Germany’s industry rag Automobilwoche [sub] is running an interesting ballot. “Who do you think would profit the most if GM goes bust?” (or German words to that effect). The options are kind of odd. Only Ford, Renault/Nissan, Toyota, and Volkswagen are eligible. But keep in mind, Automobilwoche is a German rag. They could have asked “What if Opel would die?” But they didn’t. Do they know more than we do? 846 souls have voted so far.

As reported here, Daimler AG plans to increase its sourcing of automotive components from China nearly eight-fold within four years. The luxury car maker will buy $3.25b worth of car components per year in China. Now, BMW is itching to get in on the act. Not that BMW is new to buying parts in China, they have done that for years, mostly unbeknown to their well-heeled customers. BMW and Daimler are in talks to create a huge buying co-op. They want to create critical mass, and drop the bomb on their Chinese suppliers, the German Handelsblatt reports. By concentrating their buying power, Beemer and Benz intend to save €350m per year, in discounts alone. To assuage their American clientele, they say that they will also extend the stingy hand of their allied purchasing departments to parts suppliers in the U.S.A. However, with the dollar high and U.S. parts manufactures dead, or on the brink of extinction, the BMW/Mercedes buying axis is squarely targeted at China.  The “deeper discounts” news from Deutschland already has Chinese parts makers atwitter and alarmed. Here is why ….

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Do we need an American automobile industry? And by American, I mean those manufacturers, suppliers, and associated vendors owned and operated by US citizens – red blooded, football-loving, meat and potato types. (Ok, that’s a stereotype, but you know who I’m talking about.) I submit that it’s in our national interest to keep it alive and moving forward. Farago disagrees completely (editorial to follow).

For now, we’re going to ignore the mechanics of rescuing Detroit. Or discussions about saving two of the companies and letting the third one go (back) to the dog(s). And we won’t even raise the question of how silly it might be to let Nancy Pelosi-– from San Francisco– to lead the charge to shovel your money to Detroit. So don’t go there; TTAC’s got that discussion covered already. Nope, this is a purely philosophical discussion about the merits of a home grown auto industry. So here goes…

Transportation provides the arterial network of moving people and goods around this country. It’s a darn big country, and most of it has been developed and organized around personal vehicles. Not trains, planes, or buses. The Unites States has more vehicles per capita than any other country in the world: 765 units per 1,000 population (from the United Nations Statistical Yearbook). England, by comparison, has only 426 per 1,000 pops. More new vehicles are sold in the United States than in any other country by millions. (China is the closest at 10 million units – but they’ve got four times the population of the USA.)

By any yardstick, the Unites States is the biggest and most prolific user of automobiles of any country in the world today.

It’s also the richest vehicle market in the world. American’s buy more “vehicles” (in terms of size, content, power, and fuel consumption) than anywhere else, too. While Europeans pay more for cars, they generally get less too: smaller cars, smaller engines, and in many countries, devoid of air conditioning or automatic transmissions. The developing world gets vehicles lacking most safety innovations and creature comforts. We get the best vehicles, with the highest level of safety, amenities, and power. And big, powerful, personal trucks to do our hauling.

So not having a home-grown automotive industry to sell to this market just seems insanely stupid. Everyone else (mostly) seems to make money selling new cars. Toyota and Honda make more profits here than anywhere else. New car sales represent a $400b per year market here. Selling a fraction of this market means big revenues and a Gulfstream jet or three for the executives. Just think of the waterfall of those dollars trickling through the economy with every car sold. Do we really want to ship a big chunk of those dollars overseas to foreign companies, governments and their owners so they can live the high-life?

Sure, we do buy a lot of goods from overseas. But it’s mostly stuff we can’t manufacture here at the same cost as over there. When a seamstresses cost $8/day in China, with few benefits paid and no OSHA regulations, we benefit from the savings as consumers. It makes little sense to produce Walmart’s clothes here.

But guess what? The costs to manufacture a new vehicle in the United States are about as cheap as it gets for the level of car sold as anywhere in the world. The direct labor component of a car represents roughly $1,800 of its total cost. Believe it or not, the direct production cost differences among all US-based assembly facilities from any manufacturer are nominal.

What’s different: the profits of foreign-brand cars assembled or imported in the United States go back to their home countries. That means their countries benefit from reinvestment of those profit dollars into the next generation of vehicles. Better motors, advanced electronics and safety equipment, and even new propulsion systems come from over there– not from US ingenuity and skills. Do we really want to depend on Japan, Korea, and Germany (and soon China) for the future of our cars and related technology or do we want it grown here in the USA?

What’s most promising is that the future of personal vehicles lies not with traditional gasoline ICE, but with variants thereof such as HCCI, diesel, and hybrids and/or all-electric vehicles. Getting there requires a huge investment of dollars. New tech also delivers collateral benefits: software for engine management, ride control, transmissions, heat recovery systems, emissions, and improvements in safety systems. Investments in new technologies come directly from the profits generated from selling vehicles today. And they’re mostly made by suppliers looking for an edge. We simply can’t abandon our future to others.

We need an American auto industry. One that runs the table on the entire production and sales chain. There’s no cost basis reason not to produce vehicles here. We just need better run companies with forward thinking managements. You can argue how we get there, but not where we need to be.

Treasury Secretary Henry Paulson has announced that the $700b government rescue program will not be used to purchase troubled assets as originally planned. Just like that. I swear. MSNBC reports that turnabout is fair play. “The administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was ‘not the most effective way’ to use the $700 billion bailout package.” That said, the TS isn’t totally shit-canning the previous plan: “Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.” So, that leaves $450b, right? Where’s that going to go now? “He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.” Good news for the domestics? Not overmuch. Any recovery in the auto loan biz will still be chasing diminishing demand. To wit: Toyota’s been hawking the Hell out of its zero percent financing and its October sales dropped 25 percent.

One of the theories explaining GM’s downfall is that they did not invest enough in R&D. Wrong! Booz & Co.’s latest report on Global R&D spending says: bar Toyota, GM was tops. Here’s the 2007 ranking:

Company      R&D expenditures in $m

Toyota         8,386
GM              8,100
Ford            7,500
Honda         5,142
VW             4,757
Daimler        4,321
Nissan         4,001
BMW           3,995
Peugeot      2,835
Renault       2,531

Booz says in comparison to 2006, R&D expenditures in the auto industry grew by about 10 percent. European “champs” pale, with the European primo (VW) being only around half as research-intensive as the biggest spender. Here are some other findings…

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These are indeed turbulent times in the automotive industry. With every new day comes a flood of bad news, and a fresh sense of ominous momentum. As we continue to serve up hefty sides of bailout beef, we thought we’d offer up a quick, palate-cleansing taste of the non-bailout, non-industry-implosion gossip going ’round the net. And you’ll never believe what insiders have to say about the Toyobaru coupe pregnancy scare! Read More >

Dear Secretary Paulson:

We are writing to urge you in the strongest possible terms to use your authority under the Emergency Economic Stabilization Act (EESA) or other statutes to immediately address a significant and systemic threat to the U.S. economy and provide emergency assistance to the domestic automobile industry.

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Once upon a time, Honda represented everything that Detroit was not. Efficient, lean, reliable and most of all, innovative. While The Big Three soldiered-on with the same powertrains for decades on end, Honda constantly renewed, redesigned and released cars that genuinely improved their customer’s lives. Profits and widespread admiration followed… until the Honda hybrids came along. Then Honda, long regarded as the technology leader, got its ass kicked by Toyota. What happened?

The 1999 Insight was an absolute masterpiece of technology. Honda coupled a 70 hp. 1.0L engine (with an air fuel ratio of 25.8) to a 13 horsepower electric motor. It was ‘Wow!’ technology back in the Clinton Era. At only 1847 pounds, with a wind whispering 0.25 Cd, the Insight generated exceptionally high fuel economy numbers (70/61) for their customers. What customers? This was an especially difficult question to answer as the Insight was not ready for prime time.

The ‘Integrated Motor Assist’ technology wasn’t the problem. Simply put, the Honda was a niche vehicle. At the turn of the century, with gas at a buck a gallon, the high-tech fuel-miser niche that was so small that the Insight literally offered a zero carbon imprint on dealer’s lots.

Honda optimistically projected 6500 sales for for the model year 2000 Honda Insight. Dealers unloaded a measly 3805 units during the hybrid’s first full year of release. And that was the high water mark. Worse, the sales failure killed the Insight’s evolution. For seven full years, the model’s design and technology became stuck in neutral, with limited modifications. That was where the real tragedy for Honda took shape.

While Honda was initially content with having a long model run and a limited market, Toyota had other plans.

When the first generation compact Prius was released in Japan in 1997, Toyota’s Corolla had officially become the world’s best-selling vehicle. The Prius was designed as a hybrid-only model from Day One. Toyota fully redesigned the Prius in succeeding generations to accommodate the changing nuances of the hybrid buyer.

At first the Prius failed. It racked-up just 5562 U.S. sales in 2000. Even as gas prices rose, both Toyota and Honda were besieged with anti-hybrid issues and innuendos. Both companies had to deal with the financial fears associated with battery packs. Warranties were extended, and some customer assistance was offered.

But Toyota– not Honda– used adversity as a PR tool. Before long Toyota was highlighting battery failures in 56 degree below zero Arctic weather and proudly proclaiming that no other battery had ever needed to be replaced. It wasn’t factually correct (a.k.a. complete bullshit) but the story played well with the general public.

By 2003, Honda was putting the same technology in the Insight (with minor modifications) into the Honda Civic. They gave the conversion more torque, an extra 300cc’s of displacement and a bit more engine heft. Speaking of heft, at 2700 pounds, Honda’s CVT transmissions would now power a vehicle that was nearly 850 pounds heavier than the Insight.

It didn’t take long before Consumer Reports and a rash of owner review sights began to highlight the very expensive and frequent transmission work requireed to keep the Honda Civic hybrid on the road. After a few battles, Honda upped the transmission warranty to 100k and agreed to replace or modify components in the hopes of avoiding the inevitable. Unfortunately, with cases of third and fourth transmissions being replaced within 100k, the Civic Hybrid began to lose serious traction with the public.

While these Civics sat with their Taurus quality transmissions, the Prius was garnering reliability awards from J.D. Power, Consumer Reports, and was quickly becoming the de-facto poster child of a mass ‘hybrid’ market. Honda had abandoned a sheetmetal design projecting their hybrid model’s green, high-tech, Space Age credentials (albeit in a less-than-practical two-seater) for a mass market clone car. The Prius’ shape morphed in the exact opposite direction, from flat-line Echo cardiogram to an Insightful hybrid statement.

With gas prices in the upswing, the Prius’ aspiring hypermilers and the eco-conscious consumers were soon joined by those simply looking at the economic proposition of ownership. By 2005, with a second ground-up redesign, the Prius passed 100k annual sales, heading for over a million hybrids sold worldwide by 2007. In the same year, Honda would sputter-out only 32k Civic Hybridss, 3400 Accord Hybrids), and three of the now defunct Insight. Honda now had a full fledged failure on it’s hands.

Beneath the skin, much of Honda’s failure in the hybrid market can be traced to the same shortsightedness and bad customer support that’s afflicting the Detroit Big 3. The depressed valuations and bad owner reviews for the past Honda Hybrids will undoubtedly make the 2010 Honda Insight a far tougher sell.

Should Honda offer a stronger warranty on their new vehicles? Should they simply recall the defective transmissions and offer a longer warranty for current owners? It’s easy to say yes. But every automaker has to draw their own line is between taking care of the customer, and taking care of the bottom line.

As these pictures demonstrate, Honda is determined to take-on the Priora of the world with a kick-ass hybrid. That isn’t afraid to look like a knock-off of its direct, perhaps only competitor. Priced to go. With (one hopes) brand-faithful reliability. Even so, Honda will need to figure-out how to take on a rival who kept their product exclusively focused on a very unique and evolving customer. As Honda and The Bailout Big 3 are learning, the road to redemeption is long and perilous, with persistence, determination and humility providing the best chances of success.

Poor Mark LaNeve. It’s bad enough that he’s gonna be fired soon for having overseen some of the worst sales declines in GM history, including a 45 percent plummet last month. Now, those twisted bastards over at Toyota won’t even let him enjoy a freaking football game without publicly humiliating and annoying him with those damned “saved by zero” ads. Luckily, LaNeve always has a sympathetic ear over at the Detroit News. Or six. No fewer than three scribes get credit for giving voice to LaNeve’s tortured soul in a terse paragraph that tugs at the funnybone heartstrings. “I’m a football fan,” LaNeve told DetN during the weekly GM sales call. “I saw (“saved by zero” ads) 52,000 times,” he reportedly “moaned” of his Sunday otherwise well spent. Well, I guess you gotta say something during those sales calls. Y’know, once you get past the “we’re down 45 percent” bit. (Warning, Video NSFS (Not Safe For Sanity))

Recently-increased emissions standards (along with CAFE requirements) have received quite a bit of attention from Detroit’s blame-everyone-but-us squad. But bailout-begging agendas aside, just how hard are the new(ish) EPA standards to meet? Not that hard at all, according to an EPA report covered by Green Car Congress. The Office Of Transportation and Air Quality’s Report on Engine and Vehicle Compliance (pdf) for 2007 shows that the overwhelming majority of vehicles on the market actually meet or pass the EPA’s Tier Two Bin Five standard in current form. In fact, most US-market cars and light trucks currently boast a 46 to 90 percent compliance margin, meaning the amount by which they actually exceed EPA requirements. Under the EPA regime, models which “over-comply” with standards earn their makers credits which can be applied to under-conforming models. Of the 40-odd manufacturers on the market, five (Ford, Honda, Hyundai, Kia, and Toyota) had a positive Tier Two emission limit credit balance for 2007, while only Aston Martin carried a net-negative credit balance. The credit-positive firms tended to certify most of their vehicles at Bin Five levels, while adding a few sub-Bin Five (higher standard) vehicles to gain credits. Those which merely met the standard certified at a mix of Bin levels which added up to an average of Bin Five. That wasn’t so hard, was it?

TTAC has highlighted the inherent obscenity of GM CEO Rick Wagoner’s compensation for flying the artist formerly known as the world’s largest automaker straight into the ground. While Wagoner inherited enormous structural problems from his predecessors, he has done nothing to correct them. Throughout his administration he’s shown a startling lack of courage and foresight, no product savvy whatsoever and an abject inability to face-up to the reality of GM’s peril.  And yet he has drawn down over $100m in direct compensation since his installation at the top of the GM pyramid. This reporter (that’s me) was widely and loudly ridiculed when he cried foul at Wagoner’s bankruptcy-proof pension (and for asking if GM Car Czar Bob Lutz enjoyed same). Lest we forget, Wagoner’s compensation was INCREASED (a.k.a. “restored”) in April to $14.4m per year (and the rest). That’s more than all top ten of Toyota executives combined. Make of that what you will, but how can The New York Times report GM’s cutbacks in white collar retirees’ health care without putting their sacrifice (small as it may be) into its proper context? Surely, it’s time someone asked the question: why is Wagoner still getting paid?

Automotive News [sub] reports that Toyota is set to re-start Tundra production in their $2b San Antonio plant– although consumer demand for the full-size pickup is only obvious by its absence. “At the end of July, Toyota had about 60,000 Tundras in inventory, of which 45,801 units were in dealer stock. At the end of October, dealer stock had fallen to 29,784, according to Toyota. But Tundra sales have fallen sharply. Initially, the company had hoped to sell about 20,000 a month. When the economy began to slow late last year, the forecast was revised to about 15,000. In recent months Toyota has fallen well short of hitting its goal. Combined September and October sales were 14,121 units, off 62.3 percent from last year.” Even $10k on the hood of a brand new Tundra ain’t movin’ the metal– although it is disappearing any hope of obscene profits. “I have no doubt that there is a pent-up demand,” said John Matthews, managing partner of Pat Lobb Toyota of McKinney, Texas. “If I don’t see another Tundra until January, I’ll be happy,” said Jeff Daniels, general manager of Toyota of Muncie in Indiana. Imagine how Chevy dealers feel. Anyway, as commentator JT rightly points out, ToMoCo is ramping-up production to ship these bad boys to the Middle East. Hey, given fixed costs, they might as well do something with them.

Unbelievable, The Wall Street Journal has an editorial that positions the paper four-square against a federal bailout for Detroit’s beleaguered automakers– and then wimps out. First, the “not with our money you don’t” bit. “A bailout might avoid any near-term bankruptcy filing, but it won’t address Detroit’s fundamental problems of making cars that Americans won’t buy and labor contracts that are too rich and inflexible to make them competitive… In fact, the main point of any taxpayer rescue seems to be to postpone a day of reckoning on those contracts. That includes even the notorious UAW Jobs Bank that continues to pay workers not to work. A Detroit bailout would also be unfair to other companies that make cars in the U.S. Yes, those are “foreign” companies in the narrow sense that they are headquartered overseas. But then so was Chrysler before Daimler sold most of the car maker to Cerberus, the private equity fund. Honda, Toyota and the rest employ about 113,000 American auto workers who make nearly four million cars a year in states like Alabama and Tennessee. Unlike Michigan, these states didn’t vote for Mr. Obama.” Hey! Place nice! Anyway, you get the picture– if only because we’ve been painting it for the last three years. But there’s a sting in the tail…

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Kia’s booth at SEMA was quiet and empty compared to the Genesis-fest at sister firm Hyundai’s space. But fewer fans meant a chance for a closer look at several near-production concepts that point the way forward for the “other” Korean budget automaker. And though Hyundai seems to have Lexus in its crosshairs, Kia appears to be gunning directly after another Toyota’s Scion. First up, Kia’s Soul Burner concept looks like a (not quite production-ready) alternative to Scion’s xD. Strip away the flame-tread show tires, and a few other tuner-show fripperies, and it’s a practical, flexible, stylish little hatch. The styling doesn’t exactly put the “b” in subtle, but it’s a reasonable compromise between practicality and urban chic. Fit-and-finish clearly needs some work (paint bubbles on a show car?). But a cheaper, better-looking (in the eyes of this beholder) xD should have Toyota sweating more than a little. Kia’s Koup Concept has an equally laserlike-focus on stealing sales from the Scion tC. The stylishly unisex Koup sports clean lines, sharp-looking head- and tail lights, and a surprising impression of quality compared to the Soul Burner. Slap a Honda badge on the Koup and you might think it was the next Civic Si. Put it next to a tC with no badges at all, and you might have a hard time guessing which came from the world’s most successful automaker.

Automotive News [sub] reports that Toyota’s profits took a dive in Q3, as sales in its North American and European markets dried-up and blew away. “North America slumped to a $335.9 million operating loss in the April-September fiscal first half. Sales there slid 9.4 percent to 1.357 million vehicles in the period. For the full year, Toyota lowered its ambitions 2.420 million units, an 18.2 percent fall off.” Bottom line? “Toyota now expects global operating profit to plummet 73.6 percent to 600.0 billion yen ($5.83 billion) in the fiscal year ending March 31, 2008. Just three months ago, Toyota had forecast operating profit to decline a comparatively modest 29.5 percent to $15.5 billion. The new goal would be Toyota’s lowest operating profit since the company began calculating in U.S. accounting standards in 1998.” But it is, let’s face it, a profit. If GM and Ford report similar revenue drops tomorrow– and why wouldn’t they be worse?– excrement and air movement device will collide. (As everyone and their mother are predicting.) Meanwhile, back to Toyota…

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