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VW CEO Matthias Müller’s Non-Apology

The worldwide press has hammered Volkswagen for months due to its emissions cheating scandal. The company initially blamed a small group of engineers and tried to assure consumers, governments and shareholders that VW’s management was unaware of any wrongdoing by the company. That approach wore thin rather quickly and VW’s board ousted CEO Martin Winterkorn in the hopes that such a major management shakeup would stop the bleeding and perhaps even provide a PR win.

Courtesy: DPA

After all, this scandal has tarnished the image of VW and created a potential liability so large that it might reach $48 billion in the US alone.

In an effort to bring this fiasco to a close, the company has been focusing on two issues. First, it’s attempting to satisfy customers via financial incentives and second, it’s been working on a “fix” that would bring their vehicles into compliance.

From the beginning it has been clear that VW hoped to put this episode behind them as quickly and cheaply as possible. The company initially claimed it had no knowledge of the issue, then later admitted it had indeed known for at least one year prior to the scandal becoming public. Similarly, the company has been slow to reveal the extent of the fraud, by claiming only one set of engines was affected. It’s had to revise those statements and expand the list of engines and years affected.

Crisis management specialists generally suggest that the best way to minimize the damage is to apologize, to commit to a transparent investigation and to take the required steps to solve the problem and implement processes to ensure something similar won’t happen again. By most accounts, VW has not embraced this approach.

Much has been made of VW’s insular culture. The company’s complex ownership structure, which is dominated by one family and the German state of Lower Saxony, coupled with a special law aimed solely to keep VW from a takeover, have resulted in a company that is not responsive to outside forces, including shareholders and governments. This makes it less surprising that VW has handled this scandal so poorly.

At this week’s North American International Auto Show, VW CEO Matthias Müller was confident he could make progress on the issue. During his first trip to the US since becoming CEO, he planned to personally apologize to the global press and meet with the Environmental Protection Agency (E.P.A.) and California Air Resources Board (C.A.R.B.) in order to gain approval for VW’s proposed software fix.

VW’s tone-deaf approach was on display by its CEO, who, while officially apologizing, managed to not apologize at all. On one hand, he said, “… we let down customers, authorities, regulators and the general public…and I would like to apologize [for that]”. Shortly thereafter, in an interview with NPR, Mr. Müller claimed that VW did not lie, but that it did not understand the EPA’s diesel emissions rules. That does not sound like an apology or a company that is fully embracing its culpability in a major fraud.

VW’s second setback of the week came when the E.P.A and C.A.R.B. declared that VW’s attempted fix would not be acceptable because it does not provide information how it would impact fuel economy or emissions. It appears that VW had hoped to placate regulators with an ill-defined plan to do something that would make this matter disappear.

Similarly, the company is attempting to minimize its exposure from class action lawsuits by offering a “Goodwill Package” to owners of affected vehicles. These incentives consist free roadside assistance for three years, a $500 Visa card and a $500 debit card that can only be used at VW dealers. While VW owners who take advantage of the offer might limit their ability to claim damages in court, the approach should please dealers who will be able to take advantage of additional foot traffic and cash payments by VW.

Instead of embracing transparency, letting an outside party investigate the causes and doing everything in its power to regain the public’s trust, VW’s approach has been to deny, delay and discount.

2016 Ford Explorer Debuts with Outgoing Infotainment System

            Courtesy of Ford
Ford famously introduced advanced infotainment systems to the masses when it partnered with Microsoft to introduce Sync and MyFord Touch.  Significant growing pains accompanied the unprecedented functionality. Customers had a steep learning curve, older drivers in particular struggled with the system and the small, on-screen buttons. Coupled with slow system responses and periodic freezes, Ford’s infotainment solution quickly lost its appeal and for some, became a reason to avoid Ford vehicles.

Although continuously improved, Sync and MyFord Touch did not endear itself to customers over time, such as BMW’s iDrive system. In late 2014, Ford announced plans to end its partnership with Microsoft and instead, base the new version of Sync (version 3.0) on Research in Motion’s QNX platform.  Sync 3.0 appears to be much more responsive, with a fresh and updated look.  Support for Apple and Google’s car solutions is also on the roadmap.  Sync 3.0 is expected to ship on some unannounced 2015 models and all 2016 models.

However, lead times in the automotive industry are famously long and that means the new, 2016 Ford Explorer will ship with the latest version of Ford’s infotainment system, the outgoing Ford Sync.  This seems somewhat incongruous, since on one hand Ford is claiming 2016 models will have Sync 3.0, yet the Ford Explorer will not. While not announced, I presume Ford will shift the Explorer to the new system at some point. 

              Courtesy of Ford

Based on pictures released of the new Explorer, it is clear that Ford got something right it hasn’t been able to do in the past – namely the addition of redundant buttons for functions that were previously only available via a touch interface. This includes controls for climate control, heat seating & cooling, volume, audio power and seek and tuning buttons.  It is exactly the lack of manual control that many customers cited as being problematic with prior iterations of Ford vehicles. 

Driven: BMW i3

    

    I had the recent opportunity to participate in BMW’s i3 test drive event.  BMW has a group of cars and personnel travelling across the country to BMW dealerships to host test drive events. The event I attended in suburban Chicago was by invitation only to those who have expressed interest about this vehicle. As you can tell by my prior post, I have an inordinate amount of interest in the i3.

The cars were available in various colors and trim levels. My particular example being a fully loaded “Tera World” model in orange, with leather seats and navigation. 

Curiously, the models available to drive where not U.S. spec cars.  Apparently, these models were brought to the U.S. as demonstration models. As such, my vehicle had a sunroof, which is not available to order in the U.S.

The test drive itself was a brief affair. I was allowed to drive by myself, as long as I followed the 2.2-mile test loop, which was programmed into the nav.  Although I expected as much, I was still surprised by the aggressive regenerative brakes, which almost relegate the brake pedal to a secondary control.  Also as expected, yet strange, was the immediacy of available torque that pushed the car forward.  While far from a sports car, especially with the skinny tires, this vehicle is actually fun to drive.  There is some hesitancy from a standing stop, which was unexpected. As soon as the electrons start flowing, the i3 can more than hold its own in city traffic. 

The electronics in the car are easy to use, with an excellent navigation system and nice set of secondary controls for HVAC and audio functions. Considering the lack of engine noise, I paid particular attention to sound intrusion.  Wind noise was minimal (in city traffic) but there was noticeable tire noise. 

The only ergonomic quirk I noticed during my brief time with the car is the somewhat awkward access to the rear seats.  There is a half door behind the driver that allows easier access to the second row. However, one must tilt the driver seat forward in order to make enough room.  Due to the seat bolstering, the driver’s seat will not stay in its forward position, requiring the passenger to hold the seat while getting in and out. This may not be problematic for adult passengers. However, having to strap a child into car seat while keeping the front seat backrest from springing back could be problematic. 

Any Way You Like It: Ford's 2014 Transit Connect

Courtesy of Ford

How could you not love the new 2014 Ford Transit Connect?  It’s cute, contemporary and immensely versatile.  This vehicle could easily be substituted for most minivans and can be configured in a myriad of ways.  The possibilities are almost endless. Outside of the pickup truck, there isn’t a vehicle for sale that can be configured in as many variations as the Transit Connect. Unfortunately, Ford’s configurator doesn’t do the best job of explaining all of the options.  Here is a brief overview:

First of all, it’s important to note that there are two types of vehicles: the Van and the Wagon.  Those names are similar and in everyday parlance probably interchangeable. I think of the Van as a “Commercial” Van as opposed to a “Mini” Van.  Ford doesn’t go to great lengths to explain what differentiates these models. Adding to the confusion is the fact that Ford offers both Van and Wagon to commercial and non-commercial customers. 

The main difference between Van and Wagon seems to be the overall size and cargo/seating capacity.  I use the term “seem” because that’s what the casual customer might surmise. However, that is technically incorrect because both Van and Wagon can be had as either short or long wheelbase models.

Perhaps, instead of focusing on what differentiates the various models, it is more productive to approach this vehicle more holistically: it can be whatever you want it to be.

Ford does not like to use the term minivan in describing it. In fact, it has a marketing campaign centered on the fact that it is the “#unminivan”. What makes it unlike a minivan is that it is slightly smaller – again, depending on which model you get – and that it is aimed at a different audience. While it can carry up to seven passengers, it can also be outfitted without a third row or without a second row. It can be used to haul plenty of cargo, ideal for small businesses such as electricians and plumbers, but also for families with pets or those who need to haul lumber or bicycles or just about anything else you can think of.

Trim levels follow the standard Ford approach of XL, XLT and Titanium, with Titanium being reserved for the wagon only.  The price range to accommodate all this flexibility is rather large as well, spanning from a starting price of $23,000 for an XL Van to $30,000 for a Wagon in Titanium trim, before options.

There are only two engines to chose from: a 2.5 liter base four cylinder and an optional 1.6 liter EcoBoost four.  Power output is very similar between the two engines (169 hp vs. 178 hp and 171 lb.-ft. of torque compared to 184 lb.-ft.).  The EcoBoost engine is optional, which is consistent with Ford’s approach across other models. What is also consistent is the seeming lack of substantial fuel economy gains by choosing the EcoBoost model. Not having driven either, I can’t speak to the different driving characteristics.

Upholstery could be vinyl, cloth or leather. The rear can either come with a hatchback lid or twin doors. The interior space can be outfitted with commercial shelving units or what Ford calls “aircraft-style” console, for the kids to store their toys. 

With so many options there are bound to be some oddities.  One of them includes the lack of a diesel engine, which commercial customers would appreciate as an option, and a manual transmission; both are available in other markets.  The final oddity in this maze is that the most expensive model, the long wheel base wagon, including the Titanium, cannot be had with the supposedly upgraded EcoBoost engine.

Regardless, the Ford Transit Connect can meet the needs of most families, including many of whom  own minivans and pickup trucks.

Courtesy of Ford

Don’t let this picture mislead you: you can order a Van with glass in the sliding doors.

 

Courtesy of Ford

A Regulator's Nirvana

What could be better than exploring the global confluence of car regulations by a serious and quirky business news reporting organization?  The answer, of course, is very little. You can imagine my delight when my podcast feed showed the latest episode of NPR's Planet Money podcast, which was adeptly titled Why Cars From Europe and the US Just Can't Get Along.

The timely backdrop of the show is the 2014 New York Auto Show and the show’s hosts question manufacturer representatives about the regulatory requirements which result in completely reengineered vehicles in the US and Europe.  Long time readers will note this blog’s continuing coverage of conflicting automotive regulations across the globe.

The Planet Money piece did not break any new ground, but it did expose a larger audience to an otherwise little noticed failure of the free market to create basic efficiencies.  The industry’s only glimmer of hope rests with the nascent Transatlantic Trade and Investment Partnership (TTIP).  Theoretically, the proposed agreement could lead to the lifting of a whole host of non-tariff trade barriers, such as differing safety standards imposed on automakers.  Since these agreements tend to be far reaching, complex and controversial, it is likely that any agreement would start with a broad set of principles and create a mechanism for tackling industry-specific regulations by a joint decision making body.  This approach would help all governments involved by being able to support free trade and not have to take any difficult votes that could anger domestic industries.

As always, agriculture seems to be one of the main hurdles. Even if the negotiations touch the much less contentious automotive space, regulators on both sides will be pushing for their rules concerning emissions and safety.  In the interim, it’s business as usual, which in this case means spending millions of dollars and euros on reengineering anything from catalytic converters to windshield wipers.

BMW i3

Don't ask me what it is about this car specifically, but I am obsessed with it. It's a technological marvel of engineering and styling.  Starting with the most embarrassing shot of the day, here is the side profile of the i3.

As you can (mostly) see, the shape of this vehicle is very different.  Much of the design is driven by the underlying engineering. Unlike almost every single vehicle for sale, this car uses a carbon fiber frame, which surrounds the lithium-ion batteries.  BMW likes to stress the modular nature of the car.  The frame for example is the "Life Module" - since it surrounds and protects the passengers.  More interesting than the marketing monikers is the actual construction, which is indeed modular.  

Weight: Carbon fiber has many notable qualities: rigidity, weight and cost are chief among them.  Long used in racing, automakers have been working with and trying to make it work for the last 15 years.  Forming, binding and layering carbon fiber is very different from stamping sheet metal and has consumed hundreds of millions of R&D dollars.  The material is ideal for this model since electric cars tend to be heavy due to the weight of the batteries.  In addition to having a carbon fiber frame, most body panels of the vehicle are plastic, which also saves weight.  How much does it weigh?  An astounding 2,600 lbs.  A Toyota Prius weights about 2,900 lbs., a 328i about 3,300 lbs. and a Chevy Volt about 3,700 lbs.

Styling: Like a Tesla Model S, the BMW i3 has a very low center of gravity due to the location of the batteries below the passenger floor.  Having the mass down low enables a more boxy design without the inherent handling effects.  While I did not have a chance to drive the i3, various press accounts are very positive.  Because the car is so new and groundbreaking, BMW decided to make it look new and groundbreaking as well.  Since the aim of the "i" line of vehicles is to minimize environmental impact, much of the interior materials are recycled or made from renewable resources, such as plant fibers.  While that sounds questionable, the materials look and feel great in person.  The top and bottom of the door panels are made of plant fibers. It's strange and strangely appealing.

Due to the strength of the "Life Cell", BMW was able to do without a B-Pillar, the removal of which allows for small suicide doors to access the rear seats.  As you can see below, the bottom of the door frame shows the raw carbon fiber.

 

The instrument cluster is electronic as to be expected. Even here, BMW chose an unconventional route by having a floating primary display for the driver and another, larger, display that floats in the center and controls navigation, radio, etc.  As the BMW press photo below shows, the dash has a horizontal wood accent running across it that provides a start contract to the otherwise large, gray dash.

           Courtesy of BMW

2014 Chicago Auto Show

    Its that time of the year when Chicago gets a bit of the automotive spotlight.  Hot on the heels of the North American International Auto Show in Detroit, the Chicago show is larger and less important. Larger in terms of square footage and less important to the industry and press, since most new models are unveiled at other shows.  While it is a second tier show, it does firmly lead the pack in its class.

BMW makes available guest passes to members of Windy City BMW so they can attend a day early and actually speak with BMW personnel about their favorite cars.  As a newly minted member, I was lucky enough to attend the show without having to battle thousands of other attendees.  Thank you BMW!

Since I am not an automotive journalist, I decided to focus on cars that interest me personally as opposed to snapping pictures of and sitting in every new piece of metal on the floor.  Look for a few new posts covering my latest automotive obsessions. 

P.S. Apologies in advance for the horrendous photography.  As it turns out, the iPhone 5 is not the best camera in the world, at least not in my hands.  

Update - The Birth of a New Conglomerate: Fiat Chrysler Automobiles (FCA)

During Fiat S.p.A.'s board meeting it was decided to create a new company named Fiat Chrysler Automobiles NV or FCA for short.  The NV is a clue to the location of the new company, which will be incorporated in The Netherlands and registered in the United Kingdom.

Along with a new name, the company presented a new logo:

This corporate logo underscores the company's departure from being too closely tied to the heritage of its brands. Instead, it highlights the global enterprise nature of the new entity.

Fiat shares will be exchanged for FCA shares on a 1:1 basis. FCA shares will be traded on the NYSE, with a secondary listing on the Milan exchange. For full details, see the press release.

Decision Time for Fiat-Chrysler

On the heels of a successful takeover of Chrysler, Fiat has to decide where it should be based.  CEO Sergio Marchionne is said to be presenting his plan to the Fiat board today. 

While Mr. Marhionne is famous for commuting between Turin, Italy and Auburn Hills, MI., the associated stress and lack of time for either management team it does not aid the creation of a cohesive multi-national enterprise.  Top managers are largely brand and country-specific and the synergies between the two companies could be enhanced.

Political implications could play a strong role in the eventual decision.  Both the Italian and US governments have financially supported Fiat and Chrysler respectively and any suggestion of moving the new global headquarters out of either country will likely cause significant political fallout.  Closely tied to country-specific politics are the issue of labor unions and jobs.  While the pressure to remain in both countries is sure to be great, moving its headquarters to a third location would send a strong message to both Italian and US governments that Fiat-Chrysler is a truly global entity.  And truly global entities are adept at moving production to where it is financially advantageous. 

In addition to politics, tax implications are likely to be a key driver.  Minimizing the tax burden is bound to be a key driver for Fiat-Chrysler.  Were that a sole factor, one could easily envision an administrative corporate headquarter in a tax friendly location such as The Netherlands or United Kingdom.  The company has an existing subsidiary with such a structure, which has been rumored to be a possible model for the company as a whole.

Finally, access to capital might sway the board.  Automobile production is immensely capital intensive and having access to robust capital markets is important for any automaker.  Balancing that access, which could be attained in the US, with minimal tax burdens will prove to challenging. 

Regardless of the board’s eventual decision, labor, capital and governmental interests are likely to be the key decision criteria.

America Is Running Out of Subarus?

That was the headline in an article that appeared in the Wall Street Journal , May 30, 2013.  It’s difficult to imagine a headline that would have been less imaginable a few years ago.  After all, Subaru has a well-earned reputation of producing vehicles that appeal to a niche crowd of New England liberals. 

Subaru realized that this core demographic  was both an asset and a liability. On one hand, these buyers have sustained the brand for decades, on the other hand, the types of vehicles coveted by that demographic were largely unappealing to mainstream US buyers.

This is a familiar dilemma for many foreign automakers, especially small ones like Fuji Heavy Industries, which owns and produces Subarus. Expanding to foreign markets is a difficult endeavor and one way to minimize risk and cost is to export domestic market products with as few changes as possible. That approach is particularly prevalent in capital intensive industries such as automotive manufacturing. For reference, Subaru’s Japanese competitors all started its sales operations in the US by exporting Japanese market models. While global automotive tastes are slowly becoming more homogenous, there are still strong regional preferences that prevent models that do well in one market from achieving similar success elsewhere. 

Courtesey of SubaruForester.org

With this in mind, Subaru realized that it needed to de-emphasize its Japanese roots and customize its offering to the US market. The company was able to do this somewhat easily since it has been building  vehicles in the US for decades.  A prime example of Subaru’s success has been the Outback.  This model has been sold in the US for many years, largely unchanged from its Japanese twin. In essence, the Outback has always been an all-wheel-drive station wagon. Station wagons have limited market appeal in the US, where customers favor higher-riding SUVs and cross-overs.  Instead of abandoning the Outback name and goodwill, the company instead morphed the product into a cross-over that still resembles a wagon but with a higher ride height. The company took the same approach with its very popular Forrester model. It capitalized on the name and basically copied the cross-overs from Honda and Toyota to arrive at its bestselling model. Overall, Subaru has enjoyed a 34% sales increase in May 2013.

Instead of struggling in the US market as other, smaller Japanese auto manufacturers Suzuki and Mitsubishi have, Subaru is thriving.  It’s a lesson that other manufacturers are following as well. As much as US car enthusiasts have praised BMWs over the years, selling European models only got the company so far. To drive sales, BMW capitalized on its brand, started producing vehicles in the US and expanded its product line to include models for US buyers, namely SUVs. Similarly, many manufacturers tweak their models for the Chinese market, with long wheelbase models.

Of course, brand expansion can easily lead to lead to oversaturation and a loss of core values.  This affects niche and luxury brands more than mainstream brands. However, for Subaru the danger is real. Now that many consumers embrace Subaru models as an alternative to other Asian brands, will the brand lose it core customer base? Most likely, they will lose that core customer base and its rapid expansion will more than make up for it.