Alcohol: Not just for drivers any more.

My previous post reminded me of Brazil, and then naturally alternative fuels. Why? Because Brazil is the first country to have adopted alternative fuels on a truly national scale and as a result, declared independence form foreign oil about 3 years ago. "Gasp!" I can here you say. "They must have done it using hinky local branded cars and hand pumps by the side of the road". No, actually, the vehicles were developed by the likes of GM, Ford, Fiat and Volkswagen; and the fuel is sold through gas stations of repute, such as Shell, Texaco and Petrobras.

How could Brazil do this while we, with all the resources at our fingertips, cannot? Well, they used will and power. During the 1970's the (then) military government decided that as a developing nation, Brazil needed oil, which it did not have very much of (although, ironically that is changing very fast). The country could not be held hostage to the whims and fancies of a foreign organization (OPEC) and a market over which they had no control of. Sound familiar? So a program was started to develop alcohol (Proalcool), derived from sugar cane, which Brazil has huge amounts of, as a car fuel. Vehicle manufacturers that had a presence in Brazil were "invited" to participate in the process by developing technology that would allow their vehicles to run exclusively on the alcohol. The next problem to be resolved was the problem of distribution. Distributors balked at having alcohol pumps at every station because they did not think there would be demand for the new fuel. The generals immediately recognized this as a chicken and egg situation: If there was no alcohol to be had, no-one would buy the vehicles. If no vehicles were around that consumed alcohol, there would be no pumps. So, being an authoritarian regime, they came up with a simple solution: If you want to sell gasoline in Brazil, you must sell alcohol as well. Period. The first commercially available vehicle run exclusively on alcohol rolled off a Ford dealer lot in Rio de Janeiro in 1980.

The rest as they say, is history. In the beginning, alcohol run vehicles got tax breaks and the fuel was subsidized. These measures were dropped much later and some years after that the program almost went under, until it was revived again by rising oil costs and the development of vehicles that could run on gasoline AND alcohol, allowing the consumer to pick and choose depending on market costs for each fuel, their own cash availability, etc. there are now vehicles that can run on gasoline, alcohol and propane. In a capitalist system this tends to keep the cost of fuel low, since suppliers know that the consumer can pick and choose the fuel they want to use.

So, how does this compare with the US? Well, there is no will, to begin with. Big oil has little incentive to invest in the distribution of an alternative fuel. The government has protective tariffs on alcohol coming from Brazil and other friendly nations in this hemisphere, which make it impossible for these fuels to compete. We, the scions of Washington have decided, must be supplied by corn farmers in Iowa. The fact that this is less environmentally friendly than sugar cane and there is not enough corn around for it to make a viable case for widespread distribution, dooms the program from day one. Mr. Obama, if I were to make one suggestion, it would be to pass legislation requiring oil companies to use 3% of their profits solely for the development and distribution (in equal parts) of alternative fuels. The market will take care of the rest.

Learning from Abroad

I recently re-established contact with an old friend from my time in Brazil, whose passion for cars actually exceeds my own. He was the previous owner of a red 1968 Karmann Ghia which I purchased, mentioned in a previous post. Exchanging e-mails with him reminded me of how our own industrial myopia and arrogance is a sign of the automotive times. Allow me to elaborate.

Throughout the entire current automotive crisis, I have not heard a single voice of humility. That includes the humility to admit that there are solutions in other countries which we could apply here if we could ever admit that we are wrong and they have a better way. The whole Detroit/Washington mindset seems to be that we got ourselves into this mess without your help and by goodness, we will get out of it too, using the same tools we have used with such brilliant success up until now. Am I the only one who sees this?

Ford's most modern plant in the entire world is in the Northeast of Brazil, and is a modern marvel. Different suppliers actually make the parts on the Ford factory floor and place them in the vehicle as it goes by on a conveyor. Parts transportation and warehousing costs for Ford = Zero. Admittedly this is not a Brazilian solution but Ford did implement it in Brazil. Union rules prohibit such modernity in the US, but instead of showcasing to Congress, this plant as an international solution for current cost woes, as well as what Ford can do with a relatively uneducated workforce, it is carefully hidden away in a corner of the developing world. Why? Is it because there is a hidden agenda that wants to show Congress how hard it is for the poor automakers to make cars here in the current environment, so please....give us money? GM makes some very popular vehicles in Europe. They have brought some them here, put them in their most bland brand, Saturn, marketed them as humdrum family transportation and then used this as proof that European cars don't sell so......give us some money. They brought two cheaply assembled vehicles from Australia and marketed them as sports cars (Australia - that land of thoroughbred automotive excellence, the new Germany) which flopped, and wondered why we did not sell our BMW's and jump into an Australian Pontiac.
Do you see a pattern here? Foreign solutions squashed and hidden so that we....give them the money. This is not a conspiracy theory, but a recital of facts. At best, it shows a gross ineptitude on the part of management to leverage global capabilities on anything approaching a comprehensive scale. At worse, it is an effort to get their hands on our money. Either way, shame on Detroit. I just wish that we had an alternative. If GM and Chrysler go under (I still have faith in Ford), who will pick up the juicy leftovers abroad? Where are the capital investment funds today? Oh, yes, they are in dire straits and currently "unavailable" because we were so adept at leveraging our "expertise" in mortgages on a global scale.

Service With a Sly Smile

I can never take my car to a dealership service area without a vague feeling of mistrust. I feel like the foreigner in an Eastern bazaar: I know what I want, I am fairly savvy, but the "natives" are wily and they have the edge; they are "the experts", ever willing to throw a bucket of doubt on my small flame of knowledge.

In the first place, your vehicle is whisked away to a back operating room where anonymous dirty handed people pull and hammer pieces of your car in an alarming manner, stick computer linkup cables to sockets (I wonder if those things are even hooked up) and soon, a verdict on the condition of the car is passed. You have no idea how. But the verdict always falls into one of two categories:

(1) "There is nothing wrong with your car at all, Mr. Healey". Either the service order says "could not replicate" or "normal", both of which are surprising, since the car won't start without a comical explosion from the engine bay and a cloud of smoke from the tailpipe.

(2) "I am sorry to say that there is a problem with your car, Mr. Healey" (which I know, since I took it in because there was a problem). "Apparently the descombubulator of the master cylinder has burnt out sending a flash to the electronic ignition system resulting in a problem of premature explosive cycle. We located the part at a dealership in Zimbabwe, and the service department can get us the part by say two weeks from Wednesday, cholera epidemic permitting". Cost? "Oooh. Let me see. I have the kids to put through college, the mortgage to pay off , AND the dealership needs to make money. I'd say about $1,500. If we don't find anything else". Warranty? "Oh no (giggles)! Our warranty doesn't cover normal wear and tear. This part is both worn and torn, so the warranty doesn't apply".

And, as John Lennon said, " I am not the only one to feel this way". Dealerships could go a long way in gaining consumer trust with a few simple measures:

(A) Make the back room a mechanical showroom with huge plate glass windows where customers can see what the mechanics are doing. Even operating theatres have these now. Are these guys doing more than microsurgery?

(B) Show us all the paperwork. How much does the replacement part cost as per your catalogue? How many hours does the manufacturer estimate to change this part? (Most manufacturers have such a table for almost every part on the vehicle).

(C) Show us the parts. Ohio law (and there are similar laws in other states) requires that the mechanic offers to give us the used parts, and to hand them over if requested. Very, very few dealers do this (I have only seen it once, at an Audi dealership). At most, a few will ask you to initial a tiny box with tiny print relinquishing this right. Don't do it!

(D) Attitude. We have all been to dealerships where we are treated as rather tiresome dullards, who would not understand what was wrong even if they tried ever so hard to explain, so why bother? Pay and move on, bub.

Some dealerships have tried to allay our mistrust with free coffee, a comfy seat and a good magazine, usually depicting their vehicles in a most favorable light, and highlighting the many awards they have received. I'd rather see what they are doing with my car. I can get a good cup of coffee anywhere, but a good dealership is hard to find.

What's Good For GM........

So it finally time for us to test that old saw, "what is good for GM is good for America". As this scribbler predicted, Ford emerges as the most viable car company while Chrysler and GM are poised to become history (at least in their current guise) as the bailout failed in the Senate yesterday.

Entering bankruptcy will be painful, but not necessarily bad for America in the long run, for a number of reasons. Firstly it will signal that badly run companies must succumb to market forces at some point, no matter their size - the checkbook, if not closed, is at least in need of a refill of fresh checks. Secondly, it will focus the minds of the surviving entities and we will have better vehicles as a result. Thirdly, the suicidal race to the bottom in terms of discounts will hopefully be reduced to a gentle glide toward efficiency: he who is efficient will sell at the most attractive prices. Fourthly, it will extirpate the fat and impossible demands of labor that are crippling our car makers. Finally, it Will reaffirm that we are indeed a capitalist society, not a corporate welfare society.

But where from here? Well, like guys who have their fantasy football teams, here is my fantasy US car maker breakup scenario:

(1) Chrysler sells Jeep to Tata Motors, who urgently need an "in" to the mass US 4X4 market, and something to erase the memories of dismal British quality (if only to replace it with dismal Jeep quality, but better the devil you know). Tata also gets Hummer for free. GM should be happy to get rid of the cash drain.

(2) GM sells Saab to Ford who, with Volvo, would have a credible European premium brand base in the US. Talks of selling Volvo are insane, given the myriad Ford products that are based on Volvo products. Ford needs a reasonable premium European alternative in the US.

(3) Lincoln and Mercury are history. Ford concentrates its premium brands on Volvo/Saab combo, incorporating the best of Mercury (the Mariner. Period) and Lincoln (everything except the Town Car).

(4) Pontiac is gone.

(5) Buick is gone.

(6) Saturn is euthanized after a long agonizing death.

(7) Chrysler gets a much needed boost by absorbing Cadillac and merging its "premium" Chrysler line. This would give Cadillac a wider market (a Cadillac minivan for heavens sake! Soccer moms rejoice! Owning a Cadillac that gets more than 10 miles to the gallon and can seat 8 - it could be cool to drive a minivan again). And Chrysler would gain some street cred.

(8) Chevrolet,GMC and Dodge merge to form a company that sells lower end pickups and sedans for people who like to buy their cars where they buy all things utilitarian (hey, Sears! Why not sell Craftsman products at these dealerships?).

Hey, that would be an ideal world - at least for me. I think however, that if Washington keeps weighing in, we will end up with no synergy and a big bill. Time will tell, but for now, let capitalism ring!

Collecting Cars is not for Joe the Plumber.

My copy of Hemmings Motor News arrived yesterday. If you don't know what that is, it is essentially the car collector's Bible. Now, while I love to read about classic cars, and study them in some depth (my collection of Classic & Sports Car magazine goes back to 1992!) I have never had the guts to take collecting them seriously - although now is beginning to look like a good time to begin (wait six months though).

While I lived in Brazil, we did own a 1968 Karmann Ghia (a mere 20 years old at the time). It was locally made by Karmann with the obligatory Volkswagen mechanicals, and was in absolutely pristine condition. And then I drove it around town. The drum brakes were fine if you drove slowly, but in stop and go traffic it became a battle between my thigh muscle and the need to stop before I hit the car in front. It is little wonder, then, that one of the biggest problems with collecting these cars is finding one whose bulbous front nose is original and unrepaired. It was slow as well. But it did, however have great charm, and the lines are nothing short of timeless.

Here, then, is the first obstacle to car collecting. Most amateurs are looking for something to drive on a regular basis. However, cars built 30 years ago are, in general, less powerful, noisier, handle worse, and have deplorable fuel economy. They make odd noises whose source defies detection. For all the charm and desirability, once you have driven a modern car you like, driving a classic every day becomes a case of your ability to induce voluntary amnesia of driving your new Lexus (or even your old Lexus). And if you did not know about the Karmann Ghia nose business, you may have just bought a car for a lot more than it is worth.

The second obstacle to Joe is choice. You have to begin by asking yourself a few searching questions. Why am I buying this car? Is it an investment? Do I want a car like Dad had when I was six? Do I think it is a thing of beauty? If you are buying a classic as an investment, forget it. Most single-car collectors have no idea if the car is going to appreciate in value. No-one really knows what a car's value will do, although there are ways to make educated guesses. Current rarity, original manufacturers production numbers, popularity at the time, famous design, etc. are all indicators. But remember that with any old vehicle you will have to spend increasing amounts of money to keep it roadworthy over time, especially as parts become rarer.

Do you want to drive Dad's 1967 Country Squire? Your memories of this car will clash with reality: there is no stain on the carpet where dear old Rover threw up, and the gum you stuck under dad's seat won't be there (trust me). However, nostalgia can make a rational person do odd things. In some cases, the vehicles bought under these circumstances are true classics and/or have a prominent place in automotive history. Most of the time, however, these vehicles are the ones that we love most, and that is a good enough reason to fork over your cash.

If you are buying the vehicle because you think it is a thing of beauty, congratulations, you are a true gear head. The problem for Joe here is that if your idea of beauty is a 1978 AMC Gremlin, that's fine, but don't expect everyone to share your enthusiasm - or agree with your asking price if you decide to sell.

So Joe, if you are reading this, or even care about classics, here is my advice: Buy one. Just one. And make it one you really, really want. And keep it. Car collecting (IE more than one) as a hobby or an investment is not for you or me. If you win the lottery, however, let me know. I have some hot tips for your collection.

Automobile of The Year

Several magazines have reported their choices for Automobile of the year, and at least two have named the new Nissan GT-R as their choice.

This vehicle is in the Supercar category, and has performance and features enough to spin the head of any gearhead, and produce drooling upon sight. Personally, I would love one, but Mrs. H is unlikely to agree.

My question is, in these times of unprecedented crisis why is this particular vehicle being chosen? Yes, it is a fantastic car, and will undoubtedly achieve its sales goals despite shallow pockets and long faces. However, it is a timely as a printing run of McCain-Palin election stickers. There are other vehicles out there that are more useful, have enough electronic gizmos to keep any service shop happy for generations to come and are far more relevant. The new 41 MPG Jetta TDI, the new Audi A4 (or 5 for that matter), even the Jaguar XF would all, in this scribbler's mind, be strong and more practical candidates, and there are others.

The automotive press in this country, like the industry itself, needs to tune in to the people who count: the people who buy.

Mr. GM goes to Washington

Mr. Wagoner, the CEO of General Motors apparently said that GM's woes were largely due to the credit crisis and Wall Street, last week during congressional hearings. And here we were, thinking that GM's woes were caused by the production of cars that did not sell, and SUV's that are no longer the market darlings of yore. Silly us.

'Nuff said.

Sayonara Mazda.

Ford announced yesterday that it was selling most of its stake in Mazda. This is a shame for a number of reasons.
First and foremost, because Ford has invested heavily in turning Mazda around from a losing automotive also-ran, to a stunning success. Mazda now has a competitive array of attractive vehicles and owns the segment of Asian "sporty" vehicles.
Second, the timing is bad. The shares are worth less than they were last year, for instance. Sadly, this is a good way for Ford to raise much needed cash, and is a smart move right now. It also reinforces the view that Ford is a far more visionary company than GM. Having this ace in the hole may be the difference between perishing and surviving, even is it is being sold cheaply.
Thirdly, Mazda has arguably benefited from the Ford stake in it's business, far more than Ford ever did. Ford vehicles serve as basis for several Mazda vehicles: the Tribute is a Ford Escape, The Mazda pickup is based on the Ford Ranger and the snazzy CX-9 is based on a Volvo platform, as is the hugely successful Mazda 3.
The question that comes to my mind, however, is how come Ford made such a huge success with Mazda, but failed to learn form this exercise? Perhaps it was because Mazda is not a family enterprise, and the experts were allowed to run it - and save it. Ford has shown signs that it is willing to remove the family from every day running of the business but the question is, is it too little too late? Time will tell, but this blogger is still confident that Ford is in the best shape of the not-so-big three to weather this storm.

Talking of Speeding

So, just for once, let's ruminate on one of the unintended consequences of driving, the speeding ticket. Like millions I have had my share of these (2 to be exact), and the police have always treated me with respect. In one case, I was doubtful that the policeman even had his radar detector on, and in the other case, I was caught fair and square. In both cases, I paid the fine and swore at myself.
In the US, all but two states allow the driver to use the radar detector. This is a tacit admission that the speeding game is a game of cat and mouse. Most police officers will allow some leeway with the speed limit but some will not. Some roads that are long, straight and downhill have ridiculous limits like 25MPH, while in some areas narrow roads with houses on either side are regularly posted at 45 or even 55MPH. The rules are posted, and are clear, but the logic and the application of the rules is obscure. Perhaps deliberately so, to our benefit.
Years ago, the police in Britain had an unwritten, and today, politically incorrect, rule. If you were speeding in a sports car capable of that speed, and you looked like a mature, sober adult, they would not want to stop you. If you were in a delivery van going at 75 wearing a leather jacket and were no older than 19, you were a goner. Of course, the bureaucracy got wind of this, and now the UK is one of the most ridiculously repressive driving regimes in the world. Your speed is monitored by camera, radar and even stopwatch between highway toll booths - if you make it to the next one in less time than they determine to be legal, you get a fine. In short, the British police have gone from discerning individuals to revenue collectors. Even Jesus was not keen on those guys.
So it is a game. The rules are clear, but you may take precautions against getting scored upon. The radar detector levels the playing field a little. Every situation is different but to some extent, our system recognizes that. The rules are clear, but unlike Britain, our rules are guidelines for good and safe driving behaviour. They can be enforced rigorously or in a lax manner. The problem is, we never know which. As any good psychologist will tell you, this is a recipe for behavioural success.

Are We Really So Capitalist?

This week saw the sad spectacle of Automotive CEOs trudging sheepishly up the steps of the Capitol to ask for money to save themselves. I recall a similar scene in 1980 when Chrysler did the same. Now they are all there.

In retrospect, Chrysler then was different. Lee Iaccoca had big ideas and was hugely successful with a new and popular car lineup and later, the debut of the minivan. That things have gone so awry for Chrysler is a round condemnation of the management post-Lee.

Of the others, let's start with Ford. As I have stated in the past, I think of the not-so-big three, they have the best chance to survive. They are strong abroad, and are moving quickly to shake up their product line in the US to make it appealing in a $4 a gallon/recessionary world. Gas prices are down temporarily but they will go back up, and in a recession, people that do buy cars are going to be looking for economy, safety and flair. Ford offers all three in droves.

GM is another story. In a typically dysfunctional move, they announced that they are cutting back drastically in new model development. Perhaps they think their current lineup has been so very successful that they can afford to take a rest. They are going down the road of no return, winding down the shop, disconnecting the utilities, well, you get the picture.

Chrysler, if I were a betting man, could maybe recover with another bailout. They have some attractive new trucks, they have finally realized that quality and comfort matter, and they have always had a pretty good design shop (since 1980 anyway). They own Jeep, which despite having diluted its brand with the introduction of "soft roaders" could survive as a smaller brand.

However, they too have precious little in the pipeline and need an injection of cash, pronto.

But the real question, the 600 pound gorilla in the room, is should we bail out companies that have been so mismanaged? The argument that Detroit is too important to let die, is a fallacy. In a market economy someone will still need to make and sell cars to and in the US. There will be huge pain in the short term, but maybe the economy needs a reshaping. America will have to prove again that it can make cars and supply quality parts to do so. But to keep bailing out companies that insist on failing is to waste money on a truly titanic scale.

Of War and Cars

This year marks the 90th anniversary of the end of World War I. My Father's older cousin died in that conflict, along with another 9.5 million soldiers and 10 million civilians. The "war to end all wars" did not of course end all wars, and sadly, this horrendous show of man's callous inhumanity is quickly fading into the past.

If you look at the scratchy, grainy movies and photographs of that conflict you may be struck by the fact that there are horses and carriages used to transport man and materials, and most men appear to be on foot. It was the conflict that saw the invention of the tank and armoured car (the latter supplied, for the British by none other than Rolls Royce! The British have always had class). Toward the end of the war, trucks and motorized ambulances were used.

The problem with motorized vehicles of course, was the terrain. Muddy fields and rough terrain are not really suited to heavy, underpowered, wheeled vehicles. The early tanks themselves had difficulty in the ubiquitous mud and steep bomb craters.

After the War, people widely believed that the automobile was here to stay. Henry Ford had been cranking out the Model T since 1909, but in Europe, it was still regarded as a rich man's oddity until thousands if not millions had had the chance to actually ride in one. It is hard to imagine the astonishment of a young French farmhand recruit, accustomed at most to a horse-drawn cart, first riding in a vehicle that had springs and required nothing more than a few cranks of a handle to get going at a speed much faster than he or any of his ancestors had been in their lifetime.

In less than a century, the automobile has given billions of people a mobility and independence that their grandparents could not imagine. Today, suburbia would be an impossibility with out the internal combustion engine (or as Churchill famously called it, "The infernal combustion engine").

If ever there was a silver lining to the most terrible of obscene tragedies, perhaps the development and acceptance of the automobile and its liberating effect on humanity, might qualify.

Chrysler and GM: The Folly Continues

The papers are still rife with stories about a possible merger between Chrysler and GM. As I have said in the past, this merger makes almost no sense from a model line up point of view, and this was confirmed by a source who recently reported that the new company would consider selling some lines off, like the Dodge Ram pick up line. Naturally. They have completely overlapping and competing line ups in this fast shrinking market.

This kind of shallow thinking is what got Detroit - and especially GM - in trouble in the first place. Firstly, Dodge has just launched a brand new (and vastly improved) lineup of Dodge Ram pick ups. The Chevy/GMC pick ups were redesigned about two years ago. But sure, sell the newly designed models.Who will buy the Dodge Ram product lineup? Not the Japanese. Toyota is still nursing a gunshot wound to the foot that it took by launching the new full size Tundra pick up amid rising gas prices and a declining economy. Nissan launched the Titan in the same segment some time ago. The Koreans have their hands full. Kia launched a full sized SUV last month (need I say more?) and Hyundai, try as it might, has trouble being seen as an upscale car maker.

The Europeans are unlikely ever to want to get into the full size pick up segment in meaningful quantities. So, I ask again: who will buy the Ram line? Indians? Maybe. Mahindra and Tata are itching for an "in" into the North American market, but Tata has already bought Land Rover and Jaguar, and will have its dance card full trying to fix these brands in the US for the near future at least.

So while selling a vehicle line sounds wonderful on paper and makes a great sound bite, it is little more than that.

GM is really in a desperation samba, looking for cash at any price and Chrysler's stash looks tempting. But the cost of integrating the two companies would eats most - if not all - of that cash in the medium term. Cerberus of course, is still the big winner if this comes off, having washed its hands of Chrysler and gained GMAC to boot.

GM needs clearer thinking and some calm. Current management seems lost and desperate, and has lost sight of the real problems, which include years of product and quality neglect and attention only to profitable lines, while failing to turn unprofitable products into winners.

Only a herculean effort by a competent management team can save GM at this point, along with a healthy bailout. As of today, it has neither.

The Little Car That Could.

As you drive along the nations Interstates and main roads at rush hour, it is always interesting to see who is driving what as they go to and from work.

The days of commuting alone in a huge SUV are looking so last year. Then there are the sports cars whose 0 to 60 times are less than the time it took you to read this sentence. Of course, the average speed at rush hour is about 15 MPH and the constant changing of the heavy-duty manual gear box have given your legs a version of carpal tunnel syndrome. There are the spartan econoboxes that are increasingly being driven by smug middle management types, who look like they are doing their thing for the environment - and want you to know it. There are the luxury imports that have all the amenities, including the stiff sport suspension, ideal for the off ramps.

What is missing from this picture? What is the holy grail of the driving commuter? Well we can start by saying that everyone likes a quiet interior. A decent sound system with Bluetooth? Certainly! Room for four without the folks in the back having to chew their knees would be nice. An economical four cylinder engine that is responsive at the same time is a must have. A decent top speed with quiet refinement, please. A trunk that fit the groceries or the bags of the missus, the kids and I for a weekend. Oh, and it must be fairly compact for those small parking spaces at work. It does not have to have a top speed over 95 MPH because if you ever go faster than that you won't need a car for quite some time, where you will be going. However, 0 to 60 in about 6 seconds would make this a great ride for darting around in traffic.

To make the American consumer to purchase a car like this, it would have to have some cachet, a certain badge snobbery, so we are talking Lexus, Infinity, Cadillac or Lincoln - at least. The point is this. There are millions of people in this country who drive sedans that go way faster than they will ever need, cost way more than they can really afford and consume too much gas for their budgets. These cars can come with suspensions that would be great at Le Mans but are pretty hard for Le Butt, and will never be put to good use. They come with many systems that look cool (like voice activated anything) that most of us will never use regularly.

So the bottom line is this: if someone fairly prestigious would come up with a semi-luxurious vehicle that was easy on the eye, ear and wallet, was economical and had a dash of class, they might have a winner.

There are some promising signs in this direction. Both Ford and GM are allowing four cylinder versions of their mainstream sedans (I am thinking Fusion and Malibu here) to be equipped up to the eyeballs with features previously available only on the six cylinder versions of these cars. But what we really need to have the manufacturers look toward Europe, where many of the attributes I have listed have been a given for years,and see what we can do to bring style and utility back to the daily commute.

Food for Thought from the WSJ.

This weekend's Wall Street Journal has an excellent article by Paul Ingrassia entitled "How Detroit Drove Into a Ditch". If you are interested in the automobile industry this is a must read.

Kerkorian and Ford: The Gambler Takes a Hit.

In the last 24 hours, much has been made about Mr. Kerkorian selling Ford shares. Why? He is a big investor. Note I did not say a savvy investor, however. And I did not say a huge investor. This week he cut his owners hip from 6.43% to (gasp!) 6.09%. It represents a huge sum of money and he took a bath, but it does not mean he is selling anywhere near a majority stake in the company.

So what makes his exit from Ford a harbinger of doom? I have no idea. Remember this was the man who donned his cheer leading sweater and megaphone and pushed for the Chrysler / Daimler deal when he had a large stake in Chrysler. Then he bought into GM and pushed for GM to merge with Nissan/Renault. He failed to get the GM management to see his point of view and went into a huff and walked away. Now he is walking away from Ford, because....who knows? Clearly he is no success story when it comes to investing in Detroit - perhaps it is a good thing that he is walking away now so that Ford executives can keep their focus (pun intended).

Mr. Kerkorian made his millions in the gambling industry and he is now having to dig into that fortune in order to dig himself out of an automotive hole. There is a lesson for all of us in this: Stick to what you know unless you are willing to give yourself a very expensive education.

Car Supermarkets Far Off and Far Out?

No and yes, respectively. GM's continuing fascination with a merger with Chrysler which this blogger has strongly criticized has now spread speculation that the companies could consolidate dealerships. This is of course tacit recognition that the car market has become, in many segments, comoditized. It is only a question of time before someone wakes up to the fact that selling cars in exclusive dealerships is a luxury fewer and fewer manufacturers can afford and more and more shareholders should question. Besides which, the old argument that specialized dealerships "know the product and are loyal to the brand" is bull excrement. Any person with a modicum of research in their head can walk onto the floor of any showroom in the nation and instantly confound the sales person with a few rudimentary questions about the vehicle on the floor. I once visited a Ford dealership in Cincinnati here the salesman had difficulty in identifying a Ford Escape versus a Ford Explorer. Dealerships are going to have an increasingly hard time justifying their existence.

Let's look at the car purchase rationally. If I am in the market for say, a minivan, does it make sense for me to spend days wondering around different dealerships, haggling with different sales people and financing companies, or does it make more sense to go to "Joe's Mini Van Market". There under one roof I can see a series of minivans, from several companies and compare them. I can see features I like or don't like and quickly choose the one I like best.As the idea catches on, soon "Joe's Market" will have a minivan department, a pickup department, a sedan department, etc. All under one roof. Paradise!

For the manufacturers it means tremendous efficiencies as parts are shipped to Joe's Market based on computer models that show how many vehicles he has sold, and what they are likely to need in the first, second and third year of warranty. Prices would be have to be competitive and the whole archaic process of dealer incentives, hold backs, etc. would go away in favor of a fixed commission for Joe, with perhaps bonuses for vehicles sold. Saturn's idea of "no haggle pricing" would be a welcome innovation, with sales at different periods of the year. It would be Joe's headache to deal with salesmen and the public could easily opt for the best vehicles at the most competitive prices, with a margin for personal tastes, thus making manufacturers more efficient by being able to rapidly hone in on what the public wants versus what they are selling.

If this sounds like it makes sense, it does. It is essentially what happens every time you go to a supermarket or Best Buy or Sears. In fact, the question arises, why has someone not thought of this already? Well, for one, the middle man, the dealership, has a legal leg to stand on, against the manufacturer, if they opt to abandon their dealership network in this fashion.

But how exciting would it be to see Chrysler and GM started selling their vehicles through open markets like the one described above? How exciting would it be to walk onto a showroom floor with competing vehicles side by side?

If you hold shares in an American car company, it may time to start asking questions about how much the dealer network actually costs you as a shareholder, and to ask "why are we insisting on using a sqaure wheel when every other consumer product has already invented a round one?".

Has The Era of European Luxury Sedans in the US Ended?

There will always be a market for luxury European vehicles in the US. However, the recent downturn in the economy and the prices of these vehicles, fueled by unfavorable exchange rates, have got me thinking.

In fact, what I predict is that demand for the lower end of these vehicles as well as their SUV's will begin tapering off as younger buyers begin to realize that some Asian brands, while not as exciting to drive, are in fact just as good, and have fewer negative compromises (more comfort less handling rather than great handling and rock hard suspensions for example). And let us not forget the domestic brands, that, while not having the cachet, have produced some very fine automobiles, of late.

Yes, Dad, owning a BMW is great but as I drive to work, I don't want to count expansion joints and potholes with my rear end. And I don't need a car that will rocket me from zero to eighty in 8 seconds, if my average commute speed is 25 MPH. And I don't need another ticket, as I test out the top end on the Interstate. All this comes under the title "nice to have" when money is short.

Small is In, Prices Low, Don't Buy Now.

The Wall Street Journal reported today that car makers are increasing discountes on smaller cars. Clearly a sign of the times, since if any car is going to move off the lot, it will likely be a small, gas sipping, low cost model. People simply are not going back to the big SUV's and if the current economic problems persist, they may decide to stick with what they have or, if they are feeelong flush, snap up a decent used car at a great price - there are acres of good used cars at fire sale prices right now.

If you ask me if now is the time to invest in a new car, I would still say no. Here is why:

- If you think that dealers are discounting 2008 models now, wait until February. They'll practically pay you to take the car.
- There are a host of new models, some of them substantial improvements over the current vehicles, coming on line in 2009-2010.
- You absolutely want to avoid debt right now. If you have cash, and have to buy a car NOW, go and look at a used, low mileage model. With a warranty.

Actually, if I needed a new car right now, I would lease one for 2 years (if I could find a lease) or buy a used vehicle that will get me through until 2010. At that point, the market will be flush with new models, hopefully we will not be in a depression (!) and you will be able to choose a model substantially improved over what is available on the market today.

GM & Chrysler to Merge? Chry-Mo!

A reader contacted me late last night to give me the news that appeared in Today's Wall Street Journal, about the talks between GM and Chrysler about merging. I spent the last 12 hours ruminating about this, and, between irritation and laughter, I decided I had to jot down a few ideas about this rather fuzzy idea.

First, why do companies merge? The idea that you merge with an equal to produce a company twice the size has long since been discarded. You can merge to take advantage of synergies, improve finances for both companies, increase competitiveness, pool resources to make R&D more cost effective....you get the idea. Not everyone will agree, but I think you have to have at least 3 of the above good reasons in order to merge.

Now, lets look at some of the fundamentals, which, in the automotive industry begin and end with the product line. Both Chrysler and GM have developed Johnny-come-lately retro muscle cars to compete with the Ford Mustang, which has been a big hit.So right there, you have two products on which you have spent good cash developing, competing. Chrysler is in the process of rolling out its redesigned line of Dodge Ram pick-up trucks, and GM invested heavily doing the same thing almost 3 years ago. In the SUV world, nothing is selling, but GM has a better lineup of full size SUV's and they both have recently launched a slew of small crossovers. All that development money would be lost because if you merge, some - if not most - of those vehicles will have to go. In the sedan lineup, there are synergies, if only because Chrysler made such a mess of the Sebring/Avenger launch, with a sub-par product. Still not convinced? Look at Hybrids. Both companies have rushed hybrids of their big SUV's onto the market. Now go see how similar the technology is. Certainly not identical. Now think about how much money has been spent and how you would decide about which technology to adapt and how to service these vehicles. Inventory costs for the new company, which will have to continue to service all of the current lineup, will be staggering.

On an international scale, I do concede that Chrysler has struggled to gain a relevant foothold anywhere but the North American market. In this sense, GM's worldwide operations might benefit the Chrysler side. But GM is in trouble in Europe, and car sales are slowing everywhere.

Of course you will produce a smaller company, but the hope is that by some miracle, all this downsizing will produce more cash and a more efficient operation. It's a bit like a zoo deciding that since they both eat meat, it would be more efficient and cost-effective to make the crocodile and the lion share a cage. Neither will be very happy. I doubt if more people would pay to watch them just because they share a cage. Yes, the zoo will have temporarily lower costs, but eventually one or both of the animals will die, and you have nothing to show but an excuse to the tune of "it seemed a good idea at the time".

Finally there is the slew of legal issues that will arise. Chrysler still uses a slew of Daimler Benz technology which our surly German friends will be most reluctant to hand over to Chry-Mo. The dealers will be in endless squabbles about who gets what and how much.

I am sorry, I just don't get it. Who would a merger benefit and how? Under the details leaked, GM would get Chrysler and Cerberus, the current masters of Chrysler would get GMAC, the much weakened auto lender that recently dabbled in mortgages.Nice timing GMAC. Cerberus would be the big winner. They would get a quick and clean exit from the car manufacturing business, which they should never have dabbled in so heavily anyway, and will go into turning around a large financial venture. As venture capitalists, they have the expertise to try this in a credible fashion. GM on the other hand, would be landed with the problems of sorting out not only their own headaches, but Chrysler's as well. Since the current management of GM has done such a sterling job of sorting out GM's situation, why not add in another car manufacturer? Surely that will make things better? Sure. Now, about buying that Brooklyn Bridge....

This merger benefits only one party, Cerberus. If they can convince everyone else otherwise, and pulls this off, I might ask, check book in hand, if they need more investors.

Chrysler Comes a Cropper

"Coming a cropper" in English slang roughly translates to "taking a hard fall". Indeed Chrysler has taken a hard fall, some of it through no fault of their own.

Take for instance, their purchase and then sale by Daimler Benz. In theory it was a marriage made in heaven. Mercedes could give Chrysler access to engineering technology and Chrysler could give Mercedes the sharp design language it was lacking. What ended up happening was a Vaudeville farce, with Mercedes building the (then) all-new ML in the US (instead of using Jeep's proven expertise in this area) and Chrysler proving itself achingly slow to adopt new engines, engineering and forward thinking. All this run by a heavily mustached German who insisted on making appearances in their advertising as a kind of humorous German grandfather figure, which is kind of creepy.Both companies suffered, although Daimler came out of the deal with a less scathed reputation.

Now that Chrysler has been bought by private equity, there was, for a while, hope that Chrysler could be turned around. With the current economic woes, however, this is increasingly less likely. Yet some of the attractions that led the current masters to close the deal are still there:
* Chrysler arguably has the leading edge in minivans, which they invented. Their products are stylish, comfortable, innovative and affordable.
* Jeep still has an attractive halo for a variety of demographics and some are actually used (by a few) for what it is best at: off-roading.
* There a couple of very decent sedans in the lineup (the 300 and the Charger)and a very nice coupe, the Challenger. The rest are frankly unattractive.

There have been serious efforts to improve quality, notably with the interiors, but the poor quality and dowdy interiors of the past will take years to be erased from the minds of the buying public. Add to this a shortage of new vehicles in the pipeline, and the future is less than rosy.

So what can be done? If I were the owners of Chrysler I would be looking hard at selling the company off piecemeal. Jeep, for example, would make a wonderful partner for Land Rover in the US. Both make products aimed at being as capable on-road as off, and both have failed to penetrate each others home markets in any significant way. In addition, the dealer network for Jeep would be a great way to get more Land Rovers out in front of consumers. Tata Motors take note.

Volkswagen, who is just beginning to build a minivan using Chrysler minivans as a base, might be interested in buying the minivan business. After all, although Chrysler invented the minivan, it was Volkswagen, with their rear engined bus of the 50's and 60's that planted the seed. This would link Volkswagen back into a market it once dominated: people-moving vans.

The Dodge name holds little cachet in the market, so their products would probably be difficult to pass on. For years they have been trying to revive the name as a muscle car legend. The new Challenger is a credible step towards this goal. The problem is, between the high gas prices (temporarily low due to current hardships), poor economy and frankly The Grim Reaper, who is slowly robbing the client base of people who remember the muscle car era, this strategy may be irrelevant. Toyota, which has lacked a serious sports car in the US for some time, might be interested, if they could figure out a way to sell the vehicles with Toyota street cred., i.e. quality.

Ford, who has lacked a credible large sedan for some time may want to integrate Chrysler's outstanding rear wheel sedan platform into their lineup, but they do have a certain lack of, um, moolah.

All this would hardly make a dent in the price that was paid for Chrysler. But at some point, someone will ask the fateful question: Do we cut our losses now, or wait and take our chances? I know what I would do.

Why Ford may Make It

In all this turmoil we are currently suffering, and government backed loans not withstanding, there are real concerns about the future of the big three. The private equity company that purchased Chrysler is fast finding out that running a car company is pretty complex and difficult. They also should have done their homework regarding the product pipeline and the consumer perception of Chrysler vehicles. It is fixable, but not any time in the next 12 months.(Chrysler will be the subject of a future blog).

Ford, however, is different. They are currently doing well outside of the US, which indicates that they have some pretty good, market-specific vehicles in other countries. Ford is planning on bringing some of those vehicles here in short order. The 2010 Ford Focus is a fine car, and the Focus line in Europe has been selling briskly. The other vehicle to appear soon is the Turkish-made Ford Transit van.

Ford is making itself a very interesting niche in the market. Young people will love the 2010 Focus (some of the features on this vehicle - such as Sync, a Ford/Microsoft developed mobile entertainment and communications software - are already available on the current US Focus, and are a hit with young consumers). It will not be seen as "so 20Th century" to be seen in a Ford product. With the weakness of the US Dollar, imported vehicles from Europe are still cool but increasingly out of reach for this demographic. Chalk one up for Ford.

The Ford Transit is a vehicle whose time has come. Small businesses will simply have to wean themselves off full size vans that get 10-15MPG in the city (the same goes for pick-up trucks by the way). The vast majority of small businesses will be able to get by with a stylish, small and fuel efficient van. They will have to - current decreases in oil prices are still making for comparatively expensive gas, and the business owners will soon discover the advantages of smaller engines in a recessionary economy.

The basic question facing the big three is do they have enough cash to last until their new vehicles are available? Ford has a good chance. They have some profitable operations overseas which makes them, in theory at least, a good candidate for outside investment. Ford however, is doing something very clever. They are getting out of the commodity business. By introducing niche, different vehicles popular elsewhere, they are going after a clientele of savvy consumers who want something different that is cool, and in the case of the Transit will save them substantial amounts of increasingly scarce money. They are, in short, betting that there are educated, savvy and cool consumers out there who will buy a product that is good value for money, cool and has a certain flair. If you want a vehicle that answers that description stop by a Ford dealership - next year.

Has General Motors Finally Hit Paydirt?

GM has long been casting about for a formula that will get people to actually think about wanting to buy their cars, instead of buying them because they are being discounted. It may be that they have finally hit paydirt.
Witness the new Malibu and the Traverse. Fairly attractive design on the outside, right? Not quite "same as next" and sufficiently different to pique your interest in the traffic that is America. The interiors, where the buyer/driver will spend most of his/her time have made quantum leaps over vehciles produced until recently. Tasteful chrome accents and materials that indicate more than a few moments went into their selection make for a good basis on which to at least visit a showroom if you are in the mood for a new car.
The question is, of course, will it be enough? Having finally figured out the road to the heart of consumers, there are still long journeys to be made on the road to perfection. GM is running low on cash (although the automotive industry guaranteed line of credit that Congress approved will help somewhat) and time will be needed to change consumer perceptions. GM does'nt have much of that either.
For this blogger, GM will need to reduce the number of models it offers - fast - and concentrate on making the current models American favorites by (gasp!) talking to consumers and grasping the fact that buyers want nice interiors and exterior styling that at least say "I have taste". Unless I see that in the existing lineup (excluding the Malibu and the Traverse) I would say look elsewhere if you want a car that will come from a company that has a future as long as the car warranty.