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….

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.

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…

Veni, vidi, … icy

It was supposed to be so simple. Let’s fly off to Washington, go to Senate, paint the grimmest picture we can and then get back to our private corporate jets with some taxpayers’ bailout cash. But the US senators were less than impressed with the performance of the Detroit Three CEOs. The problem was that Messrs. Nardelli, Wagoner and Mulally came to moan instead to discuss the problem and possible solutions.

The Senate did the only responsible thing. “Until they show us a plan, we can’t show them the money,” said the Senate speaker Nancy Pelosi (Democrat). These were harsh words and they came from the party that actually supports the bailout. However, the Senate’s stance is not straightforward. Pelosi actually stole the thunder of a bi-partisan group of Senators who came up with a compromise plan by holding a press-conference just before they were supposed to hold theirs. Still, the compromise plan wasn’t really concrete in terms of outlining conditions under which the loan would be provided.

Detroit Three CEOs are supposed to be back in Washington on December 2. The bailout was put on ice. Literally.

Naturally, Detroit said it would be more than happy to provide further details and come up with a plan. The question is why the Detroit Three didn’t come to Congress with one. Another thing, US car manufacturers were not really good in making plans. But it’s getting increasingly serious and the Detroit surely realizes that getting money this time will not be easy. Apparently, the Senate is willing to risk the future of the three automakers to force them, for once, to behave according to the circumstances.

The latest development continues to raise serious concern in Canada. September wholesale trade rebounded mainly due to increased performance of the automotive sector. The demise of the Detroit Three production plan could send Canada directly into depression.

There is a great deal of political will to help the Detroit Three which is, at the moment, the most important thing to bear in mind. But while the Detroit CEOs will be drawing out the plans, the Congress and the White House must decide where they’d take $25 billion Detroit’s asking for. From the $700 billion Wall Street package? Or will they dip further into taxpayers’ money?

(Written for World Business Press Online)

Detroit sinks further

The US Congress met on Monday to discuss the bail-out plan for the Detroit Three. The discussion stalled, which wasn’t surprising given the transitional period between the two US administration. In other words, given the fact that it’s a lame-duck Congress that’s trying to do “something”. Who supports the bailout and who doesn’t is little bit irrelevant now although, in general, it’s Democrats who are “for” and Republicans who are “not so sure”. There are, of course, exceptions in both camps. The problem seems to be that the members of Congress are not 100% sure how to do the bailout. And reward the spectacular failure.

The idea of bailout is not going down very well with European union and the Commission president, Jose Manuel Barroso said that the EU would be could raise the question at the World Trade Organization. Speaking of Europe, three credit insurance companies that control 80% of world’s credit insurance market and that happened to be European, Euler Hermes, Atradius and Coface, removed cover from General Motors and Ford suppliers. Financial Times reminded that same steps led to the demise of many other companies in Europe, manufacturers, suppliers and construction firms.

Meanwhile, Detroit is sinking deeper and deeper. General Motors is challenging Hollywood releasing two please-save-us videos on its YouTube channel warning about dire consequences the Detroit collapse would have on the US economy. GM is really in a position of a person with credit card debts twice the annual income who’s selling a microwave to get some extra cash. General Motors announced selling its remaining share in Suzuki for $230 million, which, at its current cash burning rate should prolong the agony by few days. As a small consolation, Opel/Vauxhall Insignia, the new flagship of GM’s European operation won the European Car of the Year title. The only question is why this car is not on sale in the USA either as a Saturn (it already sells re-badged Opels) or a Buick, as Insignia is marketed as Buick Regal in China. Getrag, transmission manufacturer, has filed for Chapter 11 after Chrysler pulled out from the joint project of dual-clutch factory.

To sum up, it is getting increasingly difficult for anyone covering events concerning the Detroit Three to find appropriate words. We are running out of the synonyms for “bad” and “very bad”.

(Written for World Business Press Online)

To B or not to B?

Pop into any discussion thread on any North America based automotive website these days and you will almost certainly come across a heated and very long debate centered around “to B. or not to B.” B, obviously, stands for bail-out.

The topic is huge in the United states, the home of the brave, etc. and the land of what used to be known as the Big Three. Chrysler was the main feature on the radar screens of those paying attention about two weeks ago, but since the merger talks with General Motors stalled, it was left out in the cold. To die, apparently. Now, all eyes are on General Motors that’s burning its cash resources faster than Saturn V launcher burned the fuel while propelling Apollo to the Moon. Most analyst agree that at this rate it will be over soon and the only way predictions differ is whether GM would last until Christmas or until the end of the year.

Some suggested that automakers should be included in the $700 billion Wall Street bail-out package but not many people in the current Bush’s and in the upcoming Obama’s administration are keen on the idea. However… House of Representatives’ speaker Nancy Pelosi, prompted by the fact that GM stocks fell on its 65-year low on Tuesday, called for a quick vote and bipartisan effort to save the US car industry. This may well be necessary since GM cannot wait until the transition of power is over (inauguration will take place on January 20) and Bush administration is basically a lame duck. Furthermore on the “however” note, various sources suggested that Obama administration will appoint a “car czar” to oversee any federal help to the Detroit Three.

North of The Border, home to many car assembly plants, Canadian government is said to be contemplating some form of “transformational” aid, but a bail-out is apparently not an option even though there are thousands jobs at stake in Ottawa and Quebec. Still, it’s nothing compared to several millions – estimates depend on who do you talk to. Speaking of Canada, former Canadian auto workers’ union boss Buzz Hargrove said (again) that the biggest long term problem are imports and the best long term solution is to do something about imports. Well, it’s 2008 not 1978 and this is still his way of thinking, that its a miracle the Detroit Three are still in the business of making cars. Another point, most of Hondas and Toyotas are not imports, they are made in the USA or in Canada, fact acknowledged by American-only Nascar that allowed Toyota to compete. Most damage was done by poor management and poor product line ups. They were loosing market share to Toyota and Honda before the credit crunch, ignoring what others didn’t.

Meanwhile, the “too big to fail” argument is fading away as it becomes clear that no matter what will happen (something will happen), the Detroit Three simply cannot emerge back in the same form and shape. And even most of those discussing the situation on automotive sites such as Autoblog or mainstream media sites (Globe & Mail) are against a direct bail-out. America had enough.

(Written for World Business Press Online)

Can it be any worse?

October’s new car sales numbers in the US are so bad that they do without lengthy comments. Any swear word would do and nobody would be bothered in the general weeping and gnashing of teeth. Car sales were down 34%, trucks plummeted 51%. US car manufacturers, the “Big 3”, took the hardest hit. General Motors led the slide after selling only 170,585 cars compared to the 310,008 in October 2007. That’s 45% drop and that before the seasonal adjustment to compensate for one more sales day in October 2008 (27 versus 26 days). Seasonal adjustment makes the result even worse at 47%. Ford was down 32.7% and Chrysler 37.4%. GM called it the worst sales month in the post World Word II era. All GM brands fell more than 40%.

Asian manufacturers took their share of double-digit beating too and Europeans followed. The only exception being Mini that posted 50.6% surge in sales. However, Mini targets a very specific segment of the market and is, in a way, more a fashion accessory than a car.

Manufacturers are trying to lure buyers with incentives and special sales offers and many people would like to be lured. The problem is that tighter loan rules, brought in by the credit crunch, put many potential buyers out of the market. GM’s financing company, GMCA, that pushed it’s credit requirements to above 700 FICO territory, and while it’s hard to quantify the effect of credit rating changes, the impact was most likely significant. By the way, GMAC may play a part in GM-Chrysler merger. GMCA majority owner, Cerberus, also owns Chrysler, that, meanwhile, suspended the talks with Renault.

Even zero per cent financing is often beyond limits, not to speak about the fact that people became more careful about their money. However, falling price of oil made up for a rather interesting act. With gallon back to $2.60 territory, Americans seem to revive their love for SUVs. It wasn’t enough to save the sales, even with the help of discounts (on average $6,000 per SUV/truck), but the trend was there, especially in the second half of October. Some habits are just hard to beat. Ford announced plans to re-hire workers for its F-150 truck plant. Some companies are bound to repeat their mistakes.

(Written for World Business Press Online)

US government bails out of GM Chrysler merger

Today’s understanding of free market capitalism apparently revolves around the idea that the bigger you are, the more funds you’re entitled to receive from the government. General Motors and Chrysler pushed the boundaries of this normal social conduct to the unheard of territory when they asked the US government to fund their merger.

What GM asked for was essentially federal funds to kill off Chrysler while Cerberus, Chrysler owners, asked for federal money to walk off without losses and the blame. Washington was put into a lose-lose situation with pretty much only one logical option left – they had to play the role of federal Pontius Pilate, wash their hands and leave GM and Cerberus to their own devices. The problem is there are none.

There seems to be the general consensus that the merger would mean axing almost entire Chrysler line-up in all divisions – Chrysler, Jeep and Dodge. That would in turn result in closing plants and massive layoffs. Then there are dealerships, parts manufacturers and pretty much everybody whose livelihood depends on car manufacturing. Even coffee shops and fast-food restaurants in areas around closed factories are going out of business.

Unless the US and global economies make a miraculous recovery in the next few month, US car manufacturers will have to downscale. Which is a process that’s already underway and is both irreversible and unavoidable no matter in what shape and form the help arrives. Even nationalization of Detroit (yes, it has been suggested) wouldn’t change a thing. It simply doesn’t make sense to manufacture cars that nobody would buy.

(Written for World Business Press Online)

Chrysler euthanasia sponsor wanted

Rumours surrounding merger between General Motors and Chrysler intensified after reports that both manufacturers asked US government for a special package to support the deal. The details as to how advanced are negotiations were ranging from “asked for” to reports that the US Treasury Department is already actively looking for the best way how to make the merger possible.

Whether GM and Chrysler asked for $5 or $10 billion is important only when related to a $25-billion loan for the Big 3 (or Big 2.8) already approved a signed few weeks ago. It went unnoticed at that time because it was first OKed amid discussion about a $750 billion Wall Street rescue package.

The important thing in the GM-Chrysler merger story is logic behind the idea.

A merger/takeover between two prosperous manufacturers, one big and one small, would make sense. A merger/takeover between a prosperous and a failing would make sense. But a merger between two companies on the verge of bankruptcy? Not so much. Governments do play their role in operations like this and it comes in many forms and shapes. A legislature tweak here, a tax relief there. All for the sake of national interests.

Of course, keeping about 70,000 Chrysler and 350,000 GM employees at work is important, but it’s extremely unlikely that they will all keep their jobs. Both Chrysler and GM (and Ford, for that matter) have announced massive job cuts in the past few weeks. Then there are the overlaps in their model line-ups. On Monday, Autoblog compared competing models and concluded that only 2 Chrysler models would survive the merger. Or, shall we say, euthanasia? Even if GM decided to axe more Chevrolet and less Chrysler models, it wouldn’t change much in terms of workforce losses.

At the moment, it looks as if GM were only after Chrysler’s cash because, frankly, there’s not much of anything else, and is seeking government’s (taxpayers’) money to offset expenses of effectively shutting Chrysler down. Chrysler itself has nothing to lose or gain. Meanwhile, Chrysler’s owner, Cerberus, is desperately trying to sell Chrysler while there’s still something to be sold. Last week, Daimler, previous owner of Chrysler, declared that the value of its 19% share in Chrysler is worth $0. For the US Treasury, it’s an exercise in damage limitation. But unlike helping financial institutions, puring money into US car manufacturers’ accounts means bailing out companies that failed long before the global market crunch.

(Written for World Business Press Online)