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.

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.

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)