The rise of the Chinese auto market, which only surpassed the US to become the world’s largest in recent years, has drawn considerable attention from China-watchers and industry insiders alike. China’s rampant sales growth has paid huge dividends for firms who gambled on the Chinese market, in turn spurring more investment as every global automaker scrambles for access to China’s rapidly-developing market. As a result of several years of this gold rush mentality, everyone is now looking for China to stumble, to show the first signs of a bubble ready to burst.And over at Forbes, Handel Jones (the author of Chinamerica: The uneasy partnership that will change the world), thinks he may have found these first signs of slowdown in China’s auto production numbers.

(Read More…)

As Steve Rattner described in his book “Overhaul,” the Presidential Auto Task Force very nearly decided not to rescue Chrysler, with the decision coming down to a single vote. Now, it seems, that with Chrysler blaming the “shyster” interest rates on its government loans for its lack of profitability, Chrysler’s viability now depends on rounding up a “lender of second to last resort.” And, according to the latest reports, that rescue-of-a-rescue effort is still very much hanging in the balance as well. If CEO Sergio Marchionne thought the government’s loan terms were “shyster”-ish, he was clearly in need of some context from Wall Street… and he doesn’t seem to be liking it.
(Read More…)

The combined market share of GM and Ford will reach 40% of the US market by the end of 2015. Yes, you just read that correctly. That’s a full five percent more share than what they have today, or a gain of just one percent a year. Call me crazy… but recall that Farago and I called the GM bankruptcy way before most industry observers (and certainly before the BoD of Old GM) could see it coming. Long time TTAC readers will also remember my call to buy Ford’s stock in April 2009 when it was trading in the three buck range. So calm those gut-reactions for a few minutes and let’s walk through this.

(Read More…)

On my way home from Toronto’s trendy Queen West nightlife district, I often take the long way home, up through the newly gentrified working class neighborhoods of the city’s west end, which gives the chance to drive past a row of exotic car dealerships. A quarter mile stretch is home to Rolls-Royce, Aston Martin, Bentley, Land Rover and Lotus. The Lotus dealer formerly sold Ferraris as well, and the place was a long-time haunt when I was a child, where the only two cars in stock were a Mondial T and a gorgeous British Racing Green Esprit S4.

The same Esprit later ended up in the hands of a neighbor, a geeky looking guy who was probably in IT and also owned an Oldsmobile Eighty-Eight LSS. I had no real idea about the Esprit’s mechanical content, just that it made a fantastic racket when it would tear through the flat, straight stretches of my neighborhood – and I loved the color.

(Read More…)

There’s an old saying that goes something like: “money talks and bullshit walks.” We don’t necessarily subscribe to it completely here at TTAC, where words pay the bills, but you have to admit that no amount of talk could make the same impact as news that GM’s CEO Dan Akerson has dropped nearly $1m of his own money on GM’s underperforming stock. I bring this up because, for the first time ever, you can now buy CARZ, which in addition to being an awful Sir Mix-A-Lot song is the first-ever auto industry index fund. Specifically:

CARZ is designed to track a basket of reputable car makers in the United States and rest of the globe. The fund’s 30 holdings present as a who’s who of the car industry, with Daimler, Ford, General Motors, Honda and Toyota comprising the top five positions. Together, these and the rest of CARZ’s top 10 holdings represent close to 60% of its assets

But, while it’s one thing for a CEO to bet on his own company (or anyone to bet on any company they believe in), investing in the industry at large is a very different gamble. Which raises an interesting question: having destroyed billions of dollars of value in recent decades, and proved itself to be vulnerable to all kinds of unpredictable events in the shorter term (think: recalls, credit crunches and and tsunamis), is the auto industry as a whole really worth gambling on? I’m not sure I’m entirely convinced…

As the graph above [via NHTSA’s latest CAFE data, in PDF here]  shows, passenger car fleet economy has actually leveled off after a brief spike in recent years. Possibly even more surprising is the fact that imports spent a portion of the last decade actually beating the imports in passenger car economy after a 20+ year slide in import CAFE performance [more long-term fuel economy charts here]. These trends illustrate that the sides in the emerging “Battle of 62 MPG” may not as easy to characterize as you might think… as does a new hint from NHTSA about the shape of future CAFE increases. According to the Detroit News, NHTSA is signaling that

it is researching the impact of raising fuel efficiency in the 2 percent to 7 percent annual range.

The agency said it has “tentatively concluded” that 7 percent annual increases is the maximum that is technically feasible.

Before it sets a requirement, NHTSA must take into account a number of factors, including the costs of the regulation and safety impacts.

NHTSA and the Environmental Protection Agency said previously they are working together on 3 percent to 6 percent annual increases.

The high end of that range would result in the much-discussed 62 MPG by 2025 standard, an achievement the government insists would only cost as much as $3,500 per vehicle. The industry points to cost estimates closer to $10,000 per vehicle for that level of CAFE increase. The battle continues…

Saab has started paying suppliers again (although production hasn’t restarted yet), and CEO Victor Muller is once again all popped-collar confidence as he dismisses the “speed bump” that he blames on negative publicity. But behind Mueller’s yacht-club breeziness and talk of “true Saabs,” major changes are afoot in Saab’s business model. Saab’s deal with Hawtai, the product of a desperate search for support in the midst of a liquidity crisis, has changed how Muller sees the global car business, and as a result he’s shopping what may be Saab’s last meaningful asset: Western dealerships. Muller explains his thinking to Automotive News [sub]

We laughed when the Japanese came. We laughed when the Koreans came. But we will not be laughing when the Chinese come. The Chinese are like a steamroller. It took 67 years to build up our dealer network. It is the biggest asset not on our asset sheet, and these guys buy into it for free. If they make the proper cars, can you image how much simpler it will be to push product through the distribution network that is already there? It is like a railway network that is already there.

Bertel and I have a running bet about whether the first actual Chinese import to the US (not a converted glider) will be a Chinese brand or one of the western brands… but it’s not much of a bet because neither of us can ever commit to picking one brand that seems most likely to bust America’s Chinese car cherry, and our “bets” change on a weekly basis. In any case, though, think it’s safe to say that neither of us saw Saab as playing much of a role in any of the scenarios we’ve discussed.

(Read More…)

Though the EPA won’t actually announce its 2025 CAFE standard until September, the California Air Resources Board’ insistence on a 62 MPG standard for ’25 has the industry’s analysts and talking heads in something of a frenzy. Smelling the smoke on the breeze, Automotive News [via AutoWeek] trots out a range of interpretations of the proposed 62 MPG standard, from the frightening to the apocalyptic. Cost increases per vehicle for a 62 MPG by 2025 standard are estimated by government agencies at $3,500 “at most,” while Alliance of Automotive Manufacturers reckons they’ll run “as much as $6,400.” Sean McAlinden of the notoriously industry-friendly Center for Automotive Research figures the market will have to shift to 64% plug-in hybrids, at a price increase of $9,970 per vehicle, while the AAM adds that 62 by 20205 “could cut car sales by 25 percent, costing the industry 220,000 jobs.” And the EPA seems to be listening to the rising chorus of grumbles, as the agency’s Margo Oge soothed the locals on a recent visit to Detroit with the words

We will be very mindful — and I underline ‘mindful’ — of the consumer throughout this process. Unless people buy these new clean cars and trucks, and buy them in large numbers, everyone loses.

But if CARB wants 62 MPG by 2025, it will get it from the EPA. Which means the real question is simply how much will the standard actually add to per-vehicle costs? Is the industry inflating its numbers in hope of a teaspoon of federal sugar to help the medicine go down? Is the 62 MPG standard really an industry killer?

(Read More…)

Ford is tooling up for what is likely to be a tough UAW contract negotiation in light of its return to hefty profits. And in hopes of shifting the conversation from its strong financial performance, Ford is highlighting the fact that it still pays $8 more per hour than its competition. Of course, there has been improvement, as Ford notes at its fordahead.com website

Ford’s average hourly cost per employee for wages and benefits in the U.S. reached about $75 per hour in 2007, prior to the negotiation of a new national contract. By negotiating an agreement with the UAW that year, and by adding modifications in 2009, we were able to substantially improve the competitiveness of our labor costs. Had we not reached this agreement, our average hourly wage rate would have remained simply unsustainable — and utterly uncompetitive — and Ford would not be in a position to create new jobs or bring new work into our U.S. plants.

But Ford has only itself to blame for some of those higher labor costs, as some $2/hour of its labor cost disadvantage is a result of its record-high profit-sharing checks, according to the DetNews. And, says Ford, once new “second tier” hires enter the Ford workforce, it expects wages rates to drop to parity with the transplants. In short, Ford is making the case to stay the course, working through existing contract changes to get to parity with the transplants. But given the fact that Ford is already making hefty profits, don’t expect the UAW to simply roll over. The battle lines have been drawn… but nobody knows  how the conflict will actually play out.

For years now the Chinese automakers have been the bête noir of the global car industry, inspiring equal parts fear and contempt in boardrooms and editorial meetings from Detroit to Stuttgart. In an industry built on scale, China’s huge population and rapid growth can not be ignored as one scans the horizon for dark horse competitors. And yet no Chinese automaker has yet been able to get even a firm toehold in the market China recently passed as the world’s largest: the United States.

Certainly many have tried, as the last decade is littered with companies who have tried to import Chinese vehicles, only to go out of business or radically rethink their strategy (think Zap for the former and Miles/CODA for the latter). Others, like BYD (or India’s Mahindra), have teased America endlessly with big promises of low costs and high efficiency, only to delay launch dates endlessly. In short, a huge gulf has emerged between overblown fears of developing world (particularly Chinese) auto imports and the ability of Chinese automakers to actually deliver anything. No wonder then, that we found what appears to be the first legitimate attempt at importing Chinese cars to the US quite by accident…

(Read More…)

TTAC has always taken pride in its outsider status, and we’ve taken pains to cover the industry from a safe distance in order to continually bring a fresh perspective to developments. As a result, we’re not always on the same page as trends in the industry at large, which tends to be far more given to wild optimism than the average TTAC analysis. But, based on a new study by Booz & Company [PDF], it seems that the “carpocalypse” of recent years has driven the industry to a more TTAC-esque pessimism. According to responses by executives at both OEMs and suppliers, the industry generally feels that the bailout was either a missed opportunity or it didn’t do enough to address fundamental weaknesses… and as a result, executives see challenges ahead.

(Read More…)

The Detroit Free Press reports, almost giddily, that GM will almost certainly replace Toyota as the world’s largest automaker by volume this year, as tsunami-related production problems will continue to plague the Japanese automaker. The graph above, by IHS Global Insight [via AutoObserver], shows that the impacts of the tsunami will continue to be felt well into next year, and that Japanese production will likely fall permanently by around 15%. Toyota’s full-year production could be cut by around 20%, possibly bumping the automaker to the third position in the global volume race, after GM and VW.

Engineers living in southeastern Michigan have had a rough go of it these past few years. As the US automakers bled money, lost market share, retrenched and in the case of GM & Chrysler eventually went through bankruptcy, they shed more and more engineers. The talent, skill and many, many years of experience was jettisoned as successive layers of fat, muscle and then bone were cut out of the domestic automakers in their restructurings (Ford under Alan Mullaly went through what was effectively a restructuring financed by mortgaging the company for $26 billion).

The first tentative signs of the Big 3’s recovery have been based on some pretty decent product so it’s clear that the automakers and their vendors still have a well of in-house talent from which to draw, but with GM & Ford currently banking substantial profits and Chrysler appearing to approach profitability (according the Sergio), the auto industry as a whole is gearing up by going on a hiring spree. Engineers, particularly electrical and chemical engineers (see EVs, hybrids and batteries) are once again in strong demand in Detroit. Companies looking for mechanical and software engineers were actively hiring as well.

(Read More…)

After several abortive attempts over the last several congresses, the “Right To Repair” Coalition for Auto Repair Equality  has had a new bill introduced in the 112th Congress with the goal of

requiring that car companies provide full access at a reasonable cost to all service information, tools, computer codes and safety-related bulletins needed to repair motor vehicles.

The auto industry has long opposed such bills, which have been passed on the state level but have never been passed into federal law. Back in 2009, then-head of the Alliance of Automobile Manufacturers lobby group, Charles Territo, argued against Right To Repair legislation in a TTAC editorial, calling it “a solution in search of a problem.” More recently, the AAM opposed a Massachusets Right To Repair bill on the grounds that it would increase Chinese piracy of auto parts. Needless to say, now that CARE has finagled HR 1449 into Congress with bipartisan sponsorship (from Todd Platts (R-PA) and Edolphus Towns (D-NY)), the debate is about to get fired up all over again.