The United Auto Workers (UAW) just lost their bargaining power in their strike against American Axle. When the strike shut down the plants supplying GM's truck and SUV plants, the union thought GM would put pressure on AA to settle quickly– so the automaker could get the lines running again. Not so. GM used the shutdown as an opportunity to purge its supply pipeline of a glut of slow-selling trucks. Then they "found" axles elsewhere to continue production of their better-selling models. Even after two months, GM still isn't feeling much pain from the strike. Instead, they've announced they're going to cut truck production drastically, meaning American Axle's Mexican operation can produce enough axles to [almost] meet their need while other suppliers take up the slack. To use an old military saying, the UAW has shit in their own mess kit. Even if they accepted all of AA's demands for salary and benefit cuts, there won't be a job for many of them to go back to. Looks like Ron Gettelfinger will have a lot of 'splaining to do, especially as they make a push to organize Toyota's operations.

Business Week's ed forgot the "compare" side of the "compare and contrast" assignment to scribe Ian Rowley re: Japanese and American automakers' fortunes. Wander 'round TTAC for the U.S. side of the equation (hint: falling market share is rarely a good thing). For Japan, BW tells us that reduced targets for operating profits paint a bleak picture for Honda, Mazda and Mitsubishi (trimmed by 32, 29 and 45 percent, respectively). But it ain't all that bad, when you think about it. "All $3 billion of the projected decline in Honda's operating profitability is explained by the yen's sudden rise against the dollar and other currencies. Against the greenback, for example, Honda is projecting a dollar-yen rate of 100, compared to an average of 114 in the previous year. That alone is enough to wipe off $2.4 billion from profits when sales made in dollars are translated back into yen. Yet when it comes to selling vehicles Honda shows few signs of slowing down, despite weak market sales in the U.S. and Japan, its two biggest markets." All the Japanese majors are expanding production– and for good reason. "In markets including China, India, and the Middle East there is a major change in their trend toward higher ownership levels and the Japanese majors are well placed to benefit from this trend,' says Deutsche Bank's Sanger. After a tough 2008, look for an earnings recovery at Japan's carmakers." [NB: Toyota and Nissan have yet to sign-in with their numbers. We'll update you as and when.] 

After all the fuss and negativity (I'm looking at you, Justin) about the upcoming new Prius gaining three to four inches (still shorter than a Corolla) and some additional power, the really big news was left off the table. According to Auto, Motor Und Sport (paper version), Toyota has achieved its most important goals for the gen3 Prius: a 50 percent reduction of the hybrid components' weight and cost. In the words of a Toyota manager: "Our hybrid will then be cheaper than a modern diesel." Given that the new Prius will have a substantially more powerful electric motor and battery range than the last gen, this is impressive stuff. Despite Volt vaporware, or perhaps because of it (thanks Bob!), it looks like ToMoCo's gas – electric sedan is set to continue its domination of the American hybrid market. Last month, in a VERY down market, Prius sales rose 7.7 percent to 20,635 units.

Dean Radin believes some people are psychic. No surprise there; investigating psychic phenomena is what Radin does for a living. And yet, when author Mary Roach asked the electrical engineer if there's a middle ground between believing that the dead contact the living through electromechanical devices and viewing the whole thing a hoax, Radin said "The middle ground between genuinely true and outright faking is unconscious delusion." Welcome to GM's world. 

I have no doubt that GM CEO Rick Wagoner and his acolytes will face this quarter's $3.25b loss with equanimity. Why not? During the last four years, they've glibly provided every imaginable excuse for GM's inability to book a profit; from "restructuring" costs, to labor buyouts, to the housing crisis and gas prices and beyond. The "turnaround is on course" is burned into their collective unconscious. They murmur reassuring words– to themselves and the outside world– and get back to the business of losing money.

In reality, there was a time when GM had the financial clout to make a $3.25b quarterly loss look like a right cross to a WWE wrestler's chin. But whether or not Wagoner et al admit it, the automaker's $23.9b supply of cash, marketable securities and other available funds– and that's worldwide folks, not North America– simply isn't enough to see the automaker through the current crisis, or the crisis to come.

The key point: GM needs to be analyzed for its cash flow, not earnings. This quarter, GM’s direct operating cash flow was negative $3.9b including special items. Total cash flow after non-operating items: negative $3.4b. Speaking to financial analysts, COO Fritz Henderson' tried to compare GM's current cash levels vs. last year's first financial quarter. But that’s irrelevant. All that matters is cash generated vs. cash spent over the last three months. And that’s decidedly negative.

In fact, GM was only saved from a total C11 meltdown in recent years by asset sales (well north of $10b, maybe as much as $20b). There's no escaping it: GM's business is going up in flames. You can feel the burn at the sharp end.

Henderson said GM NA's dealer inventory in April is around 840k units, the lowest level since 1983. But Fritz also said dealer stocks of full-size pickup trucks– GM's former cash cow– are still "higher than we'd like." Uh, GM has stopped making pickups (thanks to a strike by American Axle workers). And Toyota is about to pile discounts of the hood of its superabundance of Tundras. And Ford is about to launch the new F-150.

But it ain't just lost pickup profits plaguing GM. SUV sales have also cratered. In March, GM's truck and SUV sales (combined) dropped 22 percent. Worse still: falling SUV/pickup residuals trap existing GM owners in their current rigs. They can't be turned into repeat buyers to soak-up truck production– should it ever restart in any meaningful fashion.

Meanwhile, GM has no credible small cars to take up the slack. In a market where B-Class cars are flying off the lot, GM's products come complete with rebates. The automaker has no known programs to develop profitable vehicles in this segment except the Volt– which is (sticking with reality) a non-starter. For traditional domestic car buyers, a resurgent Ford looks set to steal whatever's left of GM's lunch.

In the financial realm, there's blood all over the carpet. Thanks to bad loans, bad management and a bad economy, GM's former financial powerhouse– car and mortgage lender GMAC– is heading for disaster. In terms of that beleaguered cash pile, GM has announced that it will advance up to $650m to its bankrupt former division Delphi in 2008. At the same time, GM's credit ratings are falling. Will the company lose access to its existing credit facilities?

As always, Wagoner and GM's camp followers cling to whatever good news they can pull from the wreckage. Today's Bloomberg headline on GM's Q1 loss sets the standard for self-denial: "GM Has Smaller Loss Than Estimated on Overseas Sales." In other words, overseas markets will keep GM afloat. Only, as discussed here many times and explained above, it won't. As TTAC commentator lprocter1982 points out, "GM's international profits, combined, don't equal even a third of their total loss."

To use the vernacular, stick a fork in GM. It's done. It's all over bar the lawsuits, recriminations, government bail-outs and unfurled golden parachutes. In fact, if GM's management accepted the full reality of the company's situation, they'd file for Chapter 11 now, while the automaker still has enough cash to reinvent itself, before Chapter 7 dissolution.

Of course, that would mean the end of Rick Wagoner's administration, his $14.4m annual compensation package and the sharp exit of his fantastically well-paid people (e.g. Car Czar Bob Lutz). Could the GM Empire finally be destroyed by unbridled personal greed? In truth, it's a done deal.

Jim Croce wouldn't like TTAC; we have no compunctions about tugging on Superman's cape. In fact, it's no big deal. But it is for Automotive News [sub]: "Still, Toyota's vaunted inventory controls have come up against market forces even it cannot tame." Whoa! And there I was thinking ToMoCo had moved past inventory control to weather control. Nope. "The number of units in dealership stock and en route have swelled to about 376,000. That's about 100,000 units more than were on the ground last summer, and up from about 348,000 a year ago." While ToMoCo's "turndown pool" (vehicles rejected by dealers) has swelled to 9700 vehicles, these stats are, frankly, small beer compared to the situation over at GM. GM's cash flow and profit-critical truck inventory may be in great shape, but that's because the American Axle strike means they ain't building them. And they've just announced their decision to make 138k fewer trucks this year. That's in addition (?) to all the trucks they're currently not making. "With rising fuel prices, a softening economy, and a downward trend on current and future market demand for full-size trucks, a significant adjustment was needed to align our production with market realities," said Troy Clarke, GM NA Prez. This, folks, is the reckoning. 

While I don't care for the Prius, I can't deny that it has been successful in America. Not just at sales or income for Toyota, but for having one of the highest profiles of any car on sale here and for legitimately changing the automotive game. But it looks like the Prius's developmental future is a lot more conventional. Michele Krebs, writing for Edmunds' Auto Observer, reports a number of unfortunate developments for the next generation Prius, to be revealed at Detroit in January 2009. It's bigger – 3-4 inches, although not much heavier. The engine grows to 1.8 liters, and combined gas and electric power is up from approximately 110 horses to 160. But don't worry, fuel economy is up. So it's all okay, right? Wrong. Most successive generations of automobiles are able to make improvements in all areas. That does not mean the distribution of those improvements – which are often compromises and tradeoffs – is ok. Fuel economy will be up in the next Prius? Imagine how much more it could be up if they weren't trying to squeeze another 50 horses out of the car, or adding 4 inches to the body. Ms. Krebs also confirms that the Prius model range will grow (hopefully a smaller, lighter coupe is included), and reminds that a Lexus version with a 2.0-3.0 liter engine is still on the table. This is an example of Toyota losing the plot, trying to make the Prius appeal to more people – and in so doing, diluting the one of the single most focused products on the automotive market. But hey, it's all in the pursuit of sales numbers. [Thanks to starlightmica for the tip]

The New York Times wants us to know that the possibility of deleterious health effects from hybrids' electromagnetic fields (E.M.F.) is not so unbelievable. (OH!) "With the batteries and power cables in hybrids often placed close to the driver and passengers, some exposure to electromagnetic fields is unavoidable. Moreover, the exposure will be prolonged — unlike, say, using a hair dryer or electric shaver — for drivers who spend hours each day at the wheel… Their [critics] concern is not without merit…" Not without merit? Is that the same as real? Scribe Jim Motavali ain't saying. Instead, an anecdote from E.M.F.-aware Civic Hybrid owner Neysa Linzer offers the proverbial money shot: "She said… her blood pressure rose and she fell asleep at the wheel three times, narrowly averting accidents. 'I never had a sleepiness problem before,' Ms. Linzer said, adding that it was her own conclusion, not a doctor’s, that the car was causing the symptoms." Toyota's Prius spokesperson responded to the concern by saying "What are you guys, nuts?" More specifically, "The measured electromagnetic fields inside and outside of Toyota hybrid vehicles in the 50 to 60 hertz range are at the same low levels as conventional gasoline vehicles. Therefore there are no additional health risks to drivers, passengers or bystanders.” [thanks to QuasiMondo for the link]

There’s an often-repeated statistic: U.S. Buick dealers sell just four cars per dealer per month. It’s true, but c’mon; that was last year’s totals. In March, Buick sales slipped to three cars per dealer. Thanks to TTAC’s Frank Williams, I’ve had a chance to examine the exact dealer and sales stats for the Beyond Precision people. Having deconstructed the data, I can declare that this seemingly absurd three cars a month number, while strictly true, isn’t the whole story. The “whole story” is much worse.   

First, to be strictly accurate, the 36 cars per Buick dealer per year stat doesn’t include trucks. Add-in Enclave sales and you’re up to 60 sales per dealer per year. (Only Ferrari, Isuzu and Rolls have lower averages.) You may wonder how any car dealer could survive on such meager portions. The short answer is, they don’t. GM’s 90 “exclusive” Buick dealers sell quite a bit more than a car per week. The problem isn’t these Buick stores; it’s the “dualed” and “tripled” Buick franchises; 29 of them for every solo dealer.   

To help you wrap you mind around those numbers, there are over 2700 places where you could, if pressed, buy a Buick. That “coverage” includes as many franchises as Toyota, Lexus, Honda and Acura. Combined. All to support numbers slightly larger than sales of Honda’s Odyssey. The scariest part ISN’T that the average Buick dealer sells a car a week (probably less). The bigger problem is that these franchises can survive selling so few.   

One of the less-mentioned side effects of The Big 2.8’s massive brand spread and bloated dealer networks: “franchise bloat.” GM, Ford, Chrysler have about 6500, 4000 and 3500 “dealerships” (i.e. buildings) respectively. Toyota/Lexus and Honda/Acura have about 1100 stores each; Nissan/Infiniti 1000. Now, let's talk franchises. Detroit automakers have 13,000, 6800 and 8300 franchises. Toyota clock in at about 1500; Honda and Nissan have about 1200 franchisees.    

Franchise glut means dealers are frequently bidding against each other on price, and fighting for product allocation. But there’s an even bigger downside for Detroit: multiple franchises give dealers greater leverage. A dealer receiving cars from two or more streams can concentrate their efforts where it’s most profitable (e.g. on whichever line is getting a marketing boost at the moment). The languishing brands can be milked for limited-allocation cars until a particular model catches fire. Or, in Buick’s case, not.

While it's been argued that single-line dealers lead to too many models spread across too many price points, at least a single-line car dealer can’t play Peter off against Paul at similar price points. In other words, they’re not hurting one brand by helping another.

But the single biggest problem caused by franchise bloat down Detroit way is that it’s made killing brands more difficult, rather than easier.

In theory, bringing in additional lines reduces the damages dealers can claim when you kill a given brand (Chrysler did this when axing Eagle). Yes, but– lopping off brands does nothing to trim the bloated number of dealers. A two or three-headed dealer may not be a money machine, but there is no real way to “starve” it.  

So, when you get right down to it, the real obstacle to killing Buick isn’t those 90 stand-alone dealers. They can be bought. It’s the 2600 other guys who will still be selling GM cars when the smoke clears.

Having to pay off 2700 dealers to reduce the “footprint” by less than 100 wouldn’t work even when GM was flush. Ford is in better shape; they at least only have effectively two brands (Mercury does not exist away from Lincoln or Ford). Of course, that makes terminating Mercury completely useless from the “reducing dealers” standpoint. And pity poor Chrysler/Cerberus. It really is a three-headed dog; some 75 percent of their dealerships are multi-branded, often offering all three marques.

Hang on. If franchise glut is such an enormous problem for Detroit, why is GM consolidating their dealer networks (Buick/ Pontiac/GMC; Cadillac/Saab/Hummer)? Hell if I know. The new multi-franchise system leaves GM with the same dealer glut as before. And now, if they really want to cut Buick dealers, they’ll have to kill Buick AND Pontiac AND GMC together.

In the meantime GM will have four competing “mainstream” distribution channels (including Chevy and Saturn). Well, at least sending one or two of these mega-franchises into that long good night is [theoretically] doable. Ford and Chrysler lack even that option.

And so three-cars-per-dealer Buick is, at the end of the day, a zombie. And now that GM (and Chrysler) doesn’t have the multiple billions needed to make these problems go away, there’s only way out of this entire over-dealered, over-franchised mess. But will anyone buy a car from a bankrupt automaker? From Buick NA’s perspective, it doesn’t really matter anymore. Now that’s scary.

I'm paraphrasing, of course, but it's hard to believe that anyone believes that the United Auto Workers (UAW) is on the cusp of organizing Toyota's Lexington, Kentucky factory. Least of all UAW boss Big Ron Gettelfinger. Or The Detroit Free Press. And yet the paper reports Gettelfinger's comments without any hint that the man is full of you-know-what. "'We don't have the people to cover all the calls we get,' Gettelfinger said of activity among UAW organizers based here [Lexington, KY]." Nah, C'mon. Really? "'It is amazing the number of workers who want to join the union,' he said in an interview… 'They may be having activity you don't know about.'" And… they may not. In fact, the only credible– the only interesting part of this story are the comments underneath. "All a worker at the Toyota plants would have to look at is how 'successful' the UAW represented plants are," opines commentator gonefromthemess. "They are already making similar wages and benefits, they build a much more reliable product and they are poised to become the largest selling auto company. And besides, who in those plants wants to pay extortion money to UAW "reps" to get them what they already have? Good luck Get. It ain't happening." Thank Al Gore DARPA God for the Internet.

You can argue who makes the best car in any given segment or genre ‘til you’re blue in the face. As for who has the best auto ads, there isn’t much debate: Volkswagen. Once again, the Boys from Wolfsburg have commissioned another Clio candidate. This time ‘round, it’s a talking (if ironically immobile) Bug named Max, starring as a talk show host. [Max ad not shown here; above is a vintage VW ad] The new ad, devised by Miami’s Crispin Porter + Bogusky agency, sums-up the automaker’s gestalt even better than “de-pimp my ride” and “Fast"– and not in a good way.

The first thing that stands out about the new ad: the fact that the host is a Beetle. Roots, rock, reggae be damned. At the risk of stating the obvious, the Beetle isn’t even made anymore. Not here. Not Mexico. Nowhere. CP+G know what they’re doing though; in her more lucid moments, even Lindsay Lohan recognizes that old thing. The Bug’s iconic shape is an instant attention-getter.

Yes, but, to what end? Why would VW want to remind its U.S. customers of a car whose looks, personality and market positioning better suit American car buyers than anything VW offers them today? Lest we forget, there’s a NEW Beetle out there, somewhere. What’s old is new and what’s new doesn’t count? Strange logic.

Anyway, if you think about it, despite the backup band, Max really isn’t really a talk show host. On the subconscious level, Max is a therapist. You know, one-on-one chat. German accent. Piercing questions. Sometimes a cigar is just a cigar– and sometimes it isn’t.

The funny thing is, if anyone should be “on the couch,” it’s the Beetle. Here ist ein volks wagen designed by a budding sports car maker (who ended-up building tanks and ass-engined hedge explorers) at the request of a failed artist who never learned to drive or met a country he didn’t want to invade.

Contemplating VW’s gleaming representation of past glory, the new ad raises enough uncomfortable questions to keep Dr. Phil busy for, oh, two episodes or so. For starters, how does Max feel about the fact that his children and grandchildren have lost their way? With some notable exceptions (e.g. the European Golf), grandpa’s progeny have misplaced and/or abandoned their ancestor’s world-beating strengths (not to say polluted their genetic advantage): reliability and frugality.

Nowhere is this more true than in the U.S. For much of the 1960s, the VW Beetle WAS the American import market. None of the Bug variants were fast. Few were pretty. Their handling would have been a scandal (if such things had been scandalous) and they had ergonomic “issues.” (One ad featured a snowplow driver driving his beetle to work; off-camera, he’d lit himself on fire to keep warm.) But Beetles were cheap to buy and even cheaper to keep running. 

And then Toyota and Datsun proved they could build appliances every bit as well using engineering that wasn’t 25 years old. Cute couldn’t keep the Beetle afloat forever (so to speak). The Bug’s children were in and out of rehab for years, guzzling gas, lost, never really finding a purpose in life. 

Dr. Phil would also ask Max how he feels about his parent’s move stateside. While Max might give Mama props for being the first U.S. transplant, the [not a real] Doctor would confront him with the fact that the relocation was an unmitigated disaster. In fact, a discussion of the quality of the resulting products might be better suited for the Jerry Springer show; at the risk of offending the good people of Pennsylvania, we’re talking total trailer trash.

Rabbit production at the Westmoreland factory was so god damn awful– and expensive– that the resulting products single-handedly destroyed VW’s U.S. reputation. Mama? She eventually fled for Brazil. So, Max, how does THAT make you feel?

Given the Bug’s world domination, getting Max out of denial is hardly a foregone conclusion. But we could arm Phil with some stats. VW sells 200k cars per year stateside. They’re now aiming to sell 1m. How? By reintroducing the Phaeton? Isn’t it time Max strolled into the boardroom, stare his inheritors straight in the eye and, Mommie Dearest-style, said “Don’t fuck with me fellas”?

Clearly, VW’s not-so-mad Max ad campaign is a huge mistake. It reminds people of what VW should be, but isn't. Other than making a car that doesn’t break and providing dealerships that don’t piss on customers from a great height, the ad highlights the fact that VW still doesn’t know where/what they want to be in the US market.

Until Volkswagen returns to the characteristics that made it great in the first place, until they get reality squared away with their image, they will continue to fail in America. It’s one thing to celebrate the past. It’s another to do so while ignoring its lessons. 

FIAT, the parent company of Alfa Romeo, is considering launching its return to North American soil using Ontario as its home base. So says CTV News, though FIAT chairman Sergio Marchonne has not acknowledged any talks with Ontario's government– but has set a goal of building a New World Alfa Romeo by 2012. Ontario can bank on a small home-field advantage; Marchionne was raised and educated in the Toronto area. A joint venture is possible, given that any Alfa will initially be a low-volume niche vehicle. Ford, Chrysler, Toyota, General Motors and Honda are all well-established manufacturers in Ontario. The downside: most of these Alfas are destined to be sold in the U.S. Building cars in Canada is a mighty pricey proposition. Besides, could a car built by a bunch of overall-wearin', double-double-drinkin' Toronto Maple Leafs fans named "Duggie" and "Murray" still have what pistonheads refer to as "Alfa-ness?" Che macello!

Poetically enough, The Wall Street Journal's Holman Jenkins wants to know if "GM is a genius or a dolt for developing the Volt." Why would a company that's lost $4.3b in North America the last three years throw billions into developing a car they know will lose money? Jenkins notes that when gas prices dropped after the original federal Corporate Average Fuel Economy (CAFE) regs, the standards devolved into "an elaborate scheme engineered by Washington and the UAW to keep auto workers busy manufacturing small cars in the U.S. at a loss, subsidized by the profits of big pickups and SUVs." Jenkins reckons GM– "America's biggest near-dead car company"– plans a similar tactic with the new standards. "[I]t's hard to see why a reformed GM would bother building such a car now unless it's planning to throw its lobbying clout behind a final set of CAFE rules designed to disadvantage its rivals." Then they'll "bribe consumers to drive Volts off the lot" because it'll let them "build and sell other cars bigger and more powerful than the cars its rivals can afford to build under the CAFE rules." And it's all because "GM intends to beat Toyota at its own game of selling bogus green symbolism to Washington and Hollywood." Let's hear it for the home team! 

O.K., after we recorded this daily podcast, Jonny Lieberman and I figured-out who's who in terms of brand positioning in the U.S. market these days– if only to make Matt Hardigree jealous. (Pay no attention to my branding statement in the actual 'cast.) We reckon… Lexus is the new Mercedes. BMW is the new Audi. Audi is the new BMW. Mazda is the new Honda. Hyundai is the new Ford. VW is the old Hyundai. Kia is the new Mercury. Toyota is the new GM. Chrysler is the new Studebaker. As for the rest, I need one. Feel free to complete the picture, argue the points or just listen to us schmooze.

While we await GM's next Next Big Thing, one of The General's generals is touting one of its last next big things: the new Chevrolet Malibu. Speaking to the Detroit Free Press, Chevy Chief Ed Peper revealed that "38% of Malibu buyers are trading in a non-GM vehicle, another key goal, and that the Camry is the car most frequently traded in." So, what time period are we talking about? Since the new 'Bu debuted? Last month? Quarter? Not specified. If Ed's talking about March, 38 percent of 15,082 total sales equals 5731 Camry defectors. During that same month, Toyota sold 40,487 Camrys. Oh, are those stats for ALL Malibu sales– including fleets– or just retail? Not specified. But hey! The International Tribune reports that GM's new six-speed gearbox has finally made it to the four-cylinder Malibu. What's more, it bumps highway mpgs by two, beating Camry and Accord by one (and equaling the Malibu Hybrid's highway rating). Unfortunately, the new 'Bu's new box is restricted (until next year) to the $27,745 LTZ trim level– $7500 more than the four-speed base 'Bu. Or $7975 more than the base, five-speed Camry. We now return you to your regular cheerleading.

The Detroit Free Press reports that Toyota has taken GM's position as the top seller of cars in the world. Toyota announced yesterday that it had sold 2.41m vehicles the first quarter of this year, compared to longtime volume champ GM, which sold 2.25m vehicles. Of course, Toyota beat GM in the first quarter of last year only to have the General pull out a narrow victory to hold on to its top spot for the 76th year running. Toyota has surpassed GM in production volume, and with global sales up 2.7 percent this quarter while GM's sales dropped less than one percent, this could well be the year they drive old Dixie down. So to speak. Not that the General would even stand a chance if it had to rely on the American market, where its sales are down ten percent. Curious why the fifth largest corporation in the world is having its lunch eaten? There are a few Deathwatches for that!