Billion in Brazil Operations — Money to Come from U.S. Rescue Program”, Feb. 9, 2009 

General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.”

“It wouldn’t be logical to withdraw the investment from where we’re growing, and our goal is to protect investments in emerging markets,” he said in a statement published by the business daily Gazeta Mercantil.

Full article:
http://www.laht.com/article.asp?CategoryId=12396&ArticleId=320909 

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GM’s Reputation gets a jolt … oops, I mean Volt?

February 9, 2009

Ken’s Take: It will be interesting to see how the Detroiters position hybrids when they grovel back to Washington in a week or so with their economic viability plans.  Zero chance that they make any money from hybrids in the next couple of decades (if ever).  But, they’ll have to play “emporer’s new clothes” to get their government money

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Excerpted from Fortune, “Chevy Volt: Marketing meets technology” By Alex Taylor III, Jan 13, 2009

Whenever you ask General Motors CEO Rick Wagoner what he needs to do to revive the troubled automaker, he invariably replies, “Make great cars and trucks and achieve technology leadership.”

Despite GM’s financial troubles, he is arguably making progress … But one piece of a GM revival has consistently eluded Wagoner and frustrated its executives: restoring the tattered company’s good name. Until GM improves its reputation with potential customers, all the improvements it makes in its product line go for naught …

Indeed, GM’s determination to improve its standing with the public dictated the creation of the Chevy Volt as the company’s technology flagship. The Volt was chosen to be a leading-edge image booster rather than an immediate moneymaker for the cash-strapped automaker … And its capabilities were designed at least as much to grab attention as to make a big impact in the marketplace.

Due to reach the market in late 2010, the Volt is a vehicle unlike any other in the world. It consists of an elaborate battery pack and a small gasoline engine … GM calls it a “range-extended electric vehicle” and it may price around $40,000.

According to GM executives, the Volt was conceived in the spring of 2006 as a way for the automaker to leapfrog the technology edge that Toyota gained when it made a success of the hybrid gas-electric Prius …

GM decided it needed an electric car. But it faced another decision when it tried to figure out how capable it should be. The range and cost of an electric car are directly related to the size of the battery pack. Use a few batteries and you limit the electric diving to a few miles, but you also hold down the cost.

GM figured that it needed a lot of batteries – and hence a higher sticker price – to give its image the needed lift. “It was an engineering solution to a marketing problem,” says Burns. It settled on a 40-mile all-electric range because it would satisfy the commuting needs of a majority of the population. The Volt’s $40,000 price tag, which will sharply limit its sales volume, was given less weight, as was the fact that GM would lose money on the car. Pizzazz outranked practicality …

By comparison, Toyota is pursuing a sharply different strategy. It plans to introduce a plug-in version of the Prius that will only go 12 miles on a charge of electricity … As a result, the Prius will be significantly less expensive than the Volt, perhaps $10,000 or less, and it could be expected to sell in much larger numbers.

GM executives say that so far the Volt has been successful at raising the automaker’s profile and helping to refurbish its image. Whether it continues to do so once it arrives on the market with its high price tag and limited number of potential customers will be another question.

Edit by SAC

Full Article:
http://money.cnn.com/2009/01/13/autos/motor_world.fortune/index.htm

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A Greener, Leaner Detroit: Rebranding the Big 3

February 6, 2009

Excerpted from Washington Post, “Detroit Overhauls Its Image”, by Kendra Marr and Peter Whoriskey, January 10, 2009

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Ditching their usual glitz and glamour, U.S. carmakers used the nation’s biggest auto show for presenting green, fuel-efficient cars as the industry’s ride to the future.

Getting there will depend not just on salesmanship but on behind-the-scenes discussions the auto companies are holding with the United Auto Workers and the Obama administration.

With the industry dependent on government help, this year’s event took on a starkly muted character: “No fog machines, no laser light shows”  …   Smaller exhibits … Fewer product launches …  Fewer concept cars … no fashion shows (huh?) 

The automakers’ new posture is not just a reflection of the downturn but also of lessons learned since company executives descended on Washington two months ago, arriving in private jets but approaching Congress with hats in hand.

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If the domestic industry survives, the show may have heralded a new era.

Hybrid technology stole the spotlight from old-school horsepower.

Although large sedans such as the new 2010 Ford Taurus and 2010 Buick LaCrosse stirred interest among industry watchers, fuel-efficiency drew the crowds.

Ford boasted that its Fusion hybrid beats the Toyota Camry by 8 miles per gallon in the city and 2 mpg on the highway …  An advanced hybrid propulsion system allows it to travel up to 47 mph in electric mode — faster than any other hybrid on the market. Its engineers also installed a smart gauge to teach drivers how to squeeze the miles out of each gallon of gas. The better you control that gas, the more green leaves pop up on the dashboard display. See a forest? You’re a pro.

Ford unveiled details of a plan to bring to market by 2012 a family of hybrids, plug-in hybrids and battery electric vehicles.

Even GM’s 2010 Cadillac CTS Sport Wagon, which will be marketed as a luxury SUV alternative, maximizes its fuel efficiency, boasting 28 mpg on the highway.

“It’s part of the rebranding of Michigan as the technological leader in environmental, green, zero-emissions vehicles.”

Edit by DAF

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010903639_pf.html

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Now, it must be ok for the automaker’s to file for bankruptcy …

February 5, 2009

Back in December, the Detroit Three argued for a bailout because American consumers won’t buy General Motors and Chrysler cars if they are forced into bankruptcy. They would be tainted by a stigma and by worries that warranties and parts wouldn’t be available years down the road if the firms ran the risk of liquidation. They cited consumer surveys that support the view. One survey of 6000 consumers by CNW Research this summer found that 80% said they would abandon an auto maker if it were to file for bankruptcy.

At the time, I called out the automaker’s bankruptcy argument as completely specious.

As I said then, “the survey results are misleading.  Would somebody be more likely to buy a car from a financially healthy car maker?  Of course.  Would somebody prefer to by from one that is on the brink of financial collapse or one that is in bankruptcy proceedings?  I bet that would be a statistical tie.”  
https://kenhoma.wordpress.com/2008/12/16/the-automakers-specious-bankruptcy-argument/

Well, January sales results for the  automakers are in.

According to the Wall Street Journal: “Sales by the Big Three U.S. auto makers plunged in January to the lowest levels in decades, raising fresh questions about the future of the companies and the viability of the government’s bailout program.

Chrysler LLC’s U.S. sales fell 55% compared with January 2008 to 62,157 vehicles. General Motors Corp.’s sales slid 49% to 128,198. Ford Motor Co.’s dropped 40% to 93,041.”

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Ken’s Mega-Take:  As predicted, cash strapped consumers decided not to buy cars from “non-bankrupt” automakers that are on government life support 

Is there anyone who doesn’t recognize that the Detroit automakers are hanging by financial threads?  The companies are bankrupt, they’re just not in legal bankruptcy proceedings. If they were, they’d at least stand some chance of restructuring themselves into healthy positions. The current government thinking stands no chance of doing that.

So why not simply have them file for bankruptcy proceedings?  Simple, bankruptcy proceedings would dismantle the high cost, work rules heavy UAW contract.  Politics trumps market forces and economic sense.

[Detroit Reels as Auto Sales Skid]

http://online.wsj.com/article/SB123367018137943377.html

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“No special interests” … unless you count labor unions

February 2, 2009

Ken’s Take: Candidate Obama pledged that he wouldn’t play to special interests if elected.  Yeah, right. 

First in line to get their favors: the labor unions.  No surprise, except for the fast timing. (Source post from left-leaning CBS News is below).

Ken’s Prediction: Laws prohibiting secret ballots for  union elections — the misnomered “Employee Free Choice Act” which allows union thugs to “encourage” employees to sign-up for unions publicly — will be enacted before the end of the summer. 

And, the Southern-based “transplant” auto factories will be among the first targets.  Why?  There are 2 ways to make Detroit’s labor costs competitive: either lower Detroit’s unionized wages and work rules, or force the the high wages and restrictive work rules on the transplants.  I’m betting the Obama administration pursues the latter tact.  Wrong answer !

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Excerpted from CBS.com, “Obama  Reverses Bush Orders For Labor Unions”,  Jan. 30, 2009

The Democratic president, not even two weeks into his term, was already trying to address the needs of one of his party’s most reliable constituencies – organized labor.

Labor leaders visited President Obama in  the White House for a second consecutive day Friday. Unions have been lobbying the Obama administration to repeal scores of executive orders they view as hostile to their cause. Officials gave administration officials their top 10 executive orders they wanted to see dismantled quickly.

Pres. Obama signed a series of executive orders Friday that he said should “level the playing field” for labor unions in struggles with management.

“I do not view the labor movement as part of the problem. To me, it’s part of the solution,” he said, to a round of applause. 

“Over the last 100 years the middle class was built on the back of organized labor. Without their weight, heft and their insistence starting in the early 1900s we wouldn’t have the middle class we have now.”

Full article:
http://www.cbsnews.com/stories/2009/01/30/politics/100days/economy/main4764111.shtml 

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Riviving the auto industry by smashing gas guzzlers into a tiny cubes …. hmmm, might work

January 16, 2009

Ken’s Take: some good  ideas that I haven’t seen other places … the notion of Feds buying gas guzzlers and smashing them to into cubes certainly qualifies as ‘out of the box’ thinking

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Excerpted from IBD, “Revival Of U.S. Automaking Awaits If UAW Will Follow Toyota Model”, Morici, January 13, 2009

General Motors and Chrysler are on the anvil of history. United Auto Workers President Ron Gettelfinger holds the hammer and will determine whether they emerge more competitive or shattered in pieces and sold to foreign investors.  Eventually, Washington will tire of their begging, they will march through bankruptcy, and their factories will be sold off to Japanese, Korean, European and Chinese automakers.

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At U.S.-based Toyota factories, workers receive about $25 dollars an hour and good health care benefits. But they don’t retire at 50 after 30 years or get as much time off and huge severance packages. Toyota does not endure the medieval work rules and job classifications imposed by UAW contracts.

Most other Americans would be happy to get Toyota pay, benefits and working conditions. 

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Over the last two decades, Japan has kept the yen at least 30% undervalued against the dollar, and this provided Toyota with an average subsidy of at least $2,000 on every car it sold in the United States.

The Federal Reserve has dramatically reduced U.S. interest rates, and the yen has risen closer to its true market value against the dollar. Japanese officials appear poised to again intervene directly in currency markets to restore Toyota’s unfair advantage, and Washington should take whatever steps are necessary to head off such Japanese protectionism.

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In addition, Washington should take assertive steps to encourage production of fuel-efficient vehicles in the U.S. and create a strong export industry.

Washington could offer incentives to car buyers to trade in gas guzzlers for more fuel-efficient vehicles — the newer and the bigger the clunker and the more fuel-efficient the replacement, the more dollars the car buyer would receive if the guzzler is destroyed.

Washington could provide substantial product development assistance to U.S.-based … battery makers and other suppliers to accelerate the production of innovative, high-mileage cars.

The condition for assistance would be that beneficiaries do their R&D and first large production runs in the United States, and share their patents at a reasonable cost with other companies manufacturing in the United States.

Finally, individual Americans should open their minds. Many are considering trading in trucks and SUVs for sedans and are naturally attracted to the Toyota Camry and similar import brands. Visit a Ford or Chevy showroom and test drive a Fusion or Malibu and be pleasantly surprised. Those are high-quality, affordable and reliable vehicles.

Washington is giving Detroit a second chance, and Americans should give its cars a second look.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=316741420675724 

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Michigan wants $2 billion for batteries … makes sense

January 13, 2009

Excerpted from WSJ: “UAW, Bondholder Talks Slow GM’s Revamp”, Jan.Y 13, 2009

Michigan Gov. Granholm … is looking to offer big incentives to car-battery companies and other suppliers to that industry to locate in her state.

Ms. Granholm said that as much as $2 billion in aid to the battery industry could be included in a stimulus package from the Obama administration.

Batteries have been one of the biggest hurdles for U.S.-based electric and hybrid vehicle manufacturers. Lithium-ion car batteries are made in volume in Japan, Korea and China, and auto makers have been concerned that if battery supplies tighten, Asian car makers will dominate access to the technology.

Full article:
http://online.wsj.com/article/SB123178365916774153.html

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Ken’s Take: Batteries are the key (and most costly) component in hybrid electric cars.  Currently, virtually no car-power batteries are made in the US.  It’s strategically critical that they are.  Otherwise, we trade one foreign dependency for another.

Reminder: Virtually no lithium is mined in the US.  Most comes from South America: Argentina, Chile, and Bolivia.

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Selling power, speed, and sex … (to utilitarians)

January 13, 2009

Excerpted from Marketing Daily, “Mintel To Mad Ave: Can The Sexy Car Ads” by Karl Greenberg, December 4, 2008

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Most consumers don’t see their cars as a chariot of the gods, a freedom machine, a wheeled camel for Lawrence of Arabia, an automatic chick/hunk magnet, or portable fountain of youth. Instead, they view their vehicles simply as functional and safe for getting around…

Mintel says its survey of car owners suggests that what most people actually feel behind the wheel, regardless of the name on the sheet metal is: responsible and practical, not sexy or powerful…Mintel asked consumers: “How do you feel when you are driving?” Three of the top four feelings chosen by respondents had to do with utility and security, per the firm, with 46% saying they felt “responsible”; 40% saying “safe”; and 37% saying they felt “practical.”

The more amorphous sentiments started further down, with 39% saying “happy” was the thing they felt behind the wheel…near the bottom of the list landed “powerful,” “fast,” and “sexy.” The bottom of the list was “rich”…60% believe the main purpose of a vehicle is to get from point A to point B…

“We found that for most people, driving a car or truck does not make them feel sexy, fast or powerful…The problem is that the auto industry is built on selling power, speed and sex. Those images are dynamic, but they don’t necessarily resonate with the majority of utilitarian, safety-focused drivers.”

Mintel also found that the top information sources that people use when researching new vehicles are word-of-mouth, car dealer brochures, consumer buying guides and the Internet.

Edit by SAC

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If car ads are meant to convey the “behind the wheel feeling,” they are missing the mark according to Mintel’s new study.  Most ads feature fast, sexy cars gliding around winding roads rather than practical, responsible drivers running daily errands safely.  However it is not clear from this study whether the “feeling behind the wheel” is motivating purchase.  While a driver may seek to feel safe and responsible behind the wheel ,the same driver may want the exterior of the car to scream fast, sexy and powerful.

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Full Article:
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=96019

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Go green … or your employer may tax you.

January 9, 2009

Excerpted from Business Week,”Steering Workers Into the Green Lane”, Oct 27, 2008

Employers are getting more eco-car conscious. And not just new-guard and crunchy-granola companies like Google, Ben & Jerry’s, and Timberland.

Health-care company Abbott Laboratories, which provides its sales staff with some 6,000 vehicles, is revamping its mileage-­reimbursement rules as part of a bid to make its fleet more carbon neutral.

Now, all sales reps reimburse Abbott for personal use of company cars at 17.3¢ a mile. But starting in January 2009, those choosing SUVs instead of sedans will pay 72.3¢.

The new “tax” appears to be working. With 75% of orders in for about 2,000 new vehicles, 48% of reps are requesting sedans, vs. 25% for 2008. SUV orders are at 29%, down from 44%. Hybrids? At 18%, up from 6%.

Full article:
http://images.businessweek.com/ss/08/10/1016_btw/6.htm

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Audi on the Big Screen … a (relatively) cheap way to promote

January 9, 2009

Excerpted from BusinessWeek, “Audi: Putting Its Models in Movie Roles”, by Ron Grover, November 27, 2008

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These are rough times for car companies.  So what’s a car company to do? Hit the movies, that’s what. 

The hot car in Hollywood, these days, is an Audi. In the past few years, it’s hard to go to your local multiplex without seeing that four-ring insignia staring back at you. In this spring’s blockbuster Iron Man, the carmaker had three vehicles in starring roles, including the superhot Audi R8 speedster. And when the action film Transporter 3 opens on Nov. 26, car chase fans will get to see a nearly two-hour commercial for the Audi luxury sedan A8 as it outruns police, outmaneuvers a truck by riding on two wheels, and flies through the air to land on a speeding train—all without so much as losing a hubcap.

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Product placement isn’t exactly new in Hollywood, but you have to hand it to the automaker, which has gone into overdrive to go gear-shift to gear-shift with better-known brands that for years have hogged much of the screen time. Audi has done its best to crash just about every awards party in town. They have a fleet of sleek cars at the ready to lend to stars and directors.

It’s all part of the Audi plan to target mega-events, especially as traditional media splinters and audiences dissipate. Earlier this year, the carmaker spent the requisite $2.7 million for a Godfather-spoofing Super Bowl spot, which shows a man waking up in his bed to find the sawed-off grille of a rival luxury car—and ends with the apparent perpetrator speeding off in an R8.

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Rumors have always abounded that companies pay hefty sums to get their cell phones, soft drinks, computers, and cars onto the screen. As for money changing hands, Audi steadfastly denies it pays for script time but acknowledges it will occasionally spend hefty amounts to “help promote any flick with which it’s associated.”

Edit by DAF

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Full article:
http://www.businessweek.com/technology/content/nov2008/tc20081126_092112.htm?chan=top+news_top+news+index+-+temp_companies

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It was only a matter of time: Raising taxes because people are driving too little …

January 6, 2009

Excerpted from AP, “Motorists’ habits spur call for tax increases”,  January 2, 2009

Motorists are driving less and buying less gasoline, which means fuel taxes aren’t raising enough money to keep pace with the cost of road, bridge and transit programs.

The dilemma for Congress is that highway and transit programs are dependent for revenue on fuel taxes that are not sustainable. Many Americans are driving less and switching to more fuel-efficient cars and trucks, and a shift to new fuels and technologies like plug-in hybrid electric cars will further erode gasoline sales.

A federal commission created by Congress to find a way to make up the growing revenue shortfall in the program that funds highway repairs and construction is talking about increasing federal gas and diesel taxes.

To close the gap of over $100 billion per year, the commission recommends a roughly 50 percent increase in gasoline and diesel fuel taxes (currently 18.4 cents per gallon and 24.4 cents per gallon, respectively) is being urged by the commission until the government devises another way for motorists to pay for using public roads.

The commission will urge Congress to raise the gas tax by 10 cents a gallon (from 18.4 cents to 28.4 cents) and the diesel tax by about 12 cents to 15 cents a gallon (from 24.4 cents  to 39.4 cents). 

The commission will also recommend that states raise their fuel taxes and make greater use of toll roads and fees for rush-hour driving.

The commission also recommends moving to a new system that taxes motorists according to how much they use roads. While details have not been worked out, such a system would mean equipping every car and truck with a device that uses global positioning satellites and transponders to record how many miles the vehicle has been driven, and perhaps the type of roads and time of day.

[Ken’s Note: Are these the same folks who thought the Patriot Act infringed on privacy ?]

Projected shortfalls in revenue led the National Surface Transportation Policy and Revenue Study Commission, in a report issued in January 2008, to call for an increase of as much as 40 cents a gallon in the gas tax, phased in over five years.

Full article:
http://biz.yahoo.com/ap/090102/gas_tax.html?printer=1

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The UAW … you gotta love these guys

January 6, 2009

Excerpted from IBD, “The UAW’s Money-Squandering Corruptocracy”, Malkin, December 31, 2008

While carmakers soak up $17 billion in taxpayer bailout funds and demand more for their ailing industry, United Auto Workers bosses have wasted tens of millions of their workers’ dues on gold-plated resorts and rotten investments.  While membership in the union has plummeted, the UAW retains assets worth $1.2 billion.

The UAW owns and operates Black Lake Golf Course — a “championship caliber” course opened in 2000 that’s part of a larger “family education center” and retreat nestled in 1,000 acres of property in Onaway, Mich. The resort includes “a beautiful gym with two full-sized basketball courts, an Olympic-size indoor pool, exercise and weight room, table-tennis and pool tables, a sauna, beaches, walking and bike trails, softball and soccer fields and a boat launch ramp.” The Detroit Free Press reported earlier this year that the golf course (valued at $6 million) and education center (valued at $27 million) have together lost $23 million over the past five years. 

The UAW  bid $9.75 million to purchase the gated La Mancha Resort Village in Palm Springs. The 100-room walled resort with spas, poolside massages and a “croquet lawn lit for night use” was on the verge of bankruptcy with $5.2 million in debt. Fortunately (for members), that deal didn’t go through.

The union poured $14.7 million into Pro Air, a start-up airline that, well, didn’t get off the ground. Plagued by safety problems, the feds shuttered the company less than a year later.

In 1996, union heavies invested $5 million in United Broadcasting Network, a liberal radio network precursor to Air America.  They shelled out for a $2 million, state-of-the-art studio in Detroit and incurred years of losses of a reported $75,000 a month before closing the network down in 2003.

And while the UAW and carmakers cry poor, they’ve operated massive joint funds for years that have paid for lavish items such as multi-million-dollar NASCAR racer sponsorships and Las Vegas junkets. 

At least the groveling Big Three CEOs gave up their corporate jets. Where’s the public flogging for the greed-infested UAW fat cats reaching into our pockets to keep them afloat?

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=284004627416260

UAW’s annual report:
http://www.unionreports.gov 

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GM: 3 brands have targets on their backs …

January 6, 2009

Excerpted from BusinessWeek;, “Brand New Day”, November 28, 2008
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General Motors is looking at killing off three brands—Pontiac, Saab and Hummer.

Everyone knows that GM is over-branded. The problem has long been that the company does not want to have to pay dealers to fold the brands it does not need as it did with Oldsmobile in 2001. State franchise laws prevent a car company from simply ending a brand. Closing down Oldsmobile cost the company around $2 billion.

Saab is not thought to have any hot buyers. According to past conversations with GM execs, Saab Cars has never turned an annual profit for GM. It has, at times, made money in Europe. But those gains have always been off-set by losses in the U.S.

Saab is one of two Swedish car companies with limited interest from both consumers and investors. Ford, too, tried to sell Volvo earlier this year, and found no takers willing to pay Ford’s asking price.

Both Saab and Volvo are premium brands that have long had followings of people who place safety above all other vehicle characteristics. Saab has also attracted some performance-oriented buyers as the company has long offered turbo chargers in some of its models.

[Note: As previously posted, green buyers typically sort performance and safety down the list of buying criteria]

Volvo is on track to sell about 82,000 vehicles this year. Sales through October were down 28%. Saab is on track to sell about 20,000 vehicles this year. Sales were down 32% through October.

Edit by DAF

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Full article:
http://www.businessweek.com/the_thread/brandnewday/

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Driving in the rain? Here’s a safety tip …

January 2, 2009

This email has been making the rounds:  

A woman had an accident and totaled her car.   It was raining, though not excessively, when her car suddenly began to hydro-plane and literally flew through the air.  She was not seriously injured but very stunned at the sudden occurrence!

The highway patrolman on the scene told her something that every driver should know: NEVER USE YOUR CRUISE CONTROL IN THE RAIN OR SNOW — OR ON WET OR SLIPPERY PAVEMENT. 

The lady thought she was being cautious by setting the cruise control and maintaining a safe consistent speed in the rain. Not so.

According to the highway patrolman: if the cruise control is on when your car begins to hydro-plane and your tires lose contact with the pavement,
your car will accelerate to a higher rate of speed making you lose control.
 
NOTE: Some vehicles (like the Toyota Sienna Limited XLE) will not allow you to set the cruise control when the windshield wipers are on.

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Ken’s Take: This may be an urban myth, but I doubt it — makes too much sense.

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Big enough to drive a truck through: Detroit’s labor cost disadvantage …

December 26, 2008

So, how much is Detroit’s labor cost disadvantage, really?  According to Reuter’s:

image

Reuter’s notes that trust for retiree healthcare called a Voluntary Employee Beneficiary Association, or VEBA, is to be established in 2010 — to shift retired workers liabilities to a union-aligned trust. Reuters reports that the so-called legacy disadvantgage will go away then — leaving a mere $9 per hour difference (16%).  Reuter’s doesn’t say how the trust will be funded.  Hmmm.

Source:
http://www.reuters.com/article/privateEquity/idUSN1246948520081212?pageNumber=2&virtualBrandChannel=10360

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Is lithium the oil of the future? … If so, one foreign dependency gets replaced by another.

December 23, 2008

Electric hybrid cars are the secret sauce that will save the planet and free the U.S. from its dependency on foreign oil, right?

Well, the environmental benefits are apparent, but we’ve got a problem.  Batteries are the major cost component of hybrid electric cars (running from $3,000 to $5,000 each).  Right now, industrial strength rechargeable batteries are made mostly in Japan and China — not in the U.S.  A consortium of U.S. companies is soliciting government money to develop and build batteries here.  That’s good.  But, there’s another problem: Lithium — the major element that goes into the current battery of choice — is only minimally available in the U.S.  Uh oh.

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Excerpted from “The Trouble with Lithium”, Meridian International Research, Dec. 2006

The world is embracing the Lithium Ion battery as its answer to mobile electrical energy storage needs (translation:  for use in cars).

All other technologies are being more or less swept aside by the attraction of the potentially high energy density of Lithium based batteries.

The most well known alternative to LiIon is the NiMH battery. It is rugged, proven, has high cycle life and has many years development behind it. However, it is heavier than LiIon, very Nickel intensive. (and poses an environmental disposal challenge).

Analysis of Lithium’s geological resource base shows that there is insufficient Lithium available in the Earth’s crust to sustain Electric Vehicle manufacture in the volumes required, based solely on LiIon batteries.

Depletion rates would exceed current oil depletion rates and switch dependency from one diminishing resource to another.

Analysis shows that a world dependent on Lithium for its vehicles could soon face even tighter resource constraints than we face today with oil.

Concentration of supply would create new geopolitical tensions, not reduce them.

Exclusive dependency on Lithium Ion batteries, where the Lithium will overwhelmingly come from South America, would be like being dependent on South America for 100% of our oil supply.

image

Full technical article:
http://www.evworld.com/library/lithium_shortage.pdf

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GM’s Marketing Missteps

December 23, 2008

Excerpted from Harvard Business Online, “How General Motors Violated Your Trust”, by John Quelch, December 11, 2008

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The top eight reasons why GM has failed as a marketer:

1. Focus on products, not customers. For years, Detroit wrongly viewed product types as market segments. Cars were classified as subcompacts, compacts, intermediates etc. But no consumer ever left home passionate to buy an “intermediate car.” Segments are groups of customers, not products.

2. Too many products, too many brands. The Toyota and BMW product lines are very simple, easy for a salesperson to explain and easy for the consumer to understand. There is a logic to the product lineup. Desperate to retain share in the US, GM continues to add to its already confusing array of 60 models under 8 different brand names. The positioning of each brand has long been unclear, a problem magnified by look-alike models built on common production platforms with frequent model changeovers adding complexity costs to production. Buying a car is an infrequent purchase; the consumer needs a clear roadmap of what is on offer.

3. Too many dealers. GM did not reduce its dealerships as it lost share. As a result, dealers began competing on price against each other rather than external competitors. Slipping sales caused dealers to consolidate two or more GM brands on a single lot, further undermining any pretense at distinctive positioning for each marque. And the need to keep sales up at each dealership limited GM’s enthusiasm for embracing new ways of taking new car orders from consumers over the internet.

4. Losing market control. You know you are the market leader when the other players in the value chain – producers, dealers, consumers – all look to your product line as the bellwether alongside which they organize theirs. Today, GM is correctly trying to regain control of the middle with the new Chevrolet Malibu. But will it be able to displace the Toyota Camry and Honda Accord?

5. Bigger is better. Higher wage and benefit costs make it harder for GM to make money on small cars. But the real reason for the migration of the product mix to SUVs and trucks is that the “petrolheads” who run Detroit are all big, tall men. They would rather go down in Detroit history as the guys who brought you the Escalade, not the Prius. They are Jack Palance, not Billy Crystal. Over half the cars bought in the USA are purchased by women; would you know that from the lineup of senior executives at GM?

6. No global brand. Here Ford has a clear advantage over GM. Ford is a global brand. The company name is the brand name. Sure, they have Lincoln and Mercury but the vast bulk of Ford’s marketing dollars worldwide back the mother brand. GM, by contrast, is a house of brands, none of which is global. Marketing resources at GM are inevitably dissipated.

7. Not invented here. Smaller than GM, Ford has been prompted by necessity to better integrate its worldwide operations. In a well-run multinational, this involves US headquarters learning from its subsidiaries, not just telling them what to do or letting them run independently. For decades, Detroit has spurned US launches of high quality vehicles conceived and made in its own European factories.

8. Finance focus. GM has not been run by marketers. It has been run by accountants. The cost focus has crowded out needed emphasis on consumer insight and marketing. Instead of obsessing over the $1,500 per car labor and benefits cost differential separating the big three and the foreign transplant brands, GM should have exploited its market access to develop brilliant new designs that the American consumer would gladly have paid more for. Instead, the Toyota Prius has trumped Detroit and GM’s belated answer is the $40,000 electric Volt.

Edit by DAF

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Full article:
http://discussionleader.hbsp.com/quelch/2008/12/how_general_motors_violated_yo.html

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Detroit’s fight for survival … then and now.

December 22, 2008

Ken’s Take: It has taken awhile for folks to begin to realize that Detroit execs weren’t complete dolts — save for the unfortunate union negotiations in the 1970s that doomed the companies.  Consumers did want mini-vans and SUVs, and fortunately for the Detroiters, minivans and SUVs were profitable enough to cover their labor cost disadvantages.  Now, only to find a way out of the mess …

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Excerpted from WSJ, “Auto Bailout Caps Flawed Relationship”, Dec. 22, 2008

The Detroit Three’s post World War II business strategies — which relied on large, powerful cars built by richly paid union workers — were doomed from the day in 1982 when the first Honda Accord rolled off a nonunion assembly line in Ohio.

How Detroit’s auto makers will be able to stabilize financially in the short run is unclear, since it takes years to redo their product lines.

The fastest way to profitability for the Detroit Three, beyond giving haircuts to bondholders and slashing workers wages, would be to take advantage of falling gas prices to sell more of the gas-hungry sport-utility vehicles and large pickup trucks that  Obama and congressional Democrats don’t like.

Washington’s policies, and the way the government exerted regulatory control over the auto makers, often worked against the profound changes the companies needed to make to compete with foreign makers.

Up until this year, Detroit had few reasons not to lean on trucks and SUVs for profits — and government policy all but invited them to do so.

Since the 1980s, Washington’s de facto energy policy has been to keep gasoline prices, and gasoline taxes, low. By contrast, European nations for years have boosted fuel prices to around $6 a gallon through taxes, which pushed consumers toward small cars.

The result: U.S. consumers gravitated toward ever larger and more powerful vehicles because the costs to fuel them were relatively low. In 1987, the average American vehicle got 22 miles to the gallon, weighed 3,221 pounds and accelerated from 0 to 60 miles per hour in 13.1 seconds. By 2007, the average car weighed 4,144 pounds, accelerated to 60 miles per hour in under 10 seconds — and averaged 20 miles per gallon.

Federal tariffs imposed on imported trucks and other quirks in Washington’s fuel-economy regulatory scheme also encouraged U.S. auto executives to push trucks and SUVs.Federal fuel-economy rules allow car makers to average the fuel usage of most of their products. They could sell fuel-efficient small cars and trucks at little or no profit to make up for the high-profit, gas-hungry luxury cars and big SUVs they promoted.

In recent years, GM, Ford and Chrysler made money on trucks — with profits of as much as $8,000 a vehicle — and lost money on cars. Detroit made enough money to cover spiraling health-care and pension costs.

Federal rules caused Detroit “to cede the car market and make all their money in trucks.”

Full article:
http://online.wsj.com/article/SB122990466217625249.html?mod=article-outset-box 

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Quick: The batteries that power hybrid electric cars — where are they made?

December 22, 2008

Answer: Mostly Japan.  By Panasonic and Sanyo — soon to be just Panasonic since it announced that it’s buying Sanyo. Some from China.

So, our national strategy to become energy independent requires sourcing the major auto component — a $5,000 battery — from a foreign supplier.

Anybody see a problem with that?

This ironic twist is widely known, seems to stay off most radar screens.  Fortunately, there’s a consortium of U.S. companies — called the National Alliance for Advanced Transportation Battery Cell Manufacture — trying to develop a U.S. based battery manufacturing capability.   The consortium is knocking on the government’s door for some development money.

This is one use of tax dollars that I’m in favor of …

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Excerpted from WSJ, “U.S. Firms Join Forces to Build Car Batteries”,  December 12, 2008

Many experts believe battery technology and manufacturing capacity could become as strategically important as oil is today.

Fourteen U.S. technology companies are joining forces and seeking $1 billion in federal aid to build a plant to make advanced batteries for electric cars, in a bid to catch up to Asian rivals that are far ahead of the U.S.

Two decades ago, a similar helped the U.S. computer-chip industry restore its competitiveness.

Auto makers, including General Motors Corp. and Ford Motor Co., say they plan to roll out plug-in electric cars by 2010. But the U.S. has limited capacity to make the lithium-ion batteries those cars will need. Most of the batteries used in today’s hybrid vehicles, including Toyota Motor Corp.’s Prius and some of GM’s hybrid models, come from Asian makers.

Though much of the advanced battery technology was developed in the U.S., American companies “opted out” of battery production because of the low returns the business offered and the U.S. has lost the lead in battery manufacturing. Asian manufacturers picked up the business because of their proximity to makers of electronic devices, which need a steady supply of batteries.

The consortium intends to solicit as much as $1 billion in federal funds from the Obama administration by tapping loan guarantees contained in an energy-security act passed last year. The act pledges as much as $7 billion in loan guarantees for advanced-battery plants in the U.S. The first large-scale lithium-ion battery plant in the U.S. could cost $1 billion to $2 billion.

Full article:
 http://online.wsj.com/article/SB122957206516817419.html?mod=testMod

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Ken’s Take:

U.S. battery manufacturing must be a strategic national priority if we’re serious about becoming energy independent and carbon fuel light.

But, battery manufacturing is only part of the equation. 

The primary input to the next generation auto grade rechargeable battery is lithium.  Any idea where that element comes from? 

Hint: not the U.S.  I’ll give the answer in a subsequent post.

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For small car buyers, fuel economy & sticker price are important … not safety. Huh ?

December 22, 2008

Excerpted from WSJ, “Small Cars Improve in Crashes” by Jonathan Welsh, December 17, 2008

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The demand for smaller, more fuel-efficient cars has increased. Sales of compact cars like the Honda Fit, Toyota Yaris and Nissan Versa rose 24% though November, while sales of large utilities fell 36%.

Among small-car buyers, safety tends to take a back seat to fuel economy and a low sticker price. While 86% of basic compact-car buyers rated fuel economy as the feature about which they cared most, 29% rated safety as a top concern…

The good news: Small cars fare better in crashes than they used to … But, they still lag behind larger vehicles in protecting passengers. Their disadvantages are especially clear in side-impact crashes. Of the nine small cars recently tested…all received the group’s top rating of “good” in frontal crashes — but only two got good ratings when hit from the side. The test results highlight the difficulty for designers and engineers in developing cars that are small and light yet still strong enough to withstand collisions with large vehicles…

Only the SX4 and Matrix, and its twin the Vibe, received good ratings for protection in side crashes. The Ford and Chevrolet were judged acceptable in side-impact protection, while the Hyundai and Saturn were marginal and the Chrysler was poor. Only the Ford Focus was top-rated in rear-impact crashes…The Chrysler PT Cruiser was the worst performer…Car makers have rapidly improved small-car design in the past few years by strengthening vehicles’ protective framework and adding side airbags…

The … side-impact tests are especially difficult for small cars because the barrier used to strike the test vehicle simulates the front end of a large SUV or pickup truck. The high bumper typically hits the test car at the same level as the heads of test dummies representing the driver and rear driver-side passenger. This makes head-protection side airbags critical.

Edit by SAC 

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Ken’s Take:  I wonder if small car drivers pick airlines based on the same criteria?

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Plunging U.S. auto sales …

December 22, 2008

Combined Detroit 3 U.S. auto sales today (under 7 million vehicles) are about equal to GM’s sales in 1985 …

[u.s. auto sales]

Note: about 1/3 of Chrysler’s 600,000 sales are to fleets, e.g. rental cars, company pools.

Source:
http://online.wsj.com/article/SB122969367595121563.html?mod=testMod 

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Bush wimps … punts automakers to Obama … UAW celebrates

December 19, 2008

An “orderly, pre-packaged reorganiztion” didn’t make the cut after all.

Instead, Bush just cut a check, loaning GM and Chrysler $17.4 billion to bridge them through the end of January. 

The “teeth”: companies have to promise to try harder.  Just kidding, that’s not even a requirement as near as I can tell.  No restructuring of overhead; UAW workers will still get $150,000 to work the line.

Bottom line: Bush got freaked that the sky would fall and didn’t have the stones to push the UAW to reopen the gold plated contract. Geez.

PS: the politics of this move are interesting …

Full article:
http://online.wsj.com/article/SB122969367595121563.html?mod=testMod 

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Bush considering "orderly" auto bankruptcy … (for the already bankrupt automakers)

December 19, 2008

Excerpted from AP, Bush considering “orderly” auto bankruptcy, December 18, 2008

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The Bush administration is seriously considering “orderly” bankruptcy as a way of dealing with the desperately ailing U.S. auto industry.

The White House was close to a decision …  on an auto rescue plan …  and is continuing discussions with the various sides that would have to sign on to a managed bankruptcy — entities such as labor unions and equity holders in addition to the companies themselves.

Full article:
http://finance.yahoo.com/news/Bush-considering-orderly-auto-apf-13868234.html

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Ken’s Take:

  1. The automakers already are bankrupt.  The new news is trying to do something orderly.
  2. Didn’t the Detroit CEO’s say that the sky would fall before Christmas?
  3. Hard to believe that UAW folks will still be drawing over $70 per hour when the auto plants are closed.  Can’t the automakers at least redeploy the workers to infrastructure projects for the month?  Guess not — union work rules.
  4. Wouldn’t surprise me if Bush played rope-a-dope until he hands the keys to Obama …

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As Detroit burns (figuratively), UAW gets a paid vacation …

December 19, 2008

When Chrysler plants are idled because they are not making vehicles, Chrysler is still required to pay its UAW workers 95 percent of their wages.
http://voices.washingtonpost.com/economy-watch/2008/11/corker_uaw_should_not_be_paid.html?hpid=topnews

image002

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But, the dogs have been eating the dog food …

December 17, 2008

The Detroit auto execs have been getting pillaged for not making the kind of vehicles that consumers want to buy.

That accusation doesn’t seem to to ring true when driving down an interstate highway or walking through shopping mall parking lots.  I see plenty of SUVs, min-vans, and pick-ups with American brand names.  Some look pretty new to a casual observer.  Seems like folks are buying them.

In fact, for the past several years, about half of the best selling vehicle models are U.S. brands.  The SUVs have fallen out of the top 10, but pick-ups still top the list and at least one American car (Impala) makes the list.  Detroit may not have the car of the future, but it seems to have had some cars for the recent past.

Where are hybrids are the list?  Nowhere.  

CNBC’s Maria Bartiromo  raised that point with Congressman Barney Frank:

Does Congress realize how few hybrids have been sold, as it pushes, Detroit to make them, and will Congress give consumers greater incentives to buy these cars?

Frank’s reply was odd — even by Barney Frank standards:

“That’s a very fair point. And one of the things I’ve been saying is that some of my colleagues and the commentators who have been blaming the auto companies forget to blame somebody else—the consumers. In the recorded history of America, no one was ever forced at gunpoint to buy a Hummer. But we do believe that the combination of genuine concern about global warming and energy efficiency means people are now ready to buy these cars.”
http://www.businessweek.com/magazine/content/08_51/b4113000737793.htm 

Translation:   “If the dogs don’t eat the dog food, blame the dog.”  Not exactly the “marketing concept” at work.

Ken’s take: It looks like Detroit makes vehicles that many American consumers like, but that Washington  doesn’t like .  The congressional meddlers want Detroit to make cars that are guaranteed to lose money (lots of it).  If only the dogs would eat the right food.

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If the consumer craves "green", why is Toyota delaying its new Prius plant?

December 17, 2008

Toyota is delaying the opening of a new Prius plant in Mississippi.

The plant, near Tupelo, was originally going to make Highlander SUVs from late 2009. Then, as part of a big shakeup of the company’s U.S. production, Toyota decided it would begin making the new Prius at the site from 2010.

Now, Toyota will wait until the market starts picking up.

Excerpted from Business Week Online, Dec. 15, 2008:
http://www.businessweek.com/autos/autobeat/archives/2008/12/toyota_delays_n.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis

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Ken’s Take: It is broadly reported that Toyota — the runaway market leader in hybrids — loses money on each Prius it sells.  So, if Toyota can’t make money on hybrids, how are they (hybrids) going to save Detroit?  As usual, I must be missing something.

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The automaker’s specious bankruptcy argument …

December 16, 2008

Excerpted from WSJ, How Destructive Would Bankruptcy Be for Big Three?, December 12, 2008

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One of the Big Three’s main arguments for a bailout is that American consumers won’t buy General Motors and Chrysler cars if they are forced into bankruptcy. They would be tainted by a stigma and by worries that warranties and parts wouldn’t be available years down the road if the firms ran the risk of liquidation.

Consumer surveys support this view. One survey of 6000 consumers by CNW Research this summer found that 80% said they would abandon an auto maker if it were to file for bankruptcy.

Does the argument hold up? One way to test it is to look at consumers’ actual behavior. The risk of bankruptcy has obviously risen in the past few months. If bankruptcy is likely to drive consumers away, one might expect to see the market share of GM and Chrysler fall more precipitously as bankruptcy risks rise.

The U.S. market share of the Big Three has been dropping consistently for years, from 74% in the mid-1990s to less than 50% today. But there’s little evidence in the data so far that this longer term pattern has been dramatically amplified by the rising risk of bankruptcy.  

With the whiff of bankruptcy in the air …

Chrysler’s U.S. sales market share has actually risen from 8.7% in July to 11.5% in November, according to  Moody’s Economy.com.

GM’s market share has bounced around but hasn’t dropped below levels hit earlier this year. 

Ford, which isn’t facing an immediate cash crunch, has picked up market share too, rising from 14.2% in July to 16.5% in November.

Of course, sales have been propped up by  fire-sale deals and aggressive fleet sales.  But, that’s not new news.

http://blogs.wsj.com/economics/2008/12/12/how-destructive-would-bankruptcy-be-for-big-three/

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Ken’s Take:

1. Is there anyone who doesn’t recognize that the Detroit automakers are hanging by financial threads?  The companies are bankrupt, they’re just not in legal bankruptcy proceedings. If they were, they’d at least stand some chance of restructuring themselves into healthy positions. The current government thinking stands no chance of doing that. 

2. As I’ve said before, they survey results are misleading.  Would somebody be more likely to buy a car from a financially healthy car maker?  Of course.  Would somebody prefer to by from one that is on the brink of financial collapse or one that is in bankruptcy proceedings?  I bet that would be a statistical tie.

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Bush bends, UAW wins big … automakers still bankrupt.

December 15, 2008

Excerpted from IBD, “Rewarding Failure”, December 12, 2008

The proposed $15 billion bailout of the Big Three failed in the Senate for one major reason: Some lawmakers stood up to the unions. But their stand may be moot, since automakers may get the money anyway, even though the idea is wildly unpopular among voters

In addition to major restructuring by the automakers, GOP senators insisted on givebacks by the United Auto Workers. The UAW responded with a resolute “No.” 

Gold-plated union contracts are a big reason for U.S. automakers’ woes (though managerial incompetence at the Big Three also played a role). The average Big Three worker made $73.26 an hour in 2006; the average worker at a foreign transplant, $44.20.

Last year, Toyota made 9.37 million vehicles. GM, virtually the same number. Yet, Toyota made a profit of $38.7 billion on its global operations, or $1,874 per car, while GM lost $38.7 billion, or $4,055 a car, almost entirely due to its operations in the U.S.

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=313977740860863

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Bold idea for the Detroit automakers: Leave Detroit (and, maybe, the country)

December 15, 2008

Jagdish Sheth, a professor of marketing at Emory University’s Goizueta Business School says:

“The car companies should legally separate their international divisions from their domestic operations, so they no longer subsidize the U.S. operations. Many of the automakers are actually doing well overseas, especially in emerging economies like China, India, Russia and Brazil, where demand for vehicles is still relatively strong”.

Excerpted from Knowledge @ Emory
http://knowledge.emory.edu/article.cfm?articleid=1201

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Ken’s Take

Sheth may be onto something. So, why not take his idea a step further? 

Perhaps the Detroiters (at least Ford & GM) should legally separate the international operations, then enter bankruptcy proceedings in the U.S.  Then, either a real restructuring would happen, or the companies would become profitable entities without a U.S. presence.

Aren’t corporate strategists taught to exit unprofitable markets? 

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"Car czar" must have sound judgement … which disqualifies anybody who would take the job.

December 15, 2008

Car czar “is an undesirable job. Managing bailout funds in an industry resistant to change won’t be easy. It’s also a government job. Taken together, that means a high risk of waste, fraud, and more bailouts afterward. Nobody wants to sign on to failure.”

Excerpted from IBD, “Romney For Car Czar”, December 11, 2008
http://www.ibdeditorials.com/IBDArticles.aspx?id=313892314464564

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Ken’s Take: AMEN !

Mitt and Volcker are smart enough to stay away from this one, right ?

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Playing hard ball … UAW says "$75 per hour sounds about right" … what happened to "no more special interests in Washington"?

December 12, 2008

Below are a few highlights from today’s WSJ report on the apparent collapse of the Detroit 3 bailout loan.  My ‘take’ and predictions follow …

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Highlights excerpted from WSJ, Rescue Bid for Detroit Collapses in Senate, Dec. 12, 2008

A frantic, last-ditch attempt to forge a relief package for the auto industry collapsed in the U.S. Senate, dealing a giant blow to the immediate hopes of the Big Three.

The talks, which appeared close to a deal several times, broke off due to a sharp partisan dispute over the wages paid to workers at the manufacturing giants.

Republicans demanded the bill be strengthened to exact concessions from the industry. “We simply cannot ask the American taxpayer to subsidize failure”

The initial White House-backed package saying it doesn’t require auto makers and their unions, suppliers, creditors and dealers to make changes needed to return to a sound financial footing.

[Now, both Democrats and the car companies] hope the White House will now relent and allow the Treasury to provide emergency loans from the $700 billion Wall Street fund.

Harry Reid said the Senate would be in recess, and would stand in pro forma session until January, when the new Congress will be convened with stronger Democratic majorities.

After a marathon day of negotiations, top Democrats appeared close to a deal that would toughen the bailout package in a bid to raise Republican support, which had proved an insurmountable stumbling block. The focus of talks was on seeking commitments to restructure the industry’s debt load and bring labor costs in line with wages paid by Toyota and Nissan  in the U.S.

But those talks fell apart after Republicans insisted that wages reach parity in 2009.  Mr. Reid declared talks at an impasse.

Sen. Christopher Dodd, a Connecticut Democrat, complained that Republicans had attempted to turn the wage issue into a political matter about organized labor, instead of making it an “an economic issue.”

The collapse of the talks represents a major defeat for three companies and an auto union that once wielded immense political clout. Even after two appearances in Washington by the GM, Ford and Chrysler CEOs, and a show of solidarity with the UAW, the auto makers were unable to convince many skeptical lawmakers to change their minds and support a bailout.

GM will also discuss plans for its Saturn division. One option includes putting the division into bankruptcy protection, as it is technically a separate entity.

The collapse of the deal raises the stakes for Chrysler and its majority owner, Cerberus Capital. Lawmakers had called for Cerberus to put more money into the company, but Cerberus maintains it can’t because the bylaw of its investment funds prevents it from putting more than a small percentage of its investors’ funds into any single investment.

Full article:
http://online.wsj.com/article/SB122903816924599853.html?mod=testMod

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Ken’s Take

  1. There is zero chance that the Detroit 3 can survive with  line workers getting $150,000 per year in salary and benefits.  Yes, it was weak management (in the 1970s, when business was booming and the UAW was striking) that saddled the companies with the problem.  But, there is no imaginable plan that can neutralize a $1,500 to $2,000 per car cost disadvantage.  Adding a  $5,000 battery to each car doesn’t solve the problem — it only exacerbates it.
  2. The problem isn’t “wages”.  The difference in take-home pay between Detroit and the “transplants” is only a couple of dollars.  The problems are gold-plated benefits (about twice as much for the Detroiters,  restrictive work rules that limit flexibility to move workers around (within the plants), and “featherbedding” — paying non-workers. 
  3. This is the issue that will really test Prez-O.  He campaigned, in part, on “no special interests”.  Well, the UAW threw $11 million into his campaign coffers and probably expect some “considerations”.  We’ll see …
  4. My favorite: Cerebus says it can’t throw in more money because of its by-laws.  That is being said at a time that there’s pressure to legislate the re-writing of mortgages and practically every other contract in America.  B.S.  Cerebus knows it’s good money after bad — and they want it to come from taxpayer’s pockets, not their’s.
  5. The “car czar” idea is frighteningly stupid.  Let’s see: the SEC, etc.,  can’t effectively oversee financial companies,  Boards of Directors can’t seem to oversee companies that they’re responsible for …. but, some uber-dude will be able to parachute in, learn a very complex business at warp speed, and — oh yeah — get the UAW in line.  Call me cynical, but I don’t think so.

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Ken’s Predictions

  1. Bush will cave and fund the initial stages of this folly … with few “teeth” in the plan except to make the companies promise to “try hard”.
  2. Any teeth that are put in will be relaxed or reversed  on January 21, 2009.  The money will flow from Washington to Detroit, the UAW will prosper, and the Detroit 3 will still be teetering on bankruptcy. 
  3. A car czar will be appointed — the lobbying and politics will be overwhelming — and the poor sap will fail

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What’s wrong with this statement: “People won’t buy cars from an automaker in bankruptcy”

December 12, 2008

I’ve heard this refrain at least a dozen times on CNBC today.  It’s been repeated so many times that it’s starting to take on the aura of fact.

Let’s dig a little deeper.  Pundits are saying “people who are surveyed say they won’t buy a car from a bankrupt automaker”.

Well, guess what.  The Detroit 3 (or at least GM and Chrysler are bankrupt!

The “fine hair” of difference is whether they go through a “bankruptcy proceeding” that potentially restructures them (and their burdensome union contracts) into a healthier condition.

I’m sure the survey question is — at least implicitly — “would you be more likely to buy a car from a financially healthy automaker or one that is bankrupt?”  Obvious answer, right?

The question should be “would you be more likely to buy a car from an automaker in bankruptcy proceedings, or one that is hanging by its financial finger nails and likely to go into formal bankruptcy in a couple of monthes?”  Rational answer: “none of the above”

What am I missing?

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Re: SUVs … the proclamation of their death was a bit premature

December 12, 2008

Excerpted from Business Week, “The SUV Is Rising from the Dead”, November 26, 2008

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Americans are downsizing to the smallest vehicle they can tolerate. But in many cases, that’s just another kind of SUV—one that gets about 22 mpg

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When gasoline blew past $4 a gallon in July, pundits declared the era of the gas-guzzling sport-utility vehicle over.

Since then, of course, prices have dropped 50%, and …  more visitors to the Edmunds.comsite are researching SUVs … and appear to be ‘cycling back to our ‘bad’ car-buying habits.”

It’s more complicated than that. Americans are downsizing to the smallest vehicle they can tolerate.

But in many cases, that’s just another kind of SUV—one that gets about 22 mpg. That’s more eco-friendly than a Hummer, but this is hardly the era of conservation that some had predicted.

Gas-electric hybrids, which typically cost at least 15% more than conventional cars with similar mileage, are a tougher sell than they were just three months ago.

According to Edmunds, the number of people intending to buy a hybrid has been declining along with the fall in fuel prices. When gasoline prices peaked in July, 700,000 visitors to Edmunds.com checked out hybrid cars. But in October, only about 150,000 did so.

Meanwhile, J.D. Power & Associates (MHP) says that 36% of people who traded in large SUVs in November turned right around and bought another one.

“Consumers tell us they don’t want a small car.They want something roomy (to haul kids and cargo) and more fuel-efficient.”

Full article:
http://www.businessweek.com/magazine/content/08_49/b4111063900772.htm 

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Just say "no" … 62.7% oppose Detroit 3 bailout loans … Dems split …Congress says "let's roll"

December 11, 2008
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    image

    http://www.ibdeditorials.com/PollsPopUp.aspx?id=313629919786029

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    Excerpted from Rasmussen Reports,”14% Say Federal Government Will Run Big Three Better”, December 09, 2008

    Nonetheless, Congress and the White House are fast reaching a deal on a bailout plan for the Big Three that many suggest is just a step short of nationalizing the U.S. auto industry since it gives the federal government a say in how the automakers spend their money and what kind of cars they build.

    The short-term loan plan being worked out in Washington calls for the creation of a federal “car czar” who will develop benchmarks by which to measure the automakers’ restructuring and who will have the power to push management, unions, shareholders and others to implement changes

    A longer term bailout plan proposed by President-elect Obama goes even further. “It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make,”

    But only 14% of U.S. voters think the Big Three automakers will run better if they are run by the federal government.

    While voters display little confidence in government control of the automakers, 59% say senior managers of a company should be replaced if taxpayer funding is provided to keep the company afloat.

    Full article:
    http://www.rasmussenreports.com/public_content/business/general_business/just_14_say_federal_government_will_run_big_three_better

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Let’s get some accountability … Ask your Congressman to put his "you-know-whats" on the table if he votes for the bailout … Better yet, demand it !

December 9, 2008

Ken’s Take: All of these bailouts are flat out nuts.  The worst is the seemingly inevitable tossing of money down the Detroit sink hole.  There is no chance whatsoever that Detroit get on the road to prosperity.  They can’t compete with a $1,500 or more cost disadvantage on every car sold, and the politicos are determined to patronize the UAW. Getting rid of senior management bonuses and corporate planes doesn’t even qualify as rounding error.  A fundamental restructuring of overhead costs (i.e. massive white collar layoffs) and a competitive labor agreement are required.  Neither will happen. If ever there were a case of putting good money after bad, this is it.  No government loans will ever be repaid — either the companies won’t have the wherewithal to repay or the loans will be forgiven by Congress if the companies act like they’re doing something green.

To vent my frustrations, I emailed my Congressman — asking him to make a simple pledge to the dwindling number of taxpayers.  I know it won’t change anything, but I felt better.  You should try it.

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Congressional Accountabilty Pledge 

Dear Mr. Congressman:

Stop wasting my tax dollars.

There is no chance that the Detroit 3 will repay bailout loans made to them.

If you vote affirmatively to approve any bailout loans, in any form, to any or all of the Detroit 3 automakers, you should accept personal accountability for your vote and make a binding, irrevocable public commitment to resign your government position on January 1, 2011 if the loans have not been repaid to the government in full by then, regardless of circumstances.

Period.

Your’s truly,

One of a dwindling number of taxpayers

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To email your Congressional Representative:
https://writerep.house.gov/writerep/welcome.shtml 

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Congressional oversight of the Detroit 3 … That’s a joke, right?

December 7, 2008

Ken’s Take: There is zero chance that the Detroit 3 will pay back any bailout loans.  Period.

Restoring competitiveness against the “foreign transplants” requires substantial restructuring than won’t be done under the ever watchful eyes of a business-ignorant Congress (how many Reps and Senators have ever run a ‘for-profit’ company — or for that matter — even held a real job?) or until the labor contract is seriously renegotiated (no company can afford to pay factory laborers $150,000 per year in wages & benefits).

Bankruptcy is inevitable,  Let’s bite the bullet and get it over with …

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Excerpted from IBD, “Prepackaged Failure”, December 05, 2008 

Sentiment running 62% against a bailout for the automakers.

But, Congressional Democrats are desperate to bail out the Big Three — but even more desperate to bail out the automakers’ unions. After all,the UAW spent more than $11 million in the last election cycle to elect Democrats.

Even a “prepackaged” bankruptcy  … doesn’t stand a chance because the unions reject it out of hand. As UAW President Ron Gettelfinger put it, prepackaged bankruptcy is “not a viable option.” Translation: Unions would have to make big, and permanent, concessions.

That leaves the latest bright idea:  Congress would in essence become the Big Three’s uber-manager, telling them how to become profitable again.

Excuse us, but are we supposed to believe that the same Congress responsible for next year’s estimated $1 trillion deficit can profitably run a market-sensitive company like a car manufacturer?

Or that the same Congress that sat on its hands as the financial meltdown unfolded and helped create the mess will know how to financially restructure America’s highly complex auto business?

Or that the people who just last year imposed $85 billion in new “efficiency” standards on a teetering industry will be savvy enough to run them anywhere but further into the ground?

Does Congress have the know-how to do this? Of the 11 Democrat members on the Senate Banking Committee who grilled Big Three CEOs last Thursday, and who will decide the outlines of any bailout plan, just one Senator — Montana’s Jon Tester, a farmer and former manager of a butcher shop — had any real business experience.

None of the rest, from committee chairman Chris Dodd on down, has any private-sector experience to speak of, apart from brief stints at law firms. Fact is, Congress isn’t equipped to run anything.

The Big Three are burning through $6 billion a month, so $34 billion won’t last long. Chapter 11 bankruptcy, or something like it, would at least let them get out from under costly union contracts.

Given union opposition, this is highly unlikely, even though about 77% of all billion-dollar companies survive bankruptcy. 

Those are better odds than congressional mismanagement would offer.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=313373158944445

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UAW says Detroit won’t have to pay for non-working workers … that’s big of them.

December 4, 2008

Excerpted from WSJ, “UAW Gives Concessions to Big Three” Dec. 4, 2008

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The United Auto Workers union Wednesday offered two major concessions to the Big Three auto makers

Two weeks after insisting his union had already done enough to help the car makers, UAW President Ron Gettelfinger said the union would allow the companies to delay billions of dollars in payments into funds that will cover health-care costs for retired workers. The union also will suspend a “jobs bank” program under which workers continue to collect most of their wages after they are laid off.

Full article:
http://online.wsj.com/article/SB122832097499675993.html?mod=testMod

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Ken’s Take: Earlier this week, we noted: “under the UAW “job bank” program, over 12,000 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.

The Detroit 3’s  total labor cost disadvantage (vs. ‘transplant’ carmakers in the South) is more than $1,500 per car.  UGH !”

Coincidence, or is the UAW monitoring The Homa Files?

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Ken’s Take #2: Next step, the 12,000 laid off workers who won’t be getting paid any more will stop making their mortgage payments and the 57% of Americans who pay income taxes will end up buying  their houses for them.  The vicious cycle never ends, does it ?

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Detroit's fuzzy strategy reflected in its brands …

December 4, 2008

Excerpted from AdAge, “If GM Has a Brand, It’s General Misery” by Al Ries, December 02, 2008

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Of the 100 most valuable brands in the world, according to Interbrand, 52 are owned by U.S. companies. And how many of the 52 are U.S. automobile brands? Just one: Ford. None of GM’s eight automobile brands made the list…however, 10 automobile brands from outside the U.S…

Part of the fundamental nature of Detroit’s Japanese competition is its ability to build brands. Toyota stands for reliability, Scion for youth, Prius for hybrid, Lexus for luxury.

But what does Saturn stand for? Or Chevrolet? Or Pontiac? Or Buick? Or Cadillac?…

The conventional wisdom is that General Motors has too many (eight).

Over the years, Gillette, has marketed seven different brands…Gillette has an astounding 71% of the world’s wet-shaving market, in part due to its multiple brands.

The difference between Gillette and GM is that each of the seven Gillette brands stands for something specific and each of the eight GM brands does not… 

To build a brand, you generally need to “contract” the brand.  Instead,  GM has introduced expensive Saturns and cheap Cadillacs.

GM’s brands themselves are practically worthless.. 

Edit by SAC

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To make matters worse GM’s plan to Congress slash its marketing spending by $600 million by 2012.  The bright side of this significant reduction in advertising and promotions is that GM will focus its efforts on Chevy, Cadillac, Buick, and GMC, which according to its restructuring plan, account for 83% of its business.  While the tighter budget may prompt focused efforts it does not guarantee improved branding.  GM will need both to compete.

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Full Article:
http://adage.com/columns/article?article_id=132938

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