AutoTidbits

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

 

 

 

 

 

 

 

US Auto Sales Rebound Despite Economic Uncertainty

US auto sales increased unexpectedly in June, leading analysts to project 2012 US sales of 14 million units.  Naturally, industry sales volumes are important to auto manufacturers, who rely on economies of scale to decrease production costs and increase their margins.  They also serve as an important barometer for consumer sentiment. Weak economic growth, Europe’s debt crisis and persistently high levels of employment could make June’s unexpected sales gain the anomaly for 2012. 

While a larger car market provides opportunities for manufacturers to increase sales, its how each company achieves those sales gains that will prove important to investors. For example, General Motors, which for many years prized market share above profitability, wants to retain its status as largest worldwide manufacturer, which could lead to repeating the strategy of “moving metal” through higher incentive spending.  May 2012 data suggests that this is a persistent problem for Chevy, which offered the highest average discount in June; amounting to 10.7% according to Edmunds.com. 

Who were the big winners in June? Not surprisingly, Japanese companies Toyota and Honda saw the largest sales gains for the month. Much of this has been attributed to recovering inventories following last year’s constrained supply.  Perhaps the most interesting aspect of June’s sales data is that almost everyone benefitted.  Jaguar and Mitsubishi were the only brands with sales declines. 

BMW sales were almost flat. Sales of the company’s volume model, the 3-Series, were down 26% compared to June 2011. BMW will depend on broader availability of the new 3-Series, coupled with a more attractive model-mix to halt these sales declines.

 

Tesla Model S

I had the pleasure recently of visiting a Tesla Motors showroom. It was clear before entering that I was a tourist in this environment. The sales staff, while polite, didn’t seriously engage me and I was very self-conscious of the fact that my median income didn’t entitle me to be there.

Having spent more time on dealer lots than most, I am used to kicking tires and test driving vehicles for fun. This was not the case here. I used the term showroom to clearly identify this as a room meant to show off their cars. There was no dealer lot. There was no service center and there were no acres of pavement packed with vehicles looking for a new home. Instead, this was a fairly small store-front in a ritzy suburban Chicago mall that had one Tesla Roadster and one Tesla Model S.

Nevertheless, I soldiered on, excited to be around these interesting vehicles. One salesperson took pity on me and let me sit in the Model S.  Presumably, it was easy to justify after letting a potential customer’s two kids play in the car for ten minutes. They had a great time climbing through the thing, from the front seats, past the large back bench and into the hatch-like trunk. 

Once I got my chance, I was immediately struck by the car’s enormous center-stack display. Picture a screen larger than an iPad mounted where the radio and A/C controls should go.  The 17” touch screen controls said functions, in addition to navigation, internet and other vehicle controls. I had to make a conscious effort to focus on the remainder of the interior, which is nicely designed and quite comfortable.  In addition to the large center display, the cockpit also includes smaller LCDs instead of traditional gauges to show vehicle speed and

The exterior of the vehicle is quite handsome, in a modern Jaguar sense. This is true especially from the back, where the raised rear glass and modern lines create a decidedly European fast back look.   

 

Ford Partners with State Farm for Usage-Based Insurance

Ford Motor Company is partnering with State Farm insurance to provide driving data of Ford customers.  The goal is to verify which drivers are low-mileage customers and to reduce their insurance rates.   In this case, low-mileage translates into less than 1,000 miles driven per month. 

It is logical to assume that those who spend less time exposing themselves to the dangers of public roads will also have fewer insurance claims. In a sense, this is an even tradeoff. The insurance company verifies that the policy holder does not drive much and in return provides a discount. Ford’s financial stake in this arrangement has not been disclosed.

State Farm is not the first insurance company to tap into vehicle data to monitor policyholders. Progressive Insurance offers a similar service. Instead of tying themselves to a singular make, the company sends enrollees a device that plugs into the car’s OBD II sensor. The device, termed “Snapshot”, monitors driving habits for an initial 30-day period. This baseline assessment is used to adjust the driver’s insurance rate, which the company claims will not be increased due to poor driving habits. After six months, drivers send the device back to Progressive and stay at their current rate.  Information collected by Snapshot includes vehicle speed, time of day and distance drive. The company provides discounts to drivers who don’t drive at night, brake slowly and drive fewer miles.

According to Ford’s press release, State Farm will only collect the actual mileage driven by its members. One does wonder if there might be additional information that the insurance carrier could utilize to set insurance premiums. Location information, coupled with speed data, would make an excellent variable in setting rates. As would seat belt usage.  Presumably, the driving public would have to be informed of such data gathering practices. Then again, this appears to be a partnership between two corporate entities with the drivers as third-party beneficiaries.

This leads to an interesting question: “Who owns my driving data?”  Most automobiles for sale in the US already include Event Data Recorders (EDR). These devices collect all sorts of good data that can be used by police and insurance companies in analyzing car crashes.  Thus far, auto manufacturers have been quietly collecting the data without disclosing it to third parties. Read your car insurance contract closely, because according to the Insurance Institute for Highway Safety, only few states prevent insurance companies from requiring policy holders to provide access to this data.

Fast & Quiet

Notice the lack of a tailpipe.

Ford Reveals Cost of Batteries

    Courtesy Ford Motor Company

It has long been speculated that the cost of the battery packs which power electric vehicles and hybrid vehicles are so high that manufacturers sell the end product at a loss. The theoretical justification for that approach is that auto makers are investing in future technologies that will set them apart from the competition. As they ramp up production, economies of scale will reduce prices over time, resulting in decreased production costs and eventual profits. This has all been speculation, since the actual cost of a battery pack has not been publicly disclosed.

Given that different cars have different batteries , a common way of measuring cost and capacity across platforms is on a per kilowatt hour (kWh) basis.  For example, a Tesla Roadster, which is purely electric, has a 56 kWh battery.  The all-electric Nissan Leaf has a 24 kWh battery while the current Toyota Prius has a 1.4 kWh battery (note: hybrids require less battery capacity than pure electrics since the battery supplements the internal combustion engine).

Of course, the battery type is also important. Current hybrids and electric vehicles use one of two technologies: nickel-metal hydride (NiMH) or lithium-ion.  NiMH batteries are an older technology that is cheaper, heavier and has less capacity compared to lithium-ion. Hybrids tend to use the former and pure electric vehicles the latter.

How does that relate to cost? Simply put hybrids that use NiMH batteries, can be sold at much lower costs because those batteries are fairly small and cheap. Witness the advent of the Prius c which starts at $18,950.  Pure electric vehicles vehicles are much more expensive to produce. Not only do they need lithium-ion batteries for their additional capacity and lower weight, they need more of them since they forego a traditional engine. That's why the Nissan Leaf costs $35,000 before tax credit.

Just how expensive are these lithium-ion batteries? Ford's Alan Mulally recently gave a range of approximately $600/kWh, as reported by the Wall Street Journal. For the 2012 Ford Focus Electric, that translates into $12,000 to $15,000 for the battery alone, which explains the $40,000 price tag.

Ford put together an interesting fact sheet that compares the various technologies used in its electric vehicles.

Lincoln Tries Again

Much has been written about Ford's fruitless attempts over the last two decades to create a sustainable and sufficiently differentiated Lincoln brand. Hundreds of millions of dollars were spent, with little return. In 2011 Ford decided to give it another shot, as discussed in my earlier post here. 

The fruits of Lincoln's labor are displayed in the 2013 Lincoln MKZ, which was introduced prior to the New York Auto Show.  Those 180 Lincoln designers went to great lengths to give this Lincoln its own design so as to minimize the cross shopping between the MKZ and Ford Fusion.  For the most part they seem to have succeeded.  The family resemblance has been blurred to the point that it might not be obvious to potential buyers. The car's best angle is from the back, which highlights the trunk-lid spoiler lip and horizontal brake lights. The side and back views also distract from Lincoln's grille. Ostensibly, the "waterfall" grille design element has been retired. Unfortunately, it's been replaced by a design that's hardly more attractive. Lincoln and Acura designers seem to be having problems in this arena.

Luckily, the Lincoln designers did a better job on the MKZ's interior, which has been upgraded with high-quality leather, aluminum and wood trim.  The standard features hope to underscore the premium aspect of the vehicle. The car will arrive in dealerships with MyLincoln Touch, which has a 10 inch screen and 11 speakers (upgradeable to 14 with the optional THX certified system). For enhanced driving dynamics, the car will have driver selectable modes that control electronic dampers, throttle mapping and steering effort and shift patterns. A full array of safety technology is available as well, including lane departure warning, adaptive cruise control, brake assist and driver fatigue alerts.

Like the Fusion, the MKZ will be available with three power trains, including a hybrid version and all wheel drive. Pricing has not yet been announced. Whether the market will embrace the expected premium price tag for the MKZ remains to be seen.

                 Image Courtesy of Lincoln.

                      Image Courtesy of Lincoln.

                      Image Courtesy of Lincoln.

Toyota to Increase Production of RAV4

DETROIT -- Toyota Motor Corp.'s Canadian unit said today it will make an $80 million investment in its Woodstock, Ontario, assembly plant to increase RAV4 production from 150,000 vehicles to 200,000 vehicles annually.

via www.autonews.com

This was a surprising announcement. The current mode is the third generation of the RAV4 and has been on sale since 2006.  2011 US sales decreased by 23% due to a slew of new competing models, including the brand new Honda CR-V, Chevy Equinox, Dodge Journey and the 2013 Ford Escape. 

While Toyota did not offer a re-designed model, the company has decided to upgrade the RAV4 entertainment system. Standard for 2012, it will offer hands-free calling and audio streaming via Bluetooth. In addition, Toyota's Entune system will be offered as an option.

2012 is rumored to be the last model year of this generation RAV4. By investing in the current production plant, Toyota might gain the ability to continue production while upgrading the machinery for the new model.

Imported from Detroit

I am a big fan not only of Chrysler's resurgence under Fiat CEO Sergio Marchione, but also of the accompanying advertising campaign Imported from Detroit. The campaign, like the cars, is bold and well crafted. They add a swagger that was missing for some time.

The media campaign has been well received and apart from a brief political fallout from the perceived pro Obama bias of the 2012 Super Bowl ad, and has succeeded in differentiating Chrysler from its competition.  

The Imported from Detroit commercials are so popular that a Detroit clothing maker named Pure Detroit capitalized on the slogan and started selling merchandise with that moniker. Naturally, Chrysler saw this as a threat to their brand and filed suit to stop the sales. Pure Detroit counter sued and now both parties have agreed to mediate the conflict.

This type of legal action is hardly unusual.  The usual justification for said action is brand protection. While that is true in this case as well, it should be noted that Chrysler is trying to generate revenue from clothing sales using the slogan as well. The company has its own competing website which offers Detroit-themed clothing and accessories while also providing a share of the revenue to local charities. Pure Detroit offers a greater assortment of articles that Chrysler does, including vintage ware with competitor's logos.  

Guys, you can demonstrate your love of the American automobile and of your significant other by indulging in some genuine "Detroit is for Lovers" ladies underwear.

Below is another excellent Chrysler commercial.