My 2012 Honda Civic review concluded that “the design is clunky, the materials are cut-rate, and the driving experience is so dreadfully dull that even a Toyota Prius is a blast in comparison.” Could this car have inspired the owner evangelism that made Honda a major industry player? Highly unlikely. Though most commenters shared my severe disappointment with the car, at least one found the “bashing” to be “amusing.” Perhaps Honda similarly shrugged off my critique. Some of the big car mags have ranked the new Civic fairly high in recent comparos, so by picking and choosing who they pay attention to Honda’s leaders might maintain the illusion that they aren’t hopelessly off course.

Well, if a TTAC review didn’t provide them with a strong enough dose of reality, perhaps this will: as recounted in the September 2011 issue, the new Civic tested so low in Consumer Report’s road test that they won’t recommend it. Among other things, they note that the redesigned car’s interior is cheap, the steering is devoid of feedback, and the ride feels unsettled. They also note that “the Civic’s sporty character is gone.”

A Civic that Consumer Reports cannot recommend? If this doesn’t provide Honda with a clue, I don’t know what will.

[UPDATE: Hit the jump for CR’s press release]
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Mazda lost $327m in the second quarter, falling below analyst expectations as tsunami-related supply interruptions and currency woes battered the company’s bottom line. According to the Detroit News, this was Mazda’s third straight quarter of losses and the firm has lost money during its last three fiscal years. But, as this video (which, as far as I know has not yet been shown in the US) argues, the “Hiroshima spirit” which allowed locals to rebuild after the devastation of the nuclear attack in 1945, flows through Mazda. The company has a bold new design direction, an “enthusiast howl” of an ad campaign, and it says it will return to profitability when its fiscal year ends in March. But its projected profit for the full year is only $12.8m, which means Mazda is cutting it real close… and as the last quarter proved, projections can always be missed. Here’s hoping the last independent, mass-market, enthusiast-oriented automaker is able to turn things around this year and keep fighting the good fight.

AlixPartners, the consulting firm that led GM’s reorganization efforts, has put the perennial optimism of auto industry analysts on notice, introducing its 2011 Automotive Outlook by arguing

The AlixPartners 2011 Automotive Outlook finds that while automakers and suppliers have seen profits bounce back handsomely – North American original equipment manufacturers (OEMs) posted $12.5 billion in 2010 profit on a net margin of 4.6% and North American suppliers reaped $8.2 billion on a net margin of 4.3% – no one should be tempted into thinking that things are now back to “normal,” or at least the normal defined by the consumer-incentive-induced sales levels of the past. In sync with its past annual auto studies, AlixPartners continues to predict that U.S. auto sales will climb slower, and to a lower peak, than many others are predicting. Specifically, the firm estimates U.S. auto sales will reach just 12.7 million units this year and only 13.6 million in 2012.

This is a tough moment for us: on the one hand, pessimistic economic forecasts don’t make anybody happy… on the other hand, the AlixPartner outlook is a significant validation of TTAC’s longtime bearishness. So rather than either moping or self-congratulating, let’s just take a look at why AlixPartners is so gloomy about the near-term outlook.
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SvD.se reports that Paul Akerlund, Saab’s former IF Metall (one of Sweden’s largest trade unions) representative and now Trollhättan Municipal Council Chairman, has called for the resignation of Saab CEO Victor Muller, saying

I do not think Victor Muller is a good president. He is an owner and a contractor, but he has not sufficient knowledge about how to manage production and development

And Akerlund is no city government busybody, but a longtime company insider who has been influential in Saab’s post-GM life. Having shepherded Saab through the challenges of the past two years, this is another grim sign that Saab is about to succumb to the realities that have dominated TTAC’s Saab coverage for years now. A commentary in SvD, titled “Thank Muller for Painful Bankruptcy” sums up the somber mood in Sweden:

[Saab] has been on artificial respiration for nearly two years. It is down now, and from all indications we can only conclude that the whole process was a painfully protracted bankruptcy. And we have only one person to thank for it.

Remember Hybrid-Kinetic Motors, the hugely ambitious venture by former Brilliance Chairman Yung Yeung that was supposed to build 300k physics-defying hybrids per year at a brand-new $1.5b Alabama factory (with the modest goal of producing a million vehicles per year by 2018)? H-K Motors was never taken very seriously here at TTAC, and despite appearing to be a visa scam, the firm signed a $500m design deal with Italdesign/Giugiaro, and was reportedly working with a German engineering firm… and Alabama’s Baldwin County sure took the firm seriously. Unfortunately, al.com reports that

In 2009, Chinese company HK Motors had taken notice of the megasite and announced plans to build a $4.36 billion green energy automobile manufacturing plant that would employ 4,000 workers.

Under a plan unveiled two years ago, the Pasadena, Calif.-based subsidiary of Hybrid Kinetic Group Ltd., of Hong Kong, would start production in Baldwin County in 2013. The cars built there would run mainly on compressed natural gas, backed up by electric batteries and a small gasoline tank.
The company announced that it expected to build 300,000 vehicles each year at the outset, with production increasing to 1 million by 2018 by 5,000 local employees. The company purchased a battery manufacturer and other component businesses in subsequent months.

But local officials said last month they would be marketing the site to other companies with HK Motors apparently unable to secure financing for the venture.

I’m sure nobody’s surprised by this at all… after all, I never found anyone who believed a word of the Hybrid Kinetic mumbo-jumbo. But what reminded me of the H-K fiasco, and what led to me to find that it had officially abandoned Baldwin County (after it shouldered $70k in surveying costs, no less) was news that a hybrid van manufacturer is setting up shop in St Louis, which has lost Ford and Chrysler plants. What reminded me of the H-K situation? “Emerald Automotive Limited,” which is promising 600 UAW-represented jobs and gas- and diesel-electric delivery van production by the end of next year, doesn’t have a freaking website. That’s never a good sign…

One of the many defining differences between this year’s contract negotiations between the Detroit automakers and the UAW is a new possible concession on the table: boardroom representation for the union. Inspired by the German system of works councils and union representation on supervisory boards, UAW President Bob King told Bloomberg that

If I had a magic wand, I’d take the German law and put it in the U.S… Workers should have representation on the board

But, in a thoughtful editorial, the Detroit News’s Daniel Howes warns that board representation may be more of a challenge to the union than a benefit. Howes notes

The UAW’s pursuit of board-room seats, to the extent it becomes a key demand in this post-implosion bargaining season, is fraught with potential complications. Among them is the cultural misperception that what is deeply embedded in Germany’s corporate reality is easily transferrable to 21st-century industrial America.

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In the auto industry, as in so many other areas, Africa is something of a forgotten continent. Without the new roads and emerging middle class of a China, the most underdeveloped part of the developing world tends to fly under the radar: for example, until I read a Financial Times piece on an airplane, I had no idea that South Africa’s auto industry was booming. And now, here’s another story that isn’t getting much play in the mainstream of the auto world: Mobius, a Mombasa, Kenya-based firm has built a prototype vehicle that it hopes will be the Model T of Africa, providing robust, low-cost transportation to a continent that is not taken seriously as a market by the global car business.
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Auto dealers are often said to be the face of the industry… and if that’s the case, the Consumer Federation of America may have shed some insight into why so many Americans opposed a bailout of the industry. In a survey of 31 state, county and municipal consumer protection agencies from 18 states in 2010 [PDF here], the CFA found that auto dealers, suppliers and service garages were the number one source of consumer complaints for problems such as

Misrepresentations in advertising or sales of new and used cars, lemons, faulty repairs, leasing and towing disputes

As if car dealers didn’t have reputation problems already…

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After the apocalyptic warning from the industry about a proposed 56.2 MPG 2025 CAFE standard, the auto industry seems to be backing the White House’s latest proposal, which reduces the 2025 target to 54.5 MPG, slows the rate of efficiency improvement for trucks and increases advanced technology credit loopholes. Another key consideration: the White House agreed to a mid-term review of the 2025 standards to ensure they reflect the market. Plus, the DetN points to a previously unheard-of compromise to keep big trucks cheap:

The plan is also carving out special rules for “work trucks” — heavier light duty vehicles used for construction.

As a result of these compromises, the WSJ [sub] reports:

As of Wednesday, Toyota Motor Corp., General Motors Co., Ford Motor Co., Chrysler Group LLC, Honda Motor Co., Hyundai Motor Co., Nissan Motor Co., BMW AG and Volvo had told the administration they would support the plan

With the industry now largely on board, the Obama Administration has a green light to announce its new standard at a ceremony planned for tomorrow. But not everyone is happy with the new proposal…

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Ford’s Q2 results [Presentation in PDF here] were mixed, as deliveries and revenue improved (7% and 13% respectively, compared to Q2 2010) but profitability slipped, but the automaker still ended the quarter with $2.4b in profit and $2.3b in operating cash flow. Debt was reduced by $2.6 from the first quarter of this year, and total Automotive debt landed at $14b, while gross Automotive cash landed at $22b. So, what happened to Ford’s operating profit margin?

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Despite a $370m loss, Chrysler’s Q2 and first-half results [presentation in PDF here] were presented in a relatively upbeat tone, as a number of key metrics showed signs of improving. Chrysler’s revenue was up by over $3b in the second quarter compared to last year, EBITDA hit $1.3b, and “modified operating profit” was $507m, or about 3.7% of net revenues. Depreciation and Amortization costs were up slightly, as were income tax and net interest expenses, but the big loss that pushed Chrysler into the red was a $551m one-time charge associated with Chrysler’s payback of government bailout loans. Gross debt was up by about a billion dollars, to $12.287b, but net debt was down by over a billion to $2.1b, and Chrysler sees greatly reduced interest costs going forward, eliminating $2.6b in planned debt payments this year. And though free cash flow slowed considerably compared to Q2 2010 ($174m compared to $491m), Chrysler finished the half with $10.2b, up from $9.9b at the end of the first quarter.

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Over the weekend Bertel reported on some depressing economic news, noting

Suddenly, automakers aren’t so sure anymore about all that pent-up demand that will bring back U.S. car sales back to their old glory… The big recovery has been postponed for a year or more.

But how much pent-up demand is there, really? According to Edmunds’ analysis of 12 Factors To Watch In The Industry’s Second Half, only about half of the sales lost between 2008 and 2010 were not lost forever to used cars, the inability to get credit and the “new austerity.” As a result, they calculate about 4.3m units of demand is “pent up.” But there’s a question of how accurate that estimate is, and beyond that there’s another question: what happens once the pent-up demand has been blown through?

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Withe the Detroit Free Press reporting that combined Q2 profits for the Detroit automakers could hit $4b, the quadrennial negotiations with the UAW which opened today with a meeting between Chrysler and the union could be a tough slog. And because the profit outlook is mixed, with GM and Chrysler likely to improve profitability and Ford likely to see a drop in net takings, the long-standing tradition of “pattern bargaining” could come to an end. Ford currently pays about a dollar more per hour than GM and about $2 per hour more than Chrysler (which is partially owned by the UAW’s VEBA trust fund), and Ford also shoulders more of workers’ health care costs than its cross-town rivals. And UAW president Bob King admits

Being really blunt about it, when you don’t represent the overwhelming majority of an industry, which we don’t any more, then you can’t do pattern bargaining

Already unfairly disadvantaged by the UAW (Ford is the only Detroit-based automaker without a no-strike contract) and facing falling profitability, Ford is telling the union not to expect wage increases. But does that mean the union’s only choice is to bring GM and Chrysler up to Ford’s pay and benefit levels?

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Dare to suggest that a strong CAFE standard won’t ruin any automaker, and you’ll be overwhelmed by deafening cries of “what about the market,” “think of consumer choice,” and “don’t you tell me what to drive.” Now, I’ve made it very clear that I’m not a huge CAFE fan, but the fact of the matter is that since nobody is leading a charge for a gas tax (least of all the industry that says it would be a good thing) it’s the only option on the table. Which leaves just one question: why regulate fuel economy at all? There are all kinds of arguments against regulating fuel economy, but most stem from a desire to “let the market do its thing.” That’s an argument I’m highly sympathetic towards, but it doesn’t necessarily require that the government but out and let the era of cheap, thirsty trucks roll on unabated. What maybe, just maybe, if the market actually wants more fuel economy? Well guess what campers… according to research by IHS Global Insight [via Automotive News [sub], the market does want more fuel economy.

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An anonymous tipster has sent us a copy of a letter from the Michigan congressional delegation to President Obama [PDF here, or hit the jump for an embedded copy], which calls his proposal for a 56.2 MPG CAFE standard by 2025 “overly aggressive and not reasonably feasible.” The letter is remarkable in the sense that the major signatories are Democrats, and yet it attacks the President’s proposal with more vigor than many inside the industry. The letter also confirms that that the Detroit-based automakers already rely on CAFE’s “credit” loopholes in order to meet the 2012-2016 standard, a stunning admission of how far behind Detroit still lags in fleet fuel economy. And rather than taking responsibility for their situation, the MI representatives blame CAFE for Detroit’s low fleet efficiency, arguing that “manufacturers that produce primarily smaller vehicles will have an unfair advantage.” Moreover, the MI reps don’t just admit that Detroit is behind its competition, but even goes as far as to argue that “the overall targets currently proposed may exceed what is technologically achievable for the the US automakers that produce and sell the majority of the larger pickup trucks and sport utility vehicles that US families and businesses -and tens of thousands of autoworkers- depend on.”

In short, the letter strikes me as a shockingly old-school display of excuses and apologia that stands in sharp contrast to the “green car revival” narrative that Detroit and D.C. pushed so hard during the bailout. And frankly, I’d be embarrassed if I ran one of the largest automakers in the world and I was reduced to pleading my inability, on technological grounds no less, to achieve a 56.2 MPG fleet average (which in “window sticker” terms, translates to about 41 MPG EPA) within 15 years… even though CAFE is riddled with loopholes that make it easier to continue building thirsty trucks. If Detroit were actually leading the charge for a gas tax (or offering any kind of market-driven alternative), it might have some credibility on this issue, but as things stand this strikes me as nothing more than whining. So much for America’s “can-do” spirit…

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