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.