Bankrupt United States car parts maker Delphi has decided to temporarily close a plant in China’s Suzhou, the Hong Kong’s South China Morning Post (sub) reports. The factory west of Shanghai makes compressors for General Motors Corp. Delphi had been spun off from GM, as Visteon was from Ford, and Denso from Toyota. All with the (at least official) idea to supply other automakers of the world as well.

Unfortunately, it didn’t work out that way for the Suzhou plant: “The sudden and unprecedented decline in car sales globally has resulted in our only customer, General Motors North America, announcing plant closures and plant stoppages,” the South China Morning Post quoted from a statement by Delphi. “Unfortunately our only customer in 2009 is GMNA, and this has placed the Suzhou compressor plant in a very dangerous position,” the document continues.
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KBB/Carmax

1. Honda Civic /Honda Accord
2. Honda Accord/Honda Civic
3. Toyota Camry/Toyota Camry
4. Toyota Corolla/Ford Mustang
5. Nissan Altima/Nissan Altima
6. Honda CR-V/ Chevrolet Tahoe
7. Toyota Prius/Ford F-150
8. Toyota Highlander/Toyota Corolla
9. Toyota RAV4/Toyota Tacoma
10. Mazda3/Nissan Maxima
11. Toyota Yaris
12. Ford Escape
13. Honda Odyssey
14. Honda Pilot
15. Honda Fit
16. Ford Mustang
17. Chevrolet Malibu
18. Toyota Sienna
19. MINI Cooper
20. Volkswagen Jetta

…You know you’re in some trouble. The AP reports that local governments are adopting the kaizen principles that launched Toyota to the production efficiency monster it is today. And the bureaucratic nightmares which once defined government inefficiency are being massively reduced. For those who are not familiar with “the five whys,” the AP describes kaizen as “a way of thinking that diagrams a job step by step, puts workers at the center, gives them a sense of the total process they’re involved in, and then frees them to think of ways to best do their jobs.” Or, as the quality services director at the Ohio Department of Administrative Services puts it,”You cannot filibuster, you cannot stall. You look at this thing and say ‘OK, justify that.'” The concept has become the hot thing in local government the nation over. As one strangely-picked example goes, the average time to process death certificates in Maine recently dropped from 95 days to five after the state introduced kaizen principles. “We got calls from people saying they want to die in Maine now because they can get the death records so quickly,” claims a Maine HHS honcho. Any of those calls come from Detroit?

Thanks to stringent libel laws and gag orders, they used to do this crap all the time in the UK: run a media story about another media story without telling you what was in the original media story. In this case, it’s an pro-Detroit, anti-Toyota viral email that’s grabbed the attention of The Detroit Free Press‘ numero uno propagandist, Mark Phelan. The columnist is incensed– incensed I tell you– that someone is making the right case for Motown’s teat suckle using spin and, gasp, twisting facts. And just in case this amateur apologist needs some helpful hints, Phelan’s lede takes a shot at a certain southern senator. “With friends like these, who needs Alabama Sen. Richard Shelby? Shelby, of course, became the public face of contempt for Detroit’s automakers with his staunch opposition to congressional aid. Some of the Detroit Three’s would-be supporters may now inadvertently further damage the industry’s cause. There’s a slick viral ad making rounds by e-mail that attempts to defend Detroit’s automakers by showing that foreign brands aren’t all they’re cracked up to be. Riddled with distortions and lies, it could do more harm than good.” So spill sister! Some quotes please. Only one, but it’s a doozy.

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Automotive News [sub] ain’t committing themselves on this one, using typography to highlight that this is a list of ten small cars that could be coming our way. But they’re right to flag these cars as potential U.S. imports. When the U.S./world economy recovers, the price of gas is sure to ascend. Yes, when. Remember: automakers need to plan on a five-year timeline. To NOT plan for a recovery would be a mistake. And, as Detroit should have learned at least once in the last twenty years, any full-line carmaker worth more than $3b should not place all its eggs in a single vehicular basket. It’s an interesting list, but wouldn’t you really rather have a full-size Honda Accord or Toyota Corolla or, well, anything? And of course, I don’t mean you in the Chervolet Camaro sense. I mean you, as in 100k+ units per year. Or, put another way, how many competitors does the MINI need?

A short overview of what happened in other parts of the world while you were in bed. TTAC provides round-the-clock coverage of everything that has wheels. Or has its wheels coming off. For the next two weeks, WAS will be filed from Tokyo.

GMAC to announce real soon now. GMAC “expects to soon announce the results of a debt exchange offer that is key to North America’s largest auto finance company’s capital levels,” says Reuters, citing a GMAC spokesperson. The successful swap is crucial for GMAC to become a bank, and to get under the TARP. The debt swap deadline expired Friday as planned, spokeswoman Gina Proia said, adding that the company expects to put out the results in “the near term.” Sounds like Farago’s Option A.

Charge! Carmakers worldwide are turning into Energizer bunnies, and enact plan B as in batteries. Nissan and NEC will invest 100 billion yen or more to manufacture enough large-capacity lithium ion batteries to equip a total of around 200,000 electric and hybrid vehicles a year in 2011 or later, The Nikkei (sub) writes. Honda and GS Yuasa Corp. plan to construct a factory in Kyoto for  lithium ion batteries. Toyota and Panasonic are working on a joint-venture mass production of lithium ion batteries at a Shizuoka factory in 2009. Mitsubishi will start manufacturing lithium ion batteries in partnership with GS Yuasa. Volkswagen plans to develop automobile lithium ion batteries with Sanyo.

Getting real about EV: Taking the contrarian view, Bosch chief Bernd Bohr borrowed a line from Greenspan and cautioned against “irrational exuberance” when it comes to electric vehicles. “We should not tell the consumer that there will be an electrical vehicle in 2010 which is affordable and meets market demands” he said according to Automobilwoche (sub.) He expects small production runs before 2015, “but all will be heavily subsidized, either by the government or by companies that sell below cost.” Bohr figures, 80m units will be built worldwide in 2015. Of those, only 2.5m to 3m will be hybrids, and only 800K pure plug-ins.

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“Politicians and pundits always like simple answers. Unfortunately simple answers, as appealing as they are, are usually wrong. Life is inherently messy and complicated, which is something die-hard conservatives and liberal politicians never seem to understand.” Uh, OK. That’s the coda to an article by Joseph Szcesny. ToMoCo’s rise the top of the global pile and Detroit’s plummet into the depths of bankruptcy (in all but name) inspired the Oakland Press scribe to chastise all and sundry on a mid-winter Sunday. Be that as it may, it’s certainly true that “Toyota Motor Corp. is very likely to replace General Motors Corp. as the world’s largest automaker next month once all the sales for the 2008 are finally totaled up by both companies. Toyota is also expected to emerge for the first as the best selling brand in the U.S. for the first time ever, beating out both Chevrolet and Ford.” In fact, on the world stage, this is a repeat performance. Last year, GM used weasel words to cast aspersions on Toyota’s claim to the world’s largest automaker crown (GM added a minority joint venture in China to their global totals). At the time, GM CEO Rick Wagoner said the title wasn’t important; profits were. You can almost hear Red Ink Rick’s Szcesny-like refrain. Hey! Life’s complicated.

“It’s not a good situation, no matter what.” These bleak words come from Christopher Whalen, managing director of Institutional Risk Analytics [via compareshares.com.au]. Whalen is wailin’ on the impact of the Fed granting GMAC bank status, should the lender complete its debt-for-equity swap. And what’s up with that? The deal was supposed to be done by 11:59 last night. So far not a peep from GMAC, the Fed, Cerberus (who owns 51 percent of the troubled lender) or any of The Wall Street Journal’s people close to the people who need people are the luckiest people in the world. To paraphrase our own John Horner, uh-oh. Meanwhile, back to our notable quotable, who points out the blindingly obvious: “Christopher Whalen, managing director of Institutional Risk Analytics, said would-be customers are simply not buying cars. Noting that Toyota has just forecast its first operating loss in 70 years, Whalen sees no end to the slowdown… The difficulty many homeowners have had in paying mortgage bills has been spreading to credit cards and other forms of borrowing, including auto financing, Alpert said. ‘I don’t see that coming back anytime soon – people with impaired credit suddenly getting credit,’ Alpert said. ‘That, I think, is what has showed itself across the board with consumer spending.'”

Back in 2006, I sold a frugal friend a Volvo. He paid $2500 for the conservatively driven 1995 Volvo 940. It had all the records. Top quality tires. Volvo OEM components. A true cream puff for the true enthusiast. As fellow classic Volvo aficionados, we actually kept up with each other over the years. Him for advice and updates. Me because I enjoy the company. Unfortunately, two years and 45k miles later, his wife used a telephone pole to permanently customize the front end. The insurance company cut him a check for the original purchase price. With that money, he could have easily bought a car from a smorgasbord of good used cars in today’s market. But he didn’t… here’s why.

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One of the uncomfortable facts about the automobile industry: its pay rates have been exceptionally high almost from day one. That said, just how much of a factor worker wages (and the cost differences that go with them) have to do with Motown’s meltdown is debatable. One thing’s for sure: the United Auto Workers (UAW) refusal to re-negotiate their current contract– repeated within two hours of the President’s cramdown conditional bailout bonanza– puts it squarely in the firing line for both sides of the “debate.” When trying to understand their seemingly suicidal recalcitrance, history is our guide.

For all of its famous affect on “creating America’s middle class,” it’s important to remember that Henry Ford’s “five-dollar day” (actually a bonus program) was a solution to an intractable problem. Put simply, Crazy Henry had to hire 40k men a year to have 10k working.

There are two things that haven’t changed about auto assembly since those early days: assembly-line work is a grind (imagine doing the same thing, 500 times a day) and auto production requires a steady work force. The initial raise in pay was to give the worker a stake in sticking with a nasty job. Yes, the worker could be replaced. But replacing him slowed the whole process down.

While there have been epic debates, and not a little violence, over unionized automotive workers’ wages and conditions, they generally conform to a worldwide pattern. The type of union– “company” (tame), “trade” (often bribed into submission) or “Industry”– doesn’t have much effect on the outcome. Recent surveys revealed developed world hourly wages for assemblers as more-or-less equal. It’s the “other” stuff– health care and pensions– that makes the biggest difference.

In theory, the USA’s lower corporate taxes should compensate for the advantages enjoyed by automakers operating in countries where employees get their health care and pensions from their government. In practice, Detroit’s sunk by simple math. While The Big 3 have been reducing their total workers. their pool of retired ones has been growing. Ford, GM and Chrysler have more retirees than active workers. Which accounts for much of the “$75 an hour” numbers you hear quoted in the MSM.

Worse, The Big 3 have funded all these benefits on a pay-as-you go basis. Instead of setting aside funds to cover pension and health-care throughout a worker’s career, like a company-level 401K, Ford, Chrysler and GM have been paying their retirees out of current revenues.

This is the same “trick” the U.S. government uses for Social Security. But at least the tax base is growing (and not aging much). The Big Three have shrank and aged themselves into a huge problem.

In theory, the Mother of All Health Care pay-it-forward UAW VEBA fund should finally allow the 3 to put these “legacy” costs behind them (in another two years). Only they still have to fund the fund. Putting company stock in the fund in lieu of cash is going to be about as welcome a blanket smeared in smallpox.

Pay and pension issues can always be laid at the feet of the money-men, who never looked past the next quarter. Health care and pensions can be “finessed.” But union work rules are, apparently, forever. This could be Detroit’s Gordian knot.

Put simply, you can’t. The UAW work in accordance with a series of massive documents directly exactly what every employee is allowed to do, how they should do it and how it’s judged. Having to adhere to a book of rules that practically require a forklift (and designated “operator”) to carry makes anything resembling “management” a major undertaking.

But before we lay the blame completely at the UAW’s feet, let’s consider how management performed when the Union Slacker’s Guide to Life, the Universe and Everything didn’t apply. The California NUMI plant (Toyota Matrix/Pontiac Vibe) doesn’t count. Toyota runs the show there. Saturn is the exception that proves (i.e. tests) the rules.

For GM’s different kind of car company, The General hand-picked workers willing to dump the rules, and then had them build one vehicle for almost a decade. Later on, GM set up the Aztek/Rendezvous plant in Mexico (lower cost AND no restrictions). Bottom line: both ventures failed to sell enough vehicles to make their plants pay. As restrictive as the work-rules are, they seem to conform to standard Big Three thinking as much as management thinking conforms to them.

Perhaps the UAW’s greatest sin, then, is the fact that they’ve been “along for the ride.” More specifically, a seemingly endless supply of money has narcotized the union into suicidal apathy. Worse still, their public persona projects a sense of entitlement that’s toxic to all but their closest political allies.

The UAW’s protests that “we’ve done nothing wrong” is true as far as it goes. But not doing wrong is not the same as doing right. As we shall see.

Imagine your sell someone a house. It’s hard to imagine, I know, but humor me. You settle on a million. You sign. Papers are shuffled, titles researched. Three months later, at the closing, you get  a check for $780K. Imagine there’s nothing you can do. Your lawyers are shrugging their shoulders. $220K poof, gone. The same happens every day in international trade. Welcome to the strange world of world currencies. You sell something in Euro, Yen, Won or Rupees. You ask: “How much is that in real money?” And a few days later, it’s all changed. Such is the life of a global automaker.

Japanese automakers are increasingly anxious about the high value of their Yen. Sure, their holidays and green fees in Hawaii will get cheaper. But when the yen is high their profits from abroad evaporate.

For eons, one Yankee dollar was worth more than 100 Japanese yen. In August, the dollar cost 110 yen. A week ago, it was down to 87 yen. The change spills yet more red ink onto Japanese automakers’ ink-saturated books. Against the Euro, the picture is bleaker still. But the Japanese don’t have as much exposure to the Euro as to the greenback.

Toyota is especially jumpy: “High up among Toyota’s problems is the recent surge in the yen against the dollar and euro. Every ¥1 gain against the dollar results in about a ¥40b plunge in profits at Toyota. While the company made its initial forecast based on an exchange rate of ¥100 to the dollar, the US currency appears trapped around the ¥90 level, a 13-year low,” writes the Manchester Guardian.

If you don’t like thinking in yen, here’s the translation [via Business Week]. “For every one yen strengthening against the dollar, Toyota’s operating earnings are reduced by over $450m.” According to CNNMoney, “Toyota expects losses of about $2.2b due to currency exchange rates alone.” Meaning: If the darned yen wouldn’t have surged suddenly, Toyota would still make a small profit, instead expected losses for fiscal ’08 between $1.5b to $1.7b.

Yoichi Hojo, COO for business management operations of Honda, told the Nikkei [sub] “If the exchange rate remains firmly below 90 yen to the dollar, and depending on the number of vehicles we export from Japan, then there is a possibility our consolidated operating profit for fiscal 2008 will be less than the projected 180 billion yen.”

Hojo’s comments also highlight the fact that the exchange rate is a major driver in whether they’ll build cars at home or abroad. “If the exchange rate remains below 90 yen to the dollar, it would be advantageous for us to increase overseas production, and we would be forced to cope with the issue of reducing the labor force at our domestic plants. On the other hand, if the yen significantly weakens, we would have to increase domestic production and reduce costs at our overseas production bases.”

Locating, building and ramping-up of a new car plant takes many years. Who dares to predict where the dollar, euro, yen will be three years from now? If anybody would have predicted in July that the yen, the currency of that non-growth, zero-interest country Japan would appreciate against the Euro by 33 percent within three months, that person would have been committed. Only to be released four months later and bestowed with the Nobel Prize in Economics.

“So yes,” says CNN Money, “the news is history-making and head-turning from Toyota. But it also paints a gloomy picture of how deep Japan’s recession will be and how tough it will be to recover.” Again, the bulk of the loss doesn’t come from Toyota’s weakness, or the weakness of the market, but the strength of the Japanese currency.

All is not lost for ToMoCo’s honchos. The yen rose from 100 to the dollar (at which it is in the books of most Japanese auto companies) to 87 to the dollar in just six weeks, The Japanese fiscal year usually ends in March. With a little luck or some adroit central bank intervention, the dollar may be worth 100 yen again in March, and Toyota would be profitable.

Japanese officials all the way up to Finance Minister Shoichi Nakagawa have dropped hints that an intervention is possible. Nakagawa told reporters in Tokyo ten days ago that he has “the means” to limit the yen’s strength and is “keenly watching” developments in foreign-exchange and other financial markets, as well as the economy. Since then, the rhetoric’s got louder. But there’s been no intervention yet.

According to Bloomberg, the last time Japan intervened on its own, it sold a record 20.4 trillion yen in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen strengthened to 103.42 per dollar.

“I am surprised the Japanese haven’t intervened,” said Dennis Gartman, economist and editor of the Gartman Letter in Suffolk, Virginia. “Intervention to weaken your currency can be very effective.” Especially between the holidays, when the markets are thin. Or in March, when it’s desperately needed.

A short overview of what happened in other parts of the world while you were in bed. TTAC provides round-the-clock coverage of everything that has wheels. Or has its wheels coming off. For the next two weeks, WAS will be filed from Tokyo.

Japanese car sales down 30 percent: Japan is looking at “the worst December on record for auto sales,” the Nikkei (sub) writes. Only 161K autos (excluding minicars) were registered by Thursday evening. Unless a miracle happened on Friday, Japanese “sales of new cars are on track to drop almost 30 percent in December,” says the Nikkei. Sales dropped 5 percent in September, 13 percent in October, and 27 percent in November. For all of 2008, Japanese auto sales are expected to come in 7 percent lower. That would be the fifth consecutive yearly decline of the Japanese domestic auto market.

Fuji Heavy and Toyota getting cozier. Fuji Heavy, manufacturer of the Subaru, plans to join up with Toyota in the development of electric vehicles, Fuji Heavy President Ikuo Mori told The Nikkei (sub.) Fuji Heavy’s prototype electric vehicle is powered by a lithium ion battery from an alliance of Nissan Motor and NEC. They want to broaden their base of battery suppliers, and the partnership between Toyota and Panasonic would be among possible choices. Toyota holds a 16.5 percent stake in Fuji Heavy.

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A recent TV ad extols the wonders of the Cadillac CTS. Suddenly, the image zooms backwards and flips around to become a sparkling GM logo. “The CTS is made by General Motors,” the narrator intones. “Surprised?” I sure was. I mean, I understand the intended subtext: See? We’re not a total basket case. But as my father would say, if you’re so smart how come you’re not rich? Students of this series know that GM has plenty of answers to that question. The only thing neophytes should clock: none of these answers involve the phrase “we fucked up.” That and the fact that GM wants you to believe that their turnaround depends on building more cars like the Cadillac CTS. Uh-oh.

Don’t get me wrong. I like the CTS. It’s not a Bimmer beater or a Merc mauler or a Lexus liquidator. But it’s a fine car in its own right, especially at a discount. (Yes, there is that.) Just as the Chevrolet Silverado offers tremendous value-for-money, especially at a discount. (Yes, there is that). By the same token, the Chevrolet Malibu. And therein the problem: it is a token.

The vast majority of GM products– and there are over 120 of them– are, well… let’s not go there. There’s only so much J.D. Power Initial Quality Survey data a man can drink-in before it all starts to taste like Kool-Aid. So, back to my main point…

What’s with the blending of Cadillac and GM? Does anyone care that GM owns Cadillac? OK, given that taxayers will soon have a $13.4b financial interest in The General’s product portfolio, they might appreciate the heads-up. But GM’s paternal relationship with Caddy cuts both ways. On the upside, the CTS is GM’s automotive poster child. On the downside, the GM – Caddy hook-up rivals Jerry Lee Lewis’ first marriage to his cousin as “one those things with which marketing-minded folk shouldn’t bother the buying public.”

The CTS ad’s muddied message is symbolic and symptomatic of GM’s ongoing, endemic and abject inability to manage the core of its business. Cadillac is a far stronger brand than GM, which now stands for executive greed and incompetence, union intransigence, environmental foot-dragging, failed manufacturing, back-room politics and corporate socialism.

Cadillac is such a strong brand– still– that all it really needs is world-class products. Even if you put the CTS in that category, that leaves nothing much worth talking about, never mind buying.

GM is supposedly addressing this deficiency with the new SRX. The view from here: the SRX will be the CTS of luxury utes. It will offer plus-sized comfort priced higher than smaller, less expensive foreign competitors, for less than the cost of its larger, more expensive foreign competitors. How great is that?

Not as great as a no-compromise f-off sedan with presence, power and panache. That’s the popular conception of a Cadillac, as witnessed by the success of the blinged-out, gas-guzzling Escalade (to each their own in the panache department). In fact, all GM had to do with Caddy was build the world’s best automotive products and charge customers exorbitant amounts of money for the privilege of owning them.

Of course, GM can’t do that now. Now that the American automaker’s mortgaged its future to the suckle on the taxpayer teat, Cadillac is hemmed-in by GM’s need to satisfy its new owners: the democratic party. These days, Caddy’s alphanumeric model names might as well start with the letters PC.

This folks, is GM’s strongest brand. Saturn’s branding is in such a shambles that GM’s own TV commercial shows a customer who thinks he’s in the wrong showroom. Buick is dead. HUMMER and Saab are… never mind, GM’s selling/starving them. GMC? Pontiac? Chevrolet? When it comes to branding, GM ain’t got game.

Never mind a “viable business.” Can an American car company survive without viable brands? Not in this market.

I don’t mean a market suffering from seemingly terminal consumer constipation. I’m talking about an automotive arena filled to the rafters with a wide range of highly-focused automotive brands. From Toyota’s reliability rep to the MINI’s fun factor, from unattainable Ferraris to stack ’em high and sell ’em cheap Hyundais, there’s no niche left behind. Without a single compelling brand, GM is nothing more than taxpayer-funded chum in a shark-infested ocean.

So what’s Cadillac’s killer app? The CTS. And what’s CTS’ killer app? Cadillac. That’s the kind of self-referential logic with which it’s impossible to argue and, it seems, impossible to eliminate. But GM’s fortunes depend on better branding. Until and unless GM masters the art of creating and sustaining a tightly-focused automotive brand or eight, they are simpliy killing time. Even as they are slowly, gradually, inexorably killing the only truly valuable assets they’ve ever owned.

A short overview of what happened in other parts of the world while you were in bed. TTAC provides round-the-clock coverage of everything that has wheels. Or has its wheels coming off. For the next two weeks, WAS will be filed from Tokyo.

Hyundai up for sale: According to Reuters, the 11 shareholders of Hyundai Corp, “are planning to offer a 50 percent stake plus one share” (i.e. a majority) to an interested buyer, at the paltry price of $127.6m. South Korean banks and a state agency, led by KEB and Woori Bank, own a combined 87.95 percent stake in Hyundai Corp after bailing out the former unit of the Hyundai Group in 2003. According to readily available information, Hyundai Corporation is composed of five divisions: Automobile and Electrical Equipment, Ship and Machinery, Steel, Brand and Commodities, and Natural Resources. However, the Reuters article refers to Hyundai Corp. as a “trading and resources-development company,” or an “energy developer.” Something doesn’t compute quite yet. The story bears monitoring. Nothing yet on the other wires.

Mazda sends U.S. workers home: Mazda plans to place about 400 workers at its joint venture plant in the U.S. on temporary leave starting in the middle of next month as part of ongoing production cuts, the Nikkei reports. In addition, Mazda began scaling back output of the Mazda2 subcompact, known in Japan as the Demio, at its joint venture plant in the Chinese city of Nanjing this month.

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What if they held a North American International Auto Show (NAIAS) in the middle of Detroit in the middle of the winter and the Japanese manufacturers’ CEOs didn’t go? We’re going to find out what that means this year, as The Detroit News reports. “Toyota Motor Corp. confirmed earlier this week that CEO Katsuaki Watanabe had canceled plans to travel to Detroit… Previously Honda Motor Co. and Nissan Motor Co. said their chief executives would not attend. The companies did not give reasons, but officials say they expect the crush of reporters covering the Detroit show will focus almost exclusively on the industry downturn and the U.S. automakers’ difficulties.” So they’re running scared? Uh, I think that’s what you call “projection.” Another explanation comes from Joseph Serra, senior co-chairman of the NAIAS and president of Grand Blanc-based Serra Automotive Inc: “What’s possibly happening now is that, out of respect for the Big Three, they don’t want to upstage anything right now.” So they’re running scared? You know, from anti-transplant blowback. That sounds more likely, especially given the transplant’s low profile and quietly supportive demeanor during GM and Chrysler’s very public, shameful jostling at the billion dollar bailout buffet. Another another explanation: all those NAIAS unveils cost big bucks and sap a lot of time from execs’ scheds. Occam’s razor that.