Auto Beat - BusinessWeek

Saab deal falls apart as the brand nears extinction

David Welch — Tue, 24 Nov 2009 15:35:28 -0500

Swedish sports car maker Koenigsegg Group AB has come to its senses. The company decided to pull out of its earlier agreement to buy Saab from General Motors. Barring some new edict from GM’s board, the auto maker will likely just wind the brand down. Management doesn’t want to keep it, say two GM executives familiar with the company’s planning. So unless the board overturns their wishes, Saab will join Pontiac and Saturn on their way to the auto industry’s Boot Hill.

For GM CEO Fritz Henderson, this is the third attempted deal that has fallen apart. His own board decided to keep Opel rather than sell it to a consortium of parts maker Magna International and Russia’s OAO Sberbank. Renault-Nissan wouldn’t provide the new cars to fill Saturn showrooms once dealer chain Penske Automotive Group took it over. So the deal died. And now the Saab deal has fallen apart.

Of the three failed deals, only the Opel sale effort puts heat on Henderson. Two sources inside GM say he never liked the deal. But the German government wouldn’t fund a GM-led restructuring or a sale to another bidder. The German government would only fund the sale of a controlling stake to Magna and Sberbank. But several board members thought that GM could have used its leverage to get the German government to bend, say two sources who are familiar with the discussions. Eventually, the board’s stubbornness succeeded in getting the German government to bend. GM will keep Opel and the German government appears more willing to help with financing.

As for Saab, collapsing the brand really is the best thing for GM. The last thing the company needs as it is trying to find profits in North America, get attention for its besmirched brands and restructure Opel in Europe is wrestle with Saab. GM has never been able to adequately fund it ever since buying 50% of it back in 1990. The brand commands a niche in the northeastern U.S. quite nicely. But that only gets GM 7,441 sales in the U.S. this year. That’s off 62%. Sales in Europe are off just as much.

We’re talking about a brand that struggles to sell 100,000 cars a year globally. It only really sells two models, the 9-3 and 9-5 sedans. Even sharing parts and platforms with Opel, it’s tough to make a profit. “I don’t know that you can make a business case for it,” says IHS Global Insight analyst John Wolkonowicz. That’s especially true for GM.

Caddy tries to resurrect the wagon

David Welch — Thu, 19 Nov 2009 09:39:17 -0500

Will Americans buy wagons? History says no. And by history I mean after 1980. Sure, Subaru sells wagons quite successfully to some outdoorsy types on the coasts. You also see the occasionall BMW lover in a 3-series wagon. But the jury has been in for years. Americans would rather have a crossover suv of some kind. It’s easy to understand why. Wagons were America’s family car of choice before the minivan forced their near extinction. How nerdy does a car have to be for a minivan to beat it on pure coolness factor? Just think about fake wood-grain panel wagons and the picture is complete.

Enter the Cadillac CTS sport wagon, which I took on a test run a week ago. It’s quite impressive. GM engineered a tight handling ride. The direct injection 3.6-liter V-6 is powerful and smooth and the fuel economy is pretty good with 26 mpg on the highway. Combined fuel economy is less exciting at 21 mpg. But this is a luxury car that gets 304 horsepower. That’s the same impressive combination that can be had in the Chevrolet Camaro RS.

With the 2010 CTS, General Motors has proven that Cadillac is in step with what luxury cabins are all about. The dashboard and surrounding decor is as modern-looking as anything on the market. It’s more artistic than Audi’s interior appointments and just as posh as a Lexus. When you close the doors, for example, they seal shut automatically. It’s a nice touch that shows a bit of craftsmanship.

The best thing about this wagon is the styling. GM didn’t just take the CTS sedan and stretch it back with some extra sheet metal. The company spent the money to design a different back end. It’s the right way to go. Design is subjective, but the CTS wagon looks like it’s cocked and ready to go. In the past, carmakers just stretched their sedans, creating oblong wagons with awkward design proportions. Past-generation Toyota Camry and Ford Taurus wagons come to mind. This one is actually a head turner.

As fine a car as this is, don’t expect Americans to come pouring into showrooms for a CTS wagon. GM is launching a Cadillac SRX crossover suv at the same time. That will pull in many buyers who want a Caddy with some storage space. Plus, a lot of what makes this a good car have less to do with the fact that it’s a wagon and more from the fact that the CTS is the best car made by a resurgent Cadillac brand. Surely GM will sell a few thousand CTS wagons. But don’t expect this car to resurrect a market that has been dead for years.

It’s a shame, too. Most buyers who want a luxury car with cargo space would opt for the SRX, which gets lower fuel economy with a combined 19 mpg. The CTS wagon has 53.4 cubic feet of cargo space compared with 61.2 cubic feet in the SRX. So most buyers will opt for worse fuel economy and pass up on the tighter handling of the CTS wagon just to ride up high on the road and get a few more feet of cargo space that they’ll probably never use. Maybe this wagon will break through. If not, there’s always the European market.

Mercedes Benz and its small-car dreams

David Welch — Fri, 13 Nov 2009 11:13:14 -0500

American seems to be obsessed with small cars these days. Not American consumers, mind you, but policy makers and executives at the companies who must bend to their will. First, we had General Motors and Fiat-Chrysler rushing small cars to market as part of their argument for federal assistance earlier this year. Ford has a few of them coming in response both to high fuel prices and new fuel economy rules. Not to be outdone, Daimler AG CEO Dieter Zetsche says Mercedes may export some small cars to the U.S. Luxury buyers still want luxury, he told the Wall Street Journal, but some may want to make a less ostentatious, low-carbon dioxide statement.

This is wrong on so many levels. The article says that the Mercedes compacts will take on the Audi A3, BMW 1-series and BMW’s Mini Cooper brand. As for the A3 and 1-series, yes the Baby Benz will take them on, battling for all 12,000 cars worth of sales that the two models have sold this year. That’s right. Audi has sold about 2,900 copies of the A3, one-tenth the sales of its A4 sedan. The 1-series has done a bit better, selling almost 9,500 cars. That pales next to 3-series sales of 75,500 cars. Even if Mercedes gets a piece of that compact luxury biz, it will be small potatoes. As if Mercedes needs another model that sells fewer than 10,000 cars a year. The company has about half a dozen or so right now. By the way, Mercedes once shelved plans to bring its small B-class (pictured above) to the U.S. because of currency problems. Well, the dollar is still pretty weak. That will make the car either expensive to buy for consumers or profit-challenged.

And what about taking on Mini? The brand has sold almost 40,000 cars through October and just keeps growing. But it has everyone fooled. First of all, the brand has an incredibly unique image that blends modern technology of BMW’s vaunted engineering with the British styling and heritage of its past. And it is quirky. Mini stands alone unlike any brand in the car market as accessible exclusivity, though not traditional luxury. Will its buyers look at a Baby Benz? I doubt it. One BMW marketer once told me that in their research, they found that Mini owners view BMW owners the way most people view Ferrari owners. Loosely translated from the original profane description, Mini owners seem them as men with more money than confidence. I doubt Mini owners will see the Mercedes brand any differently.

I’ll give you one more practical reason why small cars won’t sell as fuel savers or as a green statement. Take a four-cylinder Chevrolet Malibu. It gets 26 miles per gallon combined and costs $1,526 a year to fuel up. A compact Chevy Cobalt gets 27 mpg and costs $1,482 a year at the pump. Who will sacrifice the passenger space of a Malibu to save $44 a year in gas? Answer: The buyer who can’t afford the Malibu.

Translate that to the luxury market where buyers are less concerned about gasoline prices, and there is even less incentive to go small. As for the low carbon statement, that won’t wash either. By the time Mercedes gets its compacts to the U.S., there will be Chevy Volts, plug-in Priuses, Fisker plug-in hybrids, Tesla electric sedans and plenty more expensive greenery for well-to-do do-gooders. Isn't this idea just a wee bit silly?

Opel drama drags on. Forster out, Lutz in.

David Welch — Mon, 09 Nov 2009 09:00:17 -0500

The drama in Germany between General Motors and Europe just keeps dragging on. Now, its top European executive, Carl-Peter Forster, is leaving the company and GM Vice Chairman Bob Lutz will take over on an interim basis as Chairman of the company's Supervisory Board. But it's a non-executive post. Lutz won't manage day-to-day workings.

This shouldn’t surprise anyone. Forster supported selling Opel to Magna and Russia’s OAO Sberbank, which GM management and the board opposed all along. Given his stance on the sale, it’s surprising that he has lasted this long. Sending Lutz to oversee Europe makes sense, since he spent a lot of time over there early in his tenure as GM’s new-car czar. His job was to get vehicle engineering in Germany mated to GM’s global product development works. He knows Opel’s inner workings.

But it’s obviously not a long-term solution. First of all, Lutz is supposed to be in the U.S. marketing GM’s new cars. Sparking sales in the U.S. remains GM’s biggest challenge. While critics have wondered aloud how a 77-year-old car guy can be a marketing maven, the 60-day money-back guarantee and “May the Best Car Win” campaign have increased brand consideration for GM. Market share has ticked up during the past couple of months. But the job is far from done. Lutz can't manage Opel's operations. He is too busy in the U.S.

More to the point, GM needs a German with good labor relations to run Opel. Right now, the German government and IG Metall, the labor union representing Opel’s workers, want nothing to do with GM management in Detroit. They don’t respect GM’s American executives. Lutz is Swiss German, but I scarcely believe they will view him much differently than they view the rest of American management.

GM could go hire a German. They did with Forster. But GM is having a tough time finding talent. Salaries are limited, there is no stock to give just yet, though the company can certainly promise to give share as it nears an IPO. But what’s it worth? And bonuses? Good luck with that. It amounts to a turnaround job with limited financial reward. On top of it, whoever takes that Opel job will have to win over an angry government and hostile union. GM has had trouble landing a new CFO to replace Ray Young in North America. Imagine the challenge of finding the right German executive to lead Opel.

Marchionne speaks: Chrysler's financial woes are overblown.

David Welch — Wed, 04 Nov 2009 14:52:54 -0500

Contrary to popular view, Chrysler isn’t flat broke. That was the first thing Fiat CEO Sergio Marchionne said when kicking off a six-hour presentation that seeks to convince the world that the Italians have a plan to bring Chrysler back from the brink. The company has $5.7 billion in cash and has actually grown its cash hoard by $1.7 billion since exiting from bankruptcy in June, Marchionne said.

And get this. Chrysler made $200 million in profit since emerging from bankruptcy in June. Well, let’s qualify that. The company made $200 million in EBITDA, which is earnings before interest, taxes, depreciation and amortization. That is to say, they made money before counting a lot of things that cost the company money. So Chrysler still lost money since June.

But Marchionne did say that Chrysler broke even in September. One month’s profit is practically meaningless in the car business. Put off some major spending on a future vehicle program for a month and you can make any month look good. Marchionne said Chrysler did it by being very parsimonious. His point is that Chrysler’s financial position is not as hopeless as many outsiders think.

Given the debt reduction and cost cuts made during bankruptcy, Chrysler’s financial position is probably not as dire as everyone thinks. But its sales are. Chrysler sales are off 39% this year. The company said it has a slew of new models coming from its joint engineering projects with controlling partner Fiat, but stopping that drop off in sales will be very difficult. If it gets worse, Marchionne will have to slash deeper for Chrysler to make it.

Now Toyota quits Formula One

Ian Rowley — Wed, 04 Nov 2009 06:37:26 -0500

At a hastily arranged press conference this evening in Tokyo, Toyota CEO Akio Toyoda announced that the carmaker is the latest big player to quit Formula One motorsport. Toyota, which competed in 139 races after entering the sport in 2002, recording no wins, will quit immediately. Toyoda said the company will also stop providing engines to the Williams team. "It's a complete withdrawal," he said, citing the "the current severe economic realities". Toyota follows Honda, which quit F1 last December, and BMW which entered its final race on Nov. 1 in Abu Dhabi. On Nov. 2, Japanese tire-maker Bridgestone said it would pull also out of the sport, saving $100 million a year.

While long rumored, Toyota's decision to quit wasn't a certainty. For one thing, since becoming CEO in June, Toyoda, a keen racer, has talked of giving Toyota a sportier image. At last month's Tokyo Motor Show, Toyota showed the $375,000 Lexus LFA supercar, which its CEO had a hand in developing, and the rear-wheel drive FT-86 sports concept.

Despite never winning a race, this season wasn't all bad and included several podium finishes. And, after an injury to first-choice driver Timo Glock, Kamui Kobayashi, a Japanese driver who graduated from Toyota's driver training scheme, impressed in the final two races. Toyoda said the decision has nothing to do with Toyota's poor record in F1. Indeed, with Toyota expected to post a second consecutive annual loss this fiscal year, it is in some ways surprising it took this long to quit. Running a F1 team can cost upwards of $500 million a year.

A bit like Honda last year, the decision may also make good business sense. Spending such large sums on a sport that isn't a huge draw in the U.S. isn't the best use of limited resources. On top of that, gas guzzling F1 cars don't sit comfortably with Toyota's carefully honed "green" image, while it's hard to see their relevance to any of the company's production cars, save the Lexus LFA. And, if all that isn't reason enough, F1's teams and management haven't covered themselves in glory in recent times. In 2007, the McLaren team was fined $100 million for its part in a spying scandal. Last year, Toyota was one of several teams that put its name to a statement attacking Max Mosley, the chairman of the sport's governing body, after he became embroiled in an embarrassing sex scandal. And this year Flavio Briatore, the chief of the Renault team, was banned for life after instructing one of the team's drivers to crash on purpose.

UAW workers stiff arm Ford

David Welch — Fri, 30 Oct 2009 16:11:42 -0500

Just when you figured that the United Auto Workers have been hammered into submission, union workers are flexing their muscles. Ford union workers at 11 plants have voted against concessions made by the UAW’s bargaining committee. Workers at four plants have approved the concessions, which include wage freezes for new hires, a moratorium on strikes over pay and benefits and some work rule changes, Bloomberg reported on its web site. If workers don’t ratify the concessions, then union leaders and Ford management have to hammer out a deal that can pass muster with the rank and file. Either that or Ford gets none of the concessions.

Where to begin with this one? From a public perception standpoint, this is the worst thing the union can do. Across America, workers are losing jobs even as the economy shows signs of life. Few Americans will have sympathy for UAW laborers who have kept their jobs even amid the worst downturn in auto sales in decades. You can’t blame UAW leaders for this one, since they agreed to the concessions. It’s the members who aren’t seeing the writing on the wall.

The new concessions aren’t exactly gut wrenching, either. Ford wants to freeze entry-level workers. That doesn’t affect the voting members and won’t likely hurt anyone new since Ford isn’t hiring. They also want to consolidate some skilled trades classifications, which could weaken job security for the electricians, welders, pipe fitters the like. But the big sticking point looks to be the no-strike clause that would be in place for the 2011 labor contract negotiations. Under the tentative agreement, the union can’t strike over wage and benefits proposals made by the union. But they could if management tries to cut their pay and benefits or over other issues like health and safety concerns. If the UAW and Ford can’t strike a deal, it would go to an arbitrator. Other major unions already do this, so it wouldn’t be the end of the world.

Wait, it gets even more silly. To sweeten the deal, Ford has been willing to give workers a $1,000 bonus upon ratifying the new concessions. The company would also commit to build new products in some UAW plants. So the union could strike over proposed pay cuts in 2011 and they'd get some more cash and job security today.

For both sides, that argument seems to be much ado about nothing. Ford hasn’t had a strike this decade. Neither side is interested in doing that since the union would worry about damaging their healthiest Big Three employer, which is already carrying a big debt load. And Ford wouldn’t want to blow cash on a standoff with labor. In other words, they are fighting over how to manage a very unlikely outcome. That said, asking a union not to strike declaws its negotiators.

My guess: Ford will give in on that one to get the other concessions, which deal with actual compensation and work rules, done and sealed. But given the nature of the concessions and what the workers stand to gain--and not lose--I can't explain their obstinacy on this one.

Alfa Romeo coming to the U.S.?

David Welch — Wed, 28 Oct 2009 19:29:16 -0500

Fiat CEO Sergio Marchionne will soon deliver his fix-it strategy for Chrysler. One big piece appears to be the return of Fiat’s upscale Alfa Romeo brand to the U.S. with a dedicated dealer network. It would be sold as an upscale performance line that offers a bit of snooty European cachet but at lower prices than BMW and Audi. And it could work.

It will be a grand experiment by the Italians. The U.S. luxury market is already hotly contested with Lexus, Mercedes, Audi and BMW holding sway. Infiniti and Cadillac have new models coming. Alfa Romeo retreated from the U.S. market in 1995 and wasn’t exactly known for its quality. So its entrée won’t be an easy one.

But I’ll go out on a limb and say that Alfa has a real chance. I don’t expect the brand to sell cars in big numbers, especially at the start. Alfa will have to establish its name, brand image and prove that its car have real quality. The marketing push will cost a couple hundred million a year. But the styling is sophisticated and sexy, especially the MiTo compact. The MiTo would take the Mini Cooper head on. The 159 sedan is a looker. Check out the GT coupe, as well. The 8C is an absolute stunner. No word on which cars would arrive here from the boot. But they have some product that would turn heads. They are also pretty zippy cars that are fun to drive. Simply put, the brand offers something different than most premium makes sold in the States. And if fuel prices jump again, small and efficient upscale cars could catch on.

Resilient Honda triples earnings forecast

Ian Rowley — Tue, 27 Oct 2009 02:10:20 -0500

There are more signs that Japanese automakers are getting to grips with the recession. Honda, which has weathered the storm far better than rivals, today posted better-than-expected interim earnings result and almost tripled its full-year forecast. Honda now expects to make $1.7 billion through March 2010, compared to a previous forecast of $600 million. Honda is one of only three Japanese carmakers--the other two being minicar giants Suzuki and Daihatsu--that didn't lose money in fiscal 2009. For the six months through September, Honda made $670 million.

Of course, the figures aren't a patch on what Honda was earning before the financial crisis hobbled auto sales a year ago. Honda's net profit for the six months, while welcome, is down 56% on year earlier as its auto sales slipped 15% to 1.6 million cars. But at least the pain is easing. Between June and September, auto sales were down but at slower rate of 10.8%.

Honda's solid performance bodes well for Toyota and Nissan, both of which files their results next week. Like Honda, both have benefited from governments' stimulus spending and have reduced stockpiles of unsold cars. Nissan executives, meanwhile, told reporters at the Tokyo Motor Show that they had stopped losing money. And two large Toyota group suppliers reversed loss forecasts yesterday.

That said, Toyota and Nissan still likely to trail Honda's financial performance for the time being. Unlike Honda, Toyota expects a large annual loss of around $5 billion and Nissan has said that it expects to lose almost $2 billion this year. Meanwhile, their factories are relatively underutilized compared to their Japanese rival. UBS estimates that Honda's North American plants are running at about 75% of full capacity, compared to 70% for Toyota. Nissan says its Smyrna and Canton plants combined capacity utilization is just 44%.

Fisker to convert a GM plant in Delaware to build plug-in hybrid cars

David Welch — Mon, 26 Oct 2009 18:42:31 -0500

Out with the old, in with the new. California electric-car startup Fisker Automotive will announce plans tomorrow to turn an old General Motors plant in Wilmington (Dell.) into a hybrid electric-car plant, says a source with knowledge of the announcement. Fisker plans to use the 52-year-old factory to build its $48,000 Project Nina plug-in hybrid starting in 2012.

Readers will recall that I have been pretty skeptical about electric cars and high-mileage plug-in hybrids. It’s not that the technology isn’t great. It is. But the economics still don’t work so well. Fisker wants to use the plant, which until recently assembled the Saturn Sky and Pontiac Solstice roadsters, to build a mid-sized plug-in hybrid. With a $528 million credit line coming from the Department of Energy, Fisker should have the cash to get the project off the ground.

My question is about sales. Even after getting a $7,500 tax credit, a Nina buyer (that won’t actually be the car’s name, it’s a code name right now) will cost $40,000. That’s at least a $12,000 premium over a mid-sized family car. A 26-mpg Chevrolet Malibu costs $1,500 a year to gas up at today’s fuel prices. If Fisker’s car gets over 100 mpg, it would save about $1,200 a year at the pump. That means the owner needs to drive it for a decade to get the savings back. That’s one hurdle for CEO Henrik Fisker’s and his mission to sell 100,000 copies of Project Nina a year. He does want to sell half the volume overseas, where the business case is better. But it’s still going to be tough for these expensive fuel savers to hit big sales numbers.

Mr. Fisker does make another case for his cause. Nina and his company’s first car, the $88,000 Karma sports car, will both be upscale. The Karma will actually be a luxury sports car. So there’s more to it than just selling fuel economy, he says. And he makes a good point. Fisker thinks his selling point will be a green alternative for luxury buyers. Prius owners have high incomes and can afford much more than their $25,000 hybrid. So there may be some willing buyers.

There will also be a lot of competition selling expensive greenery. Tesla Motors makes the same pitch as Fisker. GM will have the Chevy Volt, Toyota will be selling plug-in Priuses priced around $50,000 and Nissan also has an electric car coming. Ford will have some high-tech alternatives coming.

Fisker will fine some buyers, no doubt. But will the company find enough to make its bold plan work? I’m still skeptical.

Former Task Force Chief Rattner Slams Wagoner

David Welch — Thu, 22 Oct 2009 15:51:44 -0500

Former Treasury Department auto task force chief Steve Rattner took off the gloves in his assessment of fired General Motors Chairman and CEO Rick Wagoner. In a speech at the National Press Club on Oct. 21 and in his own written account of the auto bailout, he said simply that Wagoner had to go. While that seems obvious given the company’s state when it first approached the feds about a loan about a year ago—not to mention its eventual descent into bankruptcy—in the Motor City Wagoner’s firing is still a subject of much debate.

Wagoner’s defenders will say that the government shouldn’t be firing executives and that, if not for the deep recession and credit crunch, Wagoner’s plan would have worked. GM’s cars were getting better and the 2007 labor agreement would have cut costs over time. His detractors say that he should have prepared GM for a recession sooner. The big loss in market share, some $80 billion in red ink and other missteps should have cleared the way for GM’s past board to fire him years ago.

But in reality, the government had no choice but to fire him. First off, many of the architects of the nation’s financial crisis remained in their chairs even after the banks received bailout cash. The public outcry was loud and justified. Given how little respect GM has among much of the American public, there’s no way the Obama Administration could have kept Wagoner at GM. It would look like the taxpayers are funding Detroit’s business as usual.

But that doesn’t answer the question of whether Wagoner deserved to go. He surely did. Rattner said in his own narrative of the auto bailout that he and his team found at GM “perhaps the weakest finance operation any of us had ever seen in a major company.” That should be the last thing they discovered at GM given that Wagoner and many of his very top reports came from GM’s New York treasury office or were, at the least, finance guys by training.

While Wagoner was CEO, the company’s market share fell from 28% to about 20%. He was never able to get the dealers and the union to see a new reality. That would have been incredibly tough for anyone in that job. But after nearly a decade, it was time to give someone else a shot.

There was something else that Rattner pointed out in his screed about Wagoner. He wrote: “Certainly Rick and his team seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the UAW.” Wagoner made that case repeatedly and many in the organization took it to heart. GM had excuses for not succeeding and they came right down from the top.

Rattner also wrote that he found a tone of “friendly arrogance” from Wagoner. That was what did Wagoner in. He opposed the idea of bankruptcy, which the task force and its advisors thought was an option that needed to be seriously considered. And if Wagoner thought GM's problems were inherited, and the union, oil prices and the yen were to blame, then he surely wasn’t the CEO to bring in real change.

All of those problems were his to manage. Some, like the fact that GM was ill prepared for a spike in fuel prices, were partly of his own making. Now its up to his successor, CEO Fritz Henderson, a man Wagoner groomed, to do what Wagoner could not accomplish.

Lexus launches $375k LFA

Ian Rowley — Wed, 21 Oct 2009 10:12:38 -0500

Toyota chief Akio Toyoda did his best to liven up proceedings, but even the unveiling of a production version of the $375,000 Lexus LFA supercar couldn't help this year's Tokyo Motor Show capture the excitement of recent years. Toyoda helped develop the Lexus LFA and when he unveiled it at the show's opening day on October 21, he said he hoped visitors to the biennial event "can leave feeling that automobiles are exciting and will want to come again."

On Day One, though, there were visibly fewer attendees than in 2007 when the Nissan GT-R, another very fast car, was the star. Indeed, while Toyota also unveiled the exciting FT-86, an affordable sports car due for release in 2011, and other automakers showed off a host intriguing hybrids and electric vehicles, the absence all major international carmakers-and even two Japanese truck makers, Hino and Isuzu-confirmed long-held fears that Tokyo's motor show is no longer the most important in Asia. After all, automakers from over twenty countries braved the recession to attend the Shanghai auto show in April. In Tokyo, only three foreign automakers-Group Lotus and Caterham Cars from Britain and Alpina Burkard Bovensiepen from Germany-could be bothered to show up.

But what of the LFA, which will go on sale in 2010? A long time in the making, it certainly has some dazzling performance stats, including a top speed of 202mph and 0-60mph in 3.7 seconds. Clearly, this is no ordinary Lexus. For all that, I'm slightly baffled by the price (I repeat: $375,000) and the decision to limit sales to 500. In his speech on the floor of the show, Toyoda talked about the need for automobile to serve as dreams and aspirations. Well, the high price and limited availabilty certainly sees to that. Of course, the LFA, alongside the great looking FT-86 sports car concept, will give Lexus and Toyota's brands a much-need sporty boost. The difference of course is that the FT-86, which goes on sale in 2011 is likely to cost closer to $20,000 and should sell in thousands. Indeed, given that Toyota will lose money again this year, it would also be interest to know more about the economics of the LFA. The price tag is high, but then so is the cost of developing super-fast sports cars. And by limiting sales to 500, one wonders how much Toyota will lose on every sale.

Toyota takes on Hyundai—in Korea

Ian Rowley — Tue, 20 Oct 2009 04:49:22 -0500

Whichever way you look at it, Hyundai Motor is a supremely powerful operator in its home market. In Korea, Hyundai controlled 51% of the market between January and September and its affiliate Kia Motors was the second largest biggest player with a 30% share. Put together, that’s an astonishing 81% share—a figure that even dwarfs Toyota’s 43% share in Japan. And that includes sales from its mini-car maker Daihatsu and truck maker Hino.

But could Toyota be gearing up to turn the tables on its Korean rival? In an announcement today, the Japanese automaker said that it is now open for business Korea. In a statement, Toyota said it has begun selling Toyota-branded models at five dealerships, including three in Seoul. It will sell three models: the Prius gasoline-electric hybrid, the Camry sedan and the RAV4 crossover SUV. Toyota will also market a hybrid version of the Camry. "We intend to make every effort to contribute to South Korean society and earn a loyal following," Toyota Executive Vice President Yukitoshi Funo said in a statement, released earlier today.

Whether Hyundai has much to fear is another matter. Toyota’s ambitions, to start with at least, are unlikely to worry its Korean rival. Toyota aims to shift just 500 vehicles a month, rising to 700 by the beginning of 2010. That compares with roughly 420 monthly sales of Lexus, Toyota’s luxury marque, which has been in Korea since 2000, between January and September. Even combined, Toyota and Lexus won’t make much of a dent on Hyundai and Kia’s joint sales of 887,000 in 2008.

Moreover, the timing of Toyota’s move is curious. For one thing, analysts say that it is unlikely that Toyota can make a profit exporting cars from Japan to Korea even if it sells them at a premium price (its 2.4 liter Camrys will retail for $29,000, compared to $22,360 for the most expensive Hyundai Sonata). Indeed, Funo told reporters at a press conference in Seoul that Toyota didn’t expect profits in the near term.

Exchange rates are a major factor. As well import duties, the recent surge of yen is a huge disadvantage for Japanese exporters and particularly so against the weak Korean won. Since Jan. 2008, the yen has gained around 36% against the Korean currency, and is a reason why many Japanese companies have plunged into the red at a time when Korea exporters are thriving. This year, Toyota expects to make a loss of around $5 billion, whereas Samsung LG, and Hyundai are all recording strong earnings this fall. The weakness of the won also goes some way to explain why foreign imports to Korea account for just 5% of the market this year, compared to 6% in 2008.

Honda’s recent experience points to difficulties Toyota faces in Korea. Honda, which was the most popular import brand last year, with a 20% share among imported cars, saw its sales plummet 72% to 2,921 in the first nine months of this year with its among foreign brands fell to sixth with just 6.85% this year.

So what explains Toyota’s move into the Korean market? As tough as conditions are now, analysts say that, over the longer term, building up in Korea could make sense. Korea’s market size at well over a million sales a year, its close proximity to Japan and an increasing acceptance of Japanese brands make it attractive. What’s more, unlike Japan, where auto sales have been declining for years, the Korean market retains growth potential and the yen’s strength is unlikely to remain at its current highs indefinitely.
-- With Moon Ihlwan

Opel sale hits a snag. German government could be in a bind.

David Welch — Mon, 19 Oct 2009 09:31:11 -0500

If the European Union sticks to its guns, General Motors may be able to sell its German Adam Opel AG unit in a more competitive auction or keep the company after all. Recall that GM just agreed to sell 55% of Opel to Canadian parts maker Magna International and its partner, Russia’s OAO Sberbank, and 10% to the workers. Magna won the bid because the German government wouldn’t give the needed $6.6 billion in financing for any other deal. The government would not finance a rival bid from RHJ International nor GM’s in-house efforts to restructure the company.

But now, the EU is balking on the deal. Neelie Kroes, the EU’s competition commissioner, has told German Economics Minister Karl-Theodor zu Guttenberg that the European Commission thinks the loan conditions slapped on the Opel sale were likely illegal. They may decide that GM should be allowed to reconsider the sale and look at other bidders or keep the company. In short, the EU says that the German government manhandled the Opel sale.

This creates a giant mess. In theory, GM could keep Opel if the automaker can get the financing to restructure the company. Sources close to GM’s board say that it needed $5 billion to restructure Opel. That means the German government, which has already blamed American management for the company’s woes, would be in the position of loaning money to GM to save 15,000 of Opel’s 25,000 jobs. GM would need concessions from union IG Metall, which has also demonized America management. GM could also try to get funding from the Polish, British or Spanish governments since those nations have Opel factrories.

The German government could reconsider the RHJI bid, but the government and IG Metall, Opel’s union, see the private equity firm as a pawn for GM. Plus, sources at RHJI say the firm has moved on from Opel. The investment firm just spent $366 million to acquire financial services firm Kleinwort Benson. That could make a $500 million investment in Opel tough right now.

Even GM, whose executives favored the RHJI bid and whose board was dismayed when CEO Fritz Henderson came to them after having negotiated only one clear-cut option, still favors the Magna deal. It seems that GM just wants to move on, get the bulk of Opel’s losses off its books and focus on fixing its North American business. But in the long run, it may pay to revisit Opel and see if GM can’t keep it and get it restructured anyway. With the right cost cuts, GM could turn Opel around. The shame of this story all along is that just as GM was putting out some good products (the new Astra and Insignia look like winners) the company had to cede control. If the German government and unions will work with GM, a new Opel could emerge and be a tough competitor.

Recession Drives Speeding Tix, "Escort" Business

David Kiley — Fri, 16 Oct 2009 23:45:17 -0500

The recession and economic woes of the automakers has created a lot of discounting of new cars and trucks for those who are in the market for new wheels. That’s the good news. The bad news is that no matter what you are driving, law enforcement is handing out more parking and speeding tickets than ever to make up for everything from lower tax revenues to cuts in state aid.

That’s where Escort Inc. comes in. The leading maker of navigation systems and “fuzz-busters” is doing brisk business in the teeth of an economic meltdown. “It used to be that people were buying our products so they knew when they could speed up, but today the motivation is different—to know when to slow down,” says CEO John Larson.

It’s no joke. In hard-hit metropolitan Detroit, the number of moving violations issued has increased by at least 50% in 18 communities since 2002—and 11 of those municipalities have seen ticketing increases of 90% or more. State and city officials are pretty open about the strategy, since the state has cut billions of aid to communities in that time. You can’t get blood from a stone (the State of Michigan), but you can get it from Mustang and Camaro owners.

Escort’s newest products integrates global positioning and even navigation applications with traditional fuzz busting tech to alert drivers to where the speedtraps are, as well as where red-light cameras are installed. The company has its own proprietary database of the top-known speed traps based on tickets written.

The new tech also eliminates false beeping from things like garage door openers and the like. Larson says that he might hear 50-60 alerts on a typical drive from Cincinnati to Northern Michigan. With the GPS assisted devices, it’s more like four and they are all legitimate. “There is a big safety aspect to this because if you radar detector is always going off, on top of cellphone distractions, it gets to be overload.”

As Escort’s products are after-market, and there are so many gadgets hitting the market, and only so much space on a dashboard, Larson says a device that incorporates fuzz busting, navigation, blue-tooth and hands free telephony is around the corner.