Auto Beat - BusinessWeek

Pontiac G8 goes away, and with it a short-lived hit for GM

David Welch — Tue, 07 Jul 2009 18:01:49 -0500

Here’s an example of throwing the baby out with the bath water. As General Motors barrels through bankruptcy and ditches the long-troubled Pontiac brand, along with it goes the G8 sports sedan. What a shame. The car started in price at $28,000 and the sticker price got close to $40,000 if you bought the high-powered GXP model. When is the last time a Pontiac sold for that kind of sticker price? You’d have to sell two G6 coupes to get that kind of money.

What’s more is that the cars were selling pretty well, especially considering how dismal this car market is. Sports car fans loved the roomy sedan that could be had with a 256-horsepower 3.6-liter V-6 or the 361-hp 6-liter and 4-2-hp 6.2-liter V-8 engines. It’s far better than the GTO was when it came back in 2004. Motor heads snapped up the G8 models as GM prepared to shut down production. Its Australian Holden unit made the last G8 in June.

Sure that last-minute rush pushed sales up. Still, G8 sales rose 150% last month. Pontiac, which everyone knows is dying, sold nearly 16,000 G8s this year. That’s more than Acura sold of its top-selling TL sedan and Infiniti sold of its G37 sedan. In other words, GM had a sporty sedan that was appointed with luxury amenities and sold at top-shelf prices. And out it goes.

I asked a few executives if they might bring it back as a Chevy or a Buick. They would sell a lot more of them at Chevy dealers and inject a bit of passion into a Buick showroom. But so far, it seems not to be. The business case for bringing cars from Australia to the U.S. is pretty tough. But for a company that needs every hit car and all the buzz it can muster, it seems that GM might find a way to keep this one. For those looking for a great sports car, there are some left at Pontiac dealers. And those dealers are willing to haggle.

Porsche and Volkswagen Showdown is Looming

David Kiley — Tue, 07 Jul 2009 01:58:58 -0500

Top management of German auto companies Porsche AG and Volkswagen will come to the table in the next two weeks to discuss an investment by the Qatar sovereign wealth fund and how that could possibly strengthen Porsche’s bid to takeover Volkswagen AG.

Porsche CEO Wendelin Wiedeking has been pursuing a strategy of trying to acquire control of VW since 2005 when he first bought a stake in the larger company. That strategy blew up in the CEO’s face, though, last Fall when the global capital markets tanked and Porsche got caught holding risky derivative investments it was using to finance its acquisition of VW.

The dealings between Porsche and VW have taken on a soap-opera-like quality. The VW supervisory board chairman is Ferdinand Piech, the great grandson of Ferdinand Porsche. His family is also part of the controlling stakeholders in Porsche.

The Porsche and Piech clans have long been rivals. At one time, it was believed that Piech and Wiedeking were working in concert to have Porsche acquire VW. But in recent months, Piech has been openly critical of Porsche’s moves and its excessive debt.

Piech, as a significant Porsche shareholder, can, in fact, block the Qatar investment. Qatar is looking for voting shares in Porsche in exchange for investing billions. Up to now, the Porsche and Piech families have controlled all the voting shares.

If Wiedeking is blocked, and the Qatar investment doesn’t go through, there is the strong likelihood that he will be ousted as CEO and that Porsche will be absorbed by VW. It would be a spectacular fall of one of Germany’s leading industrial executives. Wiedeking has been CEO of Porsche since the early 1990s and led the sports car company to be the most profitable, as measured by operating margin, auto company in the world.

Porsche currently owns 51 percent of VW.

Wiedeking has so far failed to secure 1.75 billion euros in loans it wants from commercial banks or from KFW, a state-controlled bank in Germany.

Qatar is approaching a potential investment in Porsche as a passive financial investor and is apparently open to investing in either company.

GM's 2010 Chevrolet Camaro breaks through

David Welch — Thu, 02 Jul 2009 10:00:24 -0500

In Detroit’s hey day, American cars were been fawned over in rock and roll tunes both for their brawny performance and cultural significance. Songs like Bruce Springsteen’s “Cadillac Ranch” glorified big, ostentatious Caddies. “Hot Rod Lincoln” by Commander Cody and the Lost Planet Airmen did far more as an homage to horsepower and a polish job for Ford’s luxury brand than it did for the band’s career. But the same can’t be said for the Chevy Camaro.

The most recognizable tune I can think of is the ‘80s punk ditty “Bitchin’ Camaro” by the Dead Milkmen. In the tune, the Milkmen lampoon the Camaro as a car for rich spoiled kids who guzzle gas and tear up their neighbor’s yard. It’s the hood ornament for crass American suburbia. Here’s a clip of the lyrics:

So you'd better get out of my way
When I come through your yard
Cause I've got a bitchin' Camaro
And an Exxon credit card

For much of its history, the Camaro was a gaudy guzzler for the buzz cut and gold chains crowd. The cars were usually fast, but also inexpensive and unsophisticated. So, frankly, when GM announced two years ago that Chevy would bring the car back, I was very skeptical. It arrives later than Ford’s Mustang and Chrysler’s Challenger. And let’s face it, reborn muscle cars preach to the 50-something guys who already buy American brands, not the import owners that Detroit needs to win back to survive. It sends a signal to people shopping for Bimmers, Hyundais, Priuses and the like that Detroit is stuck in 1970.

But after driving the new Camaro, I have to erase all of that. The car is simply terrific. And it’s far more sophisticated in many ways that competing cars and certainly than the old Camaros. Start with the engine. My test model had a direct-injection V6 which kicks 304 horsepower but gets 29 mpg on the highway. All that grunt still guzzles 19 mpg in the city, but a combined 22 or 23 mpg for a car with that much oomph is impressive. You can get a V8 in the SS version, but it starts at $31,000. The V6 models start at $23,000

Then take a look at the car. Love the design or hate it, you have to say that it’s not just reproduced retro. Chrysler simply knocked off a 1970 Challenger. The Camaro looks like a new-era interpretation of the old pony car. If GM never killed it, the Camaro may have just evolved into this design today. It’s fresh. The Camaro really handles quite well, too. At 3,700 pounds it doesn’t feel as heavy as other big sporty cars.

The cabin is decidedly retro and not the car’s best feature. GM took many cues from the early ‘70s cars. And while the plastics inside don’t feel top grade, they’re good enough for a car that starts at $23,000 and offers as much as it does in terms of performance and style. My test car, by the way, was about $30,000 loaded up with satellite radio, blue tooth, stability control and a nine-speaker Boston Acoustics sound system.

Still, the new Camaro is a very impressive car. I was surprised by how much I liked it. I’ve never been a Camaro guy. But I was also suspect of how GM would execute it. When Pontiac brought back the GTO in 2004, GM was content to take a ‘90s jelly bean body style from its Australian unit, shove a big engine under the hood and call it reborn muscle. It didn’t last. This is a purpose-built muscle car for a new age, and quite a good way to usher in the New GM assuming the company emerges from bankruptcy in a couple of months as planned.

Marchionne: New Chrysler Burning Less Cash, But Taxpayers Remain in Dark

David Kiley — Wed, 01 Jul 2009 10:41:05 -0500

Chrysler Group LLC CEO Sergio Marchionne tells Bloomberg News that the company is burning less of its valuable and limited cash than it was a few months ago, but he doesn’t say how much less.

Chrysler is not publicly listed, so Marchionne says he doesn’t have to get into specifics.

Chrysler went through $9.6 billion in cash in 2008. The automaker reorganized around what it considered its best assets in Chapter 11 and $6 billion in fresh financing from the U.S. and Canadian governments.

"We are still burning cash, but it's slowed down by far," the news agency quoted Marchionne.

That said, it is not lost on the CEO, who is also head of Fiat’s auto group in Italy, that the American public has a vested interest in knowing some of Chrysler’s specifics.

He says he is discussing with the U.S. Treasury auto task force how much information will be disclosed and how often going forward.

Fiat owns 20% of Chrysler and is managing the company now after the Federal government lent the automaker billions to stay in business.

Today is the day that monthly sales are reported by the automakers. Chrysler, reporters were told yesterday, would issue a press release with sales information. But the automaker plans to discontinue the traditional monthly sales call with reporters to discuss the sales figures in more detail, and offer media outlets an opportunity to ask a few other questions.

GM, Ford, Chrysler and Toyota have long held conference calls with reporters to discuss their company and industry trends. Right out of the box, though, Fiat is pulling back access by the media too its executives.

Let’s see…a foreign owned company takes over an American icon with the aid of U.S. taxpayer money and then gets, some might say, uppity about disclosing information as a first impression.

Hardly seems sociable.

Toyota, Aston Martin team up to make the Cygnet

Ian Rowley — Tue, 30 Jun 2009 01:42:01 -0500

It's seems an unlikely combination, but is the deal between Toyota and Aston Martin, announced yesterday, such a bad idea? Under the plan, Aston Martin will sell a version of the tiny Toyota iQ (pictured above) called the Cygnet to existing clients. The price is likely to be around $30,000. "Small is beautiful these days,” Ulrich Bez, Aston Martin’s chief executive said yesterday reports the Times of London. “We have to move on from the preconceived ideas regarding what Aston Martin is about.”

Predictably, most comments on car blogs have been pretty harsh, ranging from outright rage to disbelief. But why not? The iQ, while not exactly a popular sight on Japan's roads--I think I've seen four since it was released late last year--is a fun, innovative car. In Cygnet form, may be useful for Aston Martin when fuel economy regulations get stricter in the years ahead. Aston Martin when fuel economy regulations get stricter in the years ahead. It may also help Aston Martin enthusiasts assuage concerns, assuming they have any, about the environmental damage caused by their 4.8 liter V8 or 6.0 liter V12 Vantages. And as it's only going to be sold to Aston Martin owners, it's not as if the hoi polloi will be able to get their hands on one easily.

From Toyota's point of view, even a small association with a brand like Aston Martin, won't do any harm. New president Akio Toyoda insisted on June 25, at his first press conference as Toyota chief, that cars must be more than just appliances for getting from A to B.

Interestingly, the move seems to have stemmed from a racing friendship built up between Toyoda and Bez. At the June 25 press conference, the Japanese exec name-checked Bez when asked about his love of racing. Under the pseudonym Morizo, Toyoda has been known (most recently in May) to drive a Lexus LF-A in races at Germany's Nürburgring circuit. Bez, a fellow racer, got in touch with Toyoda after seeing an iQ on show at the track. When asked if he would quit racing now he is boss of the world's biggest carmaker, Toyoda admitted his colleagues were urging him to hang up his racing overalls but (somewhat unconvincingly) said that driving around the 'Ring was a good way to test new cars. If the Aston Martin deal works out, perhaps he can use that as an additional argument if he wants to keep racing.

GM leaves NUMMI, Toyota is left holding the bag

David Welch — Mon, 29 Jun 2009 18:18:03 -0500

The 25-year marriage between General Motors and Toyota is over. GM said today that it will pull out of New United Motor Manufacturing Inc., or NUMMI, the joint venture plant in Fremont, Calif. The plant’s 4,700 workers---most of who are United Auto Workers union members--make the Toyota Tacoma pickup, Toyota Corolla compact and Pontiac Vibe.

Pontiac sold 46,000 Vibes last year and 17,000 of them through May of this year. That’s not massive production, but it helped keep NUMMI’s passenger car line running near full capacity in better times. Without it, NUMMI’s profitability will be under pressure.

That plant’s workforce will be feeling heat for other reasons. While it was founded to marry GM’s knowledge of the U.S. parts making network with Toyota’s factory smarts, now it has a nasty combination of GM and Toyota problems. It has UAW wages and Toyota’s cultural aversion to layoffs. Toyota is also wary of cutting jobs in the U.S. because it might hurt the company's image as the kind of generous employer that doesn't need a union in the shop to guarantee nice wages and job security.

So Toyota has a problem on its hands. The company went on an expansion binge when car sales were booming by building new plants in Texas, Canada and one in Mississippi that has not yet opened. But now many of its plants are underused and the company doesn’t know how much the U.S. market will really rebound. But the company has a lot of production, and GM’s latest move makes add to the excess. Without a sales rebound, Toyota will have to contemplate the politically stressful decision to cut workers at NUMMI or at its other plants.

Nissan's Ghosn confirms Smyrna plant will make electric vehicles

Ian Rowley — Tue, 23 Jun 2009 03:30:28 -0500

It is annual shareholder meeting time in Japan and, after receiving dozens of questions from Nissan investors in Yokohama this morning, CEO Carlos Ghosn answered a few more from reporters.

Nissan's plans for electric vehicles dominated the discussion. Ghosn, who is also CEO of France’s Renault, confirmed that Nissan will make around 100,000 electric vehicles from 2011 or 2012 in Smyrna, Tennessee. He declined to give many more details, pointing out that Nissan is still waiting to hear from the Department of Energy regarding an application for loans made under the $25 billion program created by Congress to help automakers upgrade factories to produce more fuel-efficient vehicles.

In Japan, Nissan's EV plans continue to move ahead. On August 2, Nissan will show off the first of three EVs it plans to begin making in 2010. Renault, Nissan's major shareholder and partner, will make three more. Ghosn says the six models will come in a range of different shapes and styles, including larger and smaller cars, and a commercial vehicle. In 2010, Nissan will make 50,000 electric cars before increasing production at its Oppama plant. In addition to the Smyrna plans in the U.S., a further plant will also be added in Europe, although its location is still to finalized.

Nissan differs from rivals in the speed in which it is planning to raise production. Mitsubishi Motors will begin delivering its electric vehicle, the i-MiEV, in Japan from next month, but currently plans to make just 30,000 a year by 2013. At over $40,000, the price is unlikely to appeal to most drivers. Nissan is basing its strategy on making electric vehicles that cost the same as regular cars when fuel costs are taken into account. To bring costs down, in addition to economies of scale through mass production, Nissan is asking governments around the world to subsidize "emissions-free" cars with tax breaks and other incentives. "We’re not into a niche strategy. We won’t come with a high price,” Ghosn said.

Coming from the charismatic CEO, it all sounds very convincing. Still, given the numerous challenges facing electric cars, including infrastructure, high battery costs, limited driving ranges and the reliance on government funding, I couldn't help but questioning if EVs can really enter the mainstream in the next five or ten years. Ghosn, though, was even bullish enough to (once again) take a swipe at gas-electric hybrids, such as Honda’s Insight and Toyota’s Prius. He pointed out that hybrids, which debuted a decade ago, only account for 6% of new car sales in Japan this year and far smaller proportions in Europe (0.2%) and the U.S. (2.2%). “When you read articles in the press you get the impression that 30% of the car market is hybrids,” he said. "The global market share is below 1% after so many years of hybrids and huge advertising by the media."

Tesla's electric Vaudeville

David Welch — Mon, 22 Jun 2009 19:29:55 -0500

By some accounts, Silicon Valley’s Tesla Motors makes a pretty neat electric sports car. But even if they get the cost of that gasoline-free tire ripper down to $25,000 apiece, when it comes to grin factor the company’s car won’t hold a battery-powered Christmas candle to the drama these guys generate. Tesla Motors gives us the live-wire version of Vaudeville.

This week, Chairman and CEO Elon Musk (the largest shareholder and a self-described nano manager) fired back at his old CEO Martin Eberhard in response to his June 11 lawsuit against the company. Eberhard sued for libel and breach of contract. He blames Musk for the costly delays in bringing the roadster to market and for the company’s losses as a result. Musk, who is pictured above, has publicly laid those issues at Eberhard’s door in the past. On that score, Eberhard says Musk has damaged his reputation and made it difficult for him to get a new job.

Tesla says the company will respond to the suit in court. But why wait for the attorneys to respond when Musk can blog it up himself? He did just that today, rubbishing Eberhard’s claims that the company was stripped from him by Musk and that he was forced out purely for personal reasons. He gets into Tesla’s history and how, when he met Eberhard, the former CEO had no money to get the project off the ground. He says the company had no assets or even offices. Musk brought in cash and hired chief engineer J.B. Straubel, the brains behind Tesla’s electric drive system. He also goes into some detail about board meetings, fights over door sills and claims that the Tesla roadster cost the company $140,000 to build when Eberhard ran the show. Now the car's cost (not including overhead) is down to $80,000. The company is en route to being profitable, Musk wrote.

Perhaps. But if Eberhard was running overboard on costs, Musk was the chairman and had a role in either approving or missing it all. Also, I once interviewed Michael Marks, one of two CEOs hired between 2007 when Eberhard was pushed out and 2008 when Musk took that title himself, and he said some of Tesla’s cost issues stemmed from the fact that parts suppliers didn’t believe they were legit. So they charged a lot more even for basics. It was tough to get anything cheaply. He did not blame Eberhard. As an aside, rarely have too men fought so much over a company making so little money.

Who is right? The courts will decide, unless of course Tesla settles out of court. But that’s not Musk’s style. He plays to win and isn’t afraid to wage a legal battle just to make a point. Eberhard may be even tougher to silence. He has taken public criticism from Musk in the past. By filing a suit that will dredge up his mistakes—real or perceived—he risks more damage to his reputation. But he has clearly had enough.

If Musk is lucky, his attorneys might get the better of him. They may convince him that further disparaging Eberhard through the constant filing of public documents and blog postings that are gobbled up by the mainstream press (like me) and the hordes of green blogs who watch Tesla’s ever move is bad P.R. If he pushes it? Musk will make a company striving for legitimacy look more like a side show than a carmaker.

Yawn. Detroit gets closer in J.D. Power's quality study.

David Welch — Mon, 22 Jun 2009 18:16:46 -0500

Here’s a storyline I have heard before. The Big Three are narrowing the gap on quality. J.D. Power and Associates have just released their annual Initial Quality Study, which measures problem per 100 cars in the first 90 days of ownership. Detroit’s carmakers reduced problems by 10%. Their foreign foes reduced problems by just 8%. When measuring problems per 100 cars sold, no one will notice the difference.

And here’s the frustrating part. Ford, General Motors and Chrysler have been improving quality for years. But they rarely beat Honda or Toyota in a brand-wide measure. And they don’t beat them in model-by-model comparisons often enough. Every year, they inch closer. But that doesn’t send the loyal Toyota Camry or Honda Accord owner to a Chevrolet dealer.

The top 10 went like this. Lexus was number one with just 84 problems per 100 vehicles and Porsche was No. 2 with 90 problems per 100. Cadillac was third with 91 problems. From there it went:

Hyundai: 95
Honda: 99
Mercedes-Benz: 101
Toyota: 101
Ford: 102
Chevrolet: 103
Suzuki: 103
Infiniti: 106
Mercury: 106

The industry average was 108 problems per 100 cars. Every brand not mentioned above did worse. That means all of the new Chrysler’s brands are below average. GM, for its part, did quite well. Cadillac was third among 37 brands. Chevrolet ranked ninth, but was close enough to Ford and Toyota that difference is just about meaningless. Mini finished last.

The problem for Detroit is that those overall numbers don’t mean so much. If car buyers compare models, they would find that 10 of Toyota’s cars rank in the top their in their segment, more than any carmaker. Ford had three models getting awards in their vehicle segments while GM had two and Chrysler had one, the slow-selling PT Cruiser.

That’s the difference in quality that consumers will see. They will shop for a mid-sized luxury car, for example, and see that the Lexus IS was best-in-class for quality. The Infiniti G-series and Cadillac CTS tied for second, but the Lexus won. To win buyers, that Cadillac needs to leap frog the Lexus. And the American carmakers need to start recording wins, not narrow defeats.

UAW sends Girsky to GM's board

David Welch — Thu, 18 Jun 2009 18:39:40 -0500

Judging from the mail I get, union ownership of General Motors stock may be the only thing most business readers dislike more than government ownership. The common refrain is that pricey union contracts helped get GM into this mess. Letting the United Auto Workers own part of the company will just bring the same largesse to labor back into the picture, the critics say.

Then again, maybe not. The situation is far from ideal, but the union has a level-headed representative on GM’s board. The UAW named former Wall Street analyst Stephen Girsky as a GM director. He will represent the interest of the union’s Voluntary Employee Benefits Trust, or VEBA, which will pay retiree medical benefits the same way a pension funds pays retirement benefits. By the way, the union won’t own 17.5% of GM (with warrants worth another 2.5%) the VEBA trust does. And Girsky will represent its interests.

All of this is important for two reasons. While Girsky has served as an advisor to the union for several years, and clearly has a soft spot for labor, he’s all too aware of GM’s problems. He was a tough critic of the company when he covered its stock for Morgan Stanley. Girsky also worked at the company as an advisor to former CEO Rick Wagoner, too. Don’t look for him to press CEO Fritz Henderson to give the UAW a contract that would erase some of the concessions that were made prior to bankruptcy.

And as I have said before, having GM stock in the VEBA trust is different than having it in the UAW’s hands. Those trustees have a responsibility to invest the assets, grow the value of the trust and pay medical benefits. Since GM stock is a big chunk of the fund’s assets, making the carmaker less profitable—thus dropping the value of the stock—would be foolish. Not only would the trustees be in breach of their fiduciary duty, they could eventually be in the position of cutting healthcare benefits for union members and retirees.

So there are check and balances in place. And a guy like Girsky is just the person to make sure everyone stays sane as the new GM rolls out.

Purchase of Volvo by China's Geely Premature

David Kiley — Thu, 18 Jun 2009 14:06:43 -0500

For a few days now, reports have come out of China that automaker Geely has struck a deal to acquire Swedish automaker Volvo from Ford Motor Co.

While it is true that Geely has been at the table negotiating with Ford's committee in charge of selling Volvo, a Ford official says a deal has not been struck, and that the U.S. automaker is still reviewing bids from other suitors.

China Daily reported that a deal was done, and its report was echoed by other news agencies.

The Local, a Swedish newspaper in Stockholm, reported that Geely intended to build the XC90 SUV in China and position the company for a move toward a global market.

A Volvo spokeswoman Maria Bohlin told the Swedish news agency Tidningarnas Telegrambyra that, "Ford is in charge of the sale. We don't know anything here."

Ford spokesman Mark Truby said no deal to sell Volvo has been reached, and none is imminent.

Ford has been selling off its non-core brands to raise cash and focus the company on the Ford brand worldwide. The company also sells Lincoln and Mercury brands in the U.S. It has already sold Aston Martin to a British investor group, and the Jaguar and Land Rover brands to Indian automaker Tata.

Ford has been shopping Volvo since last year. The Swedish brand has come under tremendous sales pressure, and has been losing hundreds of millions of dollars a year for Ford.

Swedish managers made a huge mistake a few years ago in fighting Ford executives who wanted to build some Volvos in the U.S. as a hedge against currency swings that have made Volvos pricier than rivals.

Too, Volvo's vaunted reputation for safety has been cut into by other manufacturers. Safety standards imposed on automakers have made automobiles in general much safer, so Volvo's safety engineering advantages are worth less in the marketplace.

The company has also let models like the XC90 SUV get old. And newer models like the redesigned S80 do not pack enough style to appeal to 21st century car buyers.

But the Volvo dealer network in Europe and the North America would be very valuable to an emerging manufacturer like Geely, which has designs on the U.S. market. The presence of an established, credible brand like Volvo on the same showroom floor at Geely's models would give the unfamiliar Chinese brand a big leg up in the toughest consumer market in the world.

Ford To Sell Global Crossover SUV Designs

David Kiley — Thu, 18 Jun 2009 13:57:28 -0500

Ford’s global product strategy has been focused on three main products—the next Focus; the Fiesta, which debuts in the U.S. next year having already made splashes in Europe and Asia; and the next generation Fusion that will be the same design as the next European Mondeo. [Can Ford's "World Car" Bet Pay Off?]

But Ford is actually taking this global product design strategy further. According to my recent interview with Ford’s top global marketing executive James Farley, the global design scheme will extend to crossover vehicles as well. Yup. Same crossovers and multi-activity-vehicles in Dearborn Michigan as in Milan, Dubai and Shanghai.

Farley, in our chat, talked about the Honda Fit, a car he clearly admires. No wonder, then, that I saw a European Volkswagen Golf Plus parked outside his office. The Golf Plus, like the Fit and Ford C-Max (pictured above) in Europe represent a product niche that Farley and Ford is ripe to take off in the U.S.—the small, thrifty car with high fuel economy and great practicality.

Other than the pickups and big SUVs, there is little reason, says Farley, why crossovers built off the engineering platforms that support the Focus, Fusion and Fiesta can’t be the same the world over. There just isn’t that much difference any more between what Americans want in these product segments, and what Europeans and Asians want. Pickups and big SUVs…yes. But not cars and crossovers.

This is the way, Ford reckons, it will achieve true global scale and efficiency to take on Toyota and Honda in the future—not only for market share, but profitability.

Saab finds a buyer

David Welch — Tue, 16 Jun 2009 14:03:06 -0500

General Motors found a buyer for its long-struggling Saab business. Koenigsegg Group AB, a consortium led by Koenigsegg Automobile AB, a Swedish producer of super-exclusive sports cars. The performance carmaker won the bidding, with the deal expected to close in the third quarter. GM, Koenigsegg, and the European Investment Bank will provide funding for new models.

Is Saab worth saving? Saab has a couple of decent models, but the Swedish brand has a narrow niche of buyers both in Europe and the U.S. That has been the company’s problem. Saab has fiercely-loyal buyers in the U.S., especially among the college-professor crowd in the Northeast. But GM never found enough of them and Saab was a perennial money loser.

Just look at these ugly sales numbers: Saab sales dropped 52% globally in the first quarter. In the U.S., Saab sales were down 55% through May, to 4,600 cars. No one can make a business out of that.

Koenigsegg will have to get Saab some new models pretty fast. Saab only has the 9-3 and 9-5. GM hasn’t exactly poured investment capital into the brand. The company says there are some new models in the works. But it’s hard to imagine the lineup getting much bigger anytime soon.

What’s more is that Koenigsegg wants to pull 9-5 production into Saab’s plant in Trollhaetten, Sweden. There’s a pitfall there, too. GM struggled with exchange rates exporting out of Sweden. Between the currency problems and the lower prices Saab gets for its premium cars, it’s hard to imagine the company making money, unless the buyer makes big changes.

So why would Koenigsegg want it? Maybe some Swedish car guys want to preserve the hometown marque. While I can appreciate the sentiment, this strikes me as a deal that's similar to when the Phoenix Consortium, a group of British investors, took MG Rover off of BMW’s hands in 2000 and tried to revive it. Rover was the last English car name that wasn’t owned by Americans, Germans, or Malaysians. But Rover was too far gone and by 2005 it was insolvent.

It will be up to Christian von Koenigsegg, founder of the company, to avoid the same fate. Saab will have one thing going for it: Koenigsegg will probably care more about investing in the name than GM ever did. That, at least, is a start.

Will Americans embrace Chrysler's Fiat cars?

David Welch — Wed, 10 Jun 2009 19:13:10 -0500

Here’s a question to ponder as Fiat takes control of Chrysler. Will Americans buy cars engineered by Italians for Europeans? History says no. For years, General Motors brought over the occasional Opel and tried to sell it as a Saturn or a Cadillac or whatever. The Saturn L-series was an Opel Vectra. The Cadillac Catera, or Caterrible, was an Opel Omega. Both failed.

In each case they encountered the same problem. Thanks to higher fuel prices, Europeans pay more for passenger cars. So when U.S. carmakers brought their Eurocars here, they often stripped them down to reduce costs and still make a profit at the lower prices Americans would pay. GM's imported Opels often got weaker suspensions or the interior appointments weren’t as nice. The cars were watered down. Ford had a similar problem with the Ford Contour and Mercury Mystique, nicknamed the mistake. Ford kept the nice features and gave the cars the same nimble handling as the European Mondeo. But Americans didn’t want to pay up for a car smaller than a Taurus. It flopped.

Even Volkswagen—with its pricey family sedans and compacts—has never gotten big sales numbers in the U.S. The cars are too expensive to penetrate the mainstream, quality lags the Japanese and American models and the euro-to-dollar exchange rate has been killing them. Then you have failure in the U.S. by Fiat and Renault. In other words, Europeans have not been able to break the interloper’s curse when it comes to mainstream cars. In luxury, it must be said, BMW and Mercedes are kingpins.

In fairness to Fiat, a lot of the examples mentioned here were simply bad automobiles or wretched management decisions. Fiat plans to build cars here in Chrysler plants, which means competitive labor costs, lower shipping rates and no currency exchange risk. The business case looks much better. Also, the Italians know styling. The Fiat 500, pictured above, and the Alfa Romeo cars are quite catchy.

But to succeed, Fiat will have to adjust those cars to meet American tastes. European passenger cars tend to be engineered smaller to fit in tight European parking spaces and city streets. Americans like roomy rides. Fiat’s quality is barely average in Europe. They will have to step that up to compete with the likes of Toyota, Honda, Ford and, yes, GM. And when they come here in about two years, there may be even more competition from India, China, another European player or whoever Roger Penske can contract to make new Saturn cars. Fiat also has to improve Chrysler's home-grown models, none of which get a friendly nod from Consumer Reports despite the supposed overhaul that outgoing CEO Robert Nardelli gave them. Fiat CEO Sergio Marchionne is a fix-it man. But he has a lot of fixing to do. His Chrysler play has hope, but it’s far from over, folks.

Selling Saturn will cost GM

David Welch — Wed, 10 Jun 2009 17:00:40 -0500

General Motors’ decision to sell Saturn to auto magnate Roger Penske doesn’t make much sense to me. If anyone can make a go of it, it’s Penske. But it has the acrid whiff of a bad deal from GM’s end.

Penske plans to use those Saturn retail stores to sell cars potentially made by manufacturers in Europe or Asia. While he may only select cars from one or two automakers, those companies will could be companies that don’t have a presence in the U.S. market already. For them, it makes great sense because they avoid the cost, risk and years of development time it takes to set up a successful retail network. Saturn, for all of the mistakes GM made over the years, has a great retail network. It is known for its no-haggle, no-pressure sales approach and customer service. Its customers loved it even when the Saturn cars weren’t so great.

Through Penske’s acquisition, someone like France’s PSA (parent of Peugeot and Citroen) or India’s Tata Motors or any number of players from China can get into the U.S. That basically removes the biggest natural barrier to entry, which is developing a sales chain. Longtime GM watcher Maryann N. Keller, who sits on the board of retailer Lithia Motors, points out that whoever Penske gets to supply cars will be in direct competition with GM. I made the same point in this blog entry when Saturn went on sale. For its part, GM will still build Saturn vehicles for the next year or so. If Penske wanted, he could even have GM build Saturn vehicles on contract beyond that.

Frankly, I’m not sure that Penske will succeed. Saturn’s brand is more damaged than many people think. The Saturn Aura was North American Car of the Year, but sales were weak because the brand didn’t draw showroom traffic. From the cold view of an economist, weak carmakers like Chrysler, Mitsubishi and poor brands like Saturn, Hummer, Saab and Volvo should be victims of the crisis. They can’t make money so they go away, leaving a stronger industry for the survivors. That’s what happens to weak players who didn’t justify their existence before the nasty downturn.

By keeping Saturn around, GM has preserved one more brand the market doesn’t need and opened the door for more competitors to come into its most vital market. This is a market, by the way, that is already hotly competitive. GM is struggling to remake some of its brands and beat back the notion that the company is a failed enterprise. Since GM was already in bankruptcy, they could have killed Saturn off with minimal cost. Instead, they sold it off. If Penske succeeds with another carmaker, the cost could be huge.