To loan money to its lease customers, GMAC borrows the bucks from large-scale institutional investors. The money is backed by assets: the leased vehicles. GMAC "investors" are scared shitless [parphrasing] by the huge drop in Chrysler and GM products' residual values. But as bad as that is, the REAL fear is that Chrysler or GM will go belly-up. Once an automaker files for Chapter 11, the value of the leased vehicles craters deeply and completely, leaving the bankers exposed to billions and billions of dollars of EXTRA losses. There are lots of implications to this announcement. For one, as reported yesterday, GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. For another, GM owns 49 percent of GMAC. (Chrysler's owners Cerberus own the other 51 percent.) GMAC's exposure to the gap in residual values is around $3.5b. And another: Cadillac/Saab's inability to lease their vehicles is going to cost them BIG in sales and market share (GM's other higher dollar rigs will be hurt by a lesser but not inconsiderable extent). It's highly unlikely a third party lessor will step into the breach for GM, and Toyota/Honda/Nissan or any of the premium marques are not about to exit leasing. The key takeaway: GM's going to lose a ton of deals without leasing. Their decline and fall continues.

When Chrysler's employees got back from their forced "downtime," they found an email from El Jefe himself. In it, CEO Bob Nardelli welcomed them back and brought them up-to-date on what's been going on (like they hadn't been watching the news or reading TTAC). Boot "em Bob brags on things they've done, from donating to a NASCAR charity to receiving "the top ranking in the automotive industry in the NAACP's annual report card on corporate America's financial relationship with the African-American community." What's interersting: what he didn't say. While he mentions "reports on Chrysler Financial's annual process of renewing its credit conduit ," he doesn't comment on reports that say ChrysCo's in such bad straits they'll be facing much higher rates. He talks about "attractive offers" on Dodge Ram pickups– without mentioning the glut they're trying to clear. And then there's this bit about "creating partnerships and alliances to extend our portfolio, geographic reach and technology capabilities." Could Nardelli be setting-up the troops for another announcement about cutbacks, leading to a sale to Nissan or another automaker? We'll let you know as soon as we hear anything more. [thanks to you-know-who-you-are for the tip]

Click here for pdf of email 

When I reviewed the '07 Altima 3.5 SE, I concluded by posing the question, "Why in the world would anyone buy a Maxima?" Why indeed. The Pen-Altima far surpassed its big brother in power, handling and styling. Nissan had neglected the Maxima into a noisy Toyota Avalon with a cheap interior. Pity, because the nineties' version was a sort of lower-case-m-5: Japanese bento-box-styling with three tubes of wasabi squirted under the hood. Now Nissan's thrown the old Maxima blueprints out the window of a Nürburgring-blitzing GT-R. Four-door-sportscar? We'll see about that.

With full-sized pickups taking a hosing, manufacturers may be looking towards smaller trucks to stem the bleeding. But a recent test of five compact pickups by the Insurance Institute For Highway Safety (IIHS) shows that they don't share the crash safety advantages of their full-sized brethren.The IIHS' first-ever side-impact test of compact pickups shows that all but the barely-compact Tacoma (which scored a "good") offer sub-standard side protection in crashes. The Dodge Dakota/Mitsubishi Raider, Nissan Frontier and Ranger/B-series earned "marginal" ratings, while the Chevy Colorado rated a dead-last "poor." The IIHS says that side-impacts are the second most common type of fatal crash, accounting for 9k deaths last year. Accordingly, the Institutes say that small pickups have the highest rates of driver deaths in accidents "of any vehicles on the road, including minicars," and that the small trucks "aren't good choices for people looking for safe transportation…until they improve." Still, some of the improvements that the IIHS recommends (stability control, side airbags) will soon become standard on some of these trucks, and optional on others. But if you think a compact pickup is any safer than say, a compact car, this might just be your wake-up call.

Environmentally friendliness is the flavor of day in the world of marketing. But let's face it: eco-friendly claims usually begin and end with mileage and CO2 emissions. But what about the environment you occupy when you're driving your car? The Ecology Center has released its Healthy Car Report, which monitors toxic chemical levels in car interiors. Using a portable X-Ray fluorescence device, the Ecology Center tests 11 interior components on a range of new cars for toxic chemicals like Antimony, Arsenic, Bromine, Chlorine, Chromium, Cobalt, Copper, Lead, Mercury, Nickel and Tin. Some of the worst offenders? Mitsubishi's Eclipse and the Suzuki Reno, which have more Bromine than the salt marshes of Montpellier. The Kia Spectra has a particularly high lead count. And the Nissan Versa scores a worst-possible 5.0 overall thanks to a smorgasbord of toxic interior materials. For a complete look at the best and worst cars by class, check out the report's vehicles of most and least concern. Or, for an overview on the report, check out the Ecology Center's mildly sensationalistic video "Toxic At Any Speed." And enjoy that new car smell!

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.  

Bloomberg passed on an unsubstantiated report in Nikkei English News that claims Honda, Nissan and Toray Industries are teaming-up to develop new carbon fiber materials for mass-produced automobiles. Toray is the world's largest producer of carbon fiber. They're hoping to make it economically feasible to use the material in large enough quantities to reduce vehicle weights by up to 40 percent. Japan's Ministry of Economy, Trade and Industry is kicking in ¥2b over a five-year period to help fund the research. It didn't say if this project would be an extension of existing carbon fiber nanotube research, or if it will explore new materials. Either way, with new tailpipe and fuel economy regs in the offing, the race to add lightness has begun, plug-in hybrid or no.

It sucks to be a Chrysler brand franchisee right now. Trucks and SUVs are piling up on lots as dealers try to come up with ways to clear the inventory before the '09 models start rolling in. They have their work cut out for them. At the start of July, Chrysler/Dodge/Jeep dealers had a 160-day supply of Rams gathering dust. If that weren't bad enough, the stores have enough Nitros to last 143 days and enough Aspens to last a lifetime. I mean, 218 days. The Jeep Wranglers they couldn't keep on the lot just a year ago are now piled up 129 days deep. With an average of only 16 truck sales per Dodge franchise, 10 per Jeep franchise and four per Chrysler franchise in June, it may take them a while to dig their way out. But, as they say, misery loves company. Honda dealers are sitting on a 160-day supply of Ridgelines and Mitsubishi dealers are dealing with a 222-day supply of Endeavors. Nissan blows them all out of the water, though. If a 215-day supply of Xterras, a 229-day supply of Armadas and a 247-day supply of Pathfinders aren't enough, the "Lot Queen" crown goes to Titan: there's a four hundred eighty-nine (yes, 489) day supply of the Mississippi-made haulers sitting around. Blow-out clearance sales can't be far behind. 

BMW doesn’t need to advertise their “ultimate driving machines.” After decades building and selling vehicles offering sporting luxury, BMW has trained its customers to intuitively understand their products' appeal. Brands take years if not decades to develop, millions to billions of dollars to engender, and require careful stewardship to sustain. Contrary to much of this website’s commentary, GM’s management is not stupid. They know that Buick, GMC, Pontiac, Saab and Saturn are “damaged brands” in North America. But unless General Motors’ execs follow Bimmer's lead, and soon, the company will fail.

Branding isn’t metaphysics. It’s simple economics. Well defined brands lower the costs of customer acquisition and retention. Last year, GM spent some three billion dollars marketing and advertising in North America. But with eight supposedly unique brands, the vast majority of these dollars are wasted. (This doesn’t include the billions spent engineering and/or badge-engineering dozens of also-ran products to fill-out the eight brands’ portfolios.) Question: why bother?

In 2007, Buick/Pontiac/GMC’s combined market share stood at 6.4 percent. That’s roughly the same share as Dodge (6.6 percent) and only slightly more than Nissan (5.8 percent). Despite a largely revised lineup, Saturn’s mustered a 1.5 percent market share. Saab barely shows up at 0.2 percent.

These five GM brands combined account for 8.1 percent of 2007 total U.S. light vehicle. Honda’s U.S. market share was 8.5 percent. In other words, five of GM’s seven domestic brands (assuming HUMMER goes away) don’t even equal the total sales of a [growing] competitor with a single, well-defined brand image. 

All of these five money-sucking GM brands are damaged beyond repair. Buick’s website doesn’t even offer a strapline (“When better Buicks are built…”). GMCs are all Chevy clones. Pontiac is car? How generic can you get? Again, Saab isn’t on the radar– even if it is “Born from Jets.” Saturn never made money and consumers shunned/ignored/never heard about its recent Euro-flavored makeover. 

Here’s the rub: it’s too late to cut the deadwood. Even with GM’s four new “sales channels” (Buick/Pontiac/GMC; HUMMER/Cadillac/Saab; Saturn and Chevrolet), the automaker can no longer afford to euthanize its zombies. Chief Financial Officer (now COO) Fritz Henderson admits the math doesn’t work; the cost to terminate the brands (a decision that would launch a thousand franchised dealer lawsuits) and the loss of cash flow would doom GM.

It’s the ultimate quandary. GM can’t afford to bolster its brands with distinct and appropriate vehicles and effective marketing. But The General can’t not feed them– else the brands will wither and die and take GM down with them. This is, of course, exactly what’s happening right now.

Bankruptcy protection provides one way out: an escape from all GM’s dealer and brand commitments– at an unknown but cataclysmic cost to consumer confidence in the company. Otherwise, there’s only one option. GM must replicate their HUMMER strategy and stop all corporate support for Buick, GMC, Pontiac, Saab and Saturn dealers.

We’re talking about cutting off all product development and advertising– other than promoting current sales. Crucially, GM must also refuse to pay its franchised dealers to close; the store owners will eventually see there’s no future and take appropriate action to shutter their stores (i.e. disappear like Isuzu).

As GM slices spending on soon-to-be dead brands, it must also pour all of its remaining resources into Chevrolet and Cadillac. 

Any forthcoming product refreshes should be channeled into these two remaining brands. For example, the Traverse CUV remains a Chevrolet, the GMC Acadia and Saturn Outlook go away, and the next Buick Enclave becomes a Cadillac. In this case, GM pares four vehicles into two, and the Lamda- platformed Chevy and Caddy are clearly differentiated in price, design and amenities. 

By the same token, the Australian Pontiac G8 becomes a limited edition Chevrolet, while the rest of Pontiac’s lineup takes a dirt nap. The next Buick Lucerne becomes Chevrolet’s large car (which its current lineup lacks).

GM can and must rearm Chevrolet and Cadillac with unique, differentiated vehicles supported by marketing that best defines each brand. Vehicles that will make consumers stand up and notice.

Chevrolet can take the fight straight to Toyondissan with refined, value-priced Chevrolet products, boldly and widely marketed. Who knows? Chevy might even start a genuine American Revolution. Meanwhile, with unique styling, concentrated engineering and “American” comfort, Cadillac could return to its upmarket roots as the “World Standard,” competing with the Germans and Japanese.

As the Robert Burton said, there’s many a slip 'twixt the cup and the lip. There’s no guarantee that GM could survive with two excellent brands. But it’s a sure bet that it CAN’T survive with any MORE than two brands. The old adage recommending concentrated firepower is no less true for carmakers than military campaigners.

For the past six years or so, I steered clear of SUVs. A car guy bought cars. End of story. And now, suddenly, I want one. Not a cute ute or anything as sensible as a Honda Pilot, mind you (I'd rather ride a Vespa). But an authentic, gas-guzzling off roader: a Land Rover Discovery or whatever the stupid alphanumeric is for it now [LR3]. Or a Jeep Wrangler. I'd even go supervulgar and ride around in a Mercedes G500. Or a Toyota Land Cruiser, FJ Cruiser or Nissan Xterra. If a stick shift is available, even better. Not that I'd actually take my SUV off road. I just like the image. Is that so horrible? Does it really make me a bad person? I certainly hope so. 

Still not sure if GM should focus on Corvettes as it cuts the fat from its racing and motorsport budgets? Check out this video of GM development driver Jim Mero lapping the Nürburgring in 7:26:4. For those that don't keep up on these things, that's over two seconds faster than the Nissan GTR's recent headline-grabbing jaunt on the Nordschleife. And seeing as the Nürburgring is the longest, baddest track out there, this is no small accomplishment. Especially when it comes to challenging the European perspective that American firms simply can't build cars that go fast and handle well. Add the Corvette's competitiveness on the GT racing circuit (when it's running on regular fuel instead of E85) to the mix, and it's one of the few things GM (and the whole of the American auto industry, really) has to be proud of right now.

Mr Lieberman, and Mr Mehta, I have to concede defeat. There will be no running of the Audi V8 Uber-quattro at the Texas event, as I now posess a lump of modern art sculpted by Mother Nature herself, instead of an all-dominating all-wheel drive wonder. Recently, a fire started in the fields next to the Audi due to a severe lightning storm. The flames swept across the fields like the opening lines to "Oklahoma!" and turned the Audi into a Renault Fuego, complete with a fried fringe on top. The carbon fiber hood melted to form a really interesting mold of the now carbonized engine. At least the old Audi Fox GTI survived intact, an even more irreplaceable Teutonic masterpiece. I guess I can't be too despondent, as I have also learned the military will not let me compete, as I will be deploying to the Middle East shortly, where I will spend some much needed time flogging Nissan Urvans, and loathing over Hyundai Trajets. Good luck Sajeev, take video and pictures of the Lincoln of the Apocolypse to share with me, and the Best and Brightest.

With the traditional SUV well and truly toasted, automakers are going back to the drawing board to tempt consumers back into their AWD profitmobiles. Sales numbers indicate that two-mode hybrid SUVs do not return sufficient mileage to justify their high prices. Resurrecting the segment will require even more sophisticated technology. At least that's what Nissan reckons. The automaker's displaying its vision for THE SUV OF THE FUTURE! Yes, it's a fuel-cell-powered version of its X-Trail Ute. The Evening Standard reports that Nissan unveiled its alt power concept at London's Imperial College. The FCV X-Trail represents the pinnacle of Nissan's 12-year fuel cell development program. The fuel cell is 40 percent smaller than afore, motorvating the FCV X-Trail up to 300 miles on a tank of hydrogen. The hydrogen-battery electric drive is good for up to 93 mph in EV-like silence.Of course, the research model cost millions of dollars to develop and assemble. According to Nissan spokesfolks, "the cost of the system is still too high for mass production." Nissan engineers promise to sort all that shit out [paraphrasing] by 2015. Unless of course battery development outstrips hydrogen-based technology. Which it probably will.

Things are bad for Chrysler, Ford and GM. The Big 2.8 are burning precious cash, shedding valuable market share, choking on unwanted trucks, attempting to nurture (or excise) damaged brands and outmoded models, and struggling to bring relevant products to market. Bankruptcy looms large. And yet, there’s a silver lining to the recent, calamitous downturn in the U.S. new car market. But before we reveal the sliver of hope, let’s check in with the main engines of their destruction: Honda, Nissan and Toyota…

For Toyota, whose annual profits are more than twice GM’s entire market capitalization, the American consumer’s switch from light trucks to lighter cars is extremely annoying.

After investing some $2b in a brand new pickup truck plant in Texas, ToMoCo had to slash prices to the bone to move the metal. Now that their sales target is a cruel joke, they’ve backed off on discounting. Sales are sinking fast. Although Toyota’s still selling over 100k Tundras per year (at current rates), the plant was designed to build more than twice that amount.

As ToMoCo shuffles and “right sizes” production, the prescient addition of Camry production in Subaru’s space is paying off in spades. The “extra” capacity has allowed an increase in U.S. rental sales. Even so, the increase in total sales means the fleet percentage is well under 20 percent for the Camry/Corolla, which bodes well for maintaining the vehicles’ re-sale value (historically what kills fleet-queens). 

In this not-so-brave new market, Toyota’s biggest obstacle to further growth is structural; they can’t build popular models fast enough. The vehicle that best exemplifies gas-sipping, the Toyota Prius, can’t be constructed in anything other than a purpose-built (or highly modified) assembly plant. Equally important, battery suppliers must expand to meet the demand. Back when Toyota announced a target of over 200k Priora per year, there was talk of them being too ambitious. Turns out, they weren’t ambitious enough.

If the pickup truck debacle dented Toyota, it gutted Nissan. Even matching mad pricing only moved 80k Titans last year. With the ’08 numbers plunging off a cliff, Nissan is looking to get out of big-truck building (sourcing the Ram, if Chrysler’s still around). Meanwhile, the company’s juggling output to keep their factories busy. This is the first major market downturn since Nissan merger with Renault; it’s time to find out if they can thrive in adversity. 

The biggest issue Nissan faces in the U.S.: a lack of “first choice” vehicles. The Quest is off most minivan buyers’ radar. As good as they are, the Altima/Versa are on the tip of no one’s tongue. The Murano, one of Nissan’s only “stand out” vehicles, is slumping badly. The model’s thirst, extra size (without a compensatory third row) and cannibalistic smaller sib (the Rogue) have done it in.

So, while a truck-liberated Nissan will have the production space to grow, there’s not much hope for growth in the near future. 

Right now, Honda is the only major manufacturer increasing U.S. sales over last year– by about five percent. Offering a small-car heavy line-up has helped their bottom line. But so did limiting large vehicle production.

Last year, Honda changed over one line from making Pilot/sized vehicles to Civics. That left them with a natural cap of around 200k Pilots, Ridgelines and MDXs, and a similar limit on Odysseys. If the Odyssey outsells the Dodge Caravan this year, it will be a result of the Caravan falling (which it has been), not increases on Honda’s side.

All this shuffling freed production space to increase the sales of Civics, Fits and CRVs. The Accord is selling well enough, but there is a natural “cap” of about 450K. Given strong TL and Inspire (JDM US-style Accord) sales, they may not reach that. The limit on Civic sales are much higher; half a million would not be a shock. 

Even better, Honda is getting ready to open a new assembly plant in Indiana. While it has been listed to build Civics, it may directly or indirectly allow higher Fit sales. Even with a new plant online, Honda’s U.S. sales cannot get much above two million units per year without even more investment and time.

The good thing about this market-share-loss is that it’s mostly relative. Chrysler, Ford and GM have too many factories for what they sell, but they are also the only companies that could fill the gap if/when one of them shuts down. 

And there’s your silver lining. Assuming Chrysler's the first to go, assuming the American market doesn’t contract even more violently than at present, Ford and GM will be uniquely positioned to increase production to take-up the sales slack; which could be measured in hundreds of thousands. No one else has the necessary plant capacity. Last man standing. Dead cat bounce. Silver lining. Take your pick.

I lusted after Infiniti’s “Bionic Cheetah” from the moment I saw the renderings in a buff book (remember those?). After climbing behind the wheel of the first-gen FX, I knew that if I ever needed an SUV without cargo space or off-roadabilty, the FX45 was the truck crossover for me. For one thing, it was carved from a block of sex. For another, the stiff-legged handling was righteous. But there's a new sheriff in high center of gravity town: the FX50. Can Infiniti’s new model match the moves, let alone the lines, of it's much admired (by me anyway) predecessor? Well, lemme tell ya…