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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. 

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

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.

GM Doubles Down on French Alliance Opel’s Future Uncertain

                    Courtesy PSA Peugeot Citroën

GM and PSA Peugeot Citroën unveiled more details regarding their alliance earlier this week.  With European car sales down for six years in a row and excess manufacturing capacity driving up costs, the two manufacturers hope to weather the storm through cost sharing. The two main components of the partnership are joint product development for small vehicles and joint purchasing.  

The product development initiative is focused on B and C segment vehicles; in particular, platform sharing. According the press release, the companies will use one platform for both small cars and cross overs. It appears that the two companies decided not to use any GM platforms for these models.  This part of the alliance seems heavily weighted towards PSA Peugeot Citroën.  In fact, one has to wonder what GM is contributing to this aspect. 

The other aspect of the alliance encompasses joint purchasing operations.  This will be set up as a separate organization, led by executives from both companies on a revolving basis.  By combining platforms and sharing parts, purchasing economies are expected to save $2 billion over five years.

When thinking of GM’s operations in Europe, it is important to understand that there are multiple, competing brands/business units at play.  Volume leaders in Europe for GM are Opel and Vauxhall.  In fact, GM’s European division is based in Rüsselsheim, Germany, which is Opel’s home. In addition, GM also sells Chevrolet, Cadillac and Corvette in Europe. 

Opel is a historically important brand in Germany. Although under GM ownership since 1929, throughout much of the 20^th century, Opel was thought of as a German brand in that country.  Many vehicles in the GM lineup have Opel underpinnings, including several current Buick and Vauxhall models.  Unfortunately, Opel sales have been sagging and the company has been losing money for GM for some time.  Highly publicized strikes by its unionized workforce and Germany’s interest in retaining as many jobs as possible fueled GM’s efforts to sell Opel prior to entering bankruptcy.

The Germans have viewed the partnership with PSA Peugeot Citroën somewhat skeptically. A possible reason is that the French government has a large stake in PSA Peugeot Citroën. However, looking beyond regional rivalries, it does appear as if GM is hedging its bets.  Perhaps GM views its alliance with PSA Peugeot Citroën as allowing it to stay relevant in the European market without Opel. Although both PSA Peugeot Citroën and GM have publicly expressed confidence that the alliance will not cause any job losses, GM announced that it will shutter an Opel plant two years earlier than expected. 

A once proud brand is running the risk of losing its engineering prowess by relying on rebadged Peugeots and Citroën as its volume leaders.  It’s not a stretch to imagine a time when those vehicles will be branded as Chevrolet or Cadillac and Opel will be sold.

Note to Daimler, Stop Producting smart

There is no denying that purchasing the smart brand of cars from the Swiss company that procuded Swatch watches has been an absolute disaster for Daimler. Few automotive brands have had so little success and survived. It is time for Daimler to stop keeping this brand afloat.  It has been time to dismantle or preferably sell the brand for some time now, yet Daimler smart keeps the brand on life support.

The idea was attractive in 1994 when Daimler (then Mercedes Benz) decided to acquire the company.  A fun, urban runabout that could be easily customized. In a sense, the car would be a fashion accessory – similar Swatch brand watches.  It was an ambitious project. The joint venture had a complicated management structure and planned to make the production a point of differentiation whereby suppliers would be largely responsible for designing major parts of the cars and would have to install the parts in the assembly plant. The initial hopes for a hybrid powertrain did not come to fruition due to the associated costs and complexity.  The projects’ cost overruns and internal squabbles resulted in the Germans taking complete control. By all accounts, the project has been a financial disaster and losses are estimated at over €100 million annually.  Models have been limited to mostly different versions of what is now called the Fortwo.  The cars never garnered enthusiasm in the marketplace or automotive press.  With fewer than 100,000 annual worldwide sales, smart remains a niche player.  Penske Automotive Group decided to sell its US  franchise back to Mercedes-Benz USA in February 2011.

Unfortunately, the brand soldiers on.  Ahead of the 2012 Paris Auto Show, the company released images of a new concept vehicle the forstars.  Clearly a concept car, it will be powered by the existing electric motor used in the fortwo.  If past history is any guide, Daimler will commit more resources in the forms of R&D and advertising to the brand in the hope of creating a profitable business.  Past history would also suggest this to be a futile effort.

 

                        Courtesy: Daimler Benz AG

 

 

 

 

 

 

 

Mercedes Shakes Up Compact Segment

Mercedes is a full-line manufacturer whose portfolio spans from large, commercial trucks to sub-compact city cars. In the US, Mercedes sells only a fraction of its global portfolio; mainly those models that fit the carefully crafted image of upscale luxury.  Products that don’t fit that image include commercial utility vehicles, trucks, minivans and subcompacts. 

One of those subcompacts, the A-Class, has been radically redesigned and was displayed at the Geneva Motor Show.  Unlike the prior version, which looked somewhat similar to the Mazda 5 (think small minivan), the new model morphed into a luxurious hot hatch. 

As Mercedes moves into this space, it will compete directly with Audi’s A3, BMW’s Mini and 1-Series. These models tend to be hatchbacks, including the BMW 1-series which is far more popular in hatchback variant than sedan, even though the sedan is the only available model in the US market. 

In the past, Mercedes has kept the A-Class from US shores, fearing that an odd-looking, tiny semi-minivan would hurt the brand. This was probably a good call.  The new A-Class, however, has been slated for the US market, which is good news for anyone who wants a stylish and sporty (looking) entry-level luxury car.

Personally, I think this is one of the best looking new models from Stuttgart in quite some time.  

 

 Courtesy of Daimler

 Courtesy of Daimler

P.S. Notice the lack of a physical gearshift on the center console. The rotary knob could either operate the COMMAND system, or the transmission or both.