In an email to 67K employees, the Department of Health and Human Services (HHS) encouraged employees to buy more fuel efficient vehicles. Although the email mentions several American products– Ford Ranger, Dodge Caravan and Ford Escape Hybrid– it recommends twelve fuel-sippers: the Honda Fit, Civic, Civic GX and Civic Hybrid; Toyota Prius, Corolla and Camry Hybrid; Nissan Altima Hybrid, Kia Rio/Rio 5, Hyundai Accent and Elantra. Speaking to The Detroit News, Chrysler's Jason Vines asked "Can you imagine the Japanese government sending out an e-mail encouraging employees to buy American cars?" Without addressing the political hot potato, HHS spokesman Bill Hall dismissed the controversy as a simple misunderstanding. "People are reading more into this than is here. If people are taking this as an endorsement of vehicles, that's unfortunate." Let's see… employees of a federal agency get an email from HQ with a list of twelve specific cars prefaced with "when stopping for a vehicle consider these models." If that's not an endorsement, this is not a blog post.

Last week, I spoke with former Florida Oldsmobile dealer Robert Horvath. Horvath insisted that General Motors cut a secret deal with Toyota to deep-six Olds. Reacting to this tin foil hat analysis of Oldsmobile’s demise, TTAC commentator canfood extended his deepest sympathies. “When something so unexpected and seemingly nonsensical happens it causes people to attribute it to some kind of outside force or even some kind of supernatural event.” Less charitably, if you refuse to accept reality long enough, you lose the ability to do so. The men helming GM are on that arc.

Bob Lutz is the poster child for GM's delusional denial. For some reason, GM’s Vice Chairman of Product Development can't get his head around the fact that only a handful of his employer's products are demonstrably better than the competitions', while most are patently worse. The idea that the new Chevrolet Malibu is no Accord killer simply doesn't appear on the former Marine aviator's radar screen. And if the new Honda Accord [continues to] kick the Malibu’s ass in the sales chart? Why there must be other, more sinister forces at work. 

In fact, it’s only a matter of time before Maximum Bob will be shuffling around a swank hotel in a terry cloth bathrobe muttering Horvathian diatribes about The Black Dragon Society’s secret pact with The Oval Office. Rick Wagoner will eventually succumb to the same paranoid psychosis– only he’ll bore bystanders with endless, detailed expositions on currency manipulation, health care policy, union relations and the unequal burden of federal regulations on American automakers. 

I know I’m getting ahead of myself. I'm preparing for GM’s August sales stats. Even as the bad news hits the wires, The General’s spinmeisters will claim the faltering housing market caused a general downturn in U.S. automobile sales which, they will insist, led to their precarious predicament. In other words, the corporate big wigs will trot-out the Curly defense: “I’m a victim of coicumstance!”

Of course, Toyota’s growth in this declining market is proof positive that GM is a “victim” of nothing more (or less) than its own incompetence. Not to put too fine a point on it, the artist formerly known as the world’s largest automaker is circling the bowl because it can’t get out of its own way.

I mean that literally. GM’s stifling bureaucratic structure lies at the heart of the American automaker's multi-decade fall from grace. And if you thought GM’s management had reacted to the company's evaporating U.S. market share by keelhauling its corporate culture, ending octo-divisional internecine warfare and unleashing the world-class creativity lingering within, think again.

From tail lamp designs to drivetrains, GM product decisions are [still] made, remade, unmade, abandoned and resurrected with scant regard to deadlines, aesthetics or electro-mechanical harmony. What’s worse, GM’s new emphasis on “global development” has made the design process worse. Which brand gets what bit when and where in what form for how much is now a subject of international debate.

Overlapping fiefdoms continue to force GM designers and engineers to implement the simplest solution, rather than the best. A new Cadillac based on the old Saab platform? A new Saab on a Chevy platform? We can do that! Three new crossovers on the same Lambda platform? Why not four? Saturn Aura and Chevy Malibu twins based on an Opel? OK! Import another rear-wheel-drive Aussie V8 for Pontiac after the first one flopped? Go for it! It all makes perfect sense to someone. (I'm looking at you Mr. Car Czar). But not the consumer.

It’s the bureaucracy, stupid. And what has GM’s CEO done to dismantle the enemy within? Nothing. Why would he? Dismantling GM’s bureaucracy would destroy Rick Wagoner's power base and annihilate the only world he's ever known. And yet the devolution of power was GM's only possible savior. 

Ask yourself this: would an independent Pontiac have created the lackluster lineup currently littering their dealers’ lots? Would those dealers also be selling Buick sedans and crossovers and GMC pickup trucks and SUVs? Would a full functional Cadillac offer cars that compete on price rather than style or quality? If Saturn had controlled its own destiny, would they have built Americanized Opels for their rabidly loyal customers? And what about Oldsmobile? As Mr. Horvath pointed out (repeatedly), the Oldsmobile Cutlass was America’s best selling car from 1970 to 1985.

In truth, GM’s bureaucracy killed Oldsmobile the same way it’s poisoning Pontiac, Cadillac, Saturn and the five other brands GM flogs stateside. By failing to nurture, protect and value each brand’s [once] unique promise to its customers; by chasing the next big thing rather than doing every little thing to fulfill that promise, GM's sucked the soul right out their product.

At some point in the not too distant future, the cancer will kill the host. GM’s bureaucracy will drive the company into bankruptcy. Toyota and the transplants may have been the instrument of this ignominy, but they were never its cause.

The Scion brand has turned to face some strange ch-ch-changes over the last model year. The bento-box-on-wheels xB was re-fashioned for American tastes, exchanging hip Nipponese style for porky gangsta chic. And now the xA, the mini-minivan-shaped thingie that somehow (unfortunately) captured the spirit of the orthopedic Toyota Echo, has been axed. In a break with ToMoCo’s tradition of maintaining model names, Scion has decided to replace the xA with the xD, a mini-CUV-shaped thingie with bad ‘tude. Go figure.

I think it's safe to say to place this theory somewhere between Big Oil/Detroit's alleged conspiracy against the electric car and Erich von Daniken's Chariots of the Gods, ascribing human technological advances to alien visitations. Robert Horvath is the former Coral Gables Oldsmobile dealer who somehow decided that Oldsmobile's road to oblivion wasn't paved with good intentions and/or the inevitable result of a confederacy of dunces. While I haven't read Horvath's tome Project 2000, I read the press release, which, sensibly enough, makes no mention of the Toyota angle. By the end of our chat, I was feeling sorry for Mr. Horvath. No matter what you think of the wisdom of killing Olds, it behooves us to remember the executive actions have very real human consequences.

Mitsubishi, once the poster child for how to kill an auto company, is on the rebound. Bloomberg reports that Mitsu posted a 14 percent gain in global sales during the last financial quarter. That's higher then even Toyota, who only posted a 3.4 percent gain. Proving there's life after [Chrysler's] bad management and marketing decisions, covering up quality issues and offering lackluster products, the company showed their first profit in three years for the 12 months ending March 31. Mitsu credits "re-establishing public trust and boosting quality" for the recovery. While sales are climbing on the world scene, it's a different matter on the home front. Sales in Japan are down 16 percent, reflecting an aging population and shrinking market. Come to think of it, this all sounds like a couple of American manufacturers whose overseas sales are keeping the home-market operation afloat.. Huh.

The Verkehrsclub Deutschland (VCD) is a German environmental organization that advises corporations, lobbies governments and generally represents for Mother Earth. And just for fun, each year the VCD names the Eurozone’s most “environmentally-compatible” car. For the second year in a row, the 68K member pressure group has bestowed that honor upon the European Honda Civic Hybrid. The Toyota Prius scooped second. The Temple of VTEC (we are not worthy) reports that The Civic and Prius were the only compact cars to make the VCD’s Top 10; the remaining eight were mini and super-minis. The diminutive VW Polo BlueMotion was the only diesel-powered motor to make the grade. Oh, and if you haven’t tried Google’s translation service, we highly recommend you click on the first link above for further insight into VCD's goals (e.g. “We approach the vision of a lasting and futurable mobility only with the help of many particulars.“).   

Since the late 30's, the UAW and America's home-grown automakers have been locked in a balance of terror. The arrangement has kept the peace- at a price. Which was pretty much anything the UAW wanted. No-cost life-long health care? A "jobs bank" for superfluous workers? Sure! The Mutually Assured Destruction principle worked as long as the automakers could afford it. But now they can't, and the question is no longer who will blink first, but how much the UAW is willing to surrender to survive. 

Going into this year's contract negotiations, GM, Ford and Chrysler have all made it abundantly clear that they expect the UAW to make concessions on health care, wages and working conditions. Of course, the UAW's leadership bared their teeth and growled; workers at several plants voted to strike if necessary. The saber-rattling worked in previous years, so why not try it again?

For one thing, the UAW is a pale shadow of its former self. In 1969, the organization counted 1.53m members. Today, the union can claim no more than 180k dues-paying autoworkers. The days when union bosses could summon powerful politicians with a single Vito Corleone-esque phone call are over. Less contentiously, Dana Johnson, chief economist of Comerica Inc., says the unions are no longer "the pacesetters of the overall economy." 

Equally important, the union's employers are not what they once were, either. Setting aside the fact that all of them are mortgaged up to their eyeballs, staring down the barrel of bankruptcy, The Big 2.8 are no longer land-locked enterprises with distant relatives.

Ford and GM have established production facilities in China, India, Thailand, Brazil, Mexico and other low-labor-cost countries. What's more, U.S. car brands have "gone native," mixing their DNA with foreign-made vehicles. GM sells German Opels as Saturns, Korean Daewoos as Chevrolets, and Australian Holdens as Pontiacs. It's only a matter of time before Chinese Buicks hit the scene.  

Chrysler also sells "hecho en Mexico" vehicles, and recently signed up with a Chinese partner. Ford's moving as quickly as it can towards "globalization." In short, while The Big 2.8 still need their UAW-staffed U.S. production facilities, they don't rely on them to the extent that they did merely a decade ago. The threat of out-sourcing looms large over many a UAW factory, tipping the balance of power in the automakers' direction.

At the same time, the UAW must now deal with the end of pattern bargaining, where all three domestics signed identical union contracts. While the union itself signaled this change by refusing to offer DaimlerChrysler the same "health care giveback" afforded GM, Chrysler's transfer to private equity group Cerberus guaranteed the end of Detroit's "all for one and one for all" arrangement.

For example, Ford and GM will most likely offer to establish a multi-billion dollar union-controlled health care fund to ditch their endlessly escalating health care costs once and for all- eventually. As befits an equity fund, Cerberus is more interested in a short term solution. And no wonder: they had enough trouble raising the funds to buy Chrysler in the first place, and the credit markets have contracted since. A gigantic lump sum payment is simply out of the question.

For the UAW, two- (or even three-) track negotiations are an enormous headache. If the union tries to hang onto pattern bargaining, one or more of the automakers could choose the nuclear option. If the UAW allows different contract terms for different companies, they're bound to piss off part (or all) of their membership. 

In the face of this diminution of their bargaining power, the UAW has tried to open a fourth front: Toyota. This morning, members of [a UAW invention called] the Kentucky Workers' Rights Board submitted a list of "recommendations" for improving working conditions at ToMoCo's KY factory. Needless to say, company executives refused to meet with them. Toyota spokesman Rick Hesterberg stated, "If they have recommendations or proposals for us, they can leave them here for us to review."   

The UAW doesn't stand a chance. If the union looks set to organize their plants, Toyota's bound to retaliate by closing their only UAW facility: the NUMMI plant in California. If it escalates from there, Toyota's top dogs could pull part of their U.S. production back to Japan. And last but not least, Toyota builds Camrys in China; if anyone can export vehicles to the American market from China, it's got to be Toyota.

The UAW's effort to glom onto Toyota is a quixotic campaign that only serves to remind industry observers how the mighty have fallen. In truth, the UAW's hold over domestic automakers is weak, and getting weaker. While none of The Big 2.8 are bound to do anything that looks like union-busting, they're methodically positioning themselves to operate without any UAW members. But even that may not be enough to guarantee their survival. Mutually assured extinction?   

While GM is trash talking about selling 60K plug-in Chevrolet Volts in their first year on the market (whenever that may be), Toyota is more circumspect about the technology's chances. The International Herald Tribune reports that the world's largest automaker (ToMoCo) wants to conduct more consumer testing and market assessment before offering a plug-in Prius. Toyota's U.S. manager for advanced vehicle technology admits "there's a lot of enthusiasm right now about plug-ins." But, Bill Reinert adds, "I'm a little cautious about how much of that ends up as real consumer behavior." In other words, will consumers walk the talk? Cost and convenience may be the critical factors. GM pegs the cost of their plug-in Volt– with a 40-mile electric-only range and mandatory extension cord fun– at around $30K. Toyota's gas-electric Prius currently sells in the low 20s– and experienced a major surge when the price was lowered. Do the math. 

Poor-quality car dealers. You know the score: dodgy facilities, salesmen you wouldn't trust with your pet rock, F&I guys who nickel and dime your paycheck into oblivion and service departments for whom "bilk" isn't just a word- it's a way of life. Industry analysts and desk-chair pundits alike condemn many (if not most) auto dealerships as a cancer on the industry. Believe it or not, car manufacturers share your distaste. Hence the reason the newly excised Chrysler LLC flashed its private equity muscles, threatening to close "underperforming" dealerships. Is that legal? 

The short answer is: there is no short answer. Franchising laws come in 50 flavors. These state laws are extremely complex and vary enormously from jurisdiction to jurisdiction. If there's an overarching theme to these statutes, it's that they tend to favor (i.e. protect) the franchisees.

For example, in many states, a franchisor may not terminate or refuse to renew a franchise agreement without legally demonstrable "good cause" for doing so. Franchisees may also sue franchisors for injunctive relief (e.g. a court order prohibiting franchise termination) or rescission (undoing the franchise sales agreement), PLUS damages. Oh, and the Federal Trade Commission can step in to enforce state laws.

So, in business terms, Chrysler can shutter its underperforming dealerships, but their legal bill is bound to be on the Orion's Belt side of astronomical. In fact, any automaker considering cutting dealer deadwood has one word on its mind: Oldsmobile. GM's December 2000 termination of its Oldsmobile franchise is example no. 3 in the OED under the phrase "cataclysmic meltdown." When all was said and done, this little exercise cost General Motors about $1b- not including various intangibles that corporate PR folks might call "good will" or "public image." 

Still, it's got to be done. Toyota has 90 American dealers for every percentage point of U.S. market share. General Motors has 300 dealers for every point and Chrysler is nominally better at 270. There is nowhere near enough space to detail all the reasons why this state of affairs is toxic for the American manufacturers. Suffice it to say, the end result is that the dealer bloat is stomping the life-support machine attached to Chrysler's sales numbers and wrecking what's left of Chrysler's battered consumer image.

Chrysler's decision to prune its dealer network can only go two ways. The manufacturer can either simply pay the dealers to shut down or fight them in court. Although the word extortion comes to mind, a pay off would be the quickest and easiest way to make the problem go away. Alternatively, Chrysler's lawyers could say screw you, see you in court; lots and lots of courts. If Chrysler's army of high-priced lawyers loses at trial, it'll cost them a ton of money. If they win at trial, it will still cost them a ton of money.

Chances are they'd win some and lose some and pay through the nose for the privilege. Either way, the bottom line is the bottom line: there's no inexpensive way for Chrysler to trim its dealer network. 

There are more devious alternatives. Chrysler could reduce the amount of dealer "holdback." That's the money– roughly two to three percent of a vehicle's retail price– held by the manufacturers prior to sale. Dealers depend on this post-sale cash to book paper profits and make money. Chrysler could make the size of the holdback performance related, or simply drag their heels.

Chrysler might also say "Hang on; we've got some production issues. We've got to allocate our 300Cs very, very carefully. At this point, only five star Chrysler dealers can have Hemi-powered cars." There is precedent: SRT-8's are doled-out by corporate caveat.

While any such moves brings the threat of lawsuit, pretty much everything does. Chrysler can make life hard enough for "bad" Chrysler dealers that they'll have no choice but to send their dealership to the land of Plymouth, Eagle, AMC, De Soto, Nash, the New Yorker, Imperial, Cordoba, Daytona, Cirrus, Concorde, LHS, 440, Dart, Breeze, Spirit, Reliant, Omni and… well you get the idea.

There was one legal development of late, a silver-plated lining to the grey cumulus clouds filling The Big 2.8's sky. In Leegin Creative Leather Products v. PSKS, Inc., the Supreme Court overturned a 96-year old precedent that made any kind of vertical (manufacturer-set) price rules illegal on their face, without any other examination. 

Under the old rule, dealers could make patently senseless decisions with prices, like fleece customers for $10k over sticker on a Solstice or mark Trailblazers down so much as to utterly pulverize their residual values. Now that General Motors or Chrysler or Ford can call dealers out on the carpet, they have much stronger control over some of the more foolish moves they make. It can't hurt, but it won't really help. 

For the last few years, the American public has embraced Toyota's products as clean, durable and efficient. Exhibit A: the demure Camry, which has maintained its position as America’s favorite automobile. Exhibit also A: the Hybrid Synergy Driven Prius; the poster child for environmentally and foreign policy-conscious consumers. No surprise, then, that Toyota's been held up as America's responsible automaker, the one who doesn't bitch and moan about federal regulations, but just puts its head down and does the right thing. And makes money doing it! And then Toyota released the new Tundra.

The new Tundra is big and brash, with tremendous attention to detail and an [available] stonking great V8 engine. In the first quarter of 2007, Toyota spent over $100m telling Americans that the transplanted Japanese automakers had built a proper, full-sized, all-American truck– deep in the heart of Texas (no less). What they didn’t mention: the most popular version gets a combined EPA average of 15 miles to the gallon.

Perhaps that’s because, at the same time, ToMoCo ran a national TV campaign advertising the fact that its Hybrid Synergy Drive is now available in the Camry. Talk about cognitive dissonance. And when you're done, consider Toyota’s dirty [not so] little secrets: the FJ Cruiser, Sequoia and Land Cruiser. 

According to the EPA, the 4WD FJ Cruiser gets 17 mpg city and 21 mpg on the highway. While GM gets slated for building big thirsty trucks, the FJ's city mileage is only slightly better than Chevrolet’s entry into the “compact” SUV segment, the Trailblazer. Ye Olde Trailblazer gets 15 mpg city in 4WD trim, and it ties the FJ for highway efficiency.

The current Toyota Sequoia is another big ass gas-guzzler. The mondo-sized SUV travels just 15 miles per gallon of gas in the city, and squeezes out a mere 18 mpg on the interstate (4WD Limited). Sequoia’s older, full-size brother, the Land Cruiser, gets a shocking 13 city, 17 highway mpg (4WD). Compare this to the GMC Yukon 4WD, which has a bigger engine, tows more, weighs more and still manages 15 mpg city/21 mpg highway. 

In 2008, both the Sequoia and Land Cruiser will be replaced with bigger, better behemoths, powered by Toyota’s new 5.7 liter V8. (The new Sequoia is built on the Tundra platform.)  The size of the new Sequoia and Land Cruiser and the mileage of its mighty mill have some execs within ToMoCo shaking their heads.

Don Esmond, Senior VP of Automotive Operations at Toyota Motor Sales USA said, “I worry about the Sequoia being too big and not having enough fuel economy more than I do the Tundra… there are a lot of choices besides an SUV for hauling your kids to soccer practice." 

Releasing two new bigger full-sized SUVs into a declining market, into a world of three dollars a gallon gas, is a serious miscalculation on Toyota’s part. Granted, the profit on one Land Cruiser is probably greater than the margin on five Prii, but how many Land Cruisers can Toyota sell, and at what cost? 

How many potential Prius buyers will be turned off by Toyota ads pushing the new Sequoia and Land Cruiser? While the Prius currently owns the hybrid mindspace, Honda, GM, Ford, etc. are not standing around waiting for people to find their new, improved gas – electric models. In fact, Honda’s recent TV ads, touting their status as makers of “America’s most fuel efficient fleet of cars,” were specifically (and effectively) designed to steal the moral high ground from Toyota.

While you could argue that Toyota allowed itself to be painted as a friend of the Earth, rather than actively campaigning for eco-sainthood, the ultimate effect could also backfire in the SUV category. How many SUV owners are going to trade in their Suburbans for full-sized SUVs made by the green company that makes Suburban owners feel guilty for owning a Suburban, instead of a Prius?

In other words, Toyota’s vastly disparate products put their marketing efforts between a rock and a green place. If they promote the Prius and other small cars on the basis of their fuel efficiency, they risk being exposed as hypocrites (done) and alienating buyers of large SUVs and pickups. If they promote their large SUVs and pickups, they look even more morally ambiguous and risk alienating buyers of small cars.

All of which place Toyota at a crossroads. As a full-line automaker, ToMoCo’s U.S. products have been defined by their low price and class-leading reliability. The Prius was a game changer, wrenching their corporate image into another category AND emphasizing their lineups’ frugality (originally an off-shoot of price, i.e. cheap to own). Now, they must either embrace the new reality and change their product mix or do nothing and suffer the consequences.

Visitors to Ft. Collins Colorado don't have any problem finding the massive WWV shortwave antenna array that broadcasts the time from the government's famous atomic clock. In town, locating a hybrid on a car dealer’s lot ain't so easy. The Coloradoan reports that local hybrid sales are high. Mark Pedersen of Pedersen Toyota pronounced them "extremely steady." Over at Markley Motors Honda store, used car manager Jaime Twito says Honda's hybrids are usually sold before they arrive. "We take everything they give us… they're hard to keep on the ground." Things are a little tougher for Brad Laugel, inventory manager at Dellenbach Motors. While the Chevy dealer has no hybrids to sell, he’s expecting a few ‘08 gas – electric Malibus later this year. Changing the subject ever-so-slightly, Laugel says Ft. Collins is “a good market” for vehicles like the Silverado and Tahoe, which can run on E85. Fortunately, unlike most U.S. towns, Ft. Collins actually has a station selling the brew: Western Convenience Store on 1113 West Drake Road. Be sure and say hello for us– but don't ask if they have the exact time.

Microchip Technologies (MT) is in full damage/spin control mode, as Israeli and Belgian boffins say they've cracked the "Keeloq" anti-theft key code. The code is the foundation of the company's remote control system. MT's plippers lock and unlock the doors and immobilize and de-immobilize models built by Fiat, General Motors, Toyota, Volvo, Honda, Volkswagen, Jaguar, Daewoo and Chrysler. Microchip's website calls the code "a highly secure algorithm." The hackers call it lunchmeat. The Jerusalem Post says all the geeks have to do is wirelessly access your key for about an hour, run their computer program and hey presto! They can identify your code from a billion billion possibilities, unlock your car and motor away. Or can they? "Our attack was checked in depth in program simulations," claimed researchers Sebastian Indestig, Eli Beham, Or Dunkelman, Barrett Fernil and Natan Keller. These guys would do well to remember the Ancient Art of War admonition: the algorithm is not the territory.

Late last century, GM decided to fight the rising tide of uninteresting front wheel-drive cars Japanese cars by building their own uninteresting front wheel-drive cars. Three decades of trying to out-Japan the Japanese yielded the pinnacle of American wrong-wheel technology: The Monte Carlo SS. Now that GM’s hulking trucks have had their day, the automaker is busy hawking its lackluster though miserly Cobavion. This despite the fact that one of the best small cars GM has ever produced sits unloved in Pontiac lots across America. Go figure.

I sat anxiously in a showroom Mercedes CLS while the salesman processed my paperwork for a test drive. Even in repose, the CLS is a magnificent machine. Soaking in that heady blend of luxury and gravitas, I wondered if my spin in the B200 (available in Canada and Europe) would capture any of that Mercedes quintessence. Sometimes, brand extension works (Bentley Continental GT) and sometimes, it doesn't (VW Phaeton). So does the B 200 fit in Herr Doktor Daimler’s pantheon of pomp and circumstance?

Chrysler has just unleashed its new minivan, hoping to jump-start sales in a sector that's been shrinking for a decade. During this slide, the Honda Odyssey and Toyota Sienna have moved their people movers upmarket, banking healthy margins on the back of tremendous customer loyalty. Meanwhile, Kia entered the fray with a more budget-minded alternative, the Sedona. Although Kia missed the obvious marketing opportunity (My my my, Sedona), the not-so-fancy shmancy minivan has proven itself a sales winner. Why?