GM - Like a Rock.

Several years ago, GM had a tag line in their advertising for trucks and SUV's: "Like a rock". How ironic that years later this could be applied to their fortunes: sinking "like a rock".

As bankruptcy looms as early as next week, bond holders are being vilified. Why? Because they chose to buy bonds from-or make a loan to - GM, who promised to pay them back? The nerve! Imagine loaning money to a former blue-chip US company and expecting them to pay it back!

The numbers are staggering. GM will need nearly $100 BILLION to keep viable. At what point does capitalism take over and we cut our losses? No-one is indispensable and that goes for corporations too. For years, we were eager to tell foreign countries to open up and let their markets grow through capitalism. That works fine there, as our companies gobbled up local concerns or ran them out of business - entirely legally and through the forces of capitalism. Now the shoe is on the other foot, we are sinking every dime we have - and don't have - into ailing automakers insisting that we can't let them go out of business. Why not? What's good for the goose is good for the gander.

Letting GM go under might be very painful. But it has been a while since we have felt the sting of real pain, and as they say, no pain no gain.

Chrysler: Fiat or Bust.

As you all know, Chrysler filed for bankruptcy last week. The reorganization looks like a nightmare from 1970's Europe: Unions in charge, and a minority shareholder who hopes to salvage the company. Fiat is in a massive global power grab which includes GM's German Opel and British Vauxhall units and may even include Saab. You can't say the Italians are not daring. The British and Germans are reluctant, for purely xenophobic reasons, to accept the idea of Italians running their major car manufacturers. They are also afraid of job losses, which may be inevitable anyway, if GM goes the way of the Dodo bird. The latter may be the reason that Fiat agreed so readily to the huge stake the UAW is taking in Chrysler: if Fiat is good for unions in America they may be good for unions elsewhere - and unions count in this industry.

The question still arises if Fiat has the depth of management to take on such a huge spurt of growth. Chrysler alone has sapped billions from its last two owners, namely Daimler Benz and Cerberus. The red ink shows no signs of slowing for Chrysler. Years of sub-par quality, an ageing product lineup and deep discounts will take many years to remedy. Yes, fresh new Fiats will increase traffic in showrooms, but if these products do not shine, they will merely add to the woes of Chrysler. And if Chrysler's passenger car offerings continue to age and decline, there will be little point in attracting car buyers to showrooms filled with new Fiats and old Chryslers. The Fiats MAY sell, but the Chrysler woes will continue.

For Fiat, the current power grab is an all-or nothing gamble. As such, little changes for Chrysler except that it has one last, tenuous lifeline.

Fiat's Big Power Grab

Fiat is in one of the biggest power grabs in history in a huge gamble to become a truly global automotive giant. You can't blame them for trying. The time is ripe for a shrewd player to grab huge chunks of the market - especially if it is free, or almost free. Let me explain.

Fiat wants to get a chunk of Chrysler with no money down. Given the synergies here, it is not a bad thing for Fiat to want to do, and for Chrysler it appears that it will save billions in the development of small, trendy vehicles, which Fiat already produces. Fiat is eyeing the Jeep brand which would bring showroom traffic to their dealers worldwide. Rugged SUV's have never been Fiat's forte: at best it has produced some beefed-up versions of its regular lineup, and they are, well, beefed up versions of their regular lineup. Fiat may make a killing selling off the Chrysler and Dodge brands in the future - especially if they come free.

The surprise, announced in Saturday's Wall Street Journal, is that Fiat is now eyeing Opel, GM's German brand. This could become the Buick of Fiat: a soft line of semi-luxurious (and practical) vehicles placed somewhere between the quirky and cute Fiat brand and the raging sports cars of Alfa Romeo, Lancia and Ferrari. Fiat could probably drum up some money from Germany and the EU to make this happen, especially as the alternative is rather more unpleasant.

So a free Chrysler, a subsidized Opel and a company that grows exponentially for very little money down. the only risk for Fiat is hubris: in order to make this work, Fiat must admit that its management may not be up to the task, and may have to call in reinforcements from the long list of consultancies and unemployed executives that are already hovering at the side door.

If You Have a Lemon, Is It You or the Car?

Years ago n Brazil, I had a client who had an Alfa Romeo 164. I questioned him as to whether the car was reliable. He said it was extremely reliable because he said he read the owners manual. By way of explanation, he told me that the owners manual states that you should never drive off until the temperature needle moved off "cold". Few drivers have the patience to do this, so the vehicle broke down, and owners blamed the car, when they should blame themselves.

I have no idea if he was being truthful, but I had a similar experience this week. I own a Land Rover, and the passenger side windshield wiper stopped working in the middle of a rain storm. Cursing the lack of reliability of European vehicles, I took the car into the dealership. the wiper was fixed with the flick of a cover and the turn of a bolt. It seems that this happens in winter sometimes because the wiper sticks with ice accumulation. Rather than break the motor, the wiper is designed to unscrew itself when it encounters too much resistance. It will often loosen over winter but the fix is simple - and free.

You see, we, as a nation, are notorious for not reading the owners manual of our vehicles. When a German buys a car, they read the manual cover to cover. The British are the same. We, on the other hand, just expect everything to be simple and straightforward and project the blame on the car if something unexpected happens. The Europeans make some pretty ingenious cars, often using a design which must be used around the world from Africa to China, Latin America to Alaska. That is a lot of design criteria and it often means that avoiding costly and complicated repairs in the Arctic Circle (as in the case of my Land Rover) is a priority, rather than conforming to rigid American norms and expectations. Sometimes reading the owners manual is pays off.

Chrysler and Fiat - An Opera

Ironically, it may be that the car maker that makes arguably the poorest quality vehicles made in the USA, which is joining Fiat, whose quality has always been suspect, may in fact be the basket case that gets itself out of hot water.

The current owners of Chrysler are resigned to getting nothing at all. They bet big, and lost, just like Daimler did with Chrysler. The difference here is that Fiat is betting nothing, and is understandably reluctant to put any cash in the deal. Given the last two affairs Chrysler has had, who can blame them? Talk from Washington demanding that Fiat put in cash is simply huffing and puffing at a brick house. If Fiat backs out, Chrysler is history and the politicos know that. They must ante up or quit playing, with predictable results.

The good thing is that Fiat may begin importing vehicles to the US soon, and make them here later. This would put foot traffic in Chrysler show rooms, where fresh design is about as prevalent as beef at a vegetarian convention. Fiat is no design wallflower, and their lineup could add some real flavor to Chrysler, and hopefully revive the fortunes of the Chrysler Design Department, which is being held hostage by the bean counters.

Chrysler has a life line, as does GM if it goes into bankruptcy. This should be interesting.

Obammie Get Your Gun - The Wagoner is Gone!

Finally! It took the President of the most powerful nation on earth, but the entrenched leader of GM, Rick Wagoner is gone! The only thing that is surprising about his departure is how long it took. GM has been a hodge-podge of problems for the last 8 years, at least. Despite much rhetoric from the GM management about how things have and are changing at GM, it is evident that the changes they are talking about - whatever they are - were neither profound enough or grounded on a firm reality check of the current situation.

Now Mr. Wagoner is a history, all eyes will be on GM. It seems evident, however, that the following moves will come about in short order, if the giant is to have any hope of (a) getting the bailout billions they are begging for and (b) survive.

(1) Drastically reduce the duplication in the model lineups. For instance, having essentially identical vehicles badged as Chevrolet's and GMCs is plain silly in the face of the current crisis.

(2) Reduce the dealership network.

(3) Reduce the number of brands. Pontiac lost its sporty image back when big hair was cool, and Buick, long on life support (but helped by vitamin Enclave) needs to go as the second luxury brand. Cadillac is enough.

(4) If you can't sell Hummer, develop it. Yeah, this is counter-intuitive, but Land Rover just celebrated 50 years of Hummer-beaters, and go-anywhere vehicles are still needed around the world. Go global with Hummer products and give Tata Motors a run for their money.

(5) Find out why people love certain models (like the successful Malibu) and hated others (Chevrolet Blazer, Pontiac Aztec). Develop. Repeat.

GM can turn around, with or without bankruptcy. But the question remains: does it have the internal willpower to do so?

Toyota and the Art of Veneration.

Toyota is deservedly revered in the Automotive industry. It has produced a quality product that people find attractive enough to buy and they have an extremely competent management. For many years, automotive publications started to blurt out praise as soon as they saw the "T" in Toyota. Yes, they WERE that good. As a consequence, word has filtered out that a Toyota is a good car, regardless of anything else. It has been wonderful and subtle marketing that has left the competitors in the dust.

Recently, there have been signs of problems, however. Toyota built a huge factory in Texas to churn out full-size pickups and the new Sequioia. The location of the factory, by the way, was not a coincidence - deep in the heart of Pickupland, the idea was to get hard core American Pickup buyers to get in a Texan Toyota. The plan failed big time. The plant opened as the pickup market faltered. There we some recalls early on. Then the Tundra based Sequioa was launched to yawns, as the bottom fell out of the large SUV market as well. The new Venza has been praised for its interior but pelted for its ugly exterior. There are signs that the fabled Toyota quality may be slipping as their ranking falls slightly in JD Powers surveys and others.

The point here is: Beware the media hype. Yes, Toyota does make a good product, but they, just like everyone else, are fallible. Sometimes the industry and its media have great difficulty in separating hype, fiction and genuine facts. Do you remember the 1980's? Japan could do no wrong, we should all learn Japanese, they are the new rulers of the universe. In the early 1990's it was Mexico: it was the land of opportunity, the government was stable, could do no wrong, put your money there today. The car industry and its media is as susceptible as and industrial sector to the art of hype leading to veneration. We can and should learn from successful companies and countries, but learning includes examining mistakes and missteps, and blending them into the whole canvas. By examining only the positive, we create hype which serves only those who are hyped, not the community (consumers, industry and media) and produces a lopsided view of the market.

Technology and Technology Challenged.

There is no doubt about it. Technology in the automotive industry is a good thing: we are safer, cars are greener and passengers revel in entertainment impossible to imagine in the 1970's. There is a point, however, when the auto makers become obsessed with their own technology smarts and run amok.

The prime example is BMW's i-drive. When it was first introduced, you had to labor through screen after screen in order to change the radio station or the volume setting, using a knob on the center console. The latest version is more user friendly but still heavily criticized in the press. Why? Because no-one at BMW asked "why?" that's why. It gets to a point that a simple button is a better alternative to a screen. It has tactile qualities that allow you to feel around for it and punch it without taking your eyes off the road, for example. "i-drive" is complication for complications sake, and as such, reflects the arrogance that exits in BMW's management.

The other piece of technology that sounds awesome but in practice is hardly ever used by the average consumer is voice activated operation. When you see it in advertisements, you see a person crisply ordering the machine to carry out tasks such as calling Mary or taking the happy driver to Zing Ho's House of Dumplings. Having had cars with this feature, know that you must speak in a very specific language that takes up pages of the owners manual, and still gives you answers like "System does not recognize that command" and "Locating Zingers Mouse Droppings". Again, sometimes simpler is better.

Technology for technology's sake is pointless. We can all appreciate improved safety and emissions, an love our high end stereos. But adding gizmo's because they are cool is not a long term trend and is therefore, a waste of time and effort. Does anyone still have a car with a push-button transmission? Chrysler tried that back in the late 50's and it not exactly become the norm.

First, if you have been following this blog, please forgive my lack of writing. I had 2 eye surgeries in the last 12 days, and I have missed the chance to blog as a result. But, like the proverbial bad penny, I am back.

Before surgery, I made my annual pilgrimage to the Cincinnati Auto Expo '09. The mood was subdued, and some manufacturers, such as Mitsubishi, did not show. This bodes ill for the future of the event. Still, there were some interesting vehicles on the floor, and frankly, the opportunity to get up close and personal with so many cars is a gear heads' paradise.

One stand, GM's (and yes, I have been accused of GM bashing, but hey, it is an easy target for my feeble mind), attracted my attention. There was the new Pontiac Solstice coupe. Attractive outside with the sadly expected cheapo interior. This got me thinking about a few of the product missteps that I have observed or read about involving GM products. Let me give three examples:

(1) The Solstice Coupe. BMW just pulled a similar coupe from the market, the Z-4. It did not sell. Why does GM think a Pontiac will do any better? Because it is cheaper? The logic here is that garlic-flavored gum won't sell at 2 dollars a pack, so we will sell it at 1 dollar a pack. It's the garlic flavor, stupid!

(2) The Cadillac XLR is a $100,000 dollar sports car. When Car & Driver tested it after it was launched, they observed that after a rain storm, if you opened the trunk, any water on the trunk lid instantly emptied all over your Louis Vitton luggage. Who tests the designs on these cars? Somehow, I don't think that BMW, Mercedes or Jaguar would have put a car into production with that kind of flaw.

(3) The Tahoe Hybrid uses only electric power in reverse. What if you are towing and need to back up a hill? You can't. 'Nuff said.

Tom Gill, a local Chevy dealer has recently been on television here touting the "buy American" sales line. There ARE good, even great American cars out there. The trouble is, GM does not make enough of them. The product snafus mentioned above point to a far deeper problem within GM, and this writer is not convinced that current management is capable of the necessary change. Ron White, the comedian, said it best: "You can't fix stupid".

Apres GM, Le Deluge.

OK, so the Sun King never uttered those exact words. But the sentiment is similar. In a society dominated by the automobile and the industry that made it what it is today, a world without GM may indeed be as different as France without Louis in the 18th century.

We should begin to think of a post-GM-and-Chrysler-as-we-know-them world. Things look pretty dire for them as they near the auto bailout hearings in Congress. This scribbler believes in two possible outcomes:

(1) The Obama administration originally talked of a $1 trillion package to stimulate the economy. This figure has conveniently been whittled away to $750 billion. Chrysler, GM and possibly Ford could be saved by say, a $250 billion package. You do the math. Maybe Mr. Obama's administration is going to walk the talk and save the jobs (read UAW) that helped elect him.
Or
(2) Maybe not. The possibility of ending decades of mismanagement, and products built for consumers with no eyes, one leg and an income of $55,000 in outer Mongolia, instead of the US middle class, might be too tempting for the free market thinkers in Congress. These politicians are not limited to the Republican party, either. There could be a groundswell of support for the idea of restructuring the auto industry by allowing at least two automakers slide into bankruptcy.

And what of Ford? The automotive press has been full of praise for Ford's future plans. The 2010 Taurus (not yet in dealerships) is getting rave reviews. The European Focus, due here sometime in late 2010, is getting rave reviews in Europe,and, if oil prices spike in a couple of years, could be a big hit here (and even if they don't, young buyers will flock to the product). And then there are a slew of hybrids coming out of Ford, starting now with the launch of the new 2010 Fusion Hybrid, rumored to be able to get 40 MPG in the city. If I were a betting man, I would buy Ford shares now. I might even fund them by bailing out of my GM and Chrysler shares.

Car Sales(people) in America

As any friend will tell you, if you are a gear head like me, you love to visit car showrooms, forever searching for that perfect deal. I respect sales people. It's how they make their living. I usually begin with "I am just looking, so I don't want to waste your time". If the vehicle genuinely interests me, I might ask some questions. If I am intrigued I may even start a discussion on price. As the owner of 30 cars since I was 18 (I am 47 now) my wife will tell you that too often, I end up trading in my current vehicle at a terrible cost (both financially and in terms of household peace).

Now, in exchange for my honesty and respect, I would dearly love to see the same returned in kind. Sadly, this is rarely the case. The problem usually arises at the "how much?" stage. The first question is usually whether you have a trade-in. This is a common negotiation tactic. Find out how much you can screw the customer out of in the trade-in, and then offer a "huge" discount on the vehicle itself. If you protest, they will tell you some guff about "local market conditions". Don't believe it. Stick to your guns, and demand the Kelley Blue Book trade in value. Beware of the knock-off "Black Book" value which usually shows values below the KBB listing. If the dealer refuses to honor the KBB value, head for the door. Now, heading for the door will usually produce a rush of "let me talk to my manager one more time" or "You won't find anyone who will use that value", etc. If it does not keep walking.

Once that little charade is over, you need to know the invoice amount of the vehicle. You can get this from the dealer, or if they prove unwilling , look into the service offered by Consumer Reports magazine. If the dealership is worth their salt, however, they will share the invoice price with you.Start negotiating at that price. Invoice Price already includes some "hidden" incentives from the manufacturer. Once, with a Lincoln dealership here in Cincinnati, I ended up buying the most expensive vehicle on the lot at a mutually agreeable price, mostly because, apart from liking the car itself, the Salesman was completely transparent about the pricing.

All this to give the dealership some money. I like Saturn's idea of no-haggle pricing (all though some report that this is eroding). It is a bold move, and one that American manufacturers are ignoring to their peril. American cars are fast becoming a commodity,and once this happens it is extremely hard to reverse the trend. Toyota and the German brands are notorious for being relatively inflexible on their pricing. It shows on their bottom line.

So, getting back to sales at dealerships. Please, end the games. Give us an honest price and give us an honest buck for our trade-ins. Stop the games. Open you books. Show us that we are both doing a good deal. It costs you more to have a salesperson lose an hour haggling to get to a price (and no sale afterwards) than to have me out the door with a new vehicle in half the time. Which is half the problem of the industry as a whole.

Of Chrysler, Fiat and Diplomacy.

Over the weekend, The Economist published an interesting article on the possible Chrysler/Fiat joint venture, along with a picture of the revived, succesful (and very attractive) Fiat 500, which Chrysler wants to make here.

It would be tragic if this sensible merger of sorts would fail to go through because of politicians arguing that taxpayers should not foot the bill for Chrysler to be bought out by "them darn furners". Oh please. We would have a global company which would continue to produce vehicles and parts in the US, and would produce more fuel efficent vehicles to boot. Jeeps would be sold worldwide by Fiat, which has not had a credible SUV in its lineup.

What SHOULD happen is that the American and Italian governments, motivated by self interest on both sides, should begin discussions on a joint bailout package, designed to create a truly global company. Aircraft manufacturers have done this for decades. The only caveat is that Chrysler may be too far gone to survive the negotiations.

If Chrysler does go under, this scribler will always look back at this as one of the great missed opportunities of the global automotive marketplace. And a lasting memorial to the hypocrisy of promoting globalization abroad but denying its benefits at home.

Chrysler & Fiat - Finally a Wedding to be Happy About!

The automotive world is agog at the news that Chrysler and Fiat are getting together. The latest news indicates that Fiat will get a 35% share of Chrysler, but stressed that it would not throw actual money at the venture.

This deal makes sense on so many levels. Firstly, and perhaps most importantly given the disastrous ChryDaimler affair, it is a meeting of the minds. Both Fiat and Chrysler are renowned for their design teams, and both have produced noteworthy designs in the last decade. The latest from Fiat, a remake of the Fiat 500 of the 60's and 70's (think Mini) is a popular success.

Chrysler gets access to Fiat's successful global distribution system. Fiat has made inroads into world markets by going local where it is able, and selling low cost vehicles to poorer countries, often assembled there. Chrysler gets to supply Fiat with upmarket vehicles in countries where Fiat has gained a foothold but has no "aspirational" or "halo" vehicles to its lineup. Fiat will also supply technology for small engines to Chrysler, which it badly needs.

Like any marriage, it is not a perfect union. Since we started on the "meeting of the minds" theme, there is one negative factor that both companies have to work hard to expel: Quality. Fiat owners have two moments of happiness, it is often quipped; one when they buy the car, and another when they sell it. Both Fiat and Chrysler have made steps in the direction of quality control, and certainly their vehicles are far superior to their ancestors of yester year. But the public memory is a long one, and the road back from the quality abyss is long and hard.

Then there is Nissan, the "Lady Camila" of the marriage. Nissan recently signed an accord with Chrysler to make it's light trucks and supply technology in other areas, including the development of a small vehicle for the US market. It happens that Nissan is also part of the Renault automotive family, and Renault is a direct competitor to Fiat in Europe and many developing markets as well. IF (and it is a big IF) Renault, Nissan, Fiat and Chrysler could be convinced to join forces, we would be talking about a global automotive powerhouse. But it would not come cheap, as the operations would have to be severely streamlined in order to eliminate model and market overlap. There is also the question of personalities, which includes some titans: Sergio Marchionne (of Fiat) does not suffer fools, and Carlos Ghosn (of Renault) makes fools suffer.

Still and all, this is the best deal Chrysler could get into. It breathes a bit of hope in an industry staggering under economic pressure. And for us car nuts, it means we will soon see Fiats back again in the US - however quirky they were, we always loved their Italian flair and they will make the automotive landscape a better place. Thanks Fiat! (And I never thought I would ever say that.....)

Detroit Auto Show - The Difference Between a Winner & a Loser

So, the most depressing Detroit Auto Show ever is upon us. To be fair, the whole scene is so depressing I have been reading about it less than I should because I am worried about my supply of Zoloft and Prozac. Still, one thing is immediately obvious. Ford has a plan. GM thinks it has a plan. And Chrysler wishes it had a plan.

Ford is going down the road of hybrids in a big way, with a view to a fully electric vehicle at some point. Whether or not this effort is aimed more at congress than at the consumer, only time, and the price of gas, will tell.

GM appears to be pinning its future hopes on the Volt. Like the name implies, this is a purely electrical car, which appears to have been extremely well developed. However, the MSRP is said to hover around $40,000 for its 2010 introduction. Unless gas hits $6 a gallon, my guess is that GM will have some trouble getting people to flock to show rooms for a $40,000 vehicle with relatively novel technology and that looks vaguely like a mix of a large Toyota Prius and a Chevy Malibu. This is a shame, since the vehicle actually drives extremely well, sources say.

Chrysler seems to be in disarray. They have a pretty sketchy future lineup. The Chrysler Aspen/Dodge Durango hybrid has supposedly been scrapped for 2010. Who is going to buy a one-year production hybrid vehicle? Someone please tell Chrysler to get a plan or start selling off divisions. Last month, while in south Florida, I noticed one Chrysler dealer who was promoting "buy one get one free". If you bought a Jeep Commander at full price, they would throw in a PT Cruiser for free. No, I am not kidding. If you took the time to read the small print as you rushed out the door, you would see that this offer applied only to new 2007 Jeep Commanders. Yes, you read right, the cars that had been sitting on the lot for almost TWO YEARS. Chrysler may be in worse shape, from a strategic view point as well as a financial viewpoint than anyone imagines.

Chrysler Oh Chrysler, Where Art Thou?

So, it seems that Chrysler is inching ever closer to the abyss. This is truly dissapointing, given the Chrysler should have been the poster child for bailouts. When Lee Iaccoca steered the company away from the abyss, with the help of a major bailout loan, he did so driving a series of new and clever vehicle designs (ok, the K-car was pretty bland, but it was revolutionary in that it introduced front wheel drive and smaller vehicles into the American mainstream of domestic cars). The initial lineup included a snazzy fastback, a european-inspired hatchback and the K-car. Chrylser then followed with the minivan, for which Mr. Iacocca has been nominated for sainthood by the Soccer Moms of America. With these vehicles, Chrysler got design cred on the street.

Interestingly, Chrysler let its truck lineup languish until around 1994 when the new Dodge Ram lineup appeared, and it too was a design hit. Profits form trucks and SUV's proved to be addictive, however, and this may have something to do with the demise of Chrysler.

Quality was never outstanding, despite revolutionary designs, and in the end, lower pricing did not trump consumer confidence. Belatedly, Chrysler has tried to improve these quality pecadilloes but on a shoestring budget and no cash, what can they really accomplish at this point?

There was of course the much celebrated (and then despised) "merger" with Daimler Benz. In theory it was a match made in heaven. Chrysler design for dowdy german vehicles in exchange for German reliability and engineering. But strange things happen when strange bedfellows get together. Egos, corporate culture and resentment spelled disaster. Chrysler did get some of the slightly past the "use by" date technology, including several bits of the last generation E-class engineering (Charger, 300C, among others) and CLK (Crossfire). The Germans, however don't merge well. Look at BMW and Rover. OK, they got the Mini and ran with it. But they got Land Rover and promptly introduced a BMW SUV, the X-5, instead of using the synergy to develop an SUV with off-road credentials.

The result is that Chrysler desperately needs suitor. The problem is, who is going to buy an ailing car maker in 2009? As I have scribbled in the past, Chrysler is a tasty cake in small slices, but no-one wants to take the whole thing home for fear of indigestion. My bet is, someone will be buying Jeep, and soon.