FIAT voluntas tua…

Exiting the bankruptcy, reopening factories, getting rid of 789 U.S. Dealerships, being welcomed into the FIAT family. What a great day for Chrysler. Or is it?

There have been excitement and high expectations about what would FIAT’s technologies and their implementations do with Chrysler’s model line-up and general well-being. The focus is on small cars, diesel and petrol engines using turbocharging or supercharging technologies, the latest mantra for power-hungry enthusiasts.

FIAT (and Lancia) left American market in 1984, Alfa Romeo made an exit 1995. The North American notion of FIAT remains associated with Italy’s sports car tradition and design. Then there’s the small car heritage triggered by the Cinquencento, Fiat 500, now represented by the it’s new reincarnation, the new 500 which, while incredibly cute, is also expensive and impractical, very much as the BMW’s Mini, clearly aiming at image-sensitive urbanites. And then there’s Ferrari…

However, having an image and the technology doesn’t necessarily mean that their realization and implementation will work. In case of FIAT, it doesn’t.

Despite recent improvements, FIAT struggles with quality and reliability, as much as Chrysler does. The latest JD Power and Associates 2009 UK Vehicle Ownership Satisfaction Study ranked FIAT 29^th out of 29 brands (101 models were evaluated).

Chrysler ended up 28^th. JD Power’s customer satisfaction studies are deeply flawed as they rely solely on customer’s subjective perception and rather unmeasurable evaluation attitudes. For example, a car owner who expected their car to break down 10 times during the first two years of ownership will be a satisfied one since if the car only broke 7 times. This is further underlined by the fact that Vehicle Appeal constitutes 37% of the overall score while Quality and Reliability make up only 24%. JD Power’s survey is based on mere 15,700 online interviews averaging about 155 responses per a model.

This is in sharp contrast with the traditional annual report conducted by the German industrial audit body TÜV and car magazine Auto Bild. The 2009 report was based on 7.7 million standardized tests. Only models with at least 10,000 tests were included in the result. Average mileage is also taken into the account.

What does it have to with FIAT and Chrysler? Despite radically different and significantly more relevant and scientific method, the best FIAT group’s car in the 2-3 years-old category is the Panda on the 90^th place. The sole Chrysler included in the report is the PT Cruiser on 115^th place.

Hardly a match made in heaven. In the takeover, FIAT may have an upper hand thanks to better technology and more money. But in the automotive world, success always comes down to the product lineup, it’s quality and reliability which, at the moment, neither FIAT nor Chrysler can offer. Adding rather peculiar US customer into the equation makes the whole FIAT-Chrysler marriage look like the world’s greatest automotive adventure. As they say, fiat voluntas tua…. thy will be done….

Imports in different ways

Every so often a half-witted twit or a support seeking politician, categories which are not mutually exclusive, boldly steps out of the mind-capsule and starts to preach about how imports are to blame for the decline and fall of the US automotive industry. Or declares war on current “imports” and urges, under threat of dismissal from the job, employees to Buy American, as Jim Fouts, mayor of Warren, Michigan, did.

The problem with Mr Mayor’s idea is the definition of what an American car actually is. Take a Pontiac Vibe and a Toyota Matrix. These cars are siblings, products of an unholy alliance between former and current world No. 1 car manufacturer. It would be interesting to see what would happen if a daredevil city employee bought a Saturn Astra. The brand is American, but the car is, let’s face it, a German Opel Astra, or, for those missing colonial ties and times, a British Vauxhall Astra. There are few European Chevrolet sourced cars in the US, not to speak about Korean based Chevrolets and Pontiacs. A Mazda Tribute is a badge engineered Ford Escape, in other words, that particular Mazda model is exactly as American as the Ford’s car sans the brand sign. There was a time when a Ford Probe was a Mazda MX-6 with a Ford’s body and, well, quality control…

Unions have a long history of bashing, often literally, imports and latest round of negotiations with General Motors didn’t really buck the trend. Although this time it was about GM’s own imports. As a way to streamline operations, the US manufacturer plans to increase imports of its own cars from China, South Korea and Mexico. This outlook didn’t mix well with the proposal to cut 21,000 jobs in the US. But lets do the math. According to Automotive News, quoting Jato Dynamics, in 2006, of over 4 million cars sold in the US, GM imported 23%, about 1 million, out of which 618,912 cars and trucks rolled from Canada and 214,096 cars and trucks from Mexico. In 2014, GM plans to sell 3+ million vehicles on the home soil. 51,000 will be imported from China, 501,000 from Mexico, 157,000 from South Korea and 330,600 from Canada. That’s 1,040,100 vehicles.

Speaking of Canada. Former CAW boss Buzz Hargrove can’t pass by a microphone without uttering a rant against bad bad bad imports, but that’s already well documented phenomenon. Here’s the news. Canadian Automobile Dealers Association (CADA) went on a crusade recently against, wait for it, right hand drive vehicles (RHD). Now, Canada is the last place one would expect to have a problem with RHD imports. RHD in Canada? Like, how? And, more importantly, like, why? Canada’s market is about the size of California’s. Size wise. Although that’s subject to discussion, because Canada minus oil riggers and hockey players equals Vatican so, as a consequence, Canadian fast and furious community lusting for JDM only (Japan Domestic Market) sports cars is too small to drive the demand for RHD.

But, apparently it exists. Despite and because of Canada’s ridiculous import restrictions. Even importing a car from the US is a chore. Imports from Europe and Japan are practically impossible. However, cars older than 15 years can be imported without complying with the Canadian “motor vehicle safety standards” which roughly translates as ‘are exempt from import restrictions’. According to CADA estimates, more than 13,500 exempted vehicles were imported in 2007. Out of them, 1,934 were likely RHD, up from 1,230 in 2006. British Columbia estimates that 100-200 RHD cars are registered in the province every month, probably due to large Asian community.

It is hard to imagine that these are all collectors’ cars from pre-war continental Europe or Blighty. CADA claims that most of them are 15-16 year old sedans, minivans and SUV.

It’s understandable that in these times CADA is fighting for every possible car sale but fighting the RHD issue on safety standard grounds is just too simplistic and too insincere. Any new car brought in from Europe would be just as safe as any car sold and bought in Canada, especially those models that sell both in Europe and North America. Which is yet another point why Canada and US should adopt international vehicle standards and stop this protectionist nonsense. Of course, CADA is not calling for rewriting Canadian import laws to allow modern and safe LHD imports.

Back in RHD-car-in-LHD-country world, driving a car with a steering wheel on the wrong side of the car is no big deal. On a highway, it makes no difference. In the city, apart from few very specific situation, it makes no difference. And overtaking on rural roads is not an issue as these are empty in Canada.

Scrap ’em all

With most attention turned to General Motors and Chrysler respective falls, and the unions, new car dealers fell to obscurity, at least in the mainstream media. Canadian dealers struggle with the credit, or lack of thereof, as the banks are not very keen on financing the shop window of a failing industry. A side but important note: the current situation is not specific to the Detroit manufacturers’ dealers. “Despite record-low interest rate reductions from Bank of Canada, commercial banks have not been open for business for months for our dealers. Thais is not acceptable or sustainable,” said Bill Taylor, the chairman of Canadian Automobile Dealers Association (CADA).

Canadian dealers are now pushing Ottawa to introduce national scrappage program. To be more specific, a program that would actually work because the current fleet-renewal incentive worth $300 will not make a difference. There is still a market for old bangers so why would anyone give up one for $300 if they could sell it for $400. Not to speak that one doesn’t have to spend $300 towards a new car.

CADA is looking for a $3,000 per scrapped car program, which is comparable to incentives run by several European Union member states. CADA made actually a very good case presenting detailed outlines of EU scrappage plans. These all worked, with German and Slovak programs being particularly successful. CADA hopes that the available credit combined with scrappage incentives will revive automotive retail trade. There are 6.8 million cars older than 10 years in Canada, 2.8 million are older than 15 years so there’s plenty of room for renewal.

It remains to be seen what will be the federal government’s response. Ottawa has already provided loans (bailout) to the Detroit manufacturers operations in Canada and it may look as it already did its share. However, it’s questionable to input money into manufacturing when the second piece in the chain, the dealers, have no resources available to buy what’s manufactured, and the third piece, consumers, are thinking twice whether to buy a new car. What dealers are asking for is the environment that will allow that often trumpet and much touted concept of “keep the money flowing in times of crises” actually work.

F1 China GP summary – Wettel

Wettel… Red Bull driver Sebastian Vettel found the impossible level of grip at the rain soaked Shanghai circuit.

Unholy CAW

Unions have become an easy target for those looking for who to blame for the quagmire US automakers ended up in. Some say that Detroit Three have become major pension funds with car making as a side business. Sure, to the most of the automotive world, most of US cars indeed do look and drive as if a bunch of accountants designed them, but that’s not the point.

Both UAW and CAW has been through series of tough negotiations with the Detroit Three during past year or so in a desperate bid to lower the overall costs of running the companies. Hard times didn’t stop Buzz Hargrove, now former CAW leader, to humour members of the general public with claims that it’s the imports that were killing car manufacturing in North America, a state of the affairs for which he blamed the respective governments.

The results achieved in the talks looked good at the time, but with GM on it’s way to Chapter 11 and some serious restructuring being worked out to save what there’s to save, and Chrysler looking half-doomed, calls for even more union concessions intensified. Canadian Industry Minister Tony Clement had to say just few key words to get the message across, such as April 30, taxpayer money and “I cannot do that”.

The warning came essentially only few hours after Fiat, generally regarded as the one and only possible salvation force, said it would walk off the taking over Chrysler if the labour costs in Canada are not slashed to $19. What Clement called a “logical position”, current CAW leader Ken Lewenza deemed “unreasonable” and said it was not going to happen. Buzz Hargrove had something to say, too. He trashed Fiat’s CEO Sergio Marchionne and said something along the line that CAW negotiated costs are already lower than costs of Japanese car makers’ operations in Canada because Japanese manufacturers’ costs are higher in Japan. If you think that doesn’t make sense, Mr. Hargrove failed to realize, among other things, that FIAT is not about to take over Honda nor does the Toyota’s fate depend on Italian investment.

Chrysler tried to blackmail Ottawa and conditioned keeping its Canadian operations alive with a bailout. CAW’s stance is similarly arrogant, the only difference is they have nothing to win and nothing to offer. CAW can only lose. Slashing costs and keeping what’s left of Chrysler running is the highest price they can get. Fiat can act from the position of powerful. CAW cannot.

Are the IIHS and the NHTSA killing US car industry?

America has rather peculiar approach to the car safety. Chrysler Imperial was the first mass produced car with the so-called Sure Brake system that was essentially an early take on anti-lock brakes derived from similar equipment found on aircraft. That was in the early 70s. Fast forward to late 2000s and you find Chrysler’s flagship, the 300, offered without ABS at the basic trim level. Halogen headlamps were long illegal but HID lamps do not have to have self-levelling system installed so they’re free to dazzle oncoming traffic. Degree of safety has been proportional to the price of the car which resulted in the notion of safety being a privilege, not the right.

But if that can be put down to oh-so-loved free market, the following cannot. Car safety regulations in the US are effectively controlled by car manufacturers (NHTSA) and insurance companies (IIHS).

The former is a federal authority, nevertheless the only apparent reason behind its existence is protection of the domestic car industry setting standards that are different from the rest of the world. Not to speak about the cost-benefit ratio used to justify why NOT to introduce a particular safety feature. Or any other advancement. In other words, saving lives and making driving safer is not as important as saving money. Even CAFE (fuel efficiency standards) are designed with Detroit in mind as it effectively takes SUVs out of the equation.

The IIHS serves the insurance companies and, as the April 14 report proved rather conclusively, domestic car manufacturers. The IIHS is known for devising weird (premium-friendly) standards but the latest really went too far. IIHS pitched mid-size cars such as Mercedes C-class, Toyota Camry and Honda Accord (in US specs, Euro-Accord is actually a Acura TSX) against Toyota Yaris, Honda Fit (aka Jazz) and Smart ForTwo – in a frontal crash.

The obvious and much trumped conclusion was that size and weight do matter. Aside from the fact that the tests had very little to do with real world, it’s the selection of small cars that is most suspicious. All are imports. There is no subcompact or compact car made by a US manufacturers. Detroit, of course, relies on SUVs and full-sized cars and has no cars that would be able to compete with Fit or Yaris. Ford’s Fiesta, which is based on Mazda2, still undergoes US testing, and small US cars are just laughable. The IIHS then tried to wrap all up into the fuel economy packaging by saying that small cars aren’t really that efficient and suggested a diesel VW Jetta…

IIHS test does nothing to promote road safety or the fuel economy. It only fosters the the-larger-the-safer myth, that was proven to be wrong by 2003 Transportation Research Board study that concluded the following – “average midsize and large cars have same risk to drivers as average SUV, that safest subcompact and compact cars have same risk to driver as average SUV, that pickups and SUVs (and minivans) impose high risks on other drivers because of their incompatibility with cars, and that average subcompact and compact cars have similar combined risk as average SUV. It’s all down to the fact that although heavy cars do generate more kinetic energy that can be fatal (to both involved parties) they also require more energy to stop and to maneuver which makes them more prone to be involved in an accident.

If both the IIHS and the NHTSA want to help US manufacturers, they should focus on scrapping insensible US regulations in favour of international ECE standards that are proven to lead to greater road safety. But to adopt a US point of view, saving money, ECE would allow Detroit to decrease cost of new cars development. Both GM and Ford have cars capable of competing with overseas manufacturers. But they have them in Europe and can’t import them because of the protectionist system they helped to create.

GM needs stability of being bankrupt

Bell tolls for General Motors. The company is burning cash at an alarming rate, $5.9 billion in Q4, $19.2 billion in 2008. GM has already received $13 billion from the US Government, it wants another $17 billion, but the survival plan the loan is based on is, in turn, based on sales. However, while all major car manufacturers’ sales suffered in February, GM was the only company that saw more than 50% drop, 52.9% to be precise, even when adjusted for less selling days in February 2009 (24 vs 25).

GM is doing so badly that nothing can really hurt it more. Well, one thing can. The uncertainty if or when it will file for Chapter 11.

The case for bankruptcy grew stronger on Thursday after GM released the report made by auditors from Delloite & Touche who expressed their “substantial doubts” whether the manufacturer can sustain its operations. GM is offloading everything it can, Saab and Opel, for example, but the speed of its actions points to panic. Which is very catchy these days and the fact is that most of plans to sack tens of thousand of people coined overnight are not plans. They are emotional reactions. And when emotions prevail, it’s no longer only about money, investments, markets and bailouts. That’s why it’s necessary to calm things down.

Which, for GM, means bankruptcy. Sure, it will mean rock bottom, but at least it will be a solid one.

Steve Jobs could save Detroit. Does he want to?

Steve Jobs’s return to the helm of Apple was nothing short of spectacular. The company was on the brink of collapse. Although the product lineup was not that bad it didn’t really appeal to the general public and even creative professionals, traditional and traditionally loyal Apple customers were considering leaving the Mac camp. Today, Apple’s products are the most copied in the industry and beyond; an iMac G3 like iron, anyone? Every so often a iPod/iPhone/iMac etc. killer appears only to become either an also-ran or, worse, a spectacular failure.

The situation Apple folks found themselves in the mid 90s is more than similar to the dire straits the Detroit Three find themselves in now. Following the firing of Jobs, Apple was poorly managed and almost didn’t survive the onslaught of the Wintel platform although at the beginning of the 1980s it was on its way to dominance.

Detroit used to dominate America and the Big 3 moniker was well substantiated. Then came the years of mismanagement, dubious product line-ups, new technology was well, there wasn’t anything new or revolutionary implemented for years, take multivalve engines as an example,… and quality went south. Also, the Detroit wasn’t really making cars, as BBC’s Jeremy Clarkson said, it was a pension fund with car making as a side business.

If the history doesn’t repeat itself, it surely does rhyme in these two cases. So it’s not really surprising that from time to time there’s voice coming up suggesting that Washington should deploy Steve Jobs to get Detroit out of its quagmire. Those suggestions always alarm all car fans in America – obvious cars vs. computers jokes are fired, opinions suggesting that Jobs’s cars would be expensive, made in China, run only on 5-7% of the roads etc. are voiced. Apparently, Jobs knows nothing about car making.

But does any of the current Detroit CEOs knows more about how to make, sell and market cars? Judging by the results and financial situation of GM and Chrysler, not really. Ford is doing a little bit better and doesn’t fight for mere survival, but it’s far from being safe. With Chrysler almost dead, let’s focus on GM.

It’s product lineup is abysmal, there are too many duplicates, too many brands, too many options. Technology is dated (hybrids do attract attention, but they are too marginal or too far away), degree of sophistication low, and although there are some flashy products such as sports versions of Cadillac models, they’re not going to generate necessary sale levels. By the way, Cadillac used to be a luxury brand while Pontiac was supposed to be more of a sporty brand. But there was also a Chevy Corvette…. So why there are suddenly Cadillacs targetting BMW’s M-series cars while Pontiac is about to become a niche brand. Saturn, a poor-man’s GM, was supposed to be saved by rebranded European Opels, which A) had almost premium feel to traditional GM brands and thus B) were too expensive and not just for the budget brand.

Detroit has been sinking for few years now and if it hadn’t been for the buy-domestic patriotism of the American public it could have been much worse. Yet nobody in Detroit had the will to change anything. Streamlining lineups and improving quality wasn’t on cards either. It’s so bad that Japanese cars manufactured in the U.S. or Canada can be made to lower standards than comparable models for the Japanese domestic market or Europe. To see what I mean try Canada-made Corolla or Civic and then compare them to Japanese European offerings. US Corollas’ interior could compete with Romanian Dacias (now owned by Renault). The look and feel is very cheap. But they still feel better and better made than US cars. Europe’s Honda Accord is sold as an upmarket Accura in North America. American Accord is, well, questionable.

All these issues, in their computing incarnations, had to be addressed by Jobs upon his return to Apple. But he did not hesitate to fire useless staff and cancel products that nobody bother to look at let alone buy. Mind, Apple was HIS company. Doing the same thing for a bunch of car manufacturers without the emotional ballast would be a piece of cake, wouldn’t it.

The question is whether Jobs would be willing to accept the post of the Car Czar. Not likely. And not because of his health problems. No doubt he would turn Detroit into a prosperous company – even if he had to do it via cooperation with Toyota (think Microsoft Office for Mac). But he would be the most hated human being in the US, because pushrod and carburetor mythologies die hard. Car manufacturing in America is different.

The thing is that people at Apple trusted Jobs, his technological and marketing visions and plans. Call it blind faith, but it paid off. It’s not that Jobs doesn’t understand Detroit. I bet he does. He drives a Mercedes although he should considered rotary-engined Mazda RX-8, as a think-different statement. The problem is that Detroit wouldn’t understand Jobs. It lacks the capability and will to understand. If it didn’t, there would be no need to consider Jobs for a job in the Motor City.

FIAT voluntas tua

Rover, now a defunct British car manufacturer, was known as an English patient. Chrysler is on its way to be come an American one. The smallest of the Detroit 3 was bailed out in 1979, tried an alliance with Mitsubishi, bought several small European manufacturers such as Rootes and Simca…. and sold them away. In 1998, Chrysler merged with Daimler, to be more precise, it was taken over by the German manufacturer. The marriage felt apart and Daimler sold 80% to Cerberus, a private equity group. The troubled manufacturer then entered into the partnership with Nissan in an attempt to gain access to small and fuel efficient vehicles. Sale of its Jeep division and even merger with General Motors were also on cards.

Finally, Fiat got the scoop. The Italian manufacturer will get a 35% stake in Chrysler and there’s an option for another 20. The deal, however, seems to be rather unbalanced in practical terms. Yes, Fiat will have a share in one of the Detroit 3, essentially for free, but given the fact that Chrysler has been in an automotive hospice for some time now, it doesn’t seem like much. Fiat’s Alfa Romeo has been contemplating return to the US but Alfa is a niche brand. Return of Fiat itself would make little sense given the huge slowdown of the US car market. Even if Fiat’s small cars could have appeal, Asian manufacturers and even Ford and GM are much better positioned as both can rely on its European operations. VW is bringing Polo stateside.

It’s Chrysler that’s apparently going to benefit – it will gain access to Fiat engines, it’s dealer networks and markets, although the question is is, who would be interested in Chrysler/Dodge/Jeep cars. Most crucially, Chrysler gains backing in its bid for the government bailout as it asked for $7 billion and got only $4, and Fiat’s support and expertise in restructuralization. There’s also a usual business of platform sharing too.

How will Fiat and Chrysler partnership work? For start, there are quality and reliability issues. In the German Auto Bildt TUV’s 2009 reliability report based on inspection of more than seven million cars (at least 10,000 of each model), in the 2-3 year-old category, the best Fiat car (Panda) ended up on 90th place, Chrysler PT Cruiser on 115th. And it’s not that the survey is biased to favour German manufacturers, the Top 11 features 7 Japanese cars, two are directly derived from a Japanese car and the other two are Porsches. At the moment, the deal makes more sense for Chrysler than Fiat. In the long term, it doesn’t make sense at all. Fiat voluntas tua. Thy will be done…

Detroit Electric City

Detroit is interesting in many ways. For a start, the city has kept it’s French name, although the pronunciation was heavily anglicized. Playing on the mythology of the French-US antagonism, it’s ironic that symbol of American automotive industry, famous for it’s huge, sometimes innovative and not very reliable cars was, sports a bit of Frenchness, bit of a country famous for it’s small, sometimes innovative and not very reliable cars.

Detroit, the motor town, was home of Motown Records, which was a company that, in the 60s and the 70s, mainstreamed what was traditionally a black music, soul, funk, rhythm and blues. These genres relied heavily on electric bass lines and later reinvented themselves in forms of disco, rap and hip hop, that relied on heavy use of electronic instruments.

It worked.

Motoring Detroit is trying to reinvent itself in a similar fashion. I’m using the word ‘fashion’ on purpose because what is going on in Detroit is a desperate damage-limitation exercise both public relation- and production-wise.

Detroit motor show is full of electric this and electric that. The atmosphere of impending doom is charged with electric concepts that are supposed to be a green alternative to gas-powered cars. The alternative that is, at best, greenish. Not so long ago, ethanol was hailed as the green fuel but the only green thing about it was what it was made from – crops. The problem with electric powered cars is that they’re not really green. Yes, plugging it in and recharging overnight sounds great and there’s no CO2 emissions coming out from the exhaust pipe. But the electricity needs to be produced first and burning coal and natural gas isn’t really emission-free. And the batteries used in hybrids aren’t cheap to make either.

Most of the concepts are exactly that, concepts, not expected to hit showrooms any time soon. Their only purpose is to show that the Detroit Three are doing something to justify the bailout. In this way, no matter how subdued, low profile or electric Detroit 2009 is, it’s the same old Detroit of the yesteryear. Showing off without much substance and no real plan. Just hastily trying to patch things up.