Montagues vs. Capulets. Crips vs. Bloods. ‘Vette vs. Porsche. How do I plead? Nolo contendere. Technically, I qualify as an "auto journalist." But I'm a lot more interested in the companies that build the cars than in the cars themselves. I just don't have quite the same level of fire as some of my fellow writers; so it's impossible for me to be much of a "car snob." Beer is a different matter.

One of the most important lessons I took to heart back in college: "life is too short to drink cheap beer." While I've tried not to be an arrogant bastard about it, I've made it my policy to spend the extra money to upgrade my suds. If no alternative is available, I'll stick to regular draft (life is also too short to drink light beer, ditto cans) or longnecks (as a last resort). I've held to this vow fairly tightly, except for one "guys game night." Sad but true: I drank Schlitz.

Right now, you're reacting in one of three ways: "Ewww!" "Huh?" or "Hey wait a minute!" You see, back in the day, Schlitz was the second-best selling brew in America, the "beer that made Milwaukee famous." Now it's an only-occasionally-made regional discount brew. And therein lies the tale, and the warning for the other guys on the Great Lakes.

Back around the mid 1970s, the president of Schlitz faced a choice. While his brew had national reach, he'd run up against stalling sales volume. Winning more market share would require a massive investment in advertising– that might not pay off. Instead, he chose to increase profits without growing his market share, with disastrous results.

Given the usual jokes made about American beer, you might be surprised that there are still corners that can be cut. These shortcuts mostly involve shortening the brewing process. In so doing, a brewery can produce more beer with the same equipment, thus reducing their costs and raising their profits.

The shortcuts done, and redone, Schlitz was riding high. According to their marketing, their customers couldn't tell the difference. Then things went to pieces.

It's hard to nail down exactly what started the slide. Philip Van Munching's excellent "Beer Blast" offers two reasonable guesses.  First, while you can't taste the difference between process A and B or D and E, you can tell the difference between A and E. Second, there were preservation issues (what he calls "snot-ridden" beer). 

Whatever the cause, the "retribution" was swift. Schlitz sales fell, forcing discounting. This led to further sales drops, which resulted in a drop from number two all the way to regional discount brew. At the same time, Schlitz' reputation fell all the way from "bad" to "bad joke."

The important lesson to be taken from this incident: once you drop into discount territory– selling on price and to the die-hards– there's virtually no going back. Oh, there's precious little money to be made in discount Hell.

How does this relate to the auto industry? Well, you could stick Budweiser in a list with Chevrolet, or Ford for that matter. These are powerful extremely mainstream brands with strong ties to grass-roots America. Historically, Chevy and Ford have been carefully priced to be affordable by practically anyone gainfully employed in the USA.

But the automakers now face the same choices as Schlitz: stick to your guns and watch market share erode, or cut prices in search of volume?

Lately, these car brands have been selling almost exclusively on price. They're falling into the bargain basement. Getting out of it can take years. Ask Hyundai, who aren't quite out of it yet. Or Cadillac, who fell in, climbed out, and are threatening to fall back in again.

Losing the last bit of brand cachet not only hurts the main brands, it threatens their "premium" brands because, well, halos shine both ways. Bud can "support" Michelob, Iron City can't. If you think Lincoln and Buick are hurting now, it could get much worse. 

With years of inflated sales and fleet dumps racked-up, can The Big 2.8 stay out of the "discount" trap? Chrysler looks to already be in it.  Plymouth can't take the blame anymore and even in their best years their sweet spot was set very low (K-car, Neon). Worse, Chrysler the "premium" brand has virtual no cachet left. 

Ford seems the safest, partially because of better products but mostly, forgive the pun, because their focus. GM's vehicles aren't much worse than Ford's; what's driving them down is the division structure.  Instead of missing one sales target, they are missing three or four. Every discounted Pontiac or Saturn pushes Chevy lower and lower to keep up their volume, which forces more cutting, which forces more incentives.

GM desperately needs to hold the line with Chevy and the only realistic way is killing off the "middle" brands. They are holding the price points Chevy needs, and they are pushing it into a hole it will never climb out of. It's one thing to be affordable, quite another to be cheap.

In George Orwell's Animal Farm, the farmyard creatures create seven commandments to ensure harmony and protect against human cruelty. The seventh commandment, "all animals are equal," eventually gets a rider: "but some animals are more equal than others." For most, it's satire. For others, it's a way of life. To wit: federal politicians, whose interest in special interests far outweighs their concern for the "average" voter– if only because taxpayers are too busy earning money to pay their taxes to notice how the cash is being wasted. Except when they're not. The plan to bailout Detroit's automakers looks set to be one of those times.  

Today's Wall Street Journal gives the public its first glimpse of Detroit's planned assault on federal funds. Surprisingly, ALL THREE domestic automakers are banding together to hit-up Uncle Sam for a $25b loan. What's more, the automakers want the money at a 4.5 percent interest rate. AND they're seeking a proviso that the feds can defer ANY interest payments for five years. You know; if the automakers can lobby elected representatives hard enough.

This is not what most analysts expected– even the ones who didn't expect it (if you know what I mean).

Surprisingly, The Big 2.8 are asking for cash money. A loan is a  far less politically palatable "request" than federal loan guarantees. There can only be one reason why Detroit went for the more dangerous, direct approach: the banks won't touch them even WITH federal backing. It's a sure indication that the money men have finally (and correctly) reached the conclusion that Detroit's current business model is well and truly dysfunctional. Dead, even. They are not going to throw good money after bad.

Which is, to Motown's way of thinking, beside the point. After all, the $25b loan will be spun as an investment in new technology, not a bailout per se. It's simply a way to help us "modernize" our old factories to build THE CAR OF THE FUTURE. In other words, if you really want those EVs, you gotta pay. Us. 

But why so little money?

Seriously; $25b is not enough cash to sustain GM for a couple of years– never mind GM, Ford AND Chrysler. To put that number in perspective, when Ford doubled-down and mortgaged the farm (including their logo) in 2006, they raised $23b. GM's contribution to the United Auto Workers health care VEBA fund is (i.e. was) $29.9b. A $25b federal loan may be The Mother of All Band-Aids, but it's nowhere near enough cash for The Big 2.8 to reinvent themselves.

It is, however, a "doable" sum if you're dressing-up a bailout as an "investment." No doubt supporters of the domestically-owned automobile industry are already comparing the $25b figure to the cost of the war in Iraq, or the space shuttle, or tax breaks given to oil companies, or some such thing.

And anyway, it's a prelude to a kiss: the REAL bailout (in for $25b, in for another $25b). Truth is, it would extremely difficult for The Big 2.8 to ask for a "realistic" loan– or loan guarantee– to turn all their asses around. That number would be near-as-dammit a trillion dollars.

Of course, like all trillion dollar– or, I should say $25b federal expenditures, the vast majority of the money would disappear down a rathole, never to be seen again. American-owned automakers are not a cash-starved start-up looking for enough money to bring PC products to market. They're a motley crew of failed businessmen and women who've demonstrated an abject and ongoing inability to develop competitive products. Giving them more money to piss away would not solve anything.

The operative word here is "would." This is not a done deal. For one thing, as the failing financial industry hoovers-up federal funds, there is the very real prospect of "bailout (yes bailout) fatigue." For another, painting Motown as a "good investment" will be an extremely tough sell. The public currently sees The D2.8 as EV-killing gluttons who feasted on SUV profits when they should have been building small, fuel-efficient cars. The hundreds of millions of dollars pocketed by D2.8 executives will do them no favors in this regard.

The real deal killer: Detroit's irrelevance. The gas – electric hybrid Prius already exists. Fuel efficient small cars already exist (some of them sold by Detroit). As far as the general public is concerned, even the plug-in Volt is coming along nicely–  without federal funds. The public can easily see this $25b "green loan" for what it is: an attempt to help Detroit do what should have been doing all along. A reward for incompetence.

Giving The Big 2.8 federal tax money to play with is also a bad idea for Detroit. Even if the operation is a success, without Chapter 11 reorganization, the patient will die.

What if GM Car Czar Bob Lutz is the kind of hero General Motors needs, hurling Volts from high atop the Ren Center to stave off Chapters 7 and 11? What if he's fighting the bureaucratic beast from within, under the guise of corporate tool, a double agent, if you will? Could Maximum Bob be one of the good guys? Double Lutz?

The General has had a tough couple of decades. Lutz arrived at his current job in 2002, hopping on the continuous market share slide. He is Vice Chairman, charged with global product development. During his tenure, the General has leaked significant levels of everything used to value a corporation: cash, investor confidence, consumer confidence, brand strength, hope, faith and charity. GM kissed away 23 percent of the US market since 1979, five of that during Lutz's stint.

Yet Lutz and his boss Rick Wagoner are still calling the shots, with the full backing of the Board. In most companies losing seven million dollars an hour, this is not the case. So why aren't these guys sitting on the curb with cardboard boxes on their laps? 

There are several possible explanations. 1. The Board is stupid. 2. Inter-mingling with other blue-chip boards has created a web of complicity. 3. They invite bankruptcy. 4. They're telling it like it is: the Board believes in what Wagoner and Lutz are doing to turn the company around. This one is the hardest believe– unless all is not as it appears.

Robert A. Lutz is a retired Marine Corps aviator who speaks three languages. Born in Switzerland, 1932, he joined General Motors Europe in 1963. He worked at BMW in the early 70s, where he took part in the development of the storied 3-Series. At Ford, he rose through the Chairmanship of Ford of Europe all the way to the Ford Board. From there, he jumped to Chrysler, where he oversaw the Viper, Prowler and LH platform. Four years as CEO of Exide brings him back to GM.

Lutz has never been cocooned in Detroit. He's continuously championed European driving dynamics and technology in America. He's lead and lost political battles at each of the Detroit marks. It is difficult to accept him as a clueless– or even disinterested– Hindenburg pilot. The alternative, then, is Lutz at the stick of a Raptor.

The Chevy Volt project is being run unlike anything in GM's recent corporate memory. No curtains. No tarps. Everything everyone is doing is out in the open, blasted at the press and rocketing forward at twice normal development speed. This is GM's moon shot. 

The Volt is anti-GM culture to its core.  Literally.  They ridiculed hybrids not five years ago and shot their own electric car in the back. Now, The General is throwing resources it doesn't have and what's left of its reputation at a vehicle that, as of right now, will not work.

Lutz is the father of the Volt. At Exide, he became enamored with batteries and electric drive and saw potential freedom from Saudi and Venezuelan oil. In 2006, he commissioned something striking for the 2007 Detroit Autoshow, telling his engineers and designers he wanted a game-changer.

The game he wants to change, though, is inside the Ren Center. A full century of corporate calcification has made it near impossible to do anything, let alone anything well. GM is notorious for tall decision trees, needing months to climb, and middle managers who've learned that sticking your neck out is the surest way to get cut down to size. 

All of this is antithetical to a way a fighter pilot thinks. Marines understand chain of command. They are not above their brand of bureaucracy, but they are trained to get their orders and get the job done. The job in this case: overtake the former axis powers and regain US supremacy of the roads.

For victory, the Volt will need to zap GM's corporate mindset on sustainability, environmental policy, accountability and resource allocation. It has to turn around the crowd that killed the EV1 and dozens of other start-stop projects that sapped GM resources and credibility for a generation. And that, even more than build a cool car, is what Lutz really wants to do.

Lutz has repeatedly stated that this project is important not just to GM, but to the whole US auto industry. Yeah, he blankets the media jungle with crazy-palm. He has to. He needs to stoke what fire is left at GM and he can't use the truth to do it. How could he not sound ludicrous most of the time?

That expression about turning around an aircraft carrier doesn't apply to the General. It's more like a whole fleet. Maybe, just maybe, Maximum Bob is using the Volt to light the way.

The inventory levels and average sales per franchise (SPF) numbers as of August first are out and almost everyone looks good on the car side of the inventory sheet. Trucks are a whole ‘nother matter, though.  Dealers are doing whatever they have to– including half price sales– to move body-on-frame trucks but inventory is still piling up. Just how bad is it? Well, let's take a look… 

Chrysler has fewer vehicles sitting around than at the same time last year, but sales are so bad that "abysmal" would be an optimistic appraisal. In July, Chrysler sold only seven vehicles per franchise (SPF). Jeep was marginally better with eight SPF, while Dodge sold 20 vehicles per franchise. High inventory numbers reflect those low sales. Jeep dealers have to contend with a 168-day supply of Liberty, a 156-day stock of Wrangler and 118 days' worth of both Compass and Grand Cherokee.

Dodge is even worse. While their passenger car inventories are at manageable levels, they have enough Rams for 111 days, enough Journeys for 132 days, enough Nitros for 224 days and– get this– enough Durangos to last 354 days. Chrysler franchisees don't have a lot of room on their lots, either. The 300 inventory represents 116 days of sales, and they have enough Town & Countrys and Aspens to last 111 and 158 days respectively.

Ford dealers are faring better, moving 37 units each. Lincoln and Mercury peddlers didn't fare so well, selling six and four vehicles each respectively. FoMoCo inventories looked pretty good on the car side, with only the MKZ and Milan into three digits (102 days for both). Ford's car-based CUVs are doing well– except for the Flex's 134-day supply. Dealer stock of body-on-frame trucks– F-Series (107 days), Explorer (111 days) and Expedition (125 days)– are piling up. The stalwart Ranger is looking good, with a mere 68 day supply.

Saturn leads the GM dealer hit parade with 41 average sales per franchise, followed not too closely by Chevy dealers with 34 sales each. After that, GM's SPF stats drop it like its hot. GMC franchisees managed to sell just 12 trucks each. Hummer dealers somehow got 11 units each out the door. Pontiac dealers averaged 10 vehicles. Cadillac and Saab dealers tallied nine sales each, while Buickmongers only eked-out three sales apiece in July. 

With a few exceptions like the LaCrosse (121 days), Lucerne (125 days), and Corvette (145 days), GM's passenger car inventory looks pretty good. But, like everyone else, traditional trucks are available in abundance. The three Escalade models average 152 days. Every Chevy truck with exception of Tahoe is in the triple-digit club, with Avalanche leading the parade at 156 days. The Tahoe barely escaped membership with a 98-day supply on the lots. All of the GMC SUVs and pickups are well over the hundred-day mark. 

The Big 2.8 aren't the only ones sitting on oodles of trucks. Honda dealers have a 111-day supply of Pilots and a 127-day supply of Ridgelines to unload. Acura dealers have a similar excess of MDX (120 days) and RDX (113 days). On the positive side, Honda dealers managed to sell 81 cars and 42 trucks per franchise, while Acura dealers moved 30 cars and 18 trucks each.

For some reason, Toyota won't break their inventory down by model. All we know is that Toyota/Scion dealers started the month with a 29-day supply of cars and a 99-day supply of trucks, while Lexus dealerships had 42 days' worth of cars and enough trucks for 60 days. Toyota placed first in sales per franchise, moving 94 cars and 49 trucks each in July. Even with the economic downturn, Lexus dealers averaged 60 cars and 40 trucks each.

Nissan follows the same inventory trend as the rest of the industry. The only Nissan cars exceeding the ideal 60-day inventory level are the Maxima (62 days) and 350Z (182 days). The inventory report also shows 600 GT-R's in the U.S…. somewhere. Trucks look surprisingly good, too, except for Murano (134 days), Armada (143 days) and Titan (down from 489 to 144– does anyone else smell massive fleet sales?). Nissan's 47 cars and 34 trucks SPF placed it fourth overall, behind Toyota, Honda and Lexus.

Other manufactures show similar numbers. Mazda has a 46-day supply of cars and a 108-day supply of trucks. Mitsubishi follows suit, with 65/125-day averages.  Hyundai and Kia dealers are sitting on a 42-day supply of cars and a 61-day supply of trucks. Hyundai dealers sold an average of 52 vehicles each, while Kia dealers pushed 43 units out the door in July. Mazda moved 33 vehicles per franchise while Mitsubishi dealers managed 19 sales each.

You can expect these inventory numbers to fluctuate quite a bit over the next few months, as manufacturers continue to adjust production mixes to cut back on trucks and increase cars. Sales per dealership seem to remain fairly constant, moving maybe one or two places in either direction from month to month. As always, we'll keep an eye on them and let you know what happens.

With the odds of at least one of The Big 2.8 filing for Chapter 11 rising, the analogists are crawling out of the woodwork. While the multiple and varied demises of the [now deceased] British Motor Industry make for interesting reading and some neat analogies, the truth is that such any such comparison is apples to oranges, or, more accurately, chalk and cheese. The first major point of divergence is the level of failure.  Relatively speaking, the boys from Detroit haven't even BEGUN to fail.

Beginning with a forced merger in 1967, the various companies that made up the "native" British auto industry went through a government takeover/bailout, a sale to a "private" holder, and a forced sale to private investors. In between, there were a handful of profitable years (mostly in the mid 80s, thank you Honda-san) and two and a half brands "escaping." Land Rover and MINI came out through BMW, with the former being sold on to Ford, who had bought up Jaguar (that ended well). 

By comparison, while they have had terrible years, and shed market share with few upticks, the worst The 2.8 have seen is Chrysler receiving federal loan guarantees (c. 1980). By that time, BLM had been nationalized. They were using their second bail-out package to right the ship. There are rumblings of break-ups and aid going Detroit's way, but nothing concrete as yet. And remember: whatever handouts Detroit secures will require Congressional approval (think the Alabama or California Reps will vote for them?).

Bad as the last five or six years have been, it should be remembered that these bad times came after an obscenely profitable decade for Detroit. The British industries downward spiral began at the end of their heyday through the swinging ‘60s. The problem was, that despite having two of the most revolutionary (and popular) cars in the world (the original Mini and the 1200 series) they made virtually no profit.  Simply put, they under-priced their sales darlings. 

This is ineptitude stunning beyond words. Auto writers have been blasting Motown for fusty short-sightedness for decades. But no one ever accused them of not knowing what their profit was. According to most accounts, the boys at Ford England figured out that BMC was losing ₤30 on every ₤500 Mini they sold. BMC was merged with a smaller truck-centric coalition of brands (Leyland) because they failed to make hay while the sun shined.

The other false analogy is one of scale. While the numbers varied, the British car market is/was roughly 10 to 12 percent of the size of the US market. Sales volumes that sound impressive on one side of the pond, sound like rounding errors on the other.

The eternal dilemma for any automaker is utilizing all their capacity. The eternal dilemma for BLC was that they would get money for new product and new lines and then fail to reach their sales targets, which meant no new development without more government money.  

The 2.8 have some of the under-use issues on a plant-by-plant basis. But they have always made enough profit on their "hot" products to fund new products. They have traditionally strung out development and pinched pennies as a matter of choice. not necessity.

Thee other major difference: BLC's export reliance.  Even when they held 30 percent of the British market (about 450k cars), BLC still needed to move over 200k cars to rationalize their capacity. This was/is common for much of Europe's fragmented market. It is almost entirely foreign to the 2.8 (who have subsidiaries for that). 

Depending on exports for profits is a bad idea in several ways. An export-lead company is much more vulnerable to changes in the economy, from trade barriers to currency fluctuations. More importantly, exporting is conducive to irrational optimism combined with utter ignorance. 

Smaller markets can be abandoned with little pain (until eventually you've left them all). Bigger export markets allow managers to float ridiculous sales numbers; 200k cars is a tiny part of the US market, without facing up to the actual difficulties of marketing. Lord knows the Japanese have had problems understanding the US market, and much of their staff rotates through a US posting.

The home-centered versus export-centered strategy for survival points toward yet another analogy, and gives The 2.8 hope that some of them can still prosper.  The British car industry was preceded into extinction by the (even more export-dependent) British motorcycle industry. None of these once-famous names exists as a "real" company any longer. Harley Davidson, on the other hand, came back from the brink and is thriving by selling mostly in the U.S. market.

The Big 2.8 are in big trouble. But pay no attention to their bleatings about their foreign affairs. As BL's history proves, their salvation, if it comes, lies at home.

During the first energy crisis, pundits predicted the death of the American V8. In those dark days (as opposed to these dark days), Detroit was desperate to supply an alternative to the gas-gargling engines they'd planted under the hood anything that moved. They developed a few dogs promising V8 performance with the economy of a cylindrically-challenged motor, with much talk of mechanical miracles to follow. History repeats itself; Ford is once again trying their luck with EcoBoost turbo-four technology. Once again, they could be barking up the wrong tree.  

As TTAC's Best and Brightest know, Ford's first attempts at smaller high-performance engines were shitcans. Slapping a turbocharger on a Pinto-derived, carbureted 2.3-liter in-line four with a thin shellacking of electronic sensors was an all-around nightmare. Finding a mechanic dumb smart enough to repair a hair dryer slapped on a toilet bowl draw-through turbocharged engine was not for the faint of heart. As for the V8 promise, this quirky mechanical mutt was dog slow and pig inefficient. Missed it by that much!

But that was the late ‘70s. By 1983, Ford leapfrogged the competition with a multi-point fuel injection system run by the biggest brain in the industry. It's name was EEC-IV, and it performed a quarter million commands every second. Even with a meager 128 bytes of read/write memory, EEC-IV played well with an AiResearch turbocharger feeding the four-pot Ford. The result was a "V8-ish" 145hp in the import-minded, Neidermeyer-approved, Thunderbird Turbo Coupe.

With newfound power and drivability, the American V8 faced a credible treat from within. Ford, the near-bankrupt automaker, coined a marketing phrase for their efforts: "Power on Demand." The return of gas on demand (for peanuts) put paid to that process.

Still, in the middle of the 1984 model year, The Blue Oval Boyz' skunkworks produced something quite EcoBoost-ish: the turbocharged and intercooled four-cylinder Mustang SVO. With a bevy of braking, suspension and cosmetic improvements, this top-dollar Pony Car courted BMW 3-series buyers with more performance for less bread. Of course, such badge snobbery requires a premium over a V8 motivated Mustang. To the tune of $6k. Ouch.

The extra clams bought you a full 175hp, equaling the Mustang GT's carbureted V8. Come 1985, this ‘riod-infused Pinto added thirty ponies and boasted better mileage than the V8. The four-pot Mustang delivered on all those early promises of cake-and-eat-it-too power and fuel economy combo. Sort of.

In reality, the SVO was a cobbled-up wannabe, still sporting that cheap fox-body Fairmont dashboard. The dynamic improvements simply didn't cut it for an upper-crust offering. In typical Detroit fashion, factory rebates countered the SVO's sticker shock and eventually moved the metal. But it wasn't exactly what you'd call breakthrough engineering.

By 1986, the four-pot Mustang SVO was dead– and not just because gas was cheap (and, of course, available). The V8 alternative– a fuel-injected, 200hp, 5.0-liter Mustang– sold for just $10k. Once these new fuel-injected V8 ‘Stangs hit the ground, even a Blue Oval bureaucrat could predict the SVO's demise.

Ford's "new" era of the small block V8s was EEC-IV powered, with a long runner intake and eight sequentially firing fuel injectors. In Mustang terms, the finale was a (1987) Pony Car with a robust 225hp and a jaw-dropping 300lb-ft of torque. With tall gearing, the V8 was one or two MPG thirstier than the turbo-four AND it ran on regular gas. It was cheaper, smoother and didn't know the meaning of heat soak or turbo lag.  

Today, Ford's putting its remaining eggs into an "EcoBoost" shaped basket: a line of turbocharged motors promoted as more efficient than "larger displacement engines." In fact, the autoblogosphere is buzzing over a rumored comeback of the mighty SVO, in EcoBoosted form. It appears that only the player's names changed.

Given today's Energy Crisis 3.0, Dearborn's quest for the last possible mile per gallon is understandable. And the small cars that the Blue Oval's rushing to market require small yet powerful engines. But compared to normally aspirated engines, turbo powerplants are relatively expensive and more complex. And that means they're more expensive to maintain and repair.

If Ford stands for one thing– which it should– it's simple, robust and affordable vehicles and powertrains. In the rush to satisfy federal fuel economy regulations, Ford would do well to remember history, and not overlook the modern, efficient V8's appeal to their core audience.

Hang on; while Ford PR is promoting EcoBoost like there's no tomorrow (which may well be true), the Blue Oval's boffins have been busy developing their next generation 5.0-liter V8. The new engine leapfrogs the 1980s upgrades with a cutting-edge direct injection system (similar to its EcoBoost siblings). The new 5.0 will be faster, cheaper to produce and easier to repair. It's an "honest" component delivered in the true spirit of the Ford brand.

Whew! 

With great size comes great stupidity. General Motors' fall from grace– from world's largest and most profitable company to bailout bait– illustrates the point perfectly. And while it's about thirty years too early to suggest that GM's replacement will fall victim to the same size-related atrophy, there are already hints that the profits powerhouse known as Toyota is capable of massive miscalculations. I speak here not of the full-size Tundra pickup, but of Scion, the brand that should have never made it out of a focus group.

In June, after a staggering three month rise, Scion sales suddenly slipped by 5.3 percent (11,870 units sold). This despite offering two new models: the redesigned xB (down 10.9 percent) and the all-new xD (replaces the xA).  While ToMoCo's "youth brand" is up eight percent on the year, the timing of its surge and the overall trend indicates a dead cat bounce, due to rising gas prices. Prior to this uptick, from last September through January, Scion's sales declined for 17 straight months.

Searching for clues to Scion's struggle, their not-so-entirely-wonderful products may have a little something to do with it. The super-sized gangsta xB is thirstier and way uglier than the car it replaces. The xD is only marginally more exciting than the now-extinct xA (a.k.a. fish-faced Echo)– and that's saying something (or, perhaps, nothing). The tC has gone from a fixer-upper to a blot of the automotive landscape, dragging Scion down with a 36.2 percent drop in June (off 29.3 percent year-to-date).

Speaking to Automotive News, Scion's manager of sales and promotions addressed the brand's struggle and talked about… sales and promotion. "We have to refresh our message," Jeri Yoshizu asserts. "And move our picture to the new 18- to 24-year-olds." In other words, the buzz within Toyota is that Scion's problem is that it's not cool with the kids anymore; clever marketing can sort that shit out.

That's worrying stuff. You'd think that Toyota, of all automobile manufacturers, would know that great advertising starts with great products. And that great products transcend demographics, or, if you prefer, find their own fans. But then Scion has always been an ass-backwards endeavor: a brand born of marketing aspirations and birthed via stylized badge-engineering, rather than formed in the crucible of a relentless pursuit of engineering excellence. 

Clearly, remarkably, Toyota has not yet learned its lesson on this one. Just as Scion's supposed target market is a moving target, so is the automaker's justification for prolonging Scion's time on this earth. Jack Hollis, the brand's vice president, tells AN that his measure of Scion's success is "not sales numbers but whether Scion is luring new, young customers to Toyota." If so… they're fucked. The number of 18- to 34-year-olds shopping the brand has declined sharply.

Perhaps Hollis should have a word with his boss. On its fifth anniversary, ToMoCo Prez frames Scion's core mission without referring to its intended buyers' age. "The original Scion goal was all about transparency and reducing time to purchase cars and vehicle personalization," Jim Lenz told AN. "And none of that has changed. Scion still remains relevant today."

"How do we expand without making Scion into a traditional car company?" Hollis asks, relevantly. "Experimenting with an automotive brand is tricky in a down market because it magnifies the risk. But if you don't try anything, then you are just the same as the entire industry."

In other words, being different for difference sake is Scion's raison d'etre. Of course, anyone who's spent time inside a Scion xB or xD could take one look at the odd instrumentation and reach the same conclusion. Whether or not Scion's products fit the "quirky is cool" remit– in the metal or consumer's gray matter– it's not exactly a secure footing for a car brand.

Just as importantly, Hollis' query contains the bizarre and grandiose suggestion that Scion is a car company, not an automotive brand. The fact that Scion "dealers" live within Toyota showrooms ought to indicate that Scion is an extension of the Toyota brand; nothing more, nothing less. And a deeply misguided one, in the GM product overlap sense of the word. However you target them, however you personalize them, Scions compete with Toyota products both new and used in the same dealership.

Toyota's Lexus brand made perfect sense: Toyota reliability, distinct upmarket branding, big fat margins. Scion is a non-starter. At best, it can get people to buy Toyota's who wouldn't normally buy a Toyota– and won't even after they do (if you know what I mean). Alternatively, Toyota selling Scions is like those WASPs who wear lime green trousers at the golf course club house just to show they're not really as boring as everyone (including themselves) knows they really are.

If Toyota kills Scion, we'll know they're not General Motors. If ToMoCo persists in this, we'll know that they could well be doomed to repeat GM's history.

If brevity be the sole of wit, Chrysler CEO Bob Nardelli's latest email to his troops is a particularly humorless e-missive. Although ours is to question why (whether they do or die), it's the weekend. So I'll leave the parsing to TTAC's Best and Brightest. Suffice it to say Bob's commemoration of Cerberus' Chrysler purchase is a curious blend of woo-hoo, uh-oh and hey ho, let's go! We'll be sure to update our Chrysler Suicide Watch soon. Meanwhile, here's the text in full…

"Dear Employees,

One year ago, we began to write a new chapter in Chrysler’s proud history as Cerberus acquired the majority stake in our company. In spite of the severe economic and industry challenges of the past 12 months, we have laid the groundwork for a successful turnaround and transformation of our business. Today, we are working together with a clear direction and with a sense of urgency to return Chrysler to profitability and its rightful place as an iconic American company. On behalf of the Office of the Chairman -– Tom LaSorda, Jim Press, Ron Kolka and me –- I want to thank you for your hard work, and pass along the personal appreciation of Steve Feinberg as well as our partners at Cerberus and Daimler. I’d also like to share some thoughts with you on the occasion of this anniversary.

As a privately held company, we operate with some real advantages. Being private helps us be agile and decisive, highly responsive to our customers and fast to act on market opportunities. We are re-establishing our own culture and identifying our own measures for success based on operating as a single team focused on the common goals of “customer first” and “quality … period.”

We also have a clear focus on achieving the key financial expectations of our owners, which include EBITDA (earnings before interest, taxes, depreciation and amortization) and cash flow performance. As a private company, we’re now able to generate cash more easily through the sale of non-earning assets. This enhances our ongoing operational improvement efforts, enabling us to continue to invest in new products as we work to reduce our fixed costs, inventory and working capital.

Working together with the UAW, we signed a landmark labor contract that provides a framework to improve our competitiveness. Over the past year, our leadership also made some difficult decisions to "right-size" our company in line with the realities of a tough economy and an auto industry caught in the rapid shift in consumer preferences driven in part by escalating fuel prices. I can assure you that these gut-wrenching decisions are not taken lightly by me or anyone on the leadership team. Going forward, we will do what’s necessary to remain competitive in the short term, while balancing the need for continued investment in support of our long-term strategy.

Our company strategy can be boiled down to what I call the three E’s:

Enhance our Core

Extend our Business

Expand our Markets

We’re making progress on all fronts.

Enhancing the Core includes an intense focus on customers and quality, our product line and our dealers. We hired the industry’s first Chief Customer Officer to help lead efforts to better define, measure and improve quality. Creating a new online Customer Advisory Board has enabled us to get fast feedback on important issues. The Let’s Refuel America program, for example, was a direct response to customer concerns over fuel prices.

In line with our customer focus, enhancing the quality of our current and future products is critical to our success. Launch performance results for the past year are encouraging: from our own teams and from our dealers, we’ve heard that our recent launches have been among our best. During the last year, we approved more than 400 product enhancements designed to improve interiors, upgrade materials, and reduce noise and vibration. To date, more than 250 of these changes have been implemented, and the remainder will be in production during the 2009 model year and the start of 2010.

Although we did not perform as well as we should have in the recent J.D. Power and Associates Initial Quality Study, our company did improve five points overall, our Chrysler and Dodge brands were up in the ratings, and the Durango and Dakota were first in their segment. A more significant gauge of our progress in quality is that, since last August, we’ve seen a 29 percent reduction in our warranty claims. In addition, we expect a 20 percent improvement for our 2009 models. While we’re early in our launches, the results we’re seeing –- like reduced NVH (noise, vibration and harshness) in the Challenger, the Ram truck interior quality — are greatly improved.

In the area of productivity, the recent Harbour Report showed that Chrysler equaled Toyota as the most productive auto manufacturer in North America. This is a remarkable turnaround from seven years ago, when Chrysler was dead last among major manufacturers. In addition to boosting our productivity, this achievement has the added benefit of increasing our capacity utilization significantly. It really shows what we can do when we work together with a commitment to continuous improvement.

We are continually re-evaluating our model lineup to ensure that we’re focusing our resources on the best opportunities in the market, and we made a decision during the year to drop four models from our portfolio. Many industry analysts continue to bemoan the “light truck” bias of our product mix. They miss a salient point: most customers do not consider our Compass, Patriot, PT Cruiser, Pacifica, Journey or minivans to be “trucks,” although they are classified as such. So, from the customer’s perspective, our current mix is 59 percent car, compact SUV and minivan, and 41 percent pickup, medium and large SUV.

Meanwhile, our product portfolio is becoming more balanced, and our newest models are right for the times. The Dodge Journey, which received a rave review from USA Today, is a “right-sized” crossover that offers class-leading 25 miles per gallon highway, starting at under $20,000 in the United States. The Dodge Challenger, a modern muscle car, will come with a fuel-efficient V-6 option and an aggressive entry-level price of $21,995 in the United States. Customers focused on fuel economy will find six vehicles that offer 28 mpg or better on the highway in our 2009 model lineup — the Compass, Patriot, Avenger, Sebring Sedan and Sebring Convertible — and the Caliber achieves 30 mpg highway fuel economy.

There will be a viable and sustainable light-truck market going forward. It’s just likely to look more similar to the truck market before the light-truck boom of the '90s, with the notable exception that we expect to capture a greater share of it. For example, the crew cab segment represents half of the truck market. With our new all-new 2009 Dodge Ram crew cab offering we’ll be able to compete in this segment for the first time. We think the current economic climate, in spite of its challenges, provides us a real opportunity to gain even more ground. Our new Ram full-size pickup will be a "game changer," thanks to its outstanding performance, technical innovations, breakthrough design and top quality. We elected not to delay this launch as our competitors have, therefore, we will be first to market with a better product, along with marketing, advertising and retail launch support that’s truly world class.

To develop future products with greater appeal to customers, we are in the midst of investing $3 billion into powertrains to create multiple driveline solutions that will increase our overall fuel efficiency, including new engines, axles and transmissions.

And we created a group called ENVI that will develop electric-drive vehicles that support the vision of our Chrysler, Dodge and Jeep brands. Derived from the word "environment," ENVI is a dedicated in-house organization charged with making Chrysler the leader in advanced-propulsion technologies. Our electric vehicle program will really send a shock through the industry — so stay tuned for more details.

Rebuilding strong relationships with dealers has been a major priority this past year. One example of how we’re listening to our dealers is that we have reduced inventory by 67,000 units compared with a year ago. We’ve changed our dealer incentive program and put dealers back in charge of our regional advertising associations because they know their local markets better than we ever will. We’re also working with our dealers to "right-size" our network. Fifty-eight percent of our dealers now carry all three of our brands under one roof, up from 53 percent just last year.

The latest J.D. Power Customer Satisfaction Index (CSI) shows progress in the way our company and dealers are serving our customers. Chrysler LLC scored 865, a 10-point improvement with Jeep and Chrysler brands among the most-improved brands in the industry, and the Chrysler brand (882) outperformed the non-premium average (879) in the 2008 study. We have implemented a number of efforts with our dealer partners that we believe will continue to improve customer satisfaction.

The second part of our strategy is Extending our Business, which means capitalizing on adjacent opportunities in a number of ways. For example, consumers tend to keep vehicles longer in a slow economy, which represents a significant opportunity for us to capture more of the growing service and parts business. And we’re extending our business by investing in new products that give us coverage in new segments. Last year, we extended into the class 4 and 5 medium-duty truck markets with entries that offer best-in-class fuel economy. This followed our return to the class 3 truck market in 2006 with the all-new Dodge Ram 3500 Chassis Cab, which quickly achieved a 29 percent market share.

We’re working diligently to fill gaps in our portfolio by adding small car programs both through internal development as well as partnering initiatives. Later this year we’ll launch our first hybrids, the Chrysler Aspen and Dodge Durango. Both deliver a 25 percent overall improvement in fuel economy without sacrificing performance or the towing capabilities our customers need and expect.

We’re also extending our business through innovative new technologies, including in-vehicle wireless Internet connectivity available from Mopar by the end of the year. Our next generation of innovations also includes a segment-first Blind Spot Monitoring system for our minivans and a Chrysler-first Rear Cross Path System that notifies the driver of any car crossing his or her path when backing up.

In June, we announced our new uconnect family of technologies that provides consumers with phone, GPS, music, video and Web connectivity. Uconnect phone provides voice-controlled wireless communication between the occupants’ mobile phones and the hands-free system that automatically downloads up to 1,000 phone book entries from supported phones. Uconnect tunes features a 30-gigabytes hard drive to store music, videos and photographs. Uconnect GPS offers navigation and real-time traffic reports combined with voice recognition and an easy to use touch screen. Uconnect web turns the vehicle into WiFi “hot spot," delivering Internet connectivity directly to the vehicle.

Expanding the Market is the third part of our strategy, and it involves increasing our participation in vehicle segments and international markets where there is significant growth. Our international sales continue to grow, and we’ve established Global Centers of Excellence to support design, engineering, sourcing, manufacturing and distribution activities for local and regional markets.

We are currently engaged in more than two dozen alliances and partnerships with other OEMs and suppliers around the world to help extend our product portfolio and better use our manufacturing capacity. In January, we struck a deal with Nissan to supply us with a version of its B-segment sedan, the Versa, for limited distribution in South American markets beginning in 2009. Then in April, we reached another agreement under which Nissan will manufacture an all-new, fuel-efficient small car based on a unique Chrysler concept and designed for sale in North America, Europe and other markets in 2010. In return, Chrysler will manufacture a full-size pickup for Nissan in 2011.

Enhance the Core, Extend the Business and Expand the Market. Still, there’s one more “E” -– it’s the need to Execute. Going into this second year as an independent, we need to flawlessly execute our strategy and commit to improving everything we touch. We must pull together to design, build, sell and service aspirational vehicles with true competitive advantages –- vehicles that can be proudly displayed in showrooms around the world. We will continue to face the realities of the economic environment and our global industry, see them for what they are, and do what’s necessary to return Chrysler to profitability and sustained growth. As we have for the past year, we will work to shape the future before it shapes us.

While I’m proud of how we’ve faced business challenges together this year, I’m also proud that we’ve never lost sight of our commitment to support the communities we’re privileged to be a part of. Our philanthropic fund changed its named to The Chrysler Foundation and continues its work around the world to strengthen the communities where our employees and customers live and work. One example of how the foundation is tying together our dealers, business centers and communities is our partnership with KaBOOM! to build playgrounds, helping ensure every child has a safe place to play. We’ve identified 25 new playground sites and many of them already have been completed.

Building on our proud American heritage of support for those who wear the uniform, we also inaugurated the “Honoring Those Who Serve” program and forged partnerships with groups like Operation Gratitude and the Freedom Calls Foundation. Our military support efforts won several awards, including the Secretary of Defense 2008 Employer Support Freedom Award. At our Military Appreciation Month celebration held in May, employees put together 500 packages for Operation Gratitude to send to service men and women on active duty abroad in addition to the 300,000 packages already sent and distributed. At the event, we also revived the wonderful military tradition of the service flag. We are prominently displaying a Blue Star flag for every employee on active duty. In addition, we unveiled a Gold Star flag to honor an employee whose life was taken while on active duty, and presented it to his loving family.

Our continuing efforts in diversity also were recognized during the year. Chrysler was named “Company of the Year” at the Urban Wheel Awards; we were named to Black Enterprise magazine’s list of “40 Best Companies for Diversity”; we received the top grade in the automotive sector in the annual NAACP Economic Reciprocity Report; and Chrysler was recognized as a “Top 50 Company for Supplier Diversity” by Hispanic Enterprise magazine.

Perhaps the highlight of the year for many of us came on June 26 with the long overdue return of Lee Iacocca to the building and to the company he so strongly influenced. If you were able to attend this event, you saw first hand some of the energy, spirit and passion that Lee brought to Chrysler. He took time to talk with the leadership team and was extremely impressed as he reviewed the next generation of Chrysler, Jeep and Dodge products in our styling dome. He was particularly moved by the warm reception he received from our employees, and as he departed from the Tech Plaza event, he stopped and shook hands with everyone he could. In my remarks that day, I quoted from the speech Lee gave in 1979, just about one year after he joined Chrysler. He spoke about the people of Chrysler, and his words are just as true today:

“If the old-fashioned American virtues of hard work and dedication still work in this country –- and I believe they do –- we will not fail. Our people are the hardest working, most dedicated individuals I have ever been associated with, and they believe in this company.”

Looking ahead, we face a sobering reality of an economy and an industry in North America that continues to contract. But we continue to meet the challenges head-on, never losing sight of our goals. For example, this week Chrysler Financial announced that they will discontinue offering new lease products in the United States. But we will also significantly enhance our incentive and financing options to make our vehicles available to customers at affordable payments. Here are a few more facts on this change to keep in mind: Current vehicle owners who lease through Chrysler Financial are not affected, and the terms of their contract will remain in force. Chrysler dealers are still able to offer lease financing arrangements with other financial institutions. Employee lease and Company Car Programs for current and retired salaried employees whose vehicles were obtained through the company are not affected, and we’re working to protect this program for the future.

Our July sales, which we will announce today, while disappointing, continue to reflect the downward trend of this market and economy. Our challenge is to return to profitability and to profitable growth, which begins with a focus on revenue generation and sales.

So, let’s meet this challenge together. As we mark this first anniversary, let’s all focus on revenue, put our sales hats on and talk up our products to everyone we know and make a sale. And to help get started, I’m pleased to announce that all employees and retirees will be given a CDI (Certain Designated Individuals) number. More details will be sent to you next week, but similar to the Employee Choice program, this number will enable anyone to purchase a new Chrysler, Jeep or Dodge vehicle at the employee price through Sept. 30.

In closing, I can tell you that I am very proud to be part of this great team, a team with the experience, the intellect and the passion to bring Chrysler back to its historic place. I thank you for your hard work and many accomplishments of the past 12 months, and ask each of you to bring the same dedication to the coming year. Chrysler may be down, but we’re a long way from out. It’s time for us to prove the naysayers wrong with another one of our patented comebacks!

Sincerely,

Bob" 

Buzz Hargrove doesn't mince his words. As demonstrated in Part 1 of this interview, the outgoing Canadian Auto Workers leader is fully aware of the Detroit domestics' dire financial peril. What's more, Buzz understands the balance between his members' welfare and the health of the automotive industry. Or lack thereof. "My first responsibility is to look after the interests of my members," Buzz admits. "But I tell my boys to look after the industry too. At every meeting." So, how's that going?

Not well. It's evident that Buzz Hargrove has little respect for the men who run the companies that employ his members. "We've made sacrifices. They have no sense of sacrifice."

"[Chrysler CEO] Bob Nardelli's big claim to fame, when he came in, was that he wouldn't need a big salary because of what he made at Home Depot. But today, he still won't disclose his salary." It reminds him of Lee Iacocca's first year as Chrysler chairman. "He came on saying he would only be paid $1/year. What he didn't tell you was next year he picked up $21 million. I'd take $1/year if you paid me $21 million the next year."

It's a credibility gap that irritates Hargrove and offends his political beliefs. "It's the guys at the top looking out for the guys at the top. That's capitalism."

Hargrove characterizes Ford CEO Alan Mulally and GM CEO Rick Wagoner as bright guys who understand the car business but can't get it done; they can't stop their companies' shrinking market shares. Again, Hargrove lets Chrysler's Nardelli have it with both barrels.

"I'm not convinced he's the right guy. It's a very complex industry. [Cerberus boss] Stephen Feinberg told me he hired him over Tommy [Lasorda] because he was the only one who admitted Chrysler was in trouble. That's true, but I'm not sure those are the best credentials to pick someone to run a multi-billion dollar business."

Cerberus itself was a source of controversy for Hargrove. Asked why he originally opposed the takeover and then supported it, Hargrove recounts a meeting with Feinberg. "They assured me they would continue to invest in Canadian operations."

"GM said the same thing," I counter.

Hargrove suggests it's not his fault that he took the auto execs at their word. Equally surprising, he isn't worried about the Canadian auto industry's future. I ask him if Canadian labour costs are scaring away automakers.

"That's completely ridiculous," he declares without hesitation.

"Chrysler just committed to making the new Caravan in Canada, Ford invested in Windsor, and GM committed the Impala. Labour costs are only a component. If it was such a big cost, we wouldn't have had any new investment. They've spent billions here."

You get what you pay for, according to Hargrove, citing Oshawa's quality ratings among the GM family of plants. As to what taxpayers pay for, Hargrove is unrepentant about asking for government bailouts.

"The CAW pays the educational costs for thousands of its members. We are one of the largest tax bases in Canada. When things are going well, we don't ask for taxes back. What we're asking for is our own money. All we want is for [the governments of Canada and Ontario] to respect that."

When I bring up the recent $350m investment announced by Canadian Finance Minister Jim Flaherty (and, oddly, current MP for Oshawa-Whitby), Hargrove's composure begins to fray.

"That's peanuts. That won't even open a bicycle plant. This is a billion-dollar industry."

"Flaherty never got it – not when he was at Queen's Park [as an MLA for Mike Harris' provincial government], not now."

 Another political irritant for Hargrove: the current push for free trade. "The old Auto Pact turned an industry around for 20 years. The volume of imports in North America is so high, higher than Europe and Asia."

So high, in fact, that Hargrove rejects all comparisons to the heavily-unionized car industry of 1960s Britain. "It's two different industries completely." Hargrove points out that Europe and Asia didn't open their markets as freely as Canada and the USA, which gives them a huge competitive advantage on the global scale.

"They wanted to push through that free trade deal with Korea. I met with Stephen Harper and with Flaherty, and they could not disagree with me. These are free market guys. It was not a good deal for us."

Hargrove feels vindicated that the deal fell through. But he maintains that the current situation still favours foreign manufacturers.

 All of which suggests Hargrove is leaving a bit of work behind for his eventual successor. Asked about the timing of his departure, Hargrove lays it out. "I've changed it so that retirement is mandatory at 65. It can be tempting to stay on too long. I have to set the example. My credibility is very important to me."  

Buzz Hargrove describes himself as "full of piss and vinegar." Well exactly. The combative Canadian has been instrumental in his country's union movement since 1964, when he represented a couple of thousand employees in Chrysler's Windsor plant. Now, having announced his 2009 departure from the Canadian Auto Workers' (CAW) presidency, Hargrove's enthusiasm for the labour movement remains undimmed. "I still love it," he says. "If I were 55, not 65, I'd be doing this for another 10 years." That said, Hargrove doesn't think Ford, GM or Chrysler will last that long.

Hargrove first came to the national forefront in 1985, when he assisted then-Canadian-UAW director Bob White in the chapter's secession from the UAW, and the subsequent foundation of the CAW. Hargrove recalls the friction caused by the UAW's top-down approach. "They were going down a road we did not agree with," he recalls.

"They were of the opinion that it had to be the same deal for everyone. We're a separate country. Some of the concessions they made, on health, on strike pay, on benefits, we didn't need to make. In retrospect, it was the best decision we ever made," he declares. "We doubled our membership [from 125k to 255k], and the UAW has gone from 1.5 million workers to less than half a million today."

If the monumental UAW/CAW split is Bob White's legacy, Hargrove's is more difficult to define. He's been CAW president for sixteen years. During that time, through tough negotiation and currency fluctuation, Canada has become one of the world's most expensive places to build cars.

Hargrove acknowledges that it's a what-have-you-done-for-me-lately world. GM-Oshawa's fate will weigh heavily in history's judgment.

"One of my big goals was to take care of Oshawa before I left." Hargrove crossed that one off the list back in May, when GM promised to continue production in Oshawa. Then GM reversed course and decided to close the Oshawa plant. Hargrove claims he was stunned by the move. And he's still bitter.

"I don't know if it's Rick Wagoner or someone else, but someone at GM management lied [to us]. They sabotaged the deal."

As for GM as a whole, Hargrove continues to wax philosophical. "The decision making is day-to-day over there. You can't run a company of that size making decisions like that." As I scribble furiously, Hargrove pours it on: "They did it for the shareholder meeting to say ‘look, we're serious about cutting costs'. The stock jumped, but it went back down."

The parallel to the recent GM-UAW deal almost draws itself: "They did the same thing for the UAW. Well, they got their VEBA, they got their two-tier pay, they got job cuts, and the stock price went up to $35. Now, they still have their VEBA and the stock price is down anyway."  

Hargrove was satisfied with Oshawa's eventual semi-reprieve, echoing local president Chris Buckley's assertion that the CAW made the "best of a very terrible situation." Still, Buzz admits the cordial relationship he had with Wagoner was "undermined" by the Oshawa events. The perceived slight prompted some unexpected candour.

"I told Rick it's not a question of if you're going to have to file for Chapter 11; it's a question of when."

My pencil literally dropped on the floor. This from the man whose accountants had a good old look at GM's books before the union signed their latest contract. Recovering, I ask Buzz for Wagoner's response to his comment: "Never." 

 "I know the reality when I sit down at the negotiating table," Buzz maintains. "You can't continue to lose market share and stay in business." Hargrove's delivered the same message to Chrysler and Ford. "They just haven't shown me how they plan to grow the business." Hargrove believes a Chapter 11 filing is unavoidable for all of Detroit's former Big Three. And he thinks sooner is better than later.

"They're delaying the inevitable. They will lose market share when they file because of consumer confidence, but they're losing it right now anyway. Everyone will take a haircut on what GM owes them, but it will allow them to retool and come out stronger."

Canada, he thinks, will be OK. "They're all making money in Canada… partly because of higher prices. It's the U.S. that is losing money, and it makes the North American numbers look bad. The assets, the plants aren't going to go away. The trustee will continue to make a hot-selling Impala until GM is ready to come back."

"What about the UAW?" I ask.

"The UAW already took a haircut on their last deal," he deadpans.

[Part 2 of this interview will run tomorrow. It will cover Hargrove's thoughts on Canadian labour costs, free trade, political involvement, Cerberus, Bob Nardelli, executive compensation and Hargrove's imminent departure.]

It comes as no surprise that GMAC and Chrysler Financial no longer offer leases in North America. Ford Motor Credit now joins the "no lease" club by pricing its leases sky high making them unaffordable. Why now? It's simple; the captive finance arms can't get the funding to support these transactions due to the deteriorating credit of the finance arms and their parent automakers. 

Let's review. A retail lease transaction represents nothing more than a long-term rental contract of a depreciating asset. The consumer never "buys" – takes title – to the asset; it remains the property of the lessor, the finance company. (When you finance a car purchase, you get the title, the lender has a security interest in the vehicle only until the loan is repaid.) The lessee (that's you!) pays for the depreciation used of the vehicle and the interest costs on the funds advanced by the lessor to acquire the vehicle.

At the end of the lease contract period, the lessee returns the vehicle to the lessor (walks away) or can purchase the vehicle at the stated residual value. This is the so-called "closed end" lease – which is the way all consumer automotive leases are written in the USA. 

Leasing makes sense for a certain group of automotive consumers. We won't go into the reasons here; there are plenty of other websites that explain the benefits. But leases also make sense for automakers as well.

First, they put consumers into a revolving door of trading for a new vehicle every few years (typically three to four years). Second, by nature of the math on a lease, monthly payments come in much lower versus traditional financing over the same period. (Heck, even if a car loan is for a longer term that the typical lease term, the lease is usually still cheaper. The break point depends on several factors such as interest rates, residual percentage, and credit quality of the customer.) This allows the consumer to acquire "more" car – which usually has greater profit contribution to the automaker.

Third, subvented leases (a term which means nothing more than "factory dollar support" on a lease contract) hide the incentive spend thus making it look better than a "fire sale" on slow selling units. Luxury brands tend to use subvented leases instead of consumer cash rebates to avoid tarnishing their brands.

Consumers do respond to leases, especially for brands that have high residual values or lots of subvention (hence cheaper leases). You get more car for less money. When you can lease a BMW 328i for less monthly payment than a loaded Chevrolet Malibu on a comparable term loan (assuming zero down on both), which would you choose? (Ok, I hear it now, at the end of the Bimmer lease you own nothing versus having equity in your Chevy – I say, who cares?  After four years, do I want a new car or keep driving my now way out of warranty [except for the drivetrain] beater?)

With The Big 2.8 now out of the leasing business, sales will fall even if they come up with more money to support cheaper loan payments (mostly through rate buy downs). Why? Cause some people just like to lease – and the IRS also helps the self-employed who lease by allowing a complete write off of the lease payment (consult your tax advisor). 

For GMAC in the first quarter of 2008, leasing comprised 21% of all of GM's retail business in North America. Some portion of those consumers won't come back to GM without a lease program.

While the automakers' captives may point to falling residuals as the reason for exiting the lease market, the real reason is the credit deterioration of the automakers and their captives. Leases generally remain on the books of the captives, they can't be sold into secondary markets in the form of asset-backed securities. So the captives have to fund those leases themselves.

To do so, either the captives generate the funds internally (from profits and existing lease run off) or borrow from others. Well the captives aren't profitable for a host of reasons and leases are definitely unprofitable due to the meltdown of residuals. GMAC's fixed charge coverage in Q1/08 stood at only 0.82 – it didn't generate enough profits to cover its own borrowing costs!

Second, there aren't lenders to the captives who want to see long lived assets of questionable value on their borrowers' balance sheets, especially given the fact that the automakers themselves live on shaky ground.

The captive finance arms of the Big 2.8 cannot support leasing any longer. Sales will be lost as lease customers seek alternatives. No matter what alternative financing scheme Detroit comes up with, it still won't be a lease. So the import competitors now have a choice – raise their own lease rates due to falling supply of available lease product or capture more market share. Hmmm. 

In The Land of the Free our choice of automobile brands is highly limited. Well, relatively. Dozens of European import brands have long fled our shores, curtailing our automotive freedom of expression. What happened to all those storied marques, such as Alfa-Romeo and Peugeot? And what’s keeping American pistonheads from once again enjoying the forbidden fruit of Europe’s exotic brands?

During the import boom in the fifties, Americans bought everything from Abarth to Zundapp. Sure, service at the gas station/cum Lloyd dealer was an iffy proposition. But eager Americans embraced the delicate and unadulterated European wares. Once in the hands of their hard-driving maintenance-shunning owners, most of them self-destructed exactly three days after their six month warranty expired.

The imports’ first Darwinian lesson: mechanical robustness and dealer support. VW and Mercedes passed with flying colors. Others, like Peugeot and Alfa, survived the great 1960 import implosion, if just barely.

Peugeot (known as the French Mercedes) built durable over-engineered rear wheel-drive (RWD) cars. The 404 was a regular winner of the grueling East-Africa Rally. Reliability, an unusually smooth engine, a velvety ride and comfy seats defined Peugeot.

Alfa built exquisitely beautiful coupes, roadsters and sedans that defined world standard for performance and style. The legendary twin-cam engine and RWD drivetrain was actually pretty solid, thanks to decades-long continuity of development and refinement.

Both of these brands had clearly identifiable and consistent qualities: distinctive RWD chassis, engines that excelled with their respective targets, the best styling money could buy (Pininfarina, Bertone), and top-notch performance. They were the Lexus and BMW of their time. So what happened?

Lexus and BMW.

That’s not the whole answer, but it’s a big part of it. The Japanese and Germans simply applied themselves to the business at hand in a more consistent way. The critical period was the seventies, during of a deluge of US government regulations. Draconian emission, fuel economy and safety regulations threw the whole auto industry into panic mode.

But some kept their heads cooler than others. Many smaller Europeans like Peugeot and Alfa began to founder. Cow-catcher bumpers and a tangle of emission controls ruined Alfa’s sumptuous design and performance. Peugeot’s reputation was destroyed because they couldn’t/wouldn’t properly engineer and integrate new electronics and peripherals.

Germanic engineering prowess and the Japanese system of continuous quality improvements flourished. The German’s long experience with fuel injection allowed them to keep performance mostly intact. Japanese reliability made cars like Peugeot and Alfa look increasingly unreliable, even if they were only standing still (relatively and literally).

Alfa and Peugeot could never get over the attitude of so many other European (think British) imports: America was an easy place to make money, especially when the dollar was flying high. They simply weren’t committed to having the U.S. be a key market. When the going got tough, they retreated to their home markets (or disappeared altogether).

Adding insult to injury, they also changed, for the worse. Alfa and Peugeot went down market in Europe with a full range of smaller, cheaper cars; and both abandoned their RWD platforms.

Peugeots today are frightfully ugly, with gaping maws that make Audi’s deep-throat mouth look positively prim. Peugeots share a range of cheap front wheel-drive (FWD) platforms with Citroen, another totally debased legendary marque. Peugeot competes in the mass-market; they’re NOT known for quality build or any other outstanding features.

Alfa was long assimilated into Fiat, and shares its FWD platforms, engines and other components, along with Lancia (yet another debased legendary marque).

Alfas and Peugeots would be instant dead meat in an effort to return to the US in their current all-FWD form. They’re not nearly distinctive and competitive enough to carve out a sustainable-sized niche. And that’s another key part of the story.

The US market is huge, for better and for worse. The bad part: enormous expenses establishing distributor and dealer networks and high media costs to launch an effective marketing campaign.

And the competition is deeply established. Lexus and other mid-premium brands offer Peugeot no opening. Going up against the Japanese and Korean mass-market brands would be seppuku. Alfa has a similar problem with BMW. The Bavarians never took their eye off the US market, starting with the 2002. The 3-Series is now untouchable.

Hope (and its sister, hype) springs eternal, especially in the car industry. MINI’s overwhelming success in establishing a brand-new import brand will surely feed the hope (and hype) machines.

Alfa rumors swirl through the auto-blogosphere on an almost daily basis. The Mito might make a cute companion in MINI showrooms, although its huge front overhang is disconcerting in the profile. A future range of RWD Alfas is a long-shot. But Peugeot (and current Alfas) joins the ranks of so much other European forbidden fruit that looks appealing from afar, but is rightfully left untouched.

At one time, the nations of Europe took great pride in their cavalry divisions, horses and men numbering tens of thousands. Then Gatling gun made its debut, and all those horses and all that equipment became sausages and bric-a-brac. And so it is with the SUV. The Gatling gun of rising gas prices has laid waste to The Big 2.8's armies, throwing their plans into complete chaos. To its credit, Ford is attempting to regroup, rearm and re-engage. So how's it going?

Early days. Bad days. Light truck cash cows are queued-up at the slaughterhouse. Ford's leasing department is sending seas of rolling metal to auction to sell (or not) at bargain basement prices. FoMoCo Credit took a $294m hit in the second financial quarter, reversing last year's $112m profit. Ford's North American market share is now 14.4 percent, down 1.2 percent. On the revenue side, FoMoCo's North American Q2 results sank to $14.2b, down from last year's $19b take.   

The bottom line: Ford booked a $8.7b loss for Q2. Downsizing accounts for the lion's share of that loss. Since 2005, Ford NA has closed 12 factories and eliminated 51k jobs or 38 percent of its workforce. The American automaker claims it's on track to reduce its annual operating costs by $5b by the end of 2008 (compared with 2005). That's some serious cost-cutting.

And it comes at a serious cost: some $700m per month, and rising. To pay the bills, Ford created a $26b war chest- mortgaging everything up to and including its logo. Equally important, the company gave itself serious reality check, in the form of Alan Mulally. "Adapt or die" may not be tattooed on the FoMoCo CEO's forehead, but it might as well be.

After contemplating the numbers, Mike Jackson praised Mulally's moves Fordward in yesterday's Guardian. The CEO of AutoNation says it's amazing to watch the speed at which Ford has slashed production and begun switching from trucks to cars. "The old Detroit [GM?] would have taken ages to come to terms with this," he opined.

"This" is the need for small, competitive, profitable products in the North American market. It's that last element that's caused Ford's corporate culture conniptions.

Mulally is up against Old Detroit, right there in his own office. During Thursday meetings, the former Boeing exec heard the "can't make money on small cars" mantra so often he [almost literally] hit his execs over the head with a simple stat. Worldwide, large cars account for 15 percent of the market. Small cars account for 60 percent of units sold.   

FoMoCo NA suits' recalcitrance is understandable. The American car market was founded on cheap gas. To suggest that the U.S. market will soon mirror its overseas equivalents requires a paradigm shift in thinking, and a leap of faith. And, again, there is that thorny question of profitability. Decades of failure have taught Motown small cars equal small profits. 

Mulally is counting on replicating Toyota's success. Ford's "global platform" strategy: simplify products and production on a worldwide basis, then leverage the resulting economies of scale to reap massive profits. It's a good plan- if only because Toyota's already made it work. But there are several rocks upon which Mulally's vision may founder.

Toyota's American adventure was hardly an overnight success. In fact, their success still depends on long-term, long-haul thinking. The first fruits of Mulally's global plan– the Euro-designed mass market models– arrive in two year's time. Given Ford's parlous finances, they may have one chance to "get it right:" to adapt (or not) these cars for American tastes. History suggests staving off the beancounters will be a "challenge." And if you doubt the importance of trial and error, have a look at the first generation Toyota Prius.

There's also the question of branding. What is a Ford? It will have to be something that applies across its model range that commands a premium price. Toyota owns reliability. Style, safety, green, fuel economy, gizmos, driving pleasure? Ford's three-pronged "Drive" campaign indicates a bad case of ADD. In that same vein, Ford has too many models. Simply adding European-style vehicles to a bloated product portfolio will not help.

Equally worrying: Mercury. The latest product announcements contain an unspecified role for Jill Wagner's brand. That's not good. Mercury blurs the branding message for both Ford and Lincoln, and stops both brands from seeking sales in the near-luxury middle ground. It may be cheaper to keep Mercury than kill it, it may even deliver profits/volume for Lincoln dealers, but it's the wrong thing to do.

At a recent town hall-style meeting, a Ford worker suggested that making small cars was a money-losing proposition. "Why can't we make money on small cars?" Mr. Mulally demanded. "Do you think Toyota can't make money on small cars?" The question is, can Ford be Toyota?

Since this summer's sales slump, Detroit's stopped bitching about the so-called "perception gap." That's the alleged difference between consumers' idea of their vehicles' quality– relative to their Asian rivals– and "the reality." Suddenly, the concept is a lot less important than finding something, anything fuel-efficient to sell. Besides, there's a far more catastrophic "gap" in play, one that threatens Motown's very survival: the "gap" between what a SUV is worth new and its value come trade-in time.

For most of the SUV boom, U.S. truck resale values bucked the domestic passenger car trend toward higher (not to say killer) depreciation. These SUV residual values allowed the boys from Detroit to deploy a whole list of sales tricks no longer available in the car market, especially leases.

It also made it much less painful to get an SUV owner into a new loan before the old one was paid off. Resale values stayed high both because of demand (aspirational buyers who couldn't afford the full price) and general ruggedness (they WERE trucks after all). When the boom was in full swing, SUVs were both selling at huge mark-ups and "selling-on" to new owners long before the vehicles wore out. It was a license to print money.

SUV resale values held up well during the incentive wars of the last five years or so. You would have thought increased incentives would draw more "second-buyers" to buy new, but no. The most likely explanation: increasingly easy credit stretching the resale market ever lower. The Big 2.8  held their market share, at an ever-increasing cost to profits.

There was no way that the recent run-up in gas prices would NOT impact SUV demand. That said, the drop for The Big 2.8 has been dramatic, past the point of catastrophic. Some of this is due to the SUV market's violent contraction, making the domestics a victim of their old success. But the truth is rather darker, and does not bode well for any near-term recovery of light-truck sales.

There are two essential problems. First, obviously enough, supply and demand.

Just about everyone who wanted to buy a truck in the last five years has one. Aside from vehicles wearing out and people reaching driving age (or truck-love age), there is little "need" for more vehicles new or used– especially as the "fashion" SUV owners, looking for a way out, outnumber the new blood. This surfeit of sellers is driving SUV and pickup truck prices into the basement, and then padlocking the door.

This is bad enough. But the second factor makes the situation much worse. 

These days, most truck owners are "upside down" or "backwards" on their loan; they owe more than the vehicles' resale value. As re-sale prices continue to crater, their numbers are swelling into the millions. As the "gap" in value grows in a predictably ruinous way, truck leasing becomes practically impossible.

The only way to lure more buyers is with lower prices. This lowers resale value– again, more, still– and shuts more current owners out of the new market, as the depreciation exceeds the discounting. Again, the fact that these trucks/SUVs are quite durable (one reason they held value) is a bad thing.   

At some reasonable level of industry production, it will probably take five years to get the glut through the market, and perhaps another three to get prices back up. BUT the domestic truck makers can't afford to throttle back on light truck production. The Big 2.8 have counted on trucks to bring home the bacon for over a decade. As we've said here many times before, don't have a plan B ready to go.

Toyondissan are a little less exposed to this light truck debacle– they can count on making money in cars. Aside from pickups, they stayed out of the most vicious price wars. While this kept their sales volumes comparatively low, the strategy maintained resale values at a survivable rate. 

The Dai-san can shuffle factories, sell to the "choir" and maintain a presence in the U.S. market– until the sales environment recovers enough to sell to the "other" truck owners. Toyota can afford to take the long view on the Tundra. Honda can get by selling 200K "trucks" (Pilots, Ridgelines, Odysseys) to their loyal customers. Nissan can't afford the same luxury with the Titan; it's days are numbered.

For The Big 2.8, circles don't come any more vicious. They are STILL collectively building far more trucks than the U.S. market can absorb at a profit. If they cut production, they allow their competition to raise their prices just a little at the old volume. Cutting pickup production to salable levels would help the doer, but it would help the other two even more. 

In other words, Detroit's game of Last Man Standing is also a matter of waiting for the other guy to blink. When one U.S. SUV/pickup truck manufacturer cuts back, bails out or goes under, the others will prosper. Relatively speaking. Realistically speaking, in the next five years, this is the only way Detroit's truck glut could turn back into a short term asset.  

At 4pm Monday, GM pulled the wraps off the new Chevrolet Camaro. I didn't watch the live press conference. No surprise there. Literally. Everything about the car had been leaked in the week leading up to the curtain pull: exterior, interior, engines and transmissions. Other than that, only two numbers held any mystery: price and zero to sixty sprint times. GM only told us the latter. I'm excited, as a car fan. As an armchair CEO…

Yes, I know: this retro pony/muscle car is a sharp-looking old– I mean new, thing.  And the V6 base coupe will power from rest to 60mph in an entirely credible 6.1 seconds. The automatic V8 version will hit 60 from stop in a truly impressive 4.6 seconds, roaring like a tiger about to grab a mouthful of Roy Horn. Every Camaro, V6 or V8, stick or automatic, will have six gears. The car may even handle well. So credit where it's due. Rock on! So who wants one of these things?

Camaro buyers will come in two basic flavors (watch it). Group One: traditionalists. They already think this article is pointless, full of shit and flat out wrong. They've been waiting to buy this thing since there was this thing to wait to buy ('87?). You can no more persuade them that GM should have spent the Camaro's development money improving the Cobalt than you can convince them that mullets were not, at any point in time, deeply fashionable.

The second group: people who want a cool car. They couldn't care less about zero to sixty times or skid pad numbers (ew) or lateral Gs (isn't that a drug-related term?). All they want to know is… price. Which is the only thing GM won't tell them. Provided it's within spitting distance of a fully-loaded Camry, they're going to like the Camaro. A lot. It's cool. And the ones who take the plunge will buy a V6 Camaro (with 300 horses, no shame in that) with an automatic.

While GM will be only-too-happy to suck-up trad buyers' money and props– look for "friends and family" discounts for the old white men who dominate the mainstream media — they know the Camaro's target market will be blue or slightly white collar mainstreamers stretching to make their car payment. That's why GM put-out the word on the Camaro's fuel economy at the press conference: 26mpg highway! How great is that?

Meh. Competitors with 250-300 horsepower (Charger, Challenger, Mustang) all offer comparable MPGs. These days, fuel-conscious secretaries consumers are lined-up none deep for FoMoCo's retro ride. 'Stang sales slipped 14.8 percent in June, down 28.8 percent year-to-date. During the same period, Charger sales tumbled 27.6 percent, down 11.3 percent year-to-date. And LOTS of those sales sailed with the fleets. 

Clearly, this is NOT the time to launch a better, cooler, faster Mustang with the same lack of practicality and piggish ways. And that's not because the majority of American consumers suddenly want to go to Vermont to marry their Prius and raise your taxes so they can help people downtrodden by a racist, uncaring society. It's just that these potential buyers are backwards on their "cool" SUV, they're freaked by gas prices AND there are plenty of fun, frugal alternatives. I mean, there will be. You know; next spring. 

 Sure, there are plenty of old school muscle car guys (Group One) that wouldn't buy a "little rice burner" if you offered it to them for $100 and threw in a case of Jackie D. But they aren't the Camaro's core demographic. And the core demo is tapped-out and moved onto a Scion tC, or an Altima Coupe, or at the more expensive end of things, an Infiniti G37. At best, the Camaro can carve out a big slice of small– and rapidly diminishing– pie. Once again, GM's timing sucks.

Even worse, The General looks set to, once again, turn its back on its sense of identity/history. The last time gas prices whacked distinctively American cars, Detroit neutered everything. Responding to fuel price escalation, they fit their mid to late-70's land yachts with woefully-underpowered engines. In the face of the current gas crisis, GM "tempts" us with talk of a Camaro with a turbo-charged four-cylinder Ecotec engine.

While it's impossible to imagine a Camaro as bad as the old Iron Duke, the turbo 4 runs the risk of either being craptastic, or too good and thus killing V6 Camaro sales. GM made this bed. One way or another, they're going to have to lie in it. But that's no reason to lie about it. Trying to pretend the new Camaro's a Futon couch instead of California King-sized four-poster will fool some of the people some of the time, but not many. This is the time that GM must stick to its guns and get the marketing mavens to earn their crust.