David Leggett's automotive industry blog - from just-auto.com

Fiat in UK

Thu, 02 Jul 2009 14:27:00 GMT

I'm heading down to the south coast this afternoon for a Fiat 500C (the convertible) press launch event. Should be a good opportunity to hear about the car (and drive it) as well as get an update on how Fiat is doing in the UK. Fiat has put quite a bit of effort into transforming its UK dealer network in recent years (Fiat's UK dealers were, to put it mildly, under performers). Is it getting the desired results? Hopefully, I can also ask someone at the sharp end about the UK car scrappage scheme - which is attracting some criticism in the industry.

Hope the fine weather holds.

Opel Magna deal uncertainties

Wed, 01 Jul 2009 12:19:00 GMT

It would seem that negotiations between Magna and GM have hit some choppy waters. GM is reportedly concerned over giving away too much technology to Magna and a prospective Opel/Vauxhall Mark 2 with its Russian connections. There's also the issue of carving up territories for future Opel sales. GM is wary of creating a monster that hurts its own future chances in key markets.

Is the deal really moving towards being off? I somehow doubt it. The German government is still right behind Magna's bid and has already provided bridging finance and loan guarantees for Opel. Berlin is not seeking to fuel the press speculation about other bidders being invited back to the table, though it has been acknowledging that we don't have a done deal yet.

But it looks like there has been a bit of press manipulation emanating from Detroit. Anonymous sources said to be close to events are popping up everywhere. By creating the impression that the deal is far from done and that other bidders are very much in with a chance, GM puts added pressure on Magna in the negotiations. But if the Magna consortium bid does unravel, a whole load more uncomfortable questions get asked about other bidders, Berlin has a heart attack and, apart from anything else, even more GM management time likely gets diverted to the Opel/Vauxhall sale. They have more than enough on their plates in the Ren-Cen at the mo.

The competition for Opel/Vauxhall is still not over, but Magna's consortium is still by far the front-runner due to its strong backing from Germany - government and labour unions. Marchionne may look on with interest, but his bid caused much consternation in Germany before and would do so again. If holding company RHJ has really improved its offer, it may well get a hearing, but it should be wary of being 'used' by GM as a lever to chivvy Magna. Oh, and by the way, RHJ has just posted a big loss suggesting it's perhaps not really in position for anything more than a small role or stake. Beijing Auto? I don't think so.

That said, if a seismic shift is coming, and Magna is really on its way out, expect an announcement very soon. Time is short. The German government needs to be on-side. And Opel is already eating into bridging finance.

US/GERMANY: GM eyes Opel deal with RHJ - report

Is small the new big?

Mon, 29 Jun 2009 12:32:00 GMT

Are relatively mature car markets going to become fertile ground for highly specified small cars? It is perhaps a niche that has proven difficult to crack for manufacturers in the past. The Mercedes A-class, Daimler Smart and Audi A2 spring to mind. Each of those had a rough ride - for different reasons, perhaps - but the highly specced small car area is one to be treated with care.

BMW handled it well with Mini, but that success based on a modern take for a retro-brand is something of a special case and perhaps serves as a lesson on how difficult it is to hit the premium small car sweet spot.

However, markets change and it could be that the market environment is becoming better for well specified small cars. The regulatory/tax framework in urban areas, volatile/high fuel prices and changing societal attitudes to vehicles generally are all perhaps pointing towards higher sales of small cars.

And a proportion of the 'new' consumers who consider small(er) cars will want something comfortable and relatively highly specified. In the future, the argument goes, the small car area will be less dominated by low-cost driven 'econoboxes'.

In this context, Toyota's initiative with its IQ small car is certainly an interesting one. The car has attracted some flak on the basis of its relatively high price, but some people will be prepared to pay a little more for something that isn't a low-cost Aygo. There are discrete customer sets for those two small cars with their different prices, spec and 'feel'.

Things can get even more interesting when considering 'sub-brands', which is a part of Toyota's strategy with IQ.

Even more intriguingly, Toyota is planning a collaboration with Aston Martin for a 'luxury commuter vehicle'.

As ever, execution and properly aligning brand values with the product proposition and price will determine how successful future products will be. Is this a step too far for Aston Martin? Maybe not, but it is a gamble. If they get it wrong, it would be an expensive mistake with adverse consequences for brand image. At least they are trying new things and I think that is to be applauded. Collaborating like this also keeps costs down for Aston while Toyota gets an association that is potentially very positive indeed.

But the really big question is a great big fat unknown: just how many people out there will opt for a highly specced small car?

BELGIUM: Toyota gives Aston Martin an iQ boost

Racking up the just-auto mileage

Fri, 26 Jun 2009 11:46:00 GMT

We have just passed something of a milestone here. I hope it doesn't sound too introspective, but our online database of news and feature articles, all sequentially numbered, has just ticked over the 100,000 mark.

That's a pretty big archive of material and hitting a milestone like that has caused us to stand back and pause for a moment's reflection.

Phew, 100,000 articles on just-auto. That's a big number. If you printed all those articles out and laid them end to end, they would stretch all the way to the moon.

Okay, I obviously made that up, but let's get the old calculator out...

Let's make the assumption that each one, on average, when printed out, takes up a single sheet of A4 paper. A single sheet of A4 is 297mm in length. That means, according to my calculator, those 100,000 sheets would stretch to 29,700 metres which is 29.7 kilometres (18.4 miles). Travelling east, that would get you from London to Southend for a paddle in what passes for the sea in the Thames estuary. Not quite as impressive as a paper chain that gets to the moon, I know, but that's some distance.

Anyway, it's a lot of articles since we began operations way back in 1999.

Myself and deputy editor Graeme Roberts have been here at our desks and out on assignment since 2000. Many of the journalist/analyst/research editorial contributors on just-auto have been with us since then also. The time has flown by and it's been a blast from the outset. Even in these tough times - our duty is to report and analyse, but when the industry feels pain, we quietly empathise with those affected - there's so much to keep us fascinated, so much to write about and to consider. The automotive industry is constantly buzzing and there's never a dull moment, as they say.

We will raise a mug of tea to just-auto and all those who sail - or have sailed - in her, colleagues past and present. And of course, we don't forget the people like you who read our publication and keep us in business.

Below is a link to just-auto article number 100,000 (you can see that milestone number in the URL).

Cheers!

Delphi discord

Thu, 25 Jun 2009 15:26:00 GMT

Delphi has now been in Chapter 11 in the US for almost four years and its attempt to exit at the beginning of the year was scuppered by the economic downturn. If it had come out, it might well have gone in again this year (it is rather wonderfully called 'Chapter 22' when you go in twice, Rob Golding tells me).

A new proposed exit deal calls for Delphi to sell four US parts plants and its steering business to former parent GM. Most of Delphi's remaining assets would be sold to Platinum Equity.

A number of lenders - hedge funds - are pretty unhappy at what they will get out of it. A competing bid could come in but I doubt the proposed deal, supported by Obama's taskforce, will be seriously endangered. If this deal comes undone GM potentially gets another major headache it can do without.

Was the deal a bit of a stitch-up though? Sounds like it might well have been.

US: Lenders oppose planned Delphi sale

The range anxiety gamble

Wed, 24 Jun 2009 12:24:00 GMT

This looks like a week in which electric cars are going to be very much in the news - in part due to government initiatives on both sides of the Atlantic. And there are plenty of announcements being made by the OEMs to coincide with that. Nissan's yesterday about manufacturing electric plug-in vehicles - not hybrids - in the US is particularly intriguing.

It's the latest news from Nissan on this subject and follows on from Carlos Ghosn's consistently stated view that electric cars represent the long-term future for the automotive industry. He has perhaps stood out among car firm bosses as a real believer in electric drive technology and the opportunity presented - and on a business planning horizon that he earnestly believes is with us now. Working with partners like Project Better Place has demonstrated a serious intent to grapple with things like infrastructure, too.

At first sight, 100,000 units a year of production in the US sounds pretty ambitious. And maybe it is, given that we're talking about electric drive vehicles that don't come with a back-up gasoline engine. That raises the 'range anxiety' question alongside consumer acceptance of frequent battery charging rather than occasionally filling the tank with the black stuff.

How far can these cars really go on a single charge? (Nissan says the car will offer 100 miles of range, but what if the heater is on and there are hills to climb...); how often does it need charging?; how much will that cost me and just how robust is the battery? (And the truly environmentally aware may even ask how the juice coming out of the power socket was generated...but I suspect that question will be overlooked or fudged in the minds of many.)

Nissan will have to come up with a very good product to get initial consumer acceptance of this new technology. And - leaving aside the considerable product development and technology issues ahead - I'm sure there is a lot of discussion still to happen concerning the precise business model, too (like the retail price and how battery leasing might work in practice).

But that's 100,000 units in a passenger vehicle market of almost 16m units (or wherever we are on the recovery path by 2012, when Nissan plans the start of US production). It's way under a 1% share. Nissan can target sales in US cities where it thinks the car will sell.

Do Americans buy small, more energy-efficient cars? They are now buying more of them - look at the success of Smart's Fortwo. And Nissan can be cute and look to market the car in places where city authorities are suddenly looking for more EV solutions (like Baltimore, for example).

Market analysts can argue about how quickly US market segmentation will shift, but there is a consensus that smaller and more energy-efficient vehicles will be growing in sales. Electric drive vehicles in various formats will clearly be a part of that broader trend, though it is far from clear exactly where the numbers will be and on what timescale (and the internal combustion engine is doing much to make itself more efficient).

But which way is the oil price wind blowing? I wouldn't mind betting that in 2012, when global economic recovery is really kicking in, the price of a barrel will be a lot higher than today. That could provide a very fair wind to both hybrids and pure-electrics.

Is range anxiety really a big issue? Incremental improvements are helping, but the issue is not going away. Having said that, there is a point at which range becomes acceptable for many who would consider such a car primarily for relatively low-mileage daily use - the commute to the office, say.

And with that pattern of usage, range anxiety may not be as big an issue in America as in Europe because American households have more multi-vehicle ownership than Europe does.

Whereas a pure EV might be severely limiting in Western Europe (asking the single car household's sole vehicle to do many jobs for the lowest cost explains why the C-segment is Europe's largest - cars like the Volkswagen Golf are fine around town and for motorway cruising) US households are perhaps more likely to have a larger vehicle available for longer journeys. 'I use the EV every day, but the F-150 is just great for the weekends.'

Ghosn is taking a gamble though, that he can lead investment in electric vehicles for 'mass transportation' and steal a march on rivals, who are playing much safer with hybrids and 'range extenders' (like the Volt) that deal with range anxiety up front. And it's a pan-global strategy to spread the technology investment across as many units as possible under the Renault and Nissan brands. Later on, when scale economies permit, maybe a viable low-cost 'Logan-style' electric car can be developed for price-sensitive emerging markets - which will likely not be figuring too much early on.

If Ghosn gets it right, the EV push could leave Renault-Nissan as one of the most powerful groups in the global auto industry for a generation. But it could be an expensive drag on profitability at a time when the industry's worst performers come under increasing pressure to cut capacity still further.

It's a gamble. And Ghosn is perhaps a brave man. But you wouldn't expect him to have a vision on where the industry is headed and not give it his best shot would you?

JAPAN: Nissan targets US for electric car push

Detroit seen through the eyes of money men

Tue, 23 Jun 2009 12:06:00 GMT

Breakingviews.com is an online publisher with a mission that can be summarised as getting the 'what does it actually mean?' area of news analysis as quickly as possible to its clients who are mainly made up of banks, financial institutions and hedge funds people. It has offices in New York and London. Their 'views' are a timely input to subsequent actions by people mainly working in or for the money markets.

We have had some contact with the guys there, prompted by seeing a few insightful articles related to the automotive industry. We republished an article from them on just-auto a couple of months ago: COMMENT: Fundamental problem

Anyway, they have bundled their articles written about General Motors over the last few years into a kind of compendium - or pdf 'book'. It's an interesting read, chronicling GM's slow descent into Chapter 11 and their take on it. Their financial world perspectives make for some interesting observations and deductions. And they write well and clearly.

Here's an extract (the last para very neatly summarises Washington's dilemma):

So for taxpayers to be made whole, the new mini-GM would have to produce earnings sufficient to support an enterprise value of at least $95bn - the sum of a $69bn market cap and its $26bn of consolidated debt and preferred stock. Using market valuation multiples of five times profits, that means New GM must generate ebitda somewhere in the order of $19bn annually.

That would require boosting annual sales to some $150bn - almost 50% more than the entire company is expected to generate this year - and matching the whopping 14% ebitda margin that Toyota achieved in its best year ever. It requires a vast leap of faith - or an audacity of hope - to believe that can happen.

Of course, the US government is not a professional money manager. The decision before it was not whether to invest either in GM or another business that would generate an acceptable return. It had to weigh up two unpalatable choices: throw taxpayers' money onto GM's bonfire in the hope an expedited trip through the Chapter 11 mechanic's shop would produce a souped-up, successful carmaker; or risk having to mop up a bigger mess if a liquidated GM brought the entire US car sector down with it.

The full 'Detroit Do-Over' pdf is downloadable free-of-charge and in a jiffy by clicking the below link.

Detroit Do-Over pdf

Costly electricity

Mon, 22 Jun 2009 15:06:00 GMT

Prospects for plug-in electrics and hybrids continue to provoke much discussion in the industry. Last week, we heard that Daimler's electric Smart has been formally given the go-ahead to enter commercial production next year. The Smart Fortwo (sorry Daimler, but I have to capitalise brand and model names) is a curious one. It's perhaps an example of a car that was ahead of its time. In the looks department, it is much more acceptable now than it was back in the late 1990s. And a plug-in electric version seems to make good sense.

But the batteries are not going to be cheap. And that's a problem: who pays? Will the customer pay for that? The vehicle manufacturer? Will governments tinker with regulatory frameworks to encourage take-up? There seems to be a consensus in the industry that governments will have to play a part in helping electric cars develop significant market penetration. And, the argument goes, the government needs to do that as part of a broader energy policy that addresses overall CO2 generation, renewable power and economic or energy security issues. There's a lot to consider.

At some point though, the consumer is going to be asked to make a contribution to the additional costs associated with a battery pack and electric drive. Early adopters at initial low volumes may be fine with that. The interesting thing though will be the speed with which plug-in electric vehicles can become cheaper on a cost-per-unit basis as volumes become bigger. It will be something of a chicken and egg situation - which is why the regulatory framework is particularly important in terms of the fossil fuel relativities.

But would you pay almost GBP400 (USD650) a month to lease a Smart with electric drive? That's some premium to ask the customer to pay. How quickly can that sort of figure come down and to what extent will the government subsidise these vehicles? One point that should not be lost: in Britain the government takes plenty of tax from motorists at the petrol pump, way more than is required for investment in roads. And Her Majesty's Government needs every penny it can get, even if politicians like the sound of a greener electric future.

RESEARCH: Market projections for EVs and hybrids

The latest Lotus proActive is out

Fri, 19 Jun 2009 16:58:00 GMT

The latest edition of Lotus Engineering's proActive e-magazine is now out and available for free download. It includes a particularly interesting feature on City Cars first published in Automotive Engineer that is well worth a read. It's key reading for anyone seriously interested in the segment and the fundamentals that drive design in small cars.

What else is in the latest edition? As John Cleese would say in Monty Python, 'And now for something completely different...'

I interviewed the head of a company in the Netherlands that is about to commission the world's largest second generation biofuel manufacturing plant (BioMCN makes bio-methanol from glycerine that is a by-product of biodiesel production). BioMCN's CEO, Rob Voncken, was certainly an interesting interviewee: a trained scientist with a business brain who is also motivated by the idea of doing something good for the environment.

He was charming and cool as a cucumber when I talked to him, but it's quite a project he is in charge of. He could be forgiven a bit of stress as commercial production inauguration approaches. The business opportunity? In the short-term it's about substituting bio-ethanol for bio-methanol in the gasoline alcohol blend (it can be mixed and we get 'A85' rather than E85 with all its food chain incursion woes). There are some pretty powerful interests behind ethanol though.

And there's also a fascinating insider view from the Lotus marketing department on how they approached the press launch for the Evora. It's clearly a highly targeted exercise and they don't do model launches often, so when they do, they put some serious thought into it. And they don't exactly scrimp judging by the pic of the hotel on Loch Lomond. I just hope the Scottish weather was kind.

If you are signed up already for proActive, you should automatically receive an email with a link for the pdf. If not, why not get yourself signed up - it's free.

Ssangyong - action needed, quick

Thu, 18 Jun 2009 12:51:00 GMT

It's a right old mess over at Ssangyong. The beleaguered firm is in Korea's equivalent of Chapter 11 and having a tough time of it. Market conditions aren't fine and dandy and Ssangyong's model line-up is short on recession busting fuel-sippers; it's a niche offering concentrated in no-frills but good value for money SUVs with some reliable Mercedes heritage technology under the skin.

Ssangyong was, however, thrown an important lifeline with the Korean bankruptcy court administrator's decision last month to allow it to restructure rather than enter liquidation.

And there are some significant plusses in the outlook for Ssangyong. A big one is an attractive looking crossover - the C200 - just around the corner as well as an international distribution set-up. There could also be financial sweeteners for anyone prepared to invest. Overall, Ssangyong looks like a brand with potential that could actually be attractive to outside investors (another OEM, for example, just has to figure that it can do better than SAIC did).

But the new business plan includes many job losses and that has led to a dispute with the union that has quickly paralysed production.

While some union resistance was to be expected, it has dragged on - to the detriment of those still left who want to take the business forward. It won't be long before parts and vehicle supply lines start to run dry.

Korean labour unions aren't to be taken lightly and the sit-in at the Pyeongtaek plant has reportedly attracted some extreme elements. The police are, by all accounts, standing off and prefering not to risk further violence by forcing the strikers out. Nipping it in the bud early on might have been the thing to do, but hindsight is a wonderful thing, of course.

The danger is that the whole thing gets more difficult to resolve the longer it goes on, positions entrenched, along with a growing siege mentality. Meanwhile, Ssangyong racks up accumulated revenue losses and confidence in the brand erodes further. And potential investors are turned off.

Decisive action immediately to end the dispute might well get the best outcomes for all concerned.

SOUTH KOREA: Ssangyong dispute rumbles along

'Chevrolet Group'

Wed, 17 Jun 2009 10:27:00 GMT

Is the pending creation of a 'New GM' via a spell in Chapter 11 also a good point at which to consider some corporate re-branding? Yes.

It could be a way to jettison some of the negative baggage that comes with maintaining the name of the failed company, while emphasising that the new company really is a full-on fresh start - a new beginning. Hell, there's a whole new name and the General is really gone.

Unlike Ford, 'GM' itself doesn't figure too much as a brand on yer actual vehicles. It's primarily a group umbrella brand that is perhaps crying out to be dropped or changed.

A re-branding would also provide an opportunity to elevate a constituent brand - one that is vital and already pre-eminent in the company's future plans. Chevrolet fits the bill. Chevrolet is a globally crucial brand for New GM. It's already established as a high performing brand in long-term automotive growth markets like Russia and China. It also has that striking gold bow-tie logo that is surely ready-to-go for corporate branding.

'Chevrolet Motors'? You could maybe add the word 'American', too - highlighting the new company's geographical origin and that it is actually more than just Chevrolet. 'Chevrolet American Motors'? Mind you, there has already been an 'American Motors', and maybe throwing the word American in there doesn't quite work for a global company.

Dunno. Maybe Chevrolet Group is the way to go, keeping it simple. Or how about GM2? No, that's horrendous.

And no, I don't think Government Motors - a mocking term bandied about by critics of the Obama administrations actions - quite works.

Anyone else out there got any suggestions?

ANALYSIS: New GM needs a new name

Strange times

Mon, 15 Jun 2009 13:57:00 GMT

There is something strange going on in the auto industry. Despite the talk of massive overcapacity, the impact of recession and the oft-heard conclusion that the industry will consolidate into fewer, bigger carmakers, the opposite seems to be happening.

Smaller brands - Hummer, Saturn, Saab, Volvo Cars - are being sold off by bigger groups and, apparently, finding no shortage of potential buyer interest.

And the deal that would have clearly signalled that consolidation in Europe is coming - Opel and Fiat - isn't happening. Not only that, but the new CEO at PSA - a firm often identified as a potential alliance or merger suitor for Fiat - has more or less said that size isn't everything and that PSA can survive as an international business by focussing on growth markets.

Is that it then? Consolidation and rationalisation of production isn't as pressing as some have been saying?

I don't think so. But it's also a more complex situation than it appears at first sight.

For example, if GM, with all its resources, couldn't make Saab work, why should anyone else? Fair question, but an alternative business model that recognises past weaknesses and that perhaps comes with a sizeable initial dowry of assets from GM, might just be able to work.

Similarly, in looking at Magna's proposed deal to acquire Opel/Vauxhall, the position of New GM is highly significant. If a close relationship continues across the Atlantic concerns over the new European entity developing new product ease somewhat.

I can't help thinking though, that with the industry's total volume pie in Europe suddenly quite a bit smaller, the overcapacity bullet will have to be bitten somewhere, sooner or later.

A lot has to transpire before we can see the extent to which the pain is shared.

JD Power estimates that capacity utilisation at Europe's car plants currently stands at around 50% - versus 80% as recently as 2007. JD Power's baseline forecast has a return to an 80% capacity utilisation 'norm' in 2016. A rule of thumb is that car plants break even at 60-65% capacity utilisation.

There won't be much recovery to capacity utilisation from the current 50% this year or next on current market assumptions (in 2010 Europe's car market will likely decline after this year's scrappage-inspired boost). Conditions are therefore clearly ripe for further capacity rationalisation.

Manufacturers who ignore these fundamentals impose higher costs on themselves and impair their ability to be competitive - a sure recipe for potential long-term decline and eventual exit from the industry.

ANALYSIS: The age of deconsolidation

Chrysler-Fiat

Fri, 12 Jun 2009 10:55:00 GMT

It's a tall order at Chrysler, but it has a chance. As one analyst put it this week, it just has to get selling cars now - and turn itself around. The phrase 'long haul' springs to mind.

One curious uncertainty remaining is the position of Fiat. Marchionne has said that Fiat has enough on its plate right now with Chrysler, but that doesn't quite gel with what he had to say about industry restructuring earlier this year.

I wouldn't mind betting that he is still casting his eyes around for another partner to add to the alliance after the Opel disappointment (though that is not necessarily completely dead). As it stands, a Fiat-Chrysler alliance looks like it's missing something in Europe where Marchionne has rightly concluded that there is a strategic need for a partner for Fiat that can share cost and help facilitate capacity consolidation.

Could Ford Europe yet enter the fray?

UK: Fiat-Chrysler alliance 'of little benefit to Fiat'

Magna gets 'very aggressive'

Wed, 10 Jun 2009 18:33:00 GMT

I was having a discussion yesterday with someone about Opel. Look, I said, Fiat makes sense in many ways, but what Magna said was more attractive to German politicians in terms of plant closures and job losses.

Fiat was going to make a merger work by taking an axe to the combined unit's operations - and capacity reduction is coming down the line for the whole industry in Europe, one way or another. Fiat also has a global footprint - manufacturing and distribution.

So, what will Magna do, how does that work? Well, it's not a car maker, I replied. It knows a lot about being a Tier 1 supplier, systems integrator and a low volume contract assembler. But it doesn't have the duplicated activities, it's more a synergistic thing. Oh, and the Magna deal is also reliant on keeping things very tight with GM on technology and distribution, while making plenty of hay in Russia when the Russian car market comes back.

All business plans are predicated on assumptions and market projections of one sort or another. But to be in profit by 2011, when Carl-Peter Forster had said 2013? 'Very aggressive' is a polite way of putting it. Maybe they know something we don't.

UK: Opel-Magna plans look 'precarious' - analyst

Obama administration and Detroit

Fri, 05 Jun 2009 09:12:00 GMT

I have just read something that puts some of the turmoil going on in Detroit and the Obama administration's handling of it in perspective.

What's going on is, of course, painful and it is hardly surprising that there is controversy and disagreement at every turn. Many in Detroit also resent the involvement of 'outsiders' who aren't car guys (er, right, like the car guys running the industry clearly knew what they were doing...).

But when you stand back and consider the auto industry mess that Obama stepped into, has he really played it badly? It is too early to give a definitive judgement on that, but he has, perhaps, prodded an industry that could not adequately reform itself in the right direction.

Detroit had got itself in a frightful mess at home. Legacy costs clearly weren't all Detroit's fault. But much else - like inferior or wrong product - was. In the good times, the profits hid the deficiencies in the vitally important US market. 'Oh, sure, share is down again, but check out the bottom line.'

Look, it wasn't all bad (especially overseas) and even GM was slowly putting things right before the mother of recessions hit last year and exposed all the bad stuff again.

But the dire situation Obama was presented with late last year clearly called for some executive action. And, to be fair, that has been delivered.

Why Obama Could Be The Best Thing For Detroit Since Henry Ford

EVs - sensible perspective

Thu, 04 Jun 2009 12:38:00 GMT

My colleague and daily news supremo Graeme 'Grobster' Roberts is in Japan this week, as a guest of Toyota on a trip for European journalists themed around hybrids. Of course, Toyota is big into hybrids and has an 'up' story to sell where they are concerned. But what about the Toyota attitude to pure EVs?

There's an interesting Toyota perspective on the subject that Graeme has filed this morning. It perhaps highlights a slight paradox in hybrids.

Yes, they are about moving away from total fossil fuel reliance towards more electrically based propulsion, but their very design and purpose highlights the weaknesses inherent in pure EVs. They are a compromise to overcome range and charging issues. And those battery based tech weaknesses are not going away anytime soon, despite the best and continuing efforts of the li-ion crowd.

JAPAN: EVs viable only as compact commuters - Toyota

Vauxhall plants speculation

Thu, 04 Jun 2009 11:52:00 GMT

The state of flux that GM's European operations are currently in is bound to generate plenty of speculation about where the new owners (by the way, not a done deal, by a long chalk) will seek to make savings. So, a politically driven deal in Germany means the axe is less likely to fall there and more likely to descend on European operations in other countries? Maybe, but one thing's for sure - it won't be straightforward.

I found myself on a Liverpool radio station earlier this week being quizzed on this.

Some commentators believe that UK plants are particularly vulnerable. I'm not so sure. Vauxhall's Ellesmere Port plant worked hard to secure the upcoming new Astra. That meant raising productivity and I would guess that the plant stacks up pretty well against others in GM Europe on cost grounds. It has also received investment for the new Astra which is scheduled to start production in September. Moving production somewhere else at this late stage would be costly.

Another point is that the UK market is a big one for GM Europe. Apart from the political ramifications of closing operations here, there's a 'natural hedging' benefit from having a slice of production for the UK market here in sterling land rather than in the eurozone.

And the Luton IBC plant (once 'home of the Cavalier') where they make vans in collaboration with Renault? Luton might have been more vulnerable under Fiat, Fiat able to readily replace the Movano/Vivaro van products with its own made elsewhere. However, it would likely not be as straightforward under Magna to end van production at Luton. When the due diligence people run the rule over the books, it may turn out that IBC is actually a sensible business arrangement that only a madman would upset.

There will be people having to do some serious work over the next few months to enable the Magna-led Opel/Vauxhall deal to be completed. It won't be a cakewalk.

And I wonder what the small print on the jobs/plants guarantees given to the German government looks like.

Shuffling the pack when the deck of cards is that complex has to be done pretty carefully. Uncertainties abound, of course. And be wary of easily drawn superficial assumptions. It's rarely so simple.

Get the vodka on board

Wed, 03 Jun 2009 10:15:00 GMT

I have just been speaking to a conference organiser, Katia Wyatt, at WBR. They have a Russia event coming up in St Petersburg. Naturally, I'd be interested to spend a few days in St Pete later on this month but other commitments unfortunately rule it out.

Katia tells me that despite the industry's tough times in Russia this year, there is plenty of interest in the event. While the vehicle market is way down due to the credit squeeze, OEMs are still investing (eg Nissan's new plant inauguration yesterday). And if the oil price picks up further, Russia's economy may well be quick to respond positively next year.

One interesting thing - she tells me that the proportion of Russians attending the conference is way up on previous years. She also painted an interesting picture of the pre-event 'gala dinner'. Because of the time differences, people travelling in and so on, the dinner thing happens the night before the conference. And, it being in Russia, there's unlimited vodka on the tables. "They get really hammered," she cheerfully explains.

Now that's fine for the Russians, because they are used to it. However, some of the other nationalities are less so. "I get a little concerned, in particular, about the Japanese OEM visitors," she confides. "They do their best to keep up with the Russian hosts, but they are just not used to drinking vodka in the quantities that the Russians are."

Sounds like a refreshingly unstuffy event.

WBR's Russia event

Thoughts on Chapter 11

Mon, 01 Jun 2009 10:20:00 GMT

Not so long ago a GM bankruptcy seemed to many - including myself - like an outcome to be avoided at all costs. It's a measure of the speed with which the crisis in this industry is unfolding that it has seemed in recent weeks like the only way forward. And here we are on June 1: it's finally happening.

But this is a pre-packaged Chapter 11 bankruptcy. The idea is that GM enters in an orderly way, on the back of massive government financial support, gets itself slimmed down quickly and emerges as a leaner and fitter company in North America. The good stuff flies free, unencumbered, while the bad or redundant assets are eventually liquidated.

Only it's not quite that simple - there's sure to be considerable pain along the way.

As Rob Golding recently put it, there can be long debates as to whether Chapter 11 is either fair or desirable. Certainly it contravenes the principle of survival of the fittest and constitutes a form of unfair competition. A company that goes in wipes the debt slate clean. Others that work their nuts off to stay out are, by implication, at a disadvantage. I recall Valeo's former CEO Thierry Morin - while casting a critical eye on Delphi - complaining loudly about that.

At a time when auto industry leaders all over the world - and prominently, Sergio Marchionne of Fiat in Europe - are calling for controlled capacity cuts, a system that preserves capacity is arguably out of line.

But the politics of recession is taking over from business logic and the workings of markets. The political driver to events is becoming more obvious.

GM has a chance to get its house in order and the Obama administration is acting to retain as many jobs as it can under the guise of a 'new Chrysler' and a 'new GM'. It is intervening proactively to avoid a messier bankruptcy that leads to wholesale liquidation and the loss of many more jobs.

In Europe, GM's Opel/Vauxhall unit has been parcelled off in a deal with Magna that looks suspiciously like it had more to do with preserving jobs in Germany than anything else.

As Marchionne has said, overcapacity is the big issue for this industry at a macro level. It has been an issue for a long time, but the recession is bringing it into sharper focus.

For 'new GM' - in Europe and in North America - the big challenge will remain being profitable. It means having the right cost structure, sales footprints, vibrant brands and, of course, the right product.

The right cost structure means removing excess capacity. If it doesn't go now, it will continue to weigh on the bottom line. It could just be that GM in America, by dint of the US Chapter 11 rules and a less politically complicated international structure, is better placed than GM in Europe to achieve that.

History certainly appears to suggest that you cannot buck the market for ever. This recession is taking industry volume down to frighteningly low levels. The burden of excess capacity will weigh heavily on firms that don't adapt sufficiently. But politicians are interested in solutions that retain jobs and politicians everywhere tend to think short-term.

Short-term survival is obviously critical, but the car companies also need visionaries who can map out a longer-term future. Where will GM and Opel be in ten years time? There's a question that deserves serious debate. Sergio Marchionne, at least, has been looking further ahead than the end of his nose.

What now for Fiat?

Fri, 29 May 2009 15:36:00 GMT

There are reports - still to be confirmed - that Magna has beaten Fiat in the final two-horse race for Opel. The signs were there that it was going that way. Where does that leave Fiat though? Where will Marchionne look for those additional units that he maintains Fiat needs to be making in alliance with others simply to survive? Step forward PSA.

GERMANY: Magna reported to have clinched Opel deal