Car engines generate plenty of heat. According to Technology Review, researchers at MIT have a bright idea: use “thermophotovoltaics” to convert heat into light, then convert the light into electricity. The prototype system uses gasoline to heat tungsten to illuminate a photovoltaic cell to generate electricity. The hope is that systems based on this research could eventually replace the current gas-wasting alternators and air conditioning compressors. Of course, this technology hasn’t escaped the attention of the Department of Defence. "The military has had a lot of interest in it for portable power supplies in the field. Because there are no moving parts, there wouldn't be any noise, so you couldn't detect it," says NASA researcher Donald Chubb. It’ll be a few years before we see any practical applications, but as one of the key research sponsors, Toyota would be the first automaker in line.

By their own admission, General Motors' North American operations are currently doing business with negative working capital (NWC). At About.com, an unnamed investment adviser has some advice on that subject. "Negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivable. In any other situation, it is a sign a company may be facing bankruptcy or serious financial trouble." Any guess which one of those descriptions applies to GM?

GM has been staving-off the whole "NWC leads to bankruptcy" paradigm by hocking the family jewels. The $5.4b recently added to GM's accounts by the sale of their highly profitable Allison Transmissions unit is only GM's last (and I do mean last) significant sell-off. In the preceding two years [alone], GM CEO Rick Wagoner jettisoned some $21.4b worth of corporate assets. During those same two years, the company signing his paycheck lost $12.4b.

While the charges for losses in these years were mostly non-cash items (worker buyouts, plant closings, etc.), the piper must be paid. The charges will eventually morph into cash demands. Without positive earnings (i.e. profitable vehicles), the situation is destined to deteriorate. 

Selling assets to cover the shortfall wasn't an inherently bad idea– if GM had used the proceeds to reinvigorate their brands and products. No such luck. GM was forced to use the money to pay for the aforementioned worker buyouts, plant closures and other downsizing costs. The automaker did so in the hopes that production would eventually equal demand, while cost reductions would lead to more profitable products.

As the last two month's of lowered sales and diminished market share have shown, as GM's accounts reveal, that strategy is dead in the water. 

In terms of the downturn's effects on GM's life-sustaining margins, much has been made of GM's increased incentives. Fair enough; every discount dollar bestowed upon GM's customers is one dollar less profit. But it should also be noted that the company's been heavily discounting its products beneath the media radar for quite some time. 

According to GMAC's recent 10K filing, at least 90 percent of the lender's 2006 GM vehicle financing involved rate buy-downs and lease subventions. That's up some 22 percent since 2005. Figure the same amount for '07, estimate the cash value at around $2k per vehicle, consider the fact that 48 percent of ALL GM's U.S. retail sales are financed by GMAC, and you can see that the automaker has been burning big bucks to maintain market share.

Scanning the large number of pickup truck and SUV sales involved, it's impossible not feel a frisson of fear. Pickups (many sold to construction companies and contractors) and large SUVs (sold to God-knows-whom) still generate the lion's share of General Motors' operating capital. The current sub-prime meltdown is hurting housing starts and refurbs AND causing a general economic slowdown. GM's cash cow is being slaughtered.

No wonder CFO Fritz Henderson declared that The General will defend its pickup truck market share "at all costs." Which is exactly the kind of statement you don't want to hear from a company with NWC.

There's another, hidden danger. The NWC situation has reached the stage where GM increasingly depends on suppliers' payment terms to keep the wheels turning. Should GM's suppliers decide not to extend the corporate mothership credit, the gig is up. GM would be forced to file. But even with their suppliers' support, GM is now sailing into hurricane force headwinds.

The way out of this mess hasn't changed since Rick Wagoner first outlined his turnaround strategy and began jettisoning assets to pay for it: trim production until it matches demand. Only GM can no longer afford large production cuts. Lost in NWC world, they need all the capital (i.e. money) they can get. If GM stops making so many vehicles, the gap between income and outgo earthquakes open and they'll fall into Chapter 11.

To eliminate the NWC crisis, GM needs significant earnings from profitable vehicles and/or massive new borrowings. But the recent withdrawal of the Allison junk bond sale and Cerberus' escalated borrowing costs betray the new reality: the price of money has skyrocketed. So GM must sink or swim on the back of their products.

Clearly, the company's paddling like crazy. Truth is, Toyota could drown GM in debt simply by lowering their prices. GM couldn't afford to follow suit. At the same time, they couldn't afford NOT to follow suit.

Mind you, that's Toyota's nightmare scenario. Toyota's American profits depend on GM and Ford remaining high cost producers, setting a floor for U.S. market pricing. If GM files Chapter 11, eviscerates its bloated dealer network, consolidates its brands, builds some shit hot products and undercuts Toyota's prices, ToMoCo would have a real fight on its hands.

Sounds like a plan to me. 

As [active] union membership at The Big 2.8 continues to dwindle, the UAW is making a full-court press on the transplants. They've already launched an attack on Toyota and now they're targeting Honda, according to The Birmingham News. After an unsuccessful attempt to organize Honda's Marysville, Ohio plant, the UAW's now focusing on the Lincoln, Alabama facility. Union representatives have been meeting with small groups of employees at the plant, which turns out 300k Odyssey minivans, Honda Pilot sport utility vehicles and V-6 engines annually. They've warned workers they can expect the company "to step up a campaign of 'fear and intimidation' against pro-union workers." UAW organizer Frank White told employees, "The company will try to divide you by gender and along racial lines. They will try to divide you on shifts, saying day shift didn't reach quota so you'll have to work harder tonight." Sounds like the union knows a few "fear and intimidation" tactics of their own.

By law, foreign automakers seeking a foothold in China must form joint ventures (JVs) with domestic "partners." As we've outlined before , there's an immediate downside: China's scant regard for intellectual property rights (IPR). For example, GM found itself suing Chinese automaker Chery (whose name middle-finger salutes Chevy) over the QQ, a blatant copy of the Daewoo Matiz. The case was settled out of court, but the issue of IPR remains unresolved. And now that Chinese automakers are consolidating and striking out on their own, what's going to happen their foreign partners and their IPR? What do you think?

China's three largest automakers are Shanghai Automotive Industry Corporation (SAIC), First Automobile Works (FAW) and Dongfeng. SAIC currently partners with General Motors and VW. FAW is hooked-up with Toyota, VW and Mazda. And Dongfeng works with PSA Peugot Citroën, Honda, Nissan-Renault and Kia.

China's Big Three own almost 50 percent of the domestic auto market. All three have announced plans to develop "house" brands with independent intellectual property rights. As Chinadaily.com puts it, "After churning out Buicks, Passats and other foreign models in tie-ups with global auto giants for years, many home-grown players are setting their sights on an own-brand strategy, hoping to wean themselves off reliance on foreign technology."

To that end, SAIC has budgeted $3.56b over the next five years for designing engines and complete sedans, and building a technical center. The automaker's also announced a massive bond initiative to fund development of their new cars. SAIC is looking to build factories capable of churning out a quarter million vehicles per year.

FAW is set to invest $1.7b in new product development, production facilities and "229 key technologies" over the next eight years. And Dongfeng is spending $1.01b to develop their own brand of cars and a new assembly plant. 

SAIC has a head start on its domestic competitors. They already own the IPR for the Rover 25 and 75 models, purchased from the now-defunct British brand at the end of days. SAIC has used the technology to launch the Roewe 750 based on the (BMW developed) Rover 75. So far they've sold 8k 750s.

SAIC is also considering a merger with smaller Nanjing Auto, owner of the MG brand. Nanjing has started production at MG's former plant in the U.K.; they're setting-up a similar facility back in The People's Republic. It wouldn't be hard to use the car as an anchor for a full line up.

And it won't take long for the other Chinese automakers to catch up. Dongfeng has plans to market a self-branded sedan that "imitates" the Elysee (currently manufactured by Dongfeng Peugeot Citroen Co Ltd.), starting this September. FAW is ready to begin mass production of their first independently designed sedan engine. Entire cars will follow.

Clearly, Chinese automobile manufacturers are cashing in on their crash course in auto manufacturing. They've spent the past 20 or so years studying their partners' design and engineering processes and production techniques, and establishing their own relationships with suppliers. They've also learned marketing, dealing with export and import regulations, and all the rest of the finer points of selling their products internationally.

China's automakers aren't going to want to keep sharing a large chunk of what is now the world's second largest auto market. Over the next five years China's Big Three will flex their muscle to retain their 50 percent market share. Those automakers who've entered these joint ventures will have to pay the price.

It won't be hard for the home-grown tigers to ease their partners out of the picture. Some of the models produced by the JVs are a generation removed than the same model in other markets; they need updating. Without modernization, their sales will start to drop "as core models become increasingly obsolete," warns Goldman Sachs. If the Chinese partners won't allow the foreign partners to update their designs, sales will dwindle, opening the door for the Chinese partners to introduce newer, self-branded models.  

Since Chinese law prohibits foreign auto companies from operating without a Chinese partner, this "planned obsolescence" scenario would effectively shut out the foreign automakers. Even if China's Big Three don't starve their JVs of new product, there is no doubt that the government of China will do whatever it takes to bias the domestic market in favor of home-grown automakers, including (but not limited to) punitive taxes.

Although GM and others rely on the Chinese market to help keep them afloat, there's not a lot they could do about any moves to diminish their profits. We're talking about a country run by a military dictatorship; as the current legal laxity over IPR indicates, there's no chance of legal redress.   

Meanwhile, the Chinese automobile market is expanding. The foreign players are making hay while the sun shines, even as the storm clouds gather above them.

Lazy automotive writers love assignments on Korean vehicles. The review practically writes itself: just recap a few Letterman-esque Hyundai jokes, feign shock at how much the brand has come along, issue some heavily-qualified praise ("it's endearingly almost Toyota-like!") and Bob's your uncle. We here at TTAC reckon it's time to stop treating the Korean brands like they’re special-needs children. It's time to judge these vehicles against their own self-proclaimed brand values. The Kia Spectra: "Simply put, it's a blast to drive." Simply put, we'll see about that.

ConsumerAffairs.com has collected complaints from Toyota Prius owners regarding throttle control. One, a new Prius with 600 miles on the odometer, accelerated wildly while the owner was attempting to merge onto a busy interstate. On another occasion, the traction control system (itself another problem reported on the site) kicked in and the car accelerated. A third time the car refused to slow after passing another car. One Prius owner, an engineer, discovered that tapping the lever that disengages the cruise control solved the problem– even though the cruise control system was already turned off. Toyota denies any mechanical or software problem exists. They suggest that a wadded carpet may have caused a sticky go-pedal. 

Online Media Daily reports that Toyota's Sciontologists are building a "branded nightclub cum hangout spot" in the virtual world known as there.com. Programmers Metaversatility are creating a Scion-shaped party tower based on the carmaker's three currents models (xA, xB and tC). They hope to entice a big slice of there's [claimed] 1m virtual inhabitants into the Scion party zone. To increase cyber-footfall, Scion will advertise its virtual hang within there via "interactive kiosks" and billboards. If all that isn't weird enough– and we think it is– what's the bet Scion will pay inhabitants to "suggest" heading over to Club Scion? Will these virtual shills get virtual rewards or cold hard cash? Will they even be real? What's to stop there from using artificial intelligence avatars to drum-up business, or, more sinisterly, send fake visitors to the fake Club Scion to bolster audience numbers? Will Chevy hire people to create avatars to trash talk Scion and their hangout? How long before someone– real or fake– gets killed? Where's Phillip K. Dick when you need him?

As top executive for a large manufacturing enterprise, Bob Nardelli was a tremendous success. As the man in charge of a gigantic retail business, not so much. Like any automaker, Chrysler’s survival depends on both its ability to manufacture class-leading products AND get its dealers to provide class-leading customer service. So, as Nardelli takes Chrysler’s helm, the question must be asked: is he half the man he needs to be? The answer is Six Sigma.

Navy vet and Motorola employee Bill Smith created the Six Sigma management system (a.k.a. the “Way of the Sword”) for Motorola in the 80s. Six Sigma’s goal: design and create products with no more than 3.4 defects per million. Like many such theories, its principles are enshrined in acronyms: DMADV (Design, Measure, Analyze, Define, Verify) for product creation, DMAIC (Define, Measure, Analyze, Improve, Control) for production. Its success depends on continuous, company-wide commitment.

GE CEO Jack Welch was an early accolade of Six Sigma. When Welch appointed Bob Nardelli CEO GE Power Systems, “little Jack” deployed Six Sigma with ruthless effectiveness. Applied to a division building and selling locomotives and power generators for other business (i.e. BTB), Six Sigma worked a treat. Excellent products were designed and built, and management limitations minimized (retarded innovation, inflexibility, group-think, insulation).

In December of 2000, Nardelli lost a bid to replace his mentor at GE. Despite a complete lack of retail experience, Nardelli landed the top job at Home Depot. Appropriately enough, Nardelli cleaned house, replacing Home Depot's top management and rationalizing every aspect of the business.

Seven years later, at the end of his tenure, Home Depot’s market valuation had declined by 40 percent. Much to the chagrin of stockholders, Nardelli floated away on a $200m golden parachute.

Nardelli’s over-reliance on Six Sigma lay at the heart of his troubles at Home Depot. As a system of measuring improvement, Six Sigma could work on a retail level— in the same sense that Darwinian principles of “survival of the fittest” could work as a political system. But just as social Darwinism isn’t flexible enough to subsume competitive belief systems, Six Sigma is not exactly what you’d call a people pleaser. For example…

Nardelli used Six Sigma to streamline Home Depot’s in-store staffing. By adding self-checkout technology and generally thinning the ranks of floor staff, Nardelli was able to correct a “defect” in the chain’s “production process.” The moves cut costs and, thus, increased the amount of money available for employee training.

The strategy reduced the number of employees on the floor, and turned many of the remaining employees into data measurers and desk jockeys, sapping time once lavished on Home Depot’s customers. Appropriate data was collected, but customers were not well pleased with the tumbleweeds blowing through the aisles of the big box home improvement store. You can do it, we can help, but you gotta find us first.

“Bump’em Bob” Nardelli also directed his [new] management team to apply Six Sigma principles to strategically re-position Home Depot’s displays and products. As you can imagine, the statistical emphasis robbed some of the “surprise and delight” from the Home Depot retail experience, in a genre where emotion is a precious commodity.

But more than that, Six Sigmatitis proved to be a demoralizing influence on Home Depot’s human infrastructure. Nardelli’s less than warm personality and his willingness to eliminate all those who opposed his methodologies cast a icy pall over Home Depot’s corporate culture. 

"Facts are friendly" is one of Nardelli’s favorite sayings. So here’s a handful. In July of 2007, Chrysler’s sales were down eight percent compared to July 2006, even while they spent an average of $4,082 per vehicle on incentives. Inventory is down 17 percent over last year, but it’s still an 81 day average supply (45 days being the goal, 60 the current American norm).

Obviously, Chrysler’s manufacturing operations could use stricter guidance. Strict defect measuring is always welcome in the world of car production. And despite the trail of broken careers at Home Depot, it’s also true that Chrysler’s middle management torpor could benefit from some pruning.

But injecting Six Sigma into the Chrysler culture is no long term solution. In the ultra-competitive automotive marketplace, where Toyota’s lean production system sets the standard for manufacturing efficiency, an automaker needs more. It needs strong branding and a spark of genius. Even Jack Welch knew that Six Sigma had to be balanced against the need for risk in order to foster genuine creativity.

But Cerberus didn’t hire Nardelli to return Chrysler to greatness. They hired him to prepare the company for sale. To slash and burn the automaker's production process, corporate bureaucracy and dealer network, so they can strip and flip the result. Nardelli is all the executive Cerberus– if not Chrysler– needs.

[For more info. on Six Sigma, go here .] 

Now that Subaru has been "liberated" from GM's influence and hooked-up with the new world number one (hint: Moving Forward), the all-Japanese automotive partnership is finalizing plans to co-develop a… wait for it… sports car. Reuters reports the BFFs are shooting for a price under $16,000, an engine smaller than two liters and (possibly) Subaru's all-wheel-drive powertrain. The car is due to hit the tarmac as a 2010 model, sold as a Toyota. The mating of Toyota bland with Subaru quirkiness should produce an interesting automotive offspring, to say the least. No word on whether they'll sell the car in North America; or whether the phrase "sold as a Toyota" includes the new sports car's logical U.S. home: Scion.

Yesterday, we reported on Tesla and Toyota's [potential] troubles with lithium-ion batteries. Little did we know there'd be an explosion (so to speak) of Li-ion news. Detroit Free Press reports that GM Car Czar Maximum Bob Lutz announced an "expanded" deal with lithium-ion battery maker A123Systems (first in the phone book!). The Watertown, MA company will develop nanophosphate-based Li-Ion battery packs for GM's E-Flex hybrid system.  "I think that our No. 1 competitor has some problems with their technology, and I do think that it very definitely opens a window of opportunity for us to be first to market with a genuine plug-in hybrid." Lutz promised to have the technology sorted by 2010, when GM's E-Flex-equipped Volt is scheduled to appear at a Chevy dealer near you. Meanwhile, Automotive News [sub] also reveals that Chrysler will shove some lithium-ion batteries into their Sprinter vans this fall. As for fire and explosions… ""We are approaching safety…with a layered system approach," says Johnson Controls-Saft engineer Mary-Ann Wright. "We will ensure safety performance is achieved at the cell, pack and system level." Sounds like a plan.

Toyota is delaying introducing lithium-ion battery-powered hybrids because of safety concerns. Forbes reports that the Japanese automaker is hanging fire (so to speak) due to worries that the cells might overheat or explode. Toyota doesn't expect to have hybrids with Li-Ion batteries until 2011. They've also delayed plans for Tundra and Sequoia hybrids. Whether or not this will affect GM's hopes of lithium-ion powered Volt is yet to be seen. Meanwhile, commenting on an earlier TTAC post, Tesla spinmeister Darryl Siry claims their Roadster's Li-ion battery pack passed UN and DOT protocols for safety "when shipping" which which "can actually be harsher than safety when in a car."

CNN Money reports that Ford, GM and Toyota have all downgraded their forecasts for '07 U.S. automotive sales. Ford estimates total sales at 16.1m, GM pegs the number at 16.5m and Toyota reckons it's 16.3. In any case, the stats compare with last year's 17.1m sales. The downturn puts GM between a rock and a hard place; the company's inventories are high and they're set to crank out more vehicles in this year's third quarter than they did in '06. As reported here, GM faces a stark choice: up incentives (killing margins), cut production or… both. While GM's spinmeister Paul Ballew danced around the looming nightmare, Ford's $25m man made no bones about the need for realism. "The most important thing is to get to the real demand. We don't want to drive demand with big incentives. All you are doing is pulling it ahead, so we need to get to the real fundamental demand, and have the vehicles priced for the demand." Meanwhile, Toyota's sitting pretty. Declining market be damned; they reckon they'll increase '07 U.S. sales by five to six percent.

Mike Delahanty, senior manager of Dodge Motorsports, has assured NASCAR fans that the manufacturer won't pull their sponsorship from the ten race cars wearing Dodge Charger/Avenger decals. Delahanty seems confident that Cerberus will continue supporting the program, citing two NASCAR contracts that "went through the Cerberus review unscathed — no questions." He feels "we had a long-term commitment to the sport that was approved and a long-term commitment to one of our key teams that was approved. That gave us a message very early that going forward we weren't going to have to worry how to run our business." However, these statements were made before Monday's announcement stabbing Tom Lasorda in the back naming Robert Nardelli as CEO. Now that Toyota's in NASCAR, Delahanty and the two Dodge racing teams may want to give Hyundai or Honda a ring.

As if a new owner, a new CEO, housecleaning in the executive suites and negotiating a new contract with the United Auto Workers weren't enough to keep Chrysler's middle management mainlining Mylanta at the Pentastar Palace, the Detroit News reports that Chrysler lost $1,111 on every vehicle they sold in North America last year. That's a drastic drop from the $144 per vehicle they made in 2005, before sales of large trucks and SUVs hit the skids. The only bright spot: Chrysler didn't lose as much money as Ford. The Glass House Gang's losses ran over $1900 per vehicle. To rub salt into festering wounds, the transplants (Toyota, Nissan, Honda) averaged nearly $1600 profit per vehicle. 

Sir Isaac Newton had a ninth law: all vehicles must gain mass with each passing generation. I know, I know: safety regulations, usable third row, American tastes, yada yada yada. And it’s true that the new, bigger Toyota Highlander exacts no fuel efficiency penalty for its extra height, width, length and weight. Even so, has the new Highlander lost something, as Toyota moves further and further away from cheap and cheerful towards pricey and ponderous?