In a maximum interview with Auto Motor und Sport, GM Car Czar Bob Lutz tells us to expect 1m annual production of E-Flex EVs in 2020. Meanwhile, we can expect "no more than" 10k Volts by 2012. (For reference, it took Toyota ten years to sell one million Priora, and that they won't hit 1m annually until (you guessed it) 2010. As in the year the Volt comes out.) Lutz also confirms that though Opel-branded E-Flex-mobiles may be forthcoming, the Volt will be a world model to be sold in left and right-hand drive markets. Interestingly, Lutz says he can't remember has never seen anything like the current downturn in the U.S. auto market. Never mind. "Not only will we survive," Lutz barks. "We'll be stronger and more competitive than before." After all, they'll be launching a world-beating plug-in electric – gas hybrid, double annual capacity of it every year and (presumably) turning a profit on it. 

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.

Even though diesel fuel costs more than gasoline, even though diesel engines cost more than their gasoline equivalents, VW plans to sell TDI versions of the Jetta and Sportwagon stateside in 2009. To get the party started, VeeDub's announced that TDI buyers will be eligible for a $1.3k Federal Income Tax Credit. Yup, your tax money in their pocket, under the Advanced Lean Burn Technology Motor Vehicle credit program. The EPA has certified the TDI at 29 mpg city, 41 mpg highway. BUT VW cites test results from "leading third-party certifier, AMCI" (paid by VW of course) claiming the models get 38 mpg in the city and 44 on the highway. And while they work that one out, Toyota can't build enough their gas – electric Priora fast enough, even with a $500 price hike. [Source: VW]

Auto Motor und Sport reports on a cautionary study by Bain & Company on the Chinese automotive market. According to the report, automakers estimate that the Chinese market will demand 9.3m new cars in 2010. Nein! "Our study shows that automakers are overestimating the Chinese market and are calling for too much production," says analyst Jörg Gnamm. "We're talking about an overestimation of 1.5m vehicles. That's half of Germany's annual sales, and the production capacity of four to five car factories." In other words, they reckon the Chinese market will grow by "only" about 12 percent per year to 7.9m units. Did  Jörg mention increasing competition for those sales? Yes he did. Volume automakers like Toyota, VW and GM are the ones who will face the toughest pressures. The warning comes shortly after Renault-Nissan CEO Carlos Ghosn predicted that the Chinese market could cool off in the next few years. And it doesn't factor in any Chinese government move to favor home-grown automakers over mandatory joint-venture "foreign partners." On that score, it's only a matter of time…

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.

We hear from various sources that GM is about to follow Chrysler's lead and stop leasing its vehicles in the North American market. The move is not entirely unexpected; the company that owns the now non-leasing Chrysler Financial– Cerberus– also owns 51 percent of GM's vehicle financing arm, GMAC. Canada's Windsor Star reports GM's no-deal as a done deal. "The financial arms of Chrysler LLC and General Motors Corp. are getting out of the business of leasing vehicles as credit tightens and resale prices for gas-quaffing trucks fall, according to company executives and independent sources." Quaffing? Don't all ICE vehicles quaff? Anyway, the lease cessation is bad news for ChryCo and GM dealers north of the border. "In Canada, an estimated 43% of drivers lease their vehicles, double the U.S. rate of 20%." Ouch. You know residuals are in free fall when a financing company walks away from that kind of action. Meanwhile… "Geoff Helby, an analyst with J.D. Power & Associates in Toronto, said Toyota Motor Corp. and other automakers that offer attractive lease rates and decent residual values could win more business from the Detroit automakers as a result of the move. 'It would definitely put Chrysler and GM at a serious disadvantage.'" Make that "will."

In General Motors Death Watch 182, I reported on GM's decision to squeeze a little more blood from the stone known as U.S. sales, by raising their product prices by 3.5 percent across the board. I pointed-out that Toyota could eat some more of GM's market share simply by NOT raising their prices or, God help Motown, lowering them. I predicted that ToMoCo would raise their prices, to maintain profitability and avoid any possibility of an anti-transplant backlash. And so they have. The AP [via The International Herald Tribune] reports that Toyota will up prices by a little over one percent– except for the hot-selling Prius (up 2.2 percent or $500). The timing is curious; the news arrived on the same day that GM lowered and extended its employee pricing. In any case, it's clear that Toyota is treading carefully, refraining from delivering the killer blow that's well within their power. They're leaving that for The Big 2.8 themselves.

Just kidding. Toyota wouldn't say that, what with Motown's implosion about to force the transplants to paint themselves as nativists. But even if they aren't saying it, they're doing it. The Nikkan Kogyo [via Automotive News, sub] reports that the Japanese automaker is shifting non-Prius production out of its Tsutsumi plant to build as many gas – electric vehicles as they can (presumably without working their employees to death). No question: ToMoCo's going Hell for leather. Last year, they sold 281,300 Priora. With these changes, they'll be cranking-out at least 480k units. By the time a single example of GM's Hail Mary-shaped plug-in electric – gas hybrid hits the streets, Toyota will be building their fuel-sipper stateside. ToMoCo will have amped-up (so to speak) worldwide Priora production to 1m unit p.a. Whilst shunning the grammatical consensus on Prius pluratization established by TTAC's Best and Brightest, AN reports that Toyota built "320 Priuses in China last year." What's that all about? 

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reuters reports that Toyota sold 4.8m vehicles in the first half of 2008, while GM managed to move 4.54m. It's official: GM is no longer the world's largest automobile manufacturer. GM's spinmeisters promptly bragged that it reached record numbers in three of its four regions in the second quarter of 2008. Unfortunately, GM's 116k-unit growth outside of the U.S. was swamped by a 236k-unit decline in the home market. Also, GM continues to take full unit credit for sales in China– even though the Chinese business is majority-owned by Chinese partner SAIC. (For example, GM owns only 34 percent of the unit which builds the high-volume Chevrolet Spark.) GM's decision back in 2000 to ramp-up trucks and SUVs whilst eviscerating their US car efforts in order to boost profit margins has come home to roost. 

Auto Motor und Sport reports Volkswagen vants to conquer ze world! The German automaker aims to displace  Ford as world number three automaker this year and then, eventually, take on Toyota. Yes, well, anyway, Wolfsburg can't get there from here without fixing its NorAm ops. To that end, VW is considering bringing a subcompact "similar to its Polo" stateside. The Yaris/Fit fighter would take VW back to its small, fuel-efficient American roots. Bloomberg reports that Vee Dub's also looking to produce a market-specific version of a future Polo in the U.S. of A.. Power could come from one of VW's new low-pollution powerplants, built at a forthcoming engine plant in Puebla, Mexico. Better late than never?

Kevin Bacon fans note: there are no degrees of separation between Tesla Death Watch 12 and this, Volt Birth Watch 67. They're both based on the same TTAC-mentioning New York Times article on mainstream electric vehicles (EV). The Death Watch revealed scribe Joe Nocera's skepticism for Tesla's four-door dreams– sorry "plans" for a mainstream EV. And wails on Aptera's ambitions. So how will we all live together, together in electric dreams? The plug-in hybrid electric – gas Chevrolet Volt ! "So where should we look, realistically, for a mass-market electric vehicle? Believe it or not, Detroit. In fact, the quick-fix approach that strikes me as the most promising comes from — surprise! — General Motors, the chief villain of 'Who Killed the Electric Car?' The Chevy Volt, which the company wants to bring to market in 2010, is a plug-in hybrid that aspires to be able to travel 40 miles before switching to gasoline power. But the best part is that the combustion engine will automatically recharge the battery — so it can switch back even while you’re driving." Huh? What about the here-and-now Toyota Prius? Especially as it's headed for plug-in-itude. Nope. "It’s not sexy like the Tesla, and it’s not aerodynamic like the Aptera Typ-1. But for a mass-market solution in the here and now, [the Volt's] the one to root for."