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".

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.

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.

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.

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.

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.