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.

July's temperatures may have been hotter than Hell, but U.S. new car sales were in Hell. Rising gas prices have thrown the entire American auto industry into turmoil, flooding the market with used SUVs and pickups, cratering residual values and trapping millions of consumers in light truck limbo. At the same time, automakers can't ramp-up production quickly enough on those fuel-sipping models that are leaving the lots. Incentives aren't moving the metal, but NOT increasing them would be worse. The downturn is widespread. And despite what the automakers say, it's going to get worse. Soon. For now, here's the damage report. 

Overall, U.S. light vehicle sales were down 13.2 percent from last July, down 10.5 percent overall from last year. That breaks down into a 0.3 percent drop in passenger cars and a 25.8 percent drop in truck sales. Year to date (YTD), car sales are down only 1.5 percent. But Detroit's still-truck-centric Big 2.8 are taking it on the chin, with truck sales off by 19.3 percent. 

Family Sedans

Chevy's Malibu* continues its strong showing against last year's lackluster model; up 78.6 percent in July and 37 percent YTD. Ford's Fusion also booked a healthy increase, up 13.5 percent for the month, 11.9 percent for the year. Chrysler's 300 continues its slide into the dumpster, dropping 57.6 percent below last July and 39.1 YTD. The Toyota Camry* leveled off, finishing July 1.5 percent; it's a wash YTD. Honda Accord sales continue to outpace last year, finishing the month 11.4 percent ahead and 12.6 percent better YTD.

Compacts

Compacts' popularity continue to soar. The Chevy Cobalt was up 3.5 percent, 16.4 percent YTD. The Focus is once again Ford's most popular car, racking up 15.6 percent more sales, up a full 26.2 percent YTD. The Dodge Caliber bucked the trend, dropping 9.4 percent for the month, down 1.2 percent YTD. The Toyota Corolla** increased sales by 15.9 percent, but fell down 1.3 percent YTD. The Honda Civic* was up 4.6 percent, 16.1 percent YTD. The Nissan Sentra finished the month up 16 percent, 5.3 percent YTD.

Subcompacts

The up-and-down Chevy Aveo was up 16.9 percent ahead of last July, but only 1.4 percent YTD. Toyota's Yaris showed a  6.1 percent increase for the month and a 34.1 percent jump YTD. The Honda Fit also experienced a meteoric rise. Sales were up a staggering 93.4 percent in July, 72.9 percent YTD. Nissan's Versa rose 14.4 percent above last July, up 19.6 percent YTD.

Prius

Toyota Prius ' demand continues to outstrip supply. Sales in July were down 8 percent from last July.  Annual sales are down 3.9 percent.

Pickup Trucks

And now the bad news… Chevy's Silverado* plunged 29.8 percent from last July, down 26.1 percent YTD. The Ford F-Series isn't doing quite as badly. Sales off 20.6 percent on the month, down 22.4 percent on the year. Even with dealers running half price sales, the Dodge Ram sank 27.2 percent, down 30.0 percent YTD. They're all doing better than the Tundra. ToMoCo's full-size pickup dropped 42.1 percent from last July. Sales are down 15.2 percent from last year.

Truck-Based SUVs

There's only one thing that can make pickup sales look good: SUV sales. Chevy's Tahoe* is down 35.1 percent for the month, off 27.8 percent YTD. The Ford Explorer has lost its way, finishing the month down 51.8 percent, minus 35.6 percent YTD. The biggest loser: the Durango. The Dodge Boys sold all of 384 units in July. Sales tumbled 84.5 percent, down 51.3 percent YTD. Toyota Sequoia sales continue growing, with an increase of 62.9 percent from last July, up 32.8 YTDr.

CUVs

The once and future Next Big Thing wasn't. Sales of the GMC Acadia, the best selling of the Lambdas triplets (soon to be quints), dropped  5.2 percent. Healthy sales from earlier in 2008 kept the model 6.6 percent ahead of last year. The Ford Edge continues edging down, dropping 6.5 percent. Again, it's a recent phenom; sales are up 13.8 percent YTD. Even with a hybrid model available, the Toyota Highlander* dropped to its lowest level in three years. July sales slid 23.7 percent, down 7.4 percent YTD. The Pilot made a strong "contribution" to Honda's 22 percent drop in truck sales; it was off 43 percent, down 21.1 percent YTD.

By Manufacturer

Deep breath. GM sales plunged 26.1 percent for the month, down 17.7 percent YTD. Ford had the best showing of the D3, dropping "only "17.1 percent. Year to date, they're off 14.8 percent. Chrysler didn't have a lot to start with, but they still managed to finish 28.8 percent below last July. For the year, ChryCo is down 22.8 percent. Toyota's starting to get used to the negative side of the sales ledger, falling 11.9 percent, down 7.6 percent below last year's mark. And, showing they're not invulnerable, Honda lost 1.6 percent from last July. They're still 3.2 percent ahead of last year.

Down the Road

Here come the "please God clear this lot of '08s" rebates and  incentives. While Toyota, Honda and others are selling all the small cars they can produce, GM, Ford and Chrysler can only respond to current demand with the promise of new, highly competitive small cars. They won't come on-stream in force until 2010. Meanwhile, August is going to be brutal and then… winter. What's beyond brutal?

*Include Hybrid models
** Includes Matrix

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! 

Ten Best Nominations Are Now Closed

The truth hurts. But not always. Sometimes the truth about cars is the key to genuine insight and automotive ecstasy. This is one of those times, when TTAC's Best and Brightest select their annual Ten Best automobiles. In other words, this is your chance to help the wider world discover genuine automotive excellence, and reward those who produce it with a much-deserved hat tip. The name of this collective endeavor changes, but the rules remain the same: you nominate the cars, our writers narrow your selection to 20, then you get the final say on the Ten Best [more details below]. But before we get stuck in, here's a recap of last year's winners…

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" 

Journalism professors counsel aspiring scribes to avoid deploying numbers in the first paragraph. It’s a sensible prohibition. Although statistics (a.k.a. facts) give journos the imprimatur of authority, nothing’s more narcoleptic than naked numerology. Which is just as well. My math skills are only slightly better than my ability to pilot a Gulfstream IV. But I know a man who regularly rides in the back of one of these airborne ego-carriers, and he’s an accountant. And the CEO of GM. For the weekend, anyway. The question is, who’s next?

Now that GM CEO Rick Wagoner’s mob have reported a $15.5b second financial quarter loss without offering a concrete, coherent plan to recover the company’s lost market share or staunch the arterial spray of red ink, Wagoner’s time’s up. COO Fritz Henderson is generally tipped for the top slot. While the financial community likes Fritz, handing Wagoner’s hand-picked successor the keys to the not-so-magic kingdom would be yet another monumental mistake.

Henderson is, nearasdammit, a Rick Wagoner clone. Though Henderson’s five years younger at 50, both men are accountants. Both men have Harvard MBA’s. Both men occupied GM’s Beancounter-in-Chief (CFO) position (i.e. managed GM’s inexorable decline). Both men can read a spreadsheet like walking a dog, but can’t spot a dog [product] if it pissed on their highly polished brogues. 

Bottom line: Wagoner and Henderson define the world through numbers. While Global Product Veep Bob Lutz’ epic fail indicates that GM needs a red-blooded “car guy” at the helm like they need another Lambda-platformed crossover, now is the time for big ideas, not big numbers. (God knows there are plenty of THOSE hitting the fan.)

One of the big ideas that GM needs, as it goes into and through bankruptcy, is change. If Rick Wagoner’s tenure has taught us anything, it’s that GM’s business model is completely busted. The artist once known as the world’s largest automaker simply can’t continue designing, building and selling vehicles as they have for the last 100 years. Bureaucratic fiefdoms, union intransigence, crushing overheads, lackluster products, over-generous executive compensation, scattershot marketing, superfluous brands and more— EVERYTHING must go.

The salient fact here: Fritz Henderson’s worked for GM since Michael Jackson burned his scalp for Pepsi (1984). He is, in effect, a GM lifer. In terms of the old debate about whether radical reform is best accomplished from within or without, give me a break. The chances that an executive born of GM’s corporate culture will completely destroy that culture are about as great as the chances that Zimbabwe’s Robert Mugabe will suddenly champion genuine democracy.

Like Ford CEO Alan Mulally, The General’s next general should be ready, willing and able to abandon vast swathes of territory. In fact, GM’s leader must accept the fact that The General’s global dominance is dead, and it ain’t coming back for the next ten years (at least). By word and deed, he or she must communicate to the remaining employees that any aspirations in that direction are a dangerous fiction.

The new (yes new) goal: a return to profitability, whatever it takes. If GM must reduce itself to two brands, if GM must constrict until it can make its nut on a 10 percent market share, so be it. A piercing glimpse into the obvious, perhaps, but the wider point is that GM must experience a cultural revolution.

As always, real revolution starts with chaos. To liberate the talent locked-up within GM, the new CEO must fire ALL the suits nurtured by GM’s existing entropic structure. If Bob Lutz and Fritz Henderson are reluctant to unfurl their golden parachutes, the new CEO must push them out of RenCen's executive suite with extreme prejudice. As Machiavelli counseled, the cuts must be deep and profound, leaving not a single member of the old guard to undermine reform.

Many of TTAC’s Best and Brightest have suggested that GM should move its corporate HQ from Detroit to the left coast. This is exactly the kind of take-no-prisoners thinking GM’s new boss must bring to the job. Wagoner and Henderson are oblivious to symbolism’s importance to GM’s future, and the need to communicate forcefully and effectively to all of GM’s stakeholders. Unlike Ford’s Mulally or Chrysler’s Nardelli, GM’s new broom must be a great communicator.

Ultimately, GM’s slide into disaster is a story of personal failure, of board members and CEOs who couldn’t tell their ass from a hole in the ground.  If the American automaker emerges from C11, it will be a story of the personal triumph of its new CEO. GM’s survival is not a question of numbers on a screen. It’s a question of leadership. Fritz Henderson is no more the man of the hour than Rick Wagoner. So, who is?

Oil shock version three-point-something is roiling the global economy. SUVs are doing a fair imitation of the dinosaurs in Fantasia. As the U.S. auto industry undergoes a rapid, convulsive, paradigm product shift, I feel a slight pang for T-Rex: the Chevrolet Suburban. I hope this example of the species pulls through. The SUV segment may be history, but the Suburban IS history.

In the last thirty years or so, GM's cycled through product names at a fearsome clip. The Suburban is the exception; it’s been in The General’s lineup for sixty-plus years. Even more astoundingly, it's hardly changed. It’s always been a very large enclosed truck (originally called a “station wagon”), skirting the line between personal and commercial vehicle.

During those years, panel vans were America's urban workhorse. And there have always been jobs requiring more power or rough-road ability. Built for the great American outback, the Suburban was blue collar to its bones. The Car Talk brothers have joked that the Suburban should have been named the Chevy “Rural;” “suburb” wasn’t far enough out (even in the sixties).

The basic “covered truck” design carried through the years. The Suburban didn’t get much bigger, but the cars got a lot smaller. By the nineties, the Suburban was a true dinosaur: body-on-frame, large overhangs, freakishly huge engine, you name it.

The big-ass ‘Burban held one trump card: it drove like a pickup truck, not a panel van. While the 'Burban occupied huge chunks of the road, the SUV was reasonably easy to keep on it (parking the behemoth was another matter). Even Consumer Reports praised the road manners of later models (if not the brakes). 

No one is exactly sure what kicked off the boom at the huge end of the SUV market. Jeeps, Broncos and Blazers had been steadily carving out a nice little niche for themselves in the snow belt, the mountains, the midwest and the plains of Texas. And then, suddenly, sales for the Chevy Suburban went crazy.

I’ve heard tell it was a survey that named the SUV the safest vehicle on the road (four tons of not-too-tippy metal will do that) that pushed the Suburban over the tipping point. The built-like-a-brick-shithouse Suburban also held its value incredibly well. The much-bemoaned Corporate Average Fuel Economy "light truck" fuel economy exemption sure didn't hurt sales. Or the fact that the price of gas remained incredibly cheap (relative to incomes). 

Sometime in the 70’s, half the soccer team arrived at the field in a Suburban, albeit one kid at a time. Having conquered its namesake, the Suburban belated tried to become worthy of the crown. 

Over the next decade plus, GM slowly honed the old work horse’s roughest edges. They couldn’t do much about the size (that was the Tahoe) or the mileage (just barely double-digits), but amenities arrived. GM made the so-called “Texas Cadillac” into a real one (and a GMC to boot). Environmentalists moaned. Safety experts wailed. And still they sold.

With profits approaching five figures per vehicle, challengers for the champ arrived in force. Ford finally won the “mine’s bigger than yours” contest with the Excursion, which was slightly bigger, just as thirsty, far more ungainly and a lot tippier than the 'Burban. The Excursion went into the books as proof that even Americans have limits. The Suburban partied like it would always be 1999.

When gas prices started creeping up, the GM sheltered behind the need for “utility.” They also started a trend to keep the metal moving that has yet to play out: discounts, incentives and low-rate financing. Five plus years later, it’s clear that most of those 'Burban buyers never needed that so-called utility. Turth to tell, the Suburban will always be a compromised car/minivan. But as a “just shy of totally commercial” work vehicle, it was– and is– divine. 

A common tale of the Suburban’s power: you can put your whole race team in it, stash the tools in the cargo bay and tow your race car to the track. With that kind of load, eight to ten mpg looks pretty efficient. 

I wasn’t sure if this was an apocryphal advantage until one of my ESL students drove a Suburban to Buffalo/Niagara Falls. The truck carried the entire Japanese staff of a tier one Honda supplier and their luggage, and towed the boat for their “retreat."  He had instructions from his boss “don’t try to go around any trouble.” The trip made quite an impression on the driver; he looked into buying a Suburban when he transferred to the States (only to be saved from financial ignominy by an attack of sanity).

OK, here it is: I love that old brick. The piggish, plenty-powerful Chevrolet Suburban forces you to stretch your horizons to find a task worthy of its capabilities (and justify the fuel bills). These days, ten grand will buy you a nice, clean, relatively low mileage example. I can’t quite justify one, and my life is the poorer for it.       

Once a car salesman “data captures” you, the calls never stop. Some are rude. Some are sweet. All are pushy. The salesman’s goal: get the sale. Meet the quota (placate the Alpha Dog). Pay the bills (placate the Ex). In America’s cratered new car market, the chances of a car salesman making his nut are only slightly less than that of a squirrel in the Ice Age. Has this stopped dealers from getting up to their old tricks? Hell no. If anything, they’re abusing their customers MORE. Still, if you know how to handle the heat, this is The Mother of All Buyer’s Markets. Here’s how to work the system…

Back in the good old days (for the dealer), when the salesman saw you walking away from a negotiation, they considered it the end of the deal. Hence their “reluctance” to let you go (a.k.a. “We lost your car keys”). While dealers’ “take lots of prisoners” approach is still in force, today, there’s no escape. Phone calls and emails, and emails and phone calls, are headed your way. The good news? All those years of incentives and finance offers have trained salesmen that the deal is all about price. And the price has nowhere to go but down.

So, patience. In a buyer’s market, you hold the cards. For the foreseeable future (well into 2009), the longer you hold them, the more valuable they become. Accept the fact that your purchase should take place over the course of days, maybe even weeks. Again, the greater the delay, the better the deal.

There two types of car customers: “show horse” and “work horse” buyers.

Show horse buyers are looking for one type of car, in one type of color, with a very specific set of options. They’re a dealer’s wet dream.  You want a BOSE DVD video navigation system in that minivan? Well, OK! Let’s find you one with option X! Dealers dedicate their lives to “upselling” customers on manufacturer-created option “bundles.” Sound systems, safety packages and other works of “in” technology are carefully packaged so that show horse buyers pay through their proverbial snout for that one cool feature they really, really want.

Salesmen kill to put customers in this psychological/financial box.

The same game applies to paint and trim. When John Q. tells a dealer they will only consider one combination out of hundreds, they effectively eliminate 95-plus percent of the alternative vehicles out there. That gives the dealer, and the parent manufacturer, an awful lot of leverage. For the pistonheads and car lovers amongst us, option and paint specificity is our Achilles’ heel. Overall, the more “choosy” you are, the more you’re going to have to pay. Period.

So don’t be a show horse buyer. Even in today’s doldrums, you’ll save thousands of dollars by tempering your lust with the knowledge that even “dream cars” becomes just another car in a year or two.

The workhorse buyer has the upper hand. They may prefer two or three models. Or they may have several good fits. They may want to consider a wide range of options, paint or trim. Or perhaps just a few combinations. Either way, they understand the most basic law of supply and demand. The broader their taste palette, the better their overall deal.

Take a lesson from the ultimate work horse buyers (also my favorite type of customer): commercial firms. When a corporate purchaser receives a request for three pickups with only a few specifications, they can play the entire field in the pursuit of the deal. They realize the simple fact what’s on the lot has to go out the door. Deal with what they got. If they ain’t got it, or the price is wrong. Move on.

However there is at times an even better avenue than that for the ‘workhorse’ buyer.

As Tony Blair would have said, there is a middle way: the “demo.” Cars set aside for customer demonstration (a.k.a. test rides) often offer better warranties than the new cars on the lot; demos are almost always certified models. The best ones are loaded, owned and driven by high ranking members of the dealership (or their spouses). They see little more than the daily commuting duty. If you’re a show horse who wants all the bells and whistles, and can wait ‘til the end of model year, demos can provide a full list of options for several thousands less than an identical new model.

After more than a decade as an auto auctioneer and car buyer, I would argue that flexibility, honesty, mutual respect and patience are the best lubricators for a successful negotiation. Regardless, the bottom line never changes: the only power you have as a buyer is the power to walk away. Now more than ever, use it.

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 aftermath of Black Hole Tuesday (June ’08 sales numbers), a big story got lost in the vortex. Yes, The Big 2.8 tanked, Toyota and Nissan took hits to the jaw and Honda was proclaimed the new Messiah. But June’s unsung winner puts Honda’s accomplishments to shame. In the midst of a violently contracting U.S. new car market, Hyundai-Kia (“HK”) kicked ass. And that butt-whooping is a direct threat to Detroit’s survival.  

Forget Honda’s 1.1 percent June increase. HK sakes jumped 3.5 percent; its best month ever. Its 28 percent profit growth in the first quarter dwarf’s Honda’s eight percent increase. Even more significantly, HK knocked Honda out of the global number five spot. And ominously for GM and Ford, Hyundai’s dramatic growth has become a crucial obstacle to success with their belated shift to smaller cars.

For decades, Toyhondissan has represented the evil empire eroding the reign of the house of Detroit. But as the Johnny-come-lately party crasher, Hyundai-Kia’s damage has been swift, surgically-precise and (potentially) deadly. HK’s share of the US market is up to 6.6 percent, surpassing Chrysler’s passenger car share (5.2 percent) and closing in on Ford’s 10.2 percent.

Hyundai’s Sonata handily outsold GM and Ford’s great white hopes, Malibu and Fusion. Add in the similar Kia Optima, and the HK twins are right at Altima levels (24k/month). Yes, HK’s larger SUV/CUV’s were not immune to the market shift, but their smaller cars more than made up the difference: Accent up 70 percent, Elantra up 50 percent.

And it’s not just the bigger and older brother in the family that’s hitting on all its (Tau V8) cylinders: Kia also had its best month ever, selling 28k cars, up 7.6 percent.

But the really big show is on the global stage, and that’s where HK is kicking serious butt.

HK is by far the fastest growing major car manufacturer, period. Rising from the number eleven slot in 1999, HK passed Nissan in ’05. In ’07, it passed Honda to join the ranks of the G5: Toyota, GM, VW and Ford. Although the jump from HK’s 3.9 million global units to Ford’s 5.9 million is daunting, don’t assume HK are happy where they are.

What’s driving HK’s industry leading global growth? Sheer will-forces, it would seem. The rapid Korean industrialization literally created the term “Asian Tiger.” And while Korea Inc. has clearly had Japan Inc. in its visor, Hyundai has Toyota in its. It may be indulging in stereotypes, but Koreans are noted for their stubborn and tenacious aggressiveness. Does that not perfectly describe Hyundai?

Here’s a company that boldly plunged into the U.S. market just over twenty years ago, setting records for a new brand introduction– only to have their hats handed to them over quality and reliability issues with the Excel. But they tenaciously stuck with their program of continuous improvements (I’m looking at you GM) to shed their shoddy image.

And now HK have an enviously complete line-up of cars and CUV’s including the rather remarkable rear wheel-drive Genesis sedan and Coupe (2009). Yes, TTAC’s review of the Genesis gave it three stars for its vanilla flavor. But the Genesis program is another substantial step forward. Keep in mind, Hyundai aspires to be the next Toyota, not BMW. In that context, the Genesis sedan is a remarkable accomplishment.

The Genesis Coupe raises the bar even higher: a potential segment buster; something that Toyota can only look enviously upon. And there’re more goodies in the pipeline: the Kia Soul looks a potential gen1 xB successor, and the Kia Forte just looks…good.

While HK has carved out an enviable and solid position in the US, its global growth and reach is much more dramatic. The new i10 is the hot new developing-world mini, having taken India by storm, capturing the I(Indian)COTY award.

Huge new factories are coming on-line in China and India, and the rest of the world is booming for Hyundai. The i30 compact has been a substantial success in the difficult European market, with Golf-competitive looks and dynamic qualities. HK claims to have the most balanced global position of the Big Global 5. Their home market is still healthy, unlike the Japanese, US and increasingly, the European, markets.

Hyundai’s meteoric rise is another nail in the coffins of GM and Ford, both globally and domestically. HK is growing substantially faster in the developing world, blunting Detroit’s ambitions for profits abroad. Closer to home, Hyundai is part of Toyhondisshyunkia: a solid bloc controlling almost 50 percent of the U.S. passenger car market.

Ford’s coming Euro-global car line-up looks appealing. GM is… working on theirs. But will car buyers care enough to generate the market share, volumes and profits they desperately need? “Thanks” in part to Hyundai, I wouldn’t count on it.

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.

Chrysler Financial has pulled the plug on new vehicle leases. Given ongoing bankruptcy rumors, the automaker’s co-Prez immediately manned the PR barricades. Jim Press reassured the world that Chrysler is simply diverting lease subsidies into “traditional financing.” That way, “many customers” could enjoy “about” the same monthly payment that they “would have had” in a lease. Meanwhile, ChryCo spokeswoman Shawn Morgan sang the same old song. "Despite the challenges, Chrysler continues to meet or exceed its plan on all financial metrics." C’mon, really?

Talk about the smartest guys in the room! This statement assumes that Cerberus Capital Management knew the U.S. new vehicle market was about to implode when they bought Chrysler in spring 2007. If so, talk about disinformation! At the time of Chrysler's purchase from Daimler, Cerberus Chairman John Snow said: "Cerberus believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry."

Inherent maybe. But since that fateful day last August when Cerberus took ownership of the Pentastar, the domestic auto market’s gone south. South Pole in the winter south.

In fact, truck and fleet car-heavy Chrysler couldn’t be worse positioned for the economic downdraft. Its cash cows are dead; the slaughterhouse is backed-up with carcasses. Their revamped minivan is selling less briskly than the model it replaced. The new Dodge Ram is scheduled for a fall launch, but it won’t/can’t get out of the gate unless dealers can get rid of the old Rams– which are stockpiled to fences. Many Dodge dealers have trucks on the ground that have had birthday celebrations.

The numbers speak for themselves…

In the first half of 2008, ChryCo sales slipped some 250k units compared to ’07. That’s roughly a 22 percent decline. Chrysler’s truck sales are down 25 percent, the biggest loss of any major truck maker. The automaker’s overall market share has dropped 1.8 percent; it’s now less than 12 percent. We already know the impact of sagging sales and lost market share on Ford’s financials. Does Chrysler CEO Bob Nardelli really expect us to believe that his employer’s been meeting or exceeding its projections? 

To accept that assertion we’d have to ignore Daimler’s Q1/08 public financials. These stats suggest that Chrysler Holdings (including the automotive ops and the finance arm) lost a staggering $2.9b in a three month period.

Not at all says Chrysler. Daimler included a whole bunch of items which cannot be used to make such a calculation. We lost only $509m. One of those “excepted items” includes a $200m difference due to US and Euro accounting standards. So Chrysler didn’t recognize certain expenses but Daimler did? 

You’d be forgiven for thinking that under a more "aggressively conservative" accounting approach, Chrysler Holdings lost $700m in the first quarter, maybe more. Any way you cut it, it;s bad. Yet all we get from the CEO's office is an exhortation to ChryCo employees to “stick to the course we have set for ourselves for a return to profitability.”  

No one beyond Cerberus founder Steven Feinberg’s inner circle of executives and bankers knows the exact truth about Chrysler’s financials. In the absence of solid information from Auburn Hills about the automaker’s financial health, speculation about Chrysler’s future, or lack thereof, is running rampant.

And why not? It's clear that there ain’t no mo’ money available to the company. The bankers have put down their ten-foot poles and run. If the well runs dry, that’s it, the gig is up. 

Lenders to Chrysler’s suppliers, vendors and dealers are getting nervous. Extended payment terms, selective invoice discounts, and for some, delayed payments, exacerbate the tension. We’re told that there’s $7b in the kitty. But every dollar is precious. Prudent cash flow management or an internal scramble to manage the cash drawer to keep it from emptying? This could be the prelude to the “run on the bank” scenario RF mooted for GM back in Delphi’s dark days.

The dominoes will start to fall if and when a lender to a Chrysler supplier decides it doesn’t want to continue providing financing. Credit gets cut off. Facing extinction, the supplier puts Chrysler on a “payment on delivery basis.” The fire spreads. Every supplier insists on cash on delivery. Word gets out. Dealers stop ordering vehicles. Chrysler runs short of cash. Game over. 

To forestall foreclosure, Cerberus needs to publish Chrysler’s financials (including the financial arm). If the automaker’s doing better than we think, that’s great. We’d like to share in the brilliance of the turnaround. Chrysler’s camp followers will support Nardelli’s public proclamations. Dealers and suppliers will have more confidence in the company and the stewardship by Cerberus.

If the dark clouds of bankruptcy are hovering over Auburn Hills, well Ford and GM aren’t doing so great either. At least it’s out there for everyone to see. But Chrysler’s continuing drumbeat of plant shutdowns, employee layoffs, sales declines and now a cut-off of leasing just leads to speculation, none of it good. The question remains: how much of it is right?