COMMENTARY Behind the Headlines: News and Maneuvers Get Weirder
By Michelle Krebs January 29, 2009By Bill Visnic
The auto industry seemed to have reached agreement earlier this month to hunker down and allow the geared-down Detroit auto show to flicker on without anything as distracting as news to interfere.
That all changed this week, as it seems everyone's talking, dealing, reporting, conjecturing and speculating. Plenty of this news is explicitly bizarre.
A rundown of some of this week's happenings, along with the between-the-lines summary courtesy of AutoObserver's branded decoder ring:
Headline: "Fiat's Wonderful, but If It Doesn't Work Out, Chrysler's Got Other Options"
Chrysler Vice Chairman and President Jim Press kicked off a road show this week to reassure dealers that everything's fine.
It's so fine that the Detroit News reported Press as saying if the proposed alliance with Fiat doesn't happen, other suitors are interested in a piece of Chrysler's action.
"If it doesn't work out with Fiat, we still have had other conversations with other potential partners and alliances and those obviously can continue, so we have other alternatives," Press was quoted as saying.
What partners are prepared to stand up in the time between when it's discovered the Fiat deal won't fly and Chrysler's date with Congressional purse-string holders on March 31?
Fiat's magnanimousness in taking 35 percent of Chrysler at zero cost is tied to Chrysler securing more billions of federal loans. Yet, Congressmen already are grumbling about U.S. taxpayers keeping Chrysler on life support as a foreign automaker sweeps in with no cash to take a significant stake in the American company.
Regardless, Press said: "Even without Fiat, we have a good viability plan to get the balance of the $7 billion we requested."
Sounds as if there's anything but confidence in the Fiat proposal.
Even more preposterous, though, was this Press pronouncement touting a tenet of the Fiat Accord: "By allowing us to use the capacity of North American plants to build those [Fiat] vehicles and export them, they're preserving American jobs -- a lot of American jobs."
Never mind, for a moment, the improbable significant impact on American jobs from building Fiats in the U.S. for export.
Instead, consider the ludicrous image -- at this juncture in the industry's global crisis -- of Fiat, in one swoop, saving Chrysler, investing in the retooling of North American Chrysler capacity to such a degree that it preserves "a lot" of American jobs, and creating a successful export business model to boot.
Why would Fiat, with financial issues of its own, invest vast sums to retool Chrysler plants to accommodate an export business? Fiat at this moment has vast manufacturing capacity in Europe that isn't being used. Its Pomigliano operation, the largest industrial plant in southern Italy, has seen production lines slow to a standstill. Since August, it has operated at full capacity only four weeks.
Fiat's European manufacturing capacity is heavily underutilized, its indigenous labor force is rankled, Fiat boss Sergio Marchionne is predicting a 20-percent drop in sales this year -- and the company plans to spend money to retool North American Chrysler plants for what reason? And don't say to take advantage of exchange rates.
Headline: "Seven Models To Come From Fiat-Chrysler Alliance"
Oh, please.
Would those be sort of like the seven models that were coming from the General Motors-Chrysler merger?
We saw this movie last fall, when a Chrysler-GM merger was the sure-thing-du-jour and the two were going to collaborate for a bunch of magnificent products they somehow could never make on their own.
Headline: "Don't Pay Attention to the Man Behind the Curtain -- Instead, Here's Another Version of the Volt"
Everybody knew it would be the Dance of the Seven Veils after GM first pulled the sheet from the Chevrolet Volt extended-range electric vehicle some three years-plus before it was earmarked for production. After all, extended-term hype is exceeded only be extended-term financing as one of the things GM does best.
GM announced this week it will display at March's Geneva motor show the Opel Ampera
, the third skinning of the Voltec electromechanicals that propel the Volt after the showing of the Cadillac Converj concept car this month at the Detroit auto show.
It's understood GM needs to keep up a good environmental posture for lawmakers and regulators in the U.S. and abroad.
But now it's time to stop yapping about the Volt for five minutes and get to the business of figuring out how to sell enough of today's iron to keep the company going in what is going to be a dastardly worldwide market. We're looking at what's coming from GM this year and it's not all that encouraging under the can-it-make-an-impact-in-a-down-market microscope.
GM needs to be demonstrating it's got more going on than waiting for the coming -- sometime (it hopes) Volt.
And is the Volt's battery already discharging a little? No sooner had Cadillac shown the Converj than GM execs made haste to say the thing likely would never see the light of day. If GM can't see a business case for selling a version of the Volt to a well-heeled clientele that can more readily bear the cost of its environmental convictions, it doesn't say much for the prospect of selling the car with a Chevy badge and a $40,000 price, irrespective of the expected $7,500 tax incentive.
The economics of the Volt might be starting to look shaky.
GM is hardly in the position to be heavily subsidizing Chevys. Sure, it would be nice to stretch beyond the limitations of the Chevrolet brand, but badge engineering didn't go too well for regular cars, at regular prices, during decades of an expanding auto market. The Volt definitely could use additional volume-building opportunities like the Converj and Ampera, but what should be expected of higher-priced, badge-engineered versions of an already high-priced tech-mobile in a contracting sales environment when even GM says a Cadillac version isn't going to happen?
Moreover, the company is waffling about the ballyhooed Flint, Michigan, plant proposed to build the small gasoline engines for the Volt and the Chevy Cruze compact car, leaving plenty of speculation as to whether it will follow through with the $300-million investment and instead source the engines from Europe.
Finally, AutoObserver's sister blog site, Edmunds' Green Car Advisor, reported last week that Tesla Motors' high-profile Roadster -- an all-electric car that relies on the same costly batteries as will the Volt -- ended up costing tens of thousands of dollars more than the company originally projected. Check out the fascinating story.
The experience of Tesla, a startup founded by Silicon Valley entrepreneurs with scant manufacturing experience, may not be a fair yardstick for the down-to-the-penny accounting of "real" automakers, but could be indicative of the unknowns still involved with nascent battery-propulsion technology.
Headline: "Ford Doesn't Need the Government's Money. Really."
Maybe so, but the cash burn in Dearborn is looking more like that bonfire before the Texas
A&M football game. Ford lost
almost $6 billion in the fourth quarter alone and $14.6 billion for the full year.
The company tapped into $10 billion of its previously secured credit line, insisting that'll do, said CEO Alan Mulally, "barring a significantly deeper economic downturn or a significant industry event, such as the bankruptcy of a major competitor that causes disruption to the company's supply base, dealers or creditors."
In other words, barring some situation that's almost certain to occur in 2009.
Cash is floating out of Dearborn at the rate of $2 billion a month, the car market's expected to be worse than last year, and Ford's revenue-making prospects for the year run to relaunching the Taurus, reversing a 33 percent sales plunge with a reskinned Mustang, pushing some more big Lincolns, like the Flex-based MKT, and trying to limit the amount of giveback cash that has to go with each new F-150.
Headline: "We Want to Work with California on Emissions. Really."
President Obama basically told his new and chummy Environmental Protection Agency to allow California to set its own carbon-dioxide emissions rules, which in effect gives the Golden State the go-ahead to require vehicles averaging 44 miles per gallon by 2016.
But the automakers, conciliatory bunch that they've always been, don't want to fight about it. Their first priority always being the consumer, the carmakers contend giving California its way will force on customers vehicles they don't want to buy.
First, people aren't buying much of anything right now.
Second, before people weren't buying much of anything, they weren't buying a many F-150 and Silverado pickups and Durangos -- the very things Detroit and the AAM and AIAM and the ASPCA and whoever else whine the CO2 regulations will prevent them from selling.
What's the difference if California's CO2 law prevents you from selling pickups and SUVs?
You're selling them largely to the people who absolutely must have them now. And, if fuel-price trends continue upward as most automakers predict they will, demand for full-size pickups and body-on-frame SUVs is going to be a fraction of what it is now.
Maybe it's better to get started now on rewiring the company to be profitable making vehicles with a lot less metal and a lot smaller footprint. After all, even if there's a way to wiggle out of the California thing, the federal 35-mpg CAFE standard isn't going to go away, and no full-size pickup or SUV as we know it today can come close.
President Obama's ramrodding of the issue is inconveniently timed. But the real problem is that Detroit and most other automakers have yet to fashion a business model that provides for selling smaller vehicles and generating profits -- specifically, the bucketfuls of money they feasted on when buyers were handing over $50 grand for questionable-luxury SUVs like Expeditions and Armadas and Sequoias and Yukons.
Headline: "Volvo for Sale; Chinese Could Bid"
Owner Ford wants $5 billion to $10 billion for Volvo, a brand that sold 73,000 vehicles in the U.S. last year.
Once the world stopped laughing, it had this to digest, as told by new Volvo CEO Stephen Odell to the Detroit News: "Whoever the owners of Volvo are, they will know that they are getting a brand with zero negative brand image."
Yeah -- and nobody can be entrusted to better nurture that brand image than the Chinese.
Photos
1 - Chrysler President Jim Press (Photo by Chrysler)
2 - A sneak peek at the Opel Ampera (Photo by GM)
3 - Unveiling of the Volt-based Cadillac Converj (Photo by Edmunds)
4 - Ford CEO Alan Mulally at the 2009 Detroit auto show (Photo by Ford)
5 - President Barack Obama
6 - Volvo CEO Stephen Odell at the 2009 Detroit auto show
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