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Consumers who buy minicars to economize on fuel are making a big tradeoff when it comes to safety in collisions, according to an insurance group that slammed three minimodels into midsize ones in tests.
In a report prepared for release on Tuesday, the Insurance Institute for Highway Safety said that crash dummies in all three models tested -- the Honda Fit, the Toyota Yaris and the Smart Fortwo -- fared poorly in the collisions. By contrast, the midsize models into which they crashed fared well or acceptably. Both the minicars and midsize cars were traveling 40 miles per hour, so the crash occurs at 80 m.p.h.
The institute concludes that while driving smaller and lighter cars saves fuel, ''downsizing and down-weighting is also associated with an increase in deaths on the highway,'' said Adrian Lund, the institute's president.
''It's a big effect -- it's not small,'' he said in a telephone interview.
Yet the institute did not quantify how many more highway deaths might be expected statistically from any increase in the use of minicars.
Dave Schembri, president of Smart USA, said the crash type chosen, a head-on collision, was a tiny fraction of accidents. He countered that the Smart Fortwo, with front and side airbags and electronic controls meant to help a driver avoid skidding, was very safe.
The institute usually tests cars individually but in this case paired the Honda Fit with a Honda Accord, the Toyota Yaris with a Toyota Camry and the Smart Fortwo with a Mercedes C-Class. (Both the Fortwo and the Mercedes are built by Daimler.)
The argument over weight versus safety is not a new one but took on greater significance when gasoline prices rose sharply last year, making minicars more popular. Consumers also seek out vehicles that burn less fuel so they will contribute less to global warming. Production of carbon dioxide, the main heat-trapping gas, is proportional to fuel use, and the Smart claims to be the highest-mileage car powered by gasoline on the American market.
When the institute crashed the Smart into the Mercedes C-Class sedan, the Smart, which weighs half as much as the sedan, went airborne and spun around one and a half times. The institute's crash laboratory did not clock the speed of the rebound, but calculated that in a collision between cars of that weight, the sedan would slow down by 27 m.p.h. while the two-seater would change speed by 53 m.p.h., moving backward at 13 m.p.h.
The institute suggested steps that would further both fuel economy and safety rather than put them in conflict: cutting the speed limit and reducing horsepower. (Average horsepower is 70 percent higher in new cars now than it was in the mid-1980s, the institute said.)
But there is little support for either move. Some car efficiency experts have recommended making cars light but also large, with energy-absorbing crush zones. With several feet of car body in front of the driver, the energy of a crash can be dissipated and the suddenness of the change in velocity can be reduced, they say.
In any case, the statistical connection between vehicle weight and the risk to occupants is not completely clear. In 2002, the National Academy of Sciences said that steps by car manufacturers to reduce vehicle weight to comply with federal fuel economy standards had resulted in 1,300 to 2,600 additional deaths in 1993. But the number has not been updated.
Complicating matters, a statistical graph included in the institute's study indicated that per million cars registered that were one to three years old in 2007, the death rate was higher for drivers in small cars than in minis, which are even smaller. One reason might be that the smallest cars are not driven as many miles on high-speed roadways, Mr. Lund said.
In the luxury car uber-market of California, Audi and BMW are at it again. So Audi places up a billboard of the new 2009 Audi A4, which reads “Your Move, BMW.” As if it wasn't an easy enough setup, BMW places a larger billboard right across the street for the M3 Coupe reading “Checkmate.” Clever.
The new BMW 5-series Gran Turismo is (almost) here - displayed as a thinly veiled concept in Geneva. The nearly identical production version is scheduled to make its debut in Frankfurt this fall; it should be in showrooms before the end of the year. But that's not the entire BMW GT story. The company isn't talking about it yet, but we'll see the same theme again with a 3-series Gran Turismo coming three years from now.
Both Gran Turismos are essentially slope-roofed, four-door hatchbacks. The new niche models intend to carve a space between BMW's station wagon models and its X3/X5/X6 crossovers. As such, the new Gran Turismos share features like an elevated seating position, an optional panoramic glass roof, available four-wheel drive, a two-piece liftgate, and split and power-operated reclining rear seats for two.
Scoot the rear seats all the way back in the 5-series Gran Turismo, and BMW claims you'll find 7-series-equivalent legroom and a 15-cubic-foot trunk. Slide them forward, and you get passenger space equal to that of a 5-series sedan while the cargo hold grows to nearly 20 cubic feet. Fold them down, and there's close to 58 cubic feet of cargo space. Aside from its unique interior configuration, the Gran Turismo also grants us an early look at the design of BMW's next 5-series; the revamped sedan and wagon are due later this year. Under the hood, the GT will offer a twin-turbo six and a 400-hp twin-turbo V-8. Neither an M version nor a manual gearbox is planned.
The smaller 3-series GT promises to be the more athletic of the Gran Turismos. It likely will be offered with the full range of go-faster options, such as an M-style body kit, a performance suspension, eighteen- or nineteen-inch wheels, active steering, and adjustable dampers. The optional AWD system will come with an active differential and a rear-biased torque split. Engine-wise, the3-series GT - like other next-generation 3-series models - will see a return to four-cylinder power, with a twin-turbo 2.0-liter replacing the entry-level in-line six; the 300-hp turbo six will remain the top offering, and again, there will be no M version for the Gran Turismo.
Although BMW won't admit it, there's no doubt that the GT formula has been created primarily to attract older, affluent customers (a.k.a. empty nesters). This clientele appreciates a commanding view of the road, easy entry and exit, and a large luggage area. Importantly, they also have money to spend. And spend they will, as the GTs are likely to be priced higher than the corresponding sedans or wagons.
After a nearly flawless company history - over 70 years of profits - Toyota posted its first-ever loss for the fiscal year ending March 31, 2009. And a new report from Japan today says Toyota is already predicting a loss of up to $5 billion for the coming year as well.
The report, which originates with the sometimes-shaky Nikkei seems firm on the numbers, with a 500 billion yen loss ($5 billion) expected. That's the same as the loss Toyota posted this year.
Toyota's outlook is that the market is in an emergency situation, with no upturn in sight. Cost-cutting measures including delayed production, slashing R&D expenditures and cutting back on motorsports are its only defense as sales continue to plummet - total sales volume at Toyota is expected to dip below 7 million cars for the first time in six years, reports Bloomberg, to 6.5 million.
Despite the economic strife and low projected sales, Toyota has pushed ahead with the release of the 2010 Prius, and is also planning to launch sales of the first dedicated Lexus hybrid, the HS 250h, later this year.
PARIS -- Nissan has lowered sales expectations for its 370Z sports coupe by a third because of the economic downturn.
The Japanese carmaker had hoped that annual global sales of the 370Z would be 30,000, including 10,000 in Europe.
Nissan's European product strategy and planning manager Thomas Ebeling said 370Z sales will be much lower than expected because fewer people are buying sports cars during the recession.
"The economic conditions we are facing today hit this kind of car much harder than those in other segments," he told Automotive News Europe.
Nissan has dropped its forecast for annual 370Z global sales to 10,000, Ebeling said
Bigger share for Europe
The North American market will account for most of the 370Z sales. Nissan expects to sell about 3,000 units of the coupe in Europe, a higher percentage of global sales when compared with the car's predecessor, the 350Z.
Nissan sold 163,000 units worldwide of the 350Z since its 2002 launch, with Europe accounting for about 15 percent of the total and the United States most of the rest, Ebeling said.
The 70-30 breakdown between the United States and Europe for the 370Z reflects a change in strategy from previous Z sales history.
Cayman fighter
With prices starting at about 40,000 euros when the coupe launches across Europe in July, Nissan is positioning the new 370Z as a competitor to roadsters from Germany's premium automakers, including the Audi TT, BMW Z4, Mercedes SLK and the Porsche Cayman.
"In terms of performance, on a dollar or euro-per-horsepower comparison, there's no question we're going after the Cayman," Ebeling said. "That was the benchmark all along."
In Germany, the 370Z will be priced at 38,900 euros, making it "extremely competitive" with German-built sports cars, Ebeling said.
To attack this premium market, Nissan has made the 370Z "leaner and meaner" than its predecessor, he added.
A new 3.7-liter V6 engine offers more power compared with the 350Z, while a shorter body and wider front and rear track provide greater agility and better handling.
Nissan has improved the interior of the latest 370Z, added a seven-speed automatic transmission, and used more aluminum and tensile steel to make the car both stronger and 32kg lighter than the 350Z.
10k cars/yr isnt much... it honestly might not be enough to keep the car alive like the old 300zx. I think trying to go toe to toe with porsche on everything is going to hurt their sales. people would still buy a slower over priced porsche... just because of the name.
10k cars/yr isnt much... it honestly might not be enough to keep the car alive like the old 300zx. I think trying to go toe to toe with porsche on everything is going to hurt their sales. people would still buy a slower over priced porsche... just because of the name.
this just makes the 370z more exclusive
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Originally Posted by carrrnuttt
Oh look, I can talk to the n00b any way I want, because I've been here so long, and my name says 'Cool' in it!
CBS) To say General Motors has a lot riding on the Volt is both a bad pun and a big understatement.
GM says this electric car is designed to lead the company into the second century - if it is to have a second century.
But when GM invited reporters to experience the Volt, what they actually drove was the Volt technology stuck into a conventional car called the Chevy Cruze, reports CBS News correspondent Dean Reynolds. The real Volt is not yet ready.
The rush to showcase the technology was clearly designed to generate publicity for the car and public support for the federal money GM needs to stay afloat.
"What makes the technology so significant is actually what is under the skin," said Frank Weber, with GM.
What is under the skin is a 6-foot-long battery that you can recharge every night by plugging it into your garage socket.
Battery power takes the Volt 40 miles. Since most Americans drive less than 40 miles a day, GM says the Volt will use zero gasoline and produce zero emissions. When the charge wears off, an on-board gas tank can power the car and extend the trip 400 miles, addressing what's know in the trade as "range anxiety."
"The current Prius doesn't deliver that," said Brian Johnson, an industry analyst with Barclay's Capital. "The current Honda doesn't deliver that, so they are trying to leapfrog the competition in that respect."
"This is a livable vehicle," said Tony Posawatz, a vehicle line director with GM. "It's not a golf cart or whatever. This is something that people could buy in quantity … particularly if we can get the cost down."
Perhaps way down - because the sticker price will be about $40,000 - for what GM calls a spunky car that can go from zero to 60 in less than nine seconds.
The Volt is due in dealer showrooms by the end of next year, which is itself a show of optimism about GM's future. But there's a problem: sales of existing hybrids have been plummeting for months because the price of gasoline has dropped. If that consumer attitude holds, it could mean that GM will be bringing out the right car at the wrong time.
TOKYO/FRANKFURT (Reuters) -- Volkswagen's global vehicle sales fell by 11.4 percent in the first quarter but its market share gains may have let it overtake Toyota Motor as the world's top-selling automaker.
Government incentives in key markets have fuelled demand for the German group's vehicles, limiting its sales decline even as the global market shrank by more than a fifth.
VW's first-quarter group sales of 1.39 million vehicles -- excluding truckmaker Scania but including VW trucks and buses for two months -- gave it a global market share of 11 percent, up from 9.7 percent a year earlier, it said in a statement.
Toyota has given no forecast for retail sales, but its latest estimate for shipments for the 2009 first quarter is 1.23 million vehicles, down 47 percent from a year earlier.
Volkswagen -- with its nine car and truck brands including Audi , Skoda, Seat and Scania -- has a goal of overtaking Toyota and General Motors to be the world's No.1 seller by 2018 -- a target that was initially met with skepticism.
But a deepening recession and credit crisis have hit demand in Toyota's top markets, with U.S. sales falling 38 percent and Japan sliding 24 percent in January-March.
VW strong in growth markets
Volkswagen, meanwhile, is benefiting from government stimulus plans for the car industry that have boosted sales in Germany, China and Brazil, which together accounted for 44 percent of group sales last year, making it more likely that it beat Toyota or at least came close.
In Germany, new registrations of Volkswagen group brands rose 19 percent in the first quarter to about 282,000. Toyota sales grew 43 percent but its market share is just 4.4 percent whereas about every third new car sold in Germany came from the Wolfsburg-based manufacturer.
"Volkswagen has the luck of being strong in the markets that are currently growing, while Toyota is exposed to those that are collapsing," said Ferdinand Dudenhoeffer, head of the Centre for Automotive Research in Gelsenkirchen, adding the quarter's results would be "close."
Toyota, which significantly outsold every other manufacturer in 2008, has seen sales fall every month of this year in China, its third-biggest market. VW's group sales in China rose 6 percent in the first three months.
In the first quarter of last year, VW delivered 1.57 million vehicles, a third less than Toyota's 2.41 million, which included sales at minivehicle and truck units Daihatsu Motor and Hino Motors.
Toyota's first-quarter U.S. sales fell 36 percent, while sales in Japan for the core Toyota brand plummeted 31 percent. The two markets account for just under half of Toyota's global sales.
Volkswagen has confirmed projections for a 10 percent fall in global sales in 2009.
"Volkswagen is a big competitor for Toyota," said Koji Endo, auto analyst at Credit Suisse in Tokyo. "Audi is strong, Volkswagen is strong, and they're making good use of their small cars."
Toyota first-quarter vehicle sales are due next week.
VW set to overtake GM
The battle for top spot is also likely to be intense in coming quarters.
Toyota is counting on a third-generation Prius hybrid car due for roll-out next month to jump-start sales as more countries offer consumers incentives to buy energy-efficient cars. It will launch 16 new models in Europe this year following a product drought in 2008.
Volkswagen, for its part, will have a full year of contribution from the remodelled Golf, a perennial best-seller, and the relaunch of its popular Polo compact car.
Volkswagen has also moved up in stock value ranking, grabbing the No.2 spot behind Toyota, whose market capitalisation of $133 billion still outstrips the German carmaker's $100 billion.
Market research company R.L. Polk Germany predicted this month that Volkswagen would overtake GM as the world's second-largest automaker as the U.S. giant suffers steep declines at home amid fears of bankruptcy
Washington -- The Obama auto task force is preparing to loan General Motors Corp. about $5 billion in additional federal short-term aid, and Chrysler LLC $500 million, an Obama administration official familiar with the matter said Thursday.
The disclosure assigns a dollar amount to the pledge of continued short-term support issued late last month by the administration, after it rejected GM's and Chrysler's restructuring plans and requests for up to $21.6 billion in additional assistance. The official said the decision was expected to be announced next week -- though the precise amounts were still the subject of talks between the government and the automakers.
The White House said Thursday night no decision had been made about how much either automaker will receive. 'No decisions have been made on how much working capital GM and Chrysler will be getting,' said spokeswoman Amy Brundage.
Both Detroit automakers say they need the money to survive, as they craft plans they hope will convince the government they can compete in the global marketplace.
Meanwhile, GM could dramatically slash expenses by eliminating its GMC and Pontiac brands, because the company no longer would need to operate factories or pay hourly workers that produce them, analysts said.
GM is studying the fate of the two nameplates as it reviews all of its vehicle lines and prepares to initiate a public bond-exchange offer aimed at slashing $28 billion in unsecured debt.
The multipronged effort to keep GM out of bankruptcy is intensifying ahead of a June 1 government deadline by which the automaker must aggressively cut costs and restructure.
President Barack Obama's administration gave Chrysler until the end of this month to complete a tie-up with Fiat SpA. Under the proposed deal, the Italian automaker would get an initial 20 percent stake in Chrysler in exchange for small-car technology -- but no cash.
The Obama White House has pledged up to $6 billion in additional loans for the joint venture.
GM initially sought $2 billion in March and $2.6 billion in April, along with $12 billion in credit lines. GM withdrew its request for additional aid for March.
GM spokeswoman Renee Rashid-Merem declined to comment Thursday about the short-term aid, as did Treasury Department spokeswoman Jenni Engebretsen.
Both GM and Chrysler are burning through at least $1 billion a month amid sharply declining auto sales. In the first three months of 2009, industry sales fell 38 percent.
Chrysler Financial LLC, the automaker's financing arm, confirmed Thursday it will receive no additional government loans -- and that could hinder the company's sales. 'Chrysler Financial has determined that it has adequate private capital funding to cover the short-term needs of our dealers and customers and, as such, no additional (Troubled Asset Relief Program) funding is necessary at this time,' spokeswoman Amber Gowen said Thursday.
Chrysler had complained that rival auto lending arm GMAC had received nearly $6 billion in aid, undercutting its ability to underwrite auto sales.
The initial $1.5 billion to Chrysler Financial, delivered in $100 million increments, has all but run out.
Chrysler Financial and the Obama administration's auto task force had been in intensive talks to extend the loan program in recent weeks.
But talks ended this week after Chrysler and the administration were unable to come to agreement on additional loans.
GM's restructuring might involve shedding more than half of its eight brands.
The company proposed keeping four core brands: Chevrolet, Cadillac, Buick and GMC, and Pontiac as a niche nameplate. But the autos task force, which has been meeting in Detroit this week with GM executives, is pressing the automaker to look at the Pontiac and GMC brands. It rejected GM's restructuring plan last month.
GM has made no decisions on whether to go beyond its plans to close or sell Saab, Hummer and Saturn, Rashid-Merem said.
GM president and CEO Fritz Henderson plans to brief the media during a conference call today, but he isn't expected to announce any change to the brand strategy -- except to confirm that they remain under review.
Shedding GMC and Pontiac would dovetail with GM's plans to eliminate 47,000 workers and shutter 14 plants.
The Pontiac G6, Saturn Aura and Chevrolet Malibu, for example, are built at GM plants in Orion Township and Fairfax, Kan. 'If you eliminate the G6 and Aura, and are down to the Malibu, you no longer need two plants,' said auto analyst Aaron Bragman of IHS Global Insight.
While GMC has been profitable thanks to the high margin on large trucks and sport utility vehicles, stiffer fuel-economy standards and fickle oil prices threaten a sustained shift in consumer demand toward smaller vehicles, Bragman said. 'If they enter bankruptcy, it's one opportunity for General Motors to really restructure for long-term viability at a much more manageable size,' he said. Henderson has said GM was speeding up its plans to pare back its dealer network. The company had announced plans to cut at least 1,700 dealers, at least 25 percent, by 2012.
Now, GM is holding intensive meetings with dealers to quicken the process. A source familiar with the talks said GM is negotiating with certain dealers nationwide to close their franchises or swap brands with other dealers, and additional federal aid could facilitate that expense.
Company spokeswoman Susan Garontakos, however, said Thursday she was unaware of 'any conversations we are having with dealers.' 'All I know is that in President Obama's address of March 30, he wanted us to be faster, more aggressive and dig deeper across the whole infrastructure of General Motors,' Garontakos said. The source said GM is telling some dealers that unless they cooperate with the plan to close or realign retail outlets, their franchise agreements could be voided in bankruptcy. The source said GM has downplayed reports about eliminating GMC and Pontiac, saying no brand, even Cadillac, is untouchable.
The June 1 deadline set for GM by the White House also is factoring into the timing of the bond-exchange offer.
Though GM has been unable to reach concessions from a committee representing some of its largest bondholders, the automaker needs to launch the exchange soon to give bondholders enough time to decide whether to swap debt for equity. 'Everybody knows we are running out of time,' GM spokeswoman Julie Gibson said.
GM is unlikely to make the offer until at least next week
i find it funny how they always say gm should kill this brand or that. Hummer makes money, the 3 good cars pontiac makes, make money.... saturn builds really nice cars but gm fubar'd their marketing.
they really need to shore up their manf of these vehicle like that article said. no need to build the aura, malibu and g6 in different plants. they should try and build all similar platform vehicles in one plant.
this would be on benefit of killing this union issue in the rear. im 90% sure that they have a clause that says they can only build so many cars/mth and thus forces gm to be overly redundant with things.
By the end of this year, the Obama Administration will finalize new rules designed to force car companies to build vehicles that travel farther on a gallon of fuel. Too bad the rules will discourage automakers from manufacturing the kind of small cars that the Obamaites favor and, in some cases, encourage carmakers to do exactly the opposite. That's right: make some models bigger.
President Barack Obama is only partly to blame; he inherited a fuel-saving scheme from President George Bush and the last Congress. When lawmakers were considering revising long-standing regulations two years ago, the auto industry pushed back. As a result, the legislation, while forcing a significant boost in fuel economy, has loopholes big enough to drive a truck through. Obama has finalized rules for 2011 based on Bush's proposed regulations, which run until 2015. Now, Obama is working on what will likely be tougher rules that will run through 2020. "The Obama Administration has an opportunity to close a bunch of loopholes," says Daniel Becker, an environmental lobbyist in Washington. "Hopefully they will."
It won't be easy. The regulations are so complicated as to defy quick or simple remedies. The new (and not necessarily improved) version of the rules classifies vehicles by size and assigns them a specific mileage target. So now, starting in 2011, a big SUV such as the Chevrolet Tahoe will have to hit a relatively tame 21 mpg, while Toyota's Avalon sedan will have to hit 25 mpg.
Sounds reasonable, doesn't it? But say a big SUV misses its target by one mile per gallon. A carmaker could just make the vehicle a bit larger, allowing it to hit an easier fuel economy target. So General Motors (GM) may benefit with its new and efficient Chevrolet Cruze compact, due out in a year, because it's bigger than the car it replaces.
FOLLOWING CALIFORNIA?
Toyota Motor (TM) faces the same calculations. Under the Bush rules, by 2011 the company's thrifty little Scion xD must get 40 mpg, but it currently misses the mark by two miles per gallon. Meanwhile, Toyota's Avalon sedan, the biggest in the automaker's line, gets a rating of 29 mpg and beats its 2011 target by 1 mpg. "The system doesn't do anything to encourage smaller vehicles," says Tom Stricker, Toyota's director of technology and regulatory affairs. And even if gasoline prices rise again and prompt consumers to look for smaller cars, he says, the new rules give automakers less incentive to sell more of them.
The rules are particularly hard on European carmakers. Mercedes-Benz and BMW get about 70% of their U.S. sales from passenger cars. But because cars are in a different category than SUVs, the targets are harder to meet. BMW may have to introduce expensive new technology or smaller engines so its popular 3-series sports sedan meets the new targets. Theoretically, says Tom Baloga, the automaker's vice-president for engineering, European automakers could decide to build more SUVs, which have easier targets, to attempt to boost sales while remaining in compliance. "Cars are going to get bigger," Baloga says, "as companies try to take advantage of the situation."
Revising the new rules and closing the loopholes will be difficult at this point. But there is one thing the Obama Administration will likely do: force automakers to hit higher overall mileage targets than the Bush plan calls for. The President is under pressure from California, which wants to set its own greenhouse gas rules—regs that are tantamount to higher fuel economy standards. Obama campaigned saying he would allow it, but automakers want one standard nationally. People familiar with the negotiations between the feds and industry representatives say a compromise is in the works that, starting in 2012, would move national fuel economy standards closer to California's request. That could push the nation's overall target to about 40 mpg (instead of 35 mpg) by 2020.
There is a simpler, more effective solution. European countries have reduced oil use by taxing gasoline heavily. Consumers there tend to buy small cars because fuel costs as much as $8 per gallon. Some members of Congress have talked about raising gas taxes in the U.S. But lawmakers need to get reelected, and new taxes are unpopular. So Washington will probably stick with its imperfect fuel economy rules for a long time.
WASHINGTON -- The U.S. Environmental Protection Agency has opened the door to allowing higher mixes of ethanol in gasoline, a potential boon to farmers and the struggling ethanol industry, but opposed by auto makers whose consumer warranties typically are tied to the current EPA standard.
The agency Thursday said it is seeking comment on whether to allow ordinary gasoline to consist of as much as 15% ethanol, an additive that has been heavily promoted by farm states. For decades, the EPA has allowed gasoline to include up to 10% ethanol.
The EPA's move came in response to a petition filed last month by the trade group Growth Energy to allow motor fuel ethanol blends of as much as 15%, citing an Energy Department study that found "no operability or driveability issues" with blends as high as 20% ethanol.
Most car warranties, however, have followed the 10% standard, which means consumers who use blends with greater than 10% ethanol could get stuck paying the bills if there's damage to fuel lines or other components unless auto makers agree to shoulder the costs.
Auto makers offer so-called flex-fuel vehicles designed to accept up to 85% ethanol fuels. But many current and older model cars aren't designed for ethanol concentrations above 10%.
Alan Adler, a spokesman for General Motors Corp., said if the EPA allows higher ethanol blends "we want to be sure that we're not on the hook for vehicles" that end up having problems with higher blends.
Earlier this year Toyota Motor Sales USA Inc. recalled 214,500 Lexus vehicles sold in the U.S. that were vulnerable to corrosion problems in their fuel-delivery pipes when some ethanol fuels were used.
Pushing against the auto industry's objections are farmers, investors in ethanol-fuel start-ups, big agricultural commodities companies and some environmental groups that argue the U.S. would be better off substituting home-grown biofuels for foreign oil.
Currently nearly a quarter of all corn produced in the U.S. is used to make ethanol. That's up from about 12% in 2004. A higher blend ratio would help support corn prices.
"If we don't move that regulatory cap, without question grain supplies are going to grow and the next group looking for a bailout will be the American farmer," said Jeff Broin, chief executive officer of POET, one of the nation's largest ethanol producers, based in Sioux Falls, S.D.
An oversupply of ethanol has prompted a wave of bankruptcies and made the ethanol industry eager to expand its market. Ethanol producers are being squeezed as corn prices stay relatively high and as ethanol prices stay relatively low. Todd Alexander, a partner at Chadbourne & Parke LLP, estimates that some ethanol producers are losing up to 10 cents on every gallon of ethanol.
Another big ethanol producer, Archer Daniels Midland Co., based in Decatur, Ill., recently reported a loss in its ethanol business for its second quarter, ended Dec. 31. VeraSun Energy Corp. and Aventine Renewable Energy Holdings Inc. have both filed for bankruptcy protection. Pacific Ethanol Inc., which has counted Bill Gates as one of its star-studded investors, said recently in federal filings that it could run out of cash by the end of April if it can't restructure its debt or raise additional financing.
In response, pro-ethanol lobbyists have stepped up efforts to win more support from the government. An ethanol trade group hired retired U.S. general and former 2004 Democratic presidential candidate Wesley Clark to make its case for a higher blend. The industry also has turned to Congress, where lawmakers such as Sen. John Thune (R., S.D.) have held meetings with EPA staffers, urging them to allow blends of 12% or 13% ethanol immediately -- something he argues the EPA could do now without going through a public comment process.
April 21 (Bloomberg) -- Martin “Hoot” McInerney, an auto retailer in southeastern Michigan for about 40 years, sold his Cadillac dealership for $5 million last year rather than wait for General Motors Corp. to determine his fate.
“How many Cadillac dealers will GM decide it needs?” said McInerney, 80, who still owns seven other dealerships. “Someone says 600, maybe it's only 150.”
Thousands of GM and Chrysler LLC dealers across the U.S. are preparing for the probability that as many as 5,000 of them will be forced to close because of an automaker's bankruptcy. Dealers say they're ordering fewer vehicles, cutting expenses, retiring debt and firing workers to preserve cash.
“We're ahead of the curve and ready to absorb shocks if one of these manufacturers liquidates,” said Sid DeBoer, chief executive officer of Lithia Motors Inc., a publicly owned dealership chain that said it relies on Chrysler brands for 32 percent of its revenue.
Lithia, based in Medford, Oregon, has sold or shut 17 stores in the past year, using $100 million in 2008 from sales of stores and other property to help reduce debt 19 percent to $645 million, according to data compiled by Bloomberg. Lithia has cut its workforce to 4,500 from 6,000 a year ago.
Brands at Stake
GM, negotiating a restructuring with the U.S. Treasury Department after borrowing $13.4 billion, has said repeatedly it will sell or end the Saab, Hummer and Saturn brands. Pontiac and GMC are both under review, people familiar with the matter said. Chevrolet, Cadillac and Buick are GM's other U.S. brands and are also sold in other markets.
Chrysler, which borrowed $4 billion, hasn't publicly discussed discontinuing individual brands. If the Auburn Hills, Michigan-based carmaker doesn't form an alliance with Fiat SpA, it said it will wind down operations, including all three brands, which support 3,300 dealerships that employ 140,000.
“I'm urging all of our dealers not to spend money they don't have to spend,” said Earl Hesterberg, chief executive officer of Group 1 Automotive Inc., a publicly owned dealership chain based in Houston, Texas. “Of all the brands in peril, I'm least worried about Chevrolet. There will always be a Chevrolet.” It is GM's best-selling brand.
For dealers, franchise cancellation means the abrupt loss of the right to sell new vehicles and spare parts, as well as to service vehicles under warranty. Each dealership, including building and equipment, often represents an investment of $1 million to $10 million.
GM Declines
GM closed Monday at $1.66 a share, down 92 percent from a year earlier. GM's $3 billion of 8.375 percent bonds due in 2033 rose 1.15 cents to close at 9.65 cents on the dollar in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Detroit-based automaker has lost $82 billion since 2004, its last profitable year.
U.S. sales of new cars and light trucks plunged 18 percent last year as energy prices rose and consumer confidence fell. The sales rate in the first quarter of this year was the lowest since the fourth quarter of 1981.
U.S. automakers, which have more dealers than their foreign counterparts, have said for years that they want to consolidate their retail networks as market share has fallen. According to the National Automobile Dealer Association, the average Chevrolet dealer sells 586 vehicles per year, while the average Toyota brand outlet sells 1,821.
‘Very Lean'
U.S. auto dealers have been protected for decades by state franchise laws, which make unilateral termination of their franchises difficult, if not impossible. The federal code trumps state law, say bankruptcy experts, allowing the automakers to shrink their retail networks at will.
Anticipating weak demand for vehicles as well as the potential collapse of Detroit automakers, Autonation Inc., the biggest dealer chain in the U.S., “cut vehicle orders 60 percent in the first quarter,” said spokesman Marc Cannon. “We intend to keep ordering very lean.”
Michael Charapp, an attorney in McLean, Virginia, who has 300 dealer clients, said “we tell them cash is king. You've got to keep the business lean in case something happens. Nothing should be spent on anything but essentials. Cut back on personnel.”
Chrysler must merge with Turin, Italy-based Fiat by May 1 or risk the cutoff of rescue funds from the Treasury. GM, whose deadline is June 1, said in February it intended to shut down 2,100 of the 6,248 dealers it had at the end of 2008.
Who Keeps Going
That leaves dealers wondering who has to close shop and who gets to keep going. “You don't really know which way to run, what to tell your employees,” McInerney said, adding his son was “disappointed” about not getting to inherit the family Cadillac business.
If a dealer does get his or her franchise canceled, calls from bankers won't be far behind. Most loan agreements for dealer inventories require immediate repayment in the event of bankruptcy. According to the NADA, the average dealer inventory loan is $4.9 million; dealers collectively borrow about $100 billion nationwide.
“If there's a bankruptcy, things will happen quickly,” Charapp said, noting that bankers usually have the right to seize and sell unsold vehicles to recover their loans. “The automakers won't have time to be too selective. If they're not careful they'll lose good dealers who quit because they lose their wholesale financing.”
Other Brands Affected
The repercussions from GM and Chrysler franchise cancellations could spread swiftly to other carmakers. According to the NADA, there were 19,790 new-car dealerships in the U.S. as of March 1, fewer than 3,000 representing a single brand. Since most dealers own multiple franchises, their borrowings often cover multiple brands and properties.
If vehicles in a Chrysler showroom were seized and sold at auction, for example, the proceeds might not cover the dealer's loan. A lender could thus demand repayment on related loans covering the dealer's non-Chrysler brands.
“We're warning Toyota dealers to watch out, to segregate their finances as much as possible” from those of their GM and Chrysler businesses, said Jerry Pyle, chief executive officer of Gulf States Automotive Group in Houston, Texas, a Toyota Motor Corp. wholesale distributor.
A reason for keeping inventories tight is that panic- selling of unsold vehicles after a GM or Chrysler bankruptcy almost certainly would drive down prices and the value of all dealers' vehicle inventories.
“If the banks dump their collateral on the market, that would be a disaster,” said David Fischer, a multi-line dealer based in Troy, Michigan.
According to a member of the Porsche supervisory board, the situation is "serious, very serious." But the company's two top managers seem unperturbed, at least whenever cameras are nearby. That's when Porsche CEO Wendelin Wiedeking and Chief Financial Officer Holger Härter seem to be engaged in a contest to look as optimistic as possible, as was the case at the Geneva Motor Show in early March. By that time, the small, family-owned business had acquired a majority stake in Europe's biggest motor vehicle manufacturer, the Volkswagen Group. "This is a coup," says Wiedeking, "that no one would have thought we, a little carmaker from Zuffenhausen, were capable of."
He is right about the fact Porsche's takeover of VW is considered the biggest coup in recent corporate history. The luxury and sports car maker, based in the Stuttgart suburb of Zuffenhausen, acquired an automotive group with 14 times its sales and 60 times its production volume. In addition, Porsche succeeded in performing a one-time feat in the last fiscal year: Thanks to deals involving VW options, the company's profits exceeded its sales.
Judging by the profit figures, things are going exceedingly well for Porsche. But another number is causing problems for Wiedeking and Härter: Porsche is saddled with €9 billion ($11.9 billion) in debt. The company accumulated an additional €6 billion ($7.9 billion) in debt in only the first six months of the current fiscal year, when Porsche increased its share in VW to 50.8 percent. This raises the question of whether Porsche may have bitten off more than it can chew with the VW deal.
How can the company pay the estimated €600 million ($790 million) in annual interest on its loans if its own automobile sales have plunged in the current economic crisis? And what if VW pays no dividend or only a small dividend in the coming year to majority shareholder Porsche? Has Porsche made the same mistake with Volkswagen as automobile parts maker Schaeffler did when it acquired tire maker Continental?
For a long time, hardly anyone was asking these sorts of questions, because Porsche raked in profits of €10.5 billion ($13.7 billion) on VW options alone in the last two fiscal years. These figures created the impression that, thanks to shrewd financial transactions, the takeover of the VW Group was practically financing itself.
But the figures only appeared briefly in the balance sheet before disappearing again, because Porsche was determined not to make its money with market speculation. CFO Härter reinvested the money to buy VW stock, the price of which had gone up sharply. Whereas VW stock was trading at less than €40 ($53) a share at the beginning of the takeover, Porsche was later forced to buy the stock at prices in excess of €200 ($264) a share.
The profits on the options disappeared as quickly as they had accumulated. Moreover, Porsche had to take out a loan for €10 billion ($13 billion) to buy the VW stock. Because of that loan the company, long accustomed to success, is suddenly in hot water.
Playing Poker with the Banks
Just how serious the situation is for Porsche became apparent on March 24. It was the day the €10 billion loan was scheduled to be refinanced, leading to a dramatic game of poker.
The supervisory board, which consists primarily of members of the Porsche and Piëch families, which own the company, met at the Porsche R&D center in Weissach, near Stuttgart. The official purpose of the meeting was to discuss the results of the first six months of the 2008/09 fiscal year. Most of all, however, Ferdinand Piëch, Wolfgang Porsche and the other family representatives were expecting a message from the conference room of a Frankfurt hotel, where Porsche CFO Härter was negotiating with bank representatives over the €10 billion loan.
Only a year earlier, a consortium of five banks, led by Merrill Lynch, had easily approved the loan, at favorable terms for Porsche and without lengthy negotiations. At that time, the financial crisis had not yet brought the banking system to the brink of collapse.
But now Merrill Lynch is a subsidiary of Bank of America, which is not showing a particularly strong interest in the lending business in Germany. Other banks are either unwilling or unable to issue loans of the magnitude Porsche requires. This time, Härter found himself negotiating the loan, not with five, but with 15 banks. And they made sure that he -- and the entire Porsche-Piëch clan -- were kept sweating until the last minute.
The family members had already discussed emergency plans. What would have happened if the banks did not refinance the loan? Porsche would have had to repay €10 billion.
According to a close associate of the family, this would not have put the company at risk for bankruptcy. Both Porsche and the family clan have billions in assets. Nevertheless, they would have had to raise a great deal of money very quickly. Options that were explored included selling subsidiaries, such as Porsche Engineering, Porsche Design or Porsche Consulting, to VW, but this would have raised legally sensitive issues. It would have given other VW shareholders occasion to take legal steps against such purchases, because they could be interpreted as a financial bailout for majority shareholder Porsche.
Porsche could also sell the options on VW shares it still owns. They are worth several billions euros on paper, because the price of the VW share is still high. In practice, however, these shares can only be sold in small bundles. If Porsche were to redeem a larger number of the options with the banks, the banks would sell VW shares in return. This would cause the price of VW shares and the value of the options to fall.
No Simple Solution
Another option that was considered was whether the families could bring another company they own into Porsche Automobil Holding: Europe's largest auto dealer, which is headquartered in Salzburg, Austria and boasts annual sales of just under €13 billion ($17 billion). This would increase Porsche Holding's equity capital, but it would not solve its cash flow problems.
There was no simple solution. The Porsche and Piëch families were convinced that the banks were not fundamentally against issuing a new loan, but were merely delaying as long as possible to negotiate the highest possible rates. Nevertheless, the families were forced to accommodate the banks more than they had wanted to. First, they had to satisfy the banks' requirement that Porsche pledge its VW shares in return for a new loan. Only after he made that promise was CFO Härter able to report from Frankfurt that the banks had given their approval for €8.5 billion ($11.2 billion). The negotiations for the remaining €1.5 billion ($2 billion) continued until shortly before midnight.
But this doesn't solve the problem yet. Porsche received the new loan under the condition that it would repay €3.3 billion ($4.4 billion) of it within half a year. Before the ink dries on the agreement, CFO Härter will have to begin searching for new sources of funding.
This situation was apparently not anticipated in the grand plan with which Wiedeking and Härter had carefully prepared the VW takeover. Two developments took the two executives by surprise. First, the financial crisis has led to a sharp decline in car sales, shrinking profits in the core business. As a result, Porsche has less cash than expected to pay the interest on its loans.
Second, the two Porsche executives had expected the so-called Volkswagen Law to be brought down sooner. The controversial law restricts individual shareholders to a 20-percent portion of voting rights, regardless of how much they own. Its abolition would have allowed Porsche to acquire 75 percent of VW shares and sign a control and profit transfer agreement with the VW Group, so that the Porsche board members would have been telling their VW counterparts how to run their business. More important, it would have given Porsche access to VW's cash reserves, which still amounted to €8 billion ($10.6 billion) at the end of last year.
Porsche could have used VW's money to pay off some of its debt, but that plan will not materialize in the foreseeable future, because a central aspect of the VW Law will remain in effect: Even in the form amended by the federal government, the law continues to guarantee the State of Lower Saxony a veto at VW.
The EU Commission indicated last week that it will not file an objection to this new VW Law with the European Court of Justice, at least not now. For Porsche, this means that its executives in Stuttgart cannot reach any important decisions at VW without the approval of Christian Wulff, the governor of Lower Saxony. And if there is one thing Wulff will deny Porsche, it is access to VW's cash.
Wiedeking Discovers Diplomacy
For Porsche CEO Wiedeking, all of this translates into a series of painful experiences. He urgently needs money for Porsche, but he cannot get his hands on VW's billions. He is unable to exert the control he had imagined he would have over VW at its headquarters in Wolfsburg. And, finally, he is dependent on the good will of the banks. Wiedeking, a man who was never at a loss for words about VW executives, politicians or bankers, is now forced to take an unaccustomed approach: diplomacy.
Suddenly the Porsche CEO is praising VW management for doing "an outstanding job" and sweet-talking Lower Saxony Governor Wulff by characterizing "cooperation with him on the VW Supervisory Board" as "very positive." And although Wiedeking has said nothing about the bankers he once accused of greed and incompetence, at least he has said nothing negative.
CFO Härter is currently negotiating with a few banks over the possibility of Porsche issuing a bond so that it can satisfy the terms of its loan agreement and pay off the €3.3 billion ($4.4 billion) tranche. However, Porsche would have to pay more interest on the bond than on its current loan. The second option for obtaining fresh cash would be an increase in share capital.
The Porsche and Piëch families are still at odds over how to liberate their company from its current debt trap. But the balance of power between Stuttgart and Wolfsburg has already shifted, once again, in favor VW CEO Martin Winterkorn. "The tail is no longer wagging the dog," says one VW executive, who notes that Wiedeking now knows that Porsche needs VW -- and not the other way around.
For now, Porsche has introduced strict cost controls, with the objective of cutting €200 million ($264 million) in costs in the current fiscal year. At its R&D Center in Weissach, there are fears that Porsche engineers could be the hardest-hit by the new cuts. Their jobs are now considered the most expendable, the argument being that Porsche could cut back its own R&D spending by relying more heavily on VW technology in the future.
Any protests by the Porsche engineers will likely fall on deaf ears, now that Porsche must bring costs down and, most of all, reduce its debt. "It hangs over us like a sword of Damocles," says one Porsche executive, although he says that any comparison with Schaeffler is not only off the mark, but malicious to boot.
He has a point. Together, Schaeffler and Continental owe twice as much as Porsche. Besides, the Continental shares, which Shaeffler purchased for a lot of money, have lost three-quarters of their value. In contrast, the VW shares Porsche bought for about €18 billion ($24 billion) are now worth €35 billion ($46 billion).
Meanwhile, there is speculation in Wolfsburg that Porsche co-owner Ferdinand Piëch has come up with a completely different solution.
Porsche Automobil Holding is currently the biggest shareholder in both companies, with 50.8 percent of VW shares and 100 percent of shares in the Porsche sports car company. But now VW could buy the sports car company's automobile business from Porsche Holding. This would turn Porsche Holding into purely a finance company, one that still holds its shares in the VW Group. But the VW Group could run the entire operating business, which would include the Volkswagen, Audi, Bentley and Porsche brands.
A deal like this would enable Porsche Holding to cancel almost all of its debts, but for Porsche it would also mean relinquishing its power -- a worst-case scenario for Porsche strategists Wiedeking and Härter. This was not the way they had imagined the great VW coup, which Wiedeking likes to compare with a game of chess.
"Step by step, we, the world's smallest independent carmaker, are approaching an alliance with Europe's biggest producer of motor vehicles," Wiedeking said last November when he presented Porsche's balance sheet. He conceded that there might difficulties along the way, but that in the game of chess it would simply be a question of time.
Chrysler's lending arm will not get an additional $750 million loan from the federal government after some executives declined to go along with its restrictions on pay, a person with direct knowledge of the matter said Monday.
This person, who spoke on condition of anonymity because talks on the matter are private, said the Treasury Department withdrew its offer to further aid Chrysler Financial because some of its 25 top executives would not agree to compensation waivers.
Chrysler Financial, which already has received $1.5 billion in aid, denied that executive compensation was related to a decision last week to seek additional funding from private lenders rather than the Treasury.
In a statement, the company said it had ''adequate private capital funding to cover the short-term needs of our dealers and customers'' and did not need more funding from the Treasury's Troubled Asset Relief Program, or TARP.
''As such, executives have not been presented with any new demands with regard to executive compensation,'' the statement said. ''As a TARP recipient, the company remains in full compliance with current executive compensation requirements.''
The Washington Post first reported on its Web site Monday that Chrysler Financial executives rejected compensation limits that would have been tied to a new loan.
The funding for Chrysler Financial is not part of the $4 billion that Chrysler has received from the government since December. The Treasury is expected to announce more aid for Chrysler and General Motors on Tuesday.
G.M.'s chief executive, Fritz Henderson, said last week that the company would soon need $4.6 billion, on top of the $13.4 billion it has borrowed already, to help it survive the second quarter.
The Obama administration's auto industry task force gave Chrysler until the end of this month to form an alliance with the Italian automaker Fiat or risk having to liquidate itself under bankruptcy protection.
G.M. has an additional month to cut its debt and to reach a deal with the United Automobile Workers to cut labor costs and show that it has a plan to become viable.
even in their darkest hour people still hold on to their greed. i wonder how many people will get fired so some top people can make a few extra mil before may 1st.
WEST SPRINGFIELD, Mass. -- On Easter Sunday in 2001, Carmelo Scuderi called his family together in his home here and announced, essentially, that he had outsmarted the world's auto makers and their billion-dollar research departments.
The retired engineer and inventor told his children and grandchildren he had developed a dramatically more fuel-efficient design for the internal combustion engine, something car companies have been chasing for decades.
Eight years later, the late Mr. Scuderi's revelation no longer seems as far-fetched. His design -- which involves grouping an engine's cylinders in pairs, with each pair focusing on specific tasks -- is gaining attention in an auto industry that is now more open to fuel-saving innovations.
A half dozen or so car makers, including France's PSA Peugeot Citroën SA and Honda Motor Co. of Japan, have signed nondisclosure agreements with the Scuderi Group, the company founded by Mr. Scuderi's family, to be able to study the technology closely, said consultants who are working with the firm. Daimler AG of Germany and Fiat SpA of Italy also are looking at the Scuderi design, executives at those companies confirmed.
"We have looked at their simulations and their [research] papers and it is worth looking into further," said a Daimler scientist familiar with the matter. "There is realistic potential here."
Honda declined to comment.
Robert Bosch GmbH, a giant German auto supplier with expertise in engine components, is developing parts for the Scuderi prototype, with the hope the engine will someday make it into production.
On Monday in Detroit, the Scuderi Group, owned by Mr. Scuderi's wife, five sons and three daughters, unveiled a prototype engine, the next step toward proving that the design works.
The Scuderi engine still needs to pass many tests. Auto companies are bombarded with designs for new engines, and almost all never pan out. In fact, the basic design of the gasoline engine has remained largely unchanged for a century.
But the race to improve fuel economy has heated up because of volatile gasoline prices, increased interest in reducing oil imports and the phasing in of tougher fuel-economy and emissions standards.
Car makers worry it will cost billions of dollars to perfect new technologies, like electric cars and hybrids, to cut fuel consumption. They could eliminate much of that expense if they could improve the tried-and-true internal combustion engine.
One answer could be a technology called HCCI, which yields a gasoline engine that operates much like a diesel, requiring no spark plugs. Honda, General Motors Corp. and others have invested in HCCI. The Scuderi engine is another possibility.
Today's gasoline engines leave much room for improvement. Only about a third of the chemical energy contained in a gallon of gasoline is converted into mechanical energy that turns the wheels of the vehicle. The rest becomes heat or exits the tailpipe as unburned fuel.
Mr. Scuderi was an expert in thermodynamics, which examines the relationship between mechanical motion, friction and heat.
In a normal engine, a piston moves up and down in a cylinder in a four-stroke cycle -- down as a mixture of air and fuel enters the cylinder; up to compress the mixture; after a spark ignites the fuel, the piston is driven back down in the power stroke; and then up again, pushing out exhaust gases and starting the cycle over.
In the Scuderi design, pairs of cylinders work together. One cylinder does nothing but intake and compression. It is partnered with another that does only combustion and exhaust. A high-speed valve channels the pressurized fuel-air mix from the compression cylinder to the combustion cylinder.
Mr. Scuderi envisioned putting two sets of paired cylinders together to make a four-cylinder engine. According to his calculations, this setup should reduce resistance within the engine, result in greater compression of the fuel and air, and faster and more complete burning of the mixture.
Mr. Scuderi calculated that these and other changes could convert about 40% of the energy in gasoline into mechanical energy.
Mr. Scuderi suffered a heart attack and died in 2002. His children continued to refine the engine design, and now envision adding a tank to store highly compressed air that can be fed into the combustion cylinder to further improve efficiency.
The firm believes the Scuderi engine, equipped with the air tank and a turbocharger, could increase a vehicle's fuel economy by perhaps 50%.
Sivam Sabesan, an engine expert at consulting firm Frost & Sullivan who has examined the Scuderi design, said there are no obvious flaws that would suggest the engine won't work. "You just have to throw [engineering] resources at it and you can work it out," he said.
And since the design is a rethinking of the standard engine, makers wouldn't need new plants to produce it, an advantage over other future technologies like electric cars or hydrogen fuel cells.
Still, Mr. Sabesan cautioned that the engine needs at least two more years of development before it could be ready.
Without a working engine, it's hard to know how the design will perform at different speeds, and whether it will be durable. Problems could arise because of the difference in temperatures between the paired cylinders, with the combustion cylinder heating up much more than the compression one.
April 22 (Bloomberg) -- Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan's three biggest automakers, may report quarterly losses after the global recession crippled sales. South Korea's Hyundai Motor Co. may also say its profit fell to the lowest in at least seven years.
Toyota probably had a net loss of 678 billion yen ($6.9 billion) for the three months ended March 31 from a profit of 317 billion yen a year earlier, according to the median of four analyst estimates compiled by Bloomberg. Net income at Hyundai, South Korea's largest automaker, probably tumbled 48 percent.
Vehicle demand in the U.S., the world's biggest auto market, plunged last quarter as the unemployment rate rose to the highest in 25 years. Japanese carmakers have also slashed jobs and production and Toyota will cut managers' pay while Japan, Germany and China began offering incentives for motorists to spur auto sales.
“This terrible environment will hammer the carmakers for most of the year,” said Ichiro Takamatsu, chief investment officer at Alphex Investments Co., a Tokyo-based hedge fund. “The companies may only begin to recover toward the end of the year and in 2010 as sales will remain weak.”
GM, Chrysler
The U.S. recession has also forced Detroit automakers General Motors Corp. and Chrysler LLC to turn to government aid to stay in business. Last quarter, Japan's auto market shrank 24 percent, and overall sales in Europe fell 17 percent.
Honda's loss, the carmaker's first in at least 15 years, was about 243.2 billion yen last quarter, compared with a 25.4 billion yen profit a year ago, according to analysts. Nissan had a loss of about 405.6 billion yen, according to the analysts. That compares with a 137.6 billion yen profit a year ago.
Hyundai plans to report its quarterly earnings on April 23. Net income likely fell to 205 billion won ($151 million), according to the median estimate of 11 analysts surveyed by Bloomberg.
Honda, Japan's second-largest automaker, will report earnings on April 28. Toyota, the world's largest automaker, is scheduled to release results on May 8, followed by Nissan on May 12.
Toyota added 1.1 percent to 3,760 yen, at the 3 p.m. close in Tokyo. Honda dropped 0.6 percent to 2,715 yen, and Nissan gained 1.6 percent to 508 yen. Hyundai rose 2.3 percent to 66,000 won in Seoul.
“Drastic Restructuring”
“Japanese automakers will have to take drastic restructuring measures to return to usual profit levels,” as their operating losses may top more than 1 trillion yen this fiscal year, Shinya Naruse, analyst at Nomura Securities Co., said in a report on April 10.
Industrywide sales in the U.S., traditionally the most profitable market for Toyota, Honda and Nissan, plunged 38 percent in the first three months of this year. In contrast, Hyundai boosted its sales 0.5 percent, as it offered more incentives to lure customers.
Toyota's sales probably plunged 39 percent to 4 trillion yen from 6.57 trillion yen last quarter, the analysts said. The company probably had an operating loss of 588.8 billion yen, compared with a profit of 396.7 billion yen, the analysts said. The carmaker said today it would cut summer bonuses of managers in Japan by 60 percent from a year earlier.
Honda had an operating loss of 332.7 billion yen after sales slipped 39 percent to 1.87 trillion yen. Nissan will probably report an operating loss of 272.3 billion yen on sales of 1.65 trillion yen, according to analysts' estimates.
Stronger Yen
A stronger yen against the dollar and euro added to Japanese automakers' losses, as they export about half of their vehicles from Japan. The yen averaged 93.63 per dollar in the three months ended March 31, compared with 105.44 a year earlier. The euro was bought at 122.41 yen in the quarter, compared with 157.88 last year. Toyota based on its estimates for the period on 90 yen to the dollar and 120 yen to the euro.
Every 1 yen gain against the dollar and euro cuts Toyota's annual operating profit by 35 billion yen and 5 billion yen, respectively. It cuts Honda's operating profit by 15 billion yen and 2 billion yen.
Hyundai's sales likely dropped 22 percent to 6.36 trillion won, and operating profit probably tumbled 60 percent to 211 billion won, according to the analysts. The won dropped 8.9 percent versus the dollar during the January-March period. A weaker won helps boost repatriated value for Hyundai's exports, which accounted for 66 percent of the Hyundai's revenue in 2008.
“It's meaningful that Hyundai still made profit after it boosted marketing spending to increase share,” said Stephen Ahn, the head of research at LIG Investment & Securities Co. “No matter what it costs, it's now a condition of survival for automakers to keep up factory utilization and expand market share.”
Kia Motors Corp., South Korea's second-biggest automaker, may have posted a net income of 34.8 billion won last quarter, compared with a 24.8 billion won loss a year earlier, the analysts said. Sales may have fallen 7.5 percent to 3.44 trillion won while operating profit probably declined 22 percent to 80 billion won
The executives at General Motors (GM) knew they were in trouble: Their negative cash flow had become intolerable, and their lending institutions had locked up. Bankers refused to lend the corporation any more money, fearing that they'd never see GM's current loans repaid, much less any new funds they might advance. New car divisions that had opened only a few years earlier were now huge money pits. And even those divisions whose sales had once shown incredible potential now had virtually no sales at all.
GM put some divisions and parts operations up for sale, but potential buyers showed little interest. GM cut the size of its workforce repeatedly but could not lower expenses quickly enough to match the fall-off in demand. Finally, GM's lead creditors met quietly at Chase Bank in New York, seeking to find out whether they could salvage any of their loans if they forced General Motors to liquidate.
The bankers hammered GM executives: Why did they insist on keeping different divisions, when it was obvious they were simply money pits? One GM executive explained that if the company failed, it had the potential to set off a nationwide panic, which could damage the improving consumer confidence just starting to take hold after the massive downturn in the economy. He also pointed out that the vehicles the bankers were calling foolish had been some of GM's most profitable vehicles just two years earlier. It couldn't be helped, he said, that the public had become so fickle and tightfisted, not when a massive economic contraction had just scoured the country.
The bankers had their doubts. But after looking at the facts they decided that if GM would dump its losing properties, effectively fire the CEO, and allow the bankers to elect the new board of directors, then GM would be advanced the funds to get past its current financial problems.
Boom and Bust
Welcome to September 1910, when the bankers revolted against Billy Durant's General Motors. Ten years later, GM would be back in the same financial mess as in 1910—too many divisions, too few making a profit, and doubts publicly raised as to whether the company could ever recover from a short period in history where they almost failed twice. It should also be noted that, at that time, from all outward appearances Ford Motor (F) was sitting pretty.
The history of large-scale industries tied directly to the American consumer has always been one of boom and bust. The immense amount of money needed to build factories, design products years in advance, support retail sales, and cover their products with service and parts has never been the favored business model of our financial industry.
For a very good reason, those industries are just as cash-intensive in good times or bad. Just as our airlines will soon shell out up to $200 million to buy one Boeing (BA) 787-9 Dreamliner so we can fly across the country for $300, it can cost multiples of that amount to create just one all-new vehicle—with absolutely no guarantee of an audience for the product once it's delivered. (To read more about the high cost of the Dreamliner, click here.)
Moreover, in periods where the economy turns south, the downturn is often far quicker than any large-scale consumer-based industry can properly respond to lowered sales. For example, many commercial airliners are sitting in the desert right now because airline travel has fallen off so far, but payments still have to be made on those jets whether they collect sand or flying miles. Like the airlines, the auto industry has to continue to amortize the costs of new products even if their sales volumes fall far below forecast.
Precarious Predicament
Frankly, from a financial viewpoint, neither the auto industry nor the airline industry makes any sense at all. Too much money, too high a structure for fixed expenses, too much room for error in future planning, forced to constantly lower your prices to that of your weakest competitor, and a public that can desert you overnight when the economy contracts.
Now, can you imagine our society without an inexpensive way for us to travel?
We all have a tendency to view history from the narrowest of perspectives—our personal experiences in our lifetime. So you owned a 1982 Cadillac Cimarron that you didn't like. That has nothing to do with the new CTS—or with today's General Motors, for that matter. What everyone is forgetting is that we have seen this stretch of the road before, where major industrial powerhouses came into financial crisis in the worst of economic times and were written off as dead. Furthermore, many of these "dead companies walking" not only returned to financial health when the economy recovered, but actually prospered: Like Cadillac, they went on to become the standard that the rest of the world strove to emulate.
In GM's case, the bankers took over the company in 1910 and put it on an austerity program, although after the 1910 Financial Panic ended, rising sales proved that GM was viable in any condition.
Brand-New Chevy
Billy Durant, GM's ousted CEO, went off to start two more car companies, Little and Chevrolet. The Chevrolet was a flop, but the Little automobiles weren't, so Durant switched the nameplates and Chevrolet as we know it was born. Durant then used his stock in Chevrolet to retake control of General Motors—and then was fired for good during the recession of 1920-21.
That move brought Alfred Sloan to his position with the company, and for the second time in 10 years GM downsized the number of its divisions and altered its financial accounting, and the General Motors of legend was born. In the second major downsizing of GM, the only company Sloan kept that was losing money was Frigidaire. Sloan believed, as Durant did, that refrigerators for the average person had a definite future in America. It should also be noted that GM's second reincarnation was a product not just of Sloan's brilliant management, but of timing: The 1920s were the first major boom decade for the average American.
So the question becomes this: Why are so many people now rooting for the demise of America's auto industry? After all, in the early 1990s both BMW (BMWG.DE) and Mercedes-Benz (DAI) saw their sales fall in this country to barely over what Saab has been selling in recent years. And 15 years ago both Kia and Hyundai were considered automotive jokes—not to mention that both Korean carmakers were effectively bankrupt a few years later. Volkswagen's (VOWG.DE) total U.S. sales in the mid-'90s were less than half the volume GM's new Malibu is achieving.
No Good Policy Options
All of these car companies experienced incredible comebacks and did so in short order. People today spend in excess of $40,000 to buy a new Hyundai Genesis, although it is likely none ever made payments on a 1994 Excel. Then again, no one dismisses Hyundai's resurgence or new engineering brilliance by constantly throwing up their past products to marginalize their present vehicles. Much in the same way, no one discusses the fact that Honda's (HMC) Acura division lost money in this country for more than a decade; but if GM has a division that is losing money—whoa, that's a big problem.
So what are we going to do if we lose most of our domestic auto industry? Import more automobiles to make up the volume? Wait for the Japanese and Germans to build more factories here to supply U.S. demand? Or give China the big opening they've been waiting for into the U.S. market?
And if we do, then how do we deal with another couple of million good-paying jobs lost forever, or another massive increase in our foreign deficit? That's right, we don't have any good policy options.
I suspect that most politicians, like the public, don't remember that General Motors collapsed in 1910 and 1920 and nearly collapsed in the Great Depression. It went down three times and came back four, much like our economy. Can you imagine the American Century if we had let GM go back then?
General Motors will phase out the Pontiac brand in 2010, said Fritz Henderson, president and chief executive of G.M., in a press conference this morning. I had heard that G.M. was giving up on Pontiac last week, at virtually the same time G.M.'s car delivery guys were taking away the test car I'd been driving for a week: a “liquid red” Pontiac G8 GXP. So in some small measure, the news, though anticipated, was personal. I felt as though I were losing my new best friend.
The G8 GXP is a terrific car. I'd rate it at or near the top of the list of 20-odd new vehicles that I've tested this year, and the less rascally G8 GT is high on the list as well. As Eddie Alterman wrote in his perceptive review of the G8s in The Times last December (before he moved on to become editor in chief of Car and Driver), these impressive new Pontiacs arrived at Detroit's party as the floors were being swept and the last drunks were staggering out. “It's too much, too late,” he wrote.
All too true, and, for those who recall when Pontiac was the life of that party, so sad.
Brian Williams, the anchor of “The NBC Nightly News,” remembers. His family's first new car was a mint-green 1967 Pontiac Catalina. A couple of months ago, when G.M. began to hint that Pontiac would have a limited future (as a “sub brand” with a limited range of models), I was invited to appear on the Nightly News to reminisce about what Pontiac once meant.
It's easy to understand why anyone born after the mid-1960s may not shed any tears when Pontiac is read its last rites. They've known the G.M. division mostly for its generic midsize cars like the 6000 and the Grand Prix, largely indistinguishable from Buicks, Chevys and Oldsmobiles; for its Firebirds that became increasingly alien-looking through the years; for its unimpressive Sunfires and Grand Ams and unremarkable latter-day Bonnevilles; for its half-hearted attempts to sell mummified minivans (TransSports, Montanas, Azteks) wrapped up in plastic lower-body cladding.
It was a different scene in the division's glory days, which ran roughly from the late 1950s till the mid-1970s, a period that neatly coincided with my own obsession for the automobile. I recall marveling at my Uncle Charlie's '57 Super Chief hardtop, whose Indian-head ornaments (one atop each front fender) glowed when the headlights were on. I spent hours pretend-driving the yellow '55 Chieftain Catalina that I ranked highly among the many cars that passed through my older brother's hands before he graduated from high school.
But it was in the 1960s that Pontiac really got serious about building excitement, with the classy Grand Prix and the sporty 2+2 added to a line that included flashy Bonnevilles, perky Tempests, the jaunty LeMans. Headlights were stacked, grilles were split and the cars' track (the distance between opposing wheels) was widened. The modern muscle car was born when John DeLorean wedged a 389-cubic-inch V-8 into the 1964 Tempest, creating the GTO. The brand had buzz, barely a decade after its image was so boring that Pontiacs were derided as “cars for librarians.”
Back to the present, and a car that is surely one of the best sedans Detroit has ever offered: For those who don't track the comings and goings of car models the way Jimmy the Greek kept tabs on the arms of NFL quarterbacks, the GXP is the high-performance version of the G8, a largish (though not unwieldy) sedan that feels thoroughly American, in the best sense of that characterization. The $40,000 GXP combines a Corvette V-8 engine with a remarkably lithe suspension, impressive brakes, superlative steering and a classy, comfortable cabin. After testing it on closed tracks, credible auto writers have compared it favorably with the BMW M5, which costs about twice as much.
If Pontiac had offered cars this good 10 years ago, it wouldn't be flat-lining now in the critical care unit. Of course, if G.M. had made a serious effort to build overengineered cars like the G8 20 years ago, there would be no talk of bankruptcy or slicing the company's “good” assets from its mistakes.
But the G8 damns G.M.'s management on another level, for this excellent yet very American-feeling sedan actually started out half a world away. It is heavily based on the Holden Commodore, a product of G.M.'s Australian subsidiary, and thus joins a long list of well-designed, carefully engineered, highly competitive automobiles created by G.M. subsidiaries around the world. Until recently such products were largely denied to the American consumers who have been telling the company for decades – with their closed checkbooks and their mass defections to foreign brands – that they wanted Detroit to give them world-class cars.
Now a few of those cars are here. They are Pontiacs with Australian accents. And they are about to become orphans.
DETROIT - General Motors (GM) told its dealers Tuesday that it will force 1,000 to 1,200 underperforming locations to close their doors as the automaker tries to thin dealer ranks to make the remaining outlets more profitable.
GM told the dealers about the plan in a video conference, according to a dealer who spoke on condition of anonymity because the video conference was private. It is part of the company's plan announced Monday to cut more than 2,600 dealers by 2010.
GM's Saturn brand will either be sold or phased out by the end of this year, nearly two years faster than previously announced, the brand's top executive said Tuesday.
Saturn General Manager Jill Lajdziak said the brand, once billed as a different kind of car company, most likely will be sold, given the interest of several buyers who have surfaced. She says GM will take other bids for the brand until June 1.
GM has said it wants to sell or get rid of Saturn, Hummer and Saab as it restructures, so it can once again become profitable.
The company expects to lose 500 Hummer and Saturn dealers when those brands close or are sold, and it expects 400 dealers to close voluntarily. Another 500 would be consolidated into other dealerships, according to the dealer.
GM said Monday that it also would eliminate its Pontiac brand, but there are only 27 dealers that sell just Pontiacs, according to the National Automobile Dealers Association. Most Pontiac dealers also sell Buick and GMC vehicles at the same location.
Company spokeswoman Susan Garontakos confirmed the numbers and said GM is in the process of deciding which dealers to keep based on their sales performance, capitalization, potential profitability, size, image and customer satisfaction scores.
After that, she said, the company will go market by market and determine which dealerships are not meeting the terms of their franchise agreements. 'There's a lot of things that we have to consider, but we'll have talks with those dealers that show or haven't demonstrated that they have maintained a good performance,' Garontakos said. John McEleney, chairman of the NADA, said in a written statement that GM must treat all of its dealers fairly and those that close should be compensated. 'It's not out of any fault of their own that these dealers are being forced to close their businesses,' McEleney said. He said many details were unknown about how the dealerships will be closed, but '137,330 dealership employees will lose their jobs, and state and local governments will lose an estimated $1.7 billion in sales tax revenue that would have been used for economic development in communities around the country.' GM announced Monday it plans to reduce dealerships by 42% from 2008 to 2010, cutting them from 6,246 to 3,605.
GM is living on $15.4 billion in government loans and faces a June 1 government deadline to complete restructuring moves, win concessions from its unions and cut its debt. If it fails to meet the deadline, it will go into Chapter 11 bankruptcy protection.
Gm plans to focus on four core brands: Chevrolet, Cadillac, GMC and Buick.
Saturn sale moved up
In February, the company said it would keep Saturn going through the end of the 2011 model year, which is late summer in 2011.
But because of the interested buyers and demands to restructure faster, GM decided to pull the sale deadline forward, Lajdziak said.
Saturn's Lajdziak would not say when GM expects to announce a Saturn sale, but conceded the company will be on a fast timeline to complete a deal by the end of the year. 'We remain confident given the expressions of interest we've already had,' she said. Among the bidders for Saturn is a group led by Oklahoma City private equity firm Black Oak Partners. The group said in a statement that it would get vehicles from GM initially, but it expects to sell smaller, fuel-efficient vehicles from other global manufacturers using Saturn's well-regarded dealership network.
GM started Saturn in 1990 as a small-car answer to Japanese automakers and billed it as a 'different kind of car company.' Its new factory in Spring Hill, Tenn., had more flexible work rules than traditional GM plants and more autonomy for those who built the cars, known for their plastic body panels.
Despite a cult-like following that drew thousands to annual reunions in Spring Hill, the brand never made money for GM.
As GM focused more on high-profit pickups and sport-utility vehicles, Saturn began to languish in the late 1990s. But in 2006, it started getting the best of GM's new models, and executives viewed it as a precursor for GM's restructuring effort.
After a good year in 2007, sales dropped 22% last year as the U.S. market withered.
Sales were off 59% for the first three months of this year compared with the same period in 2008. Lajdziak said the brand fell with the rest of the slumping U.S. auto market, but Saturn was hit further due to publicity about its potential sale or demise. U.S. auto sales were down 38% from January through March.
Some Saturn dealers have given up their franchises since the company announced last year that it was putting the brand up for sale.
When General Motors closes down Saturn later this year, it will lose just over a quarter of its sales of fuel-saving hybrids -- the type of vehicles that the Obama administration wants automakers to build more of.
And it's not yet clear how the end of Saturn affects GM's ability to meet toughening corporate average fuel economy standards. Because Saturn does not offer a V-8 engine or have trucks or body-on-frame SUVs, it is GM's most fuel-efficient North American division.
Saturn currently sells mild hybrid versions of the Saturn Vue crossover and Aura sedan and last year was second in total hybrid sales among GM's divisions. Chevrolet, with sales of 5,838 hybrids was No. 1.
Saturn had planned to add a more advanced hybrid version of the Vue this summer. But that vehicle, which uses a front-wheel-drive version of GM's acclaimed Two Mode transmission, is now canceled. So is the plug-in version of the Vue, which had been due in 2010.
GM said today that all Saturn production will end with the 2009 model year.
GM does not break out sales of its hybrids. But the National Renewable Energy Laboratory does track sales of individual models. In 2008, GM sold 11,454 hybrids, of which 3,205 were Saturns. The rest were hybrid versions of the Cadillac Escalade, GMC Yukon and Chevrolet Tahoe.
No technology transfer plans
A source with knowledge of GM hybrid plans said hybrid powertrains won't migrate immediately to any of GM's four surviving brands: Cadillac, Chevrolet, Buick and GMC.
"There will be no technology transfer from Saturn," the source said. "There is a lot of doubt internally as to what comes to production. Everything is in the air. Everything goes through the government."
But Mark LaNeve, GM's North American sales chief, said today that Saturn's hybrid technology could end up in any of the company's four surviving brands.
"Any of the four core brands could get our technology," LaNeve told Automotive News. "There's not a hybrid in Saturn that is exclusive to Saturn. Nothing changes there, unless someone who buys Saturn says we want us to continue building hybrids for this brand and we agree to do it."
After Saturn is discontinued, GM will offer the Chevrolet Malibu mild hybrid and Two Mode versions of the Chevrolet Silverado and GMC Sierra pickups as well as the three full-sized Two Mode SUVs.
The fwd version of the Two Mode now likely will not be produced until 2011, said the GM source, who is familiar with the company's hybrid plans. GM officials are deciding which division, Buick or GMC, will get the fwd Two Mode transmission.
The mild hybrid system provides a slight boost upon acceleration and offers a stop-start feature. GM's mild hybrids offer about a 20 percent fuel economy gain. The Two Mode version can drive the vehicle on electric power alone and would have delivered a fuel economy gain of at least 30 percent.
CAFE average won't take big hit
John O'Dell, an analyst at Edmunds.com who tracks green cars, said the loss of Saturn's hybrids might hurt GM's CAFE average initially. But the hit would not be too harsh because GM is also phasing out its Hummer and Pontiac brands, which have several models that get poor fuel economy.
"They've made it clear from their recovery plan that the Chevrolet Volt is GM's fuel economy future," O'Dell said. "We know GM has many more vehicles than the Volt in its arsenal that has a Volt-style extended-range powertrain."
O'Dell said he expects GM to deploy some of Saturn's hybrid powertrains in other vehicles.
Dan Becker, director of the nonprofit Safe Climate Campaign in Washington, told Automotive News that GM could not rely only on its plug-in hybrid Volt car, due to launch at the end of next year, because its impact on the market will be "minuscule."
GM will have to come up with new fuel-efficient models to try to keep pace with Toyota, Honda and Ford, among others, Becker said.
Call it a bailout or restructuring. What you're seeing is not a new beginning for the homegrown auto sector. It's the culmination of a decades-old, dishonestly peddled auto policy.
The two parties that turned the Big Three into a perennially limping freak of unwritten industrial policy now will take formal ownership of their handiwork. The United Auto Workers (UAW) would own 39% of GM. The federal government would own 50%. The creditors will be shafted with just 10%. (In the Chrysler plan being discussed, labor would own 55%, making it effectively a subsidiary of the UAW.)
The day after any such settlement is finalized, the clock will start ticking down to the next collective-bargaining session between a monopoly UAW and what remains of the Big Three -- though now the UAW would be sitting on both sides of the table.
Nearly 25 years ago, a Los Angeles Times reporter innocently and accurately invoked the "M" word in describing the domestic auto sector, noting that the arrival of Japanese auto plants was "threatening the UAW's traditional monopoly on labor in the domestic auto industry."
The erosion of the Big Three's market share since then has really been the erosion of the market for monopoly labor-produced cars. The UAW standard tactic, "pattern bargaining," which it pursues without embarrassment, would have gotten Bill Gates thrown in jail under the antitrust laws.
When the L.A. Times wrote, the labor cost differential versus a Japanese plant was about $2,000 per car. Twenty years later, the cost difference was about $2,000 per car. Today's lament is, "The bankers have benefited from a bailout, so why shouldn't auto workers?" But they have, they have -- for decades. For the business model described above could not possibly have survived otherwise.
Chrysler was bailed out directly with government loan guarantees; the Big Three all benefited from Reagan era "voluntary" quotas on Japanese imports to prop up domestic car prices. But these were temporary fixes. For more than 40 years, a 25% tariff has kept out foreign-built pickup trucks even as a studied loophole was created in fuel-economy regulations to let the Big Three develop a lucrative, protected niche in the "passenger truck" business.
This became the long-running unwritten deal. This was Washington's real auto policy.
For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs.
Doesn't sound much like what you hear incessantly from your Congressman, about how Detroit's problems are all due to management "incompetence" in deciding to build "gas guzzling" SUVs, does it?
But then uncertain at this point is whether any legislator (other than John Dingell) remembers or grasps anymore Congress's own role. Yet the muddled, covert bailout continues: Washington's latest fuel-economy rules actually reward manufacturers for increasing the size and weight of some vehicles. The truck tariff remains in place. The fuel-mileage rules continue to protect the UAW monopoly by discouraging the Big Three from shipping small-car production offshore.
Lately some have doted, with wonderment and admiration, on the Obama administration's apparent willingness to drive a hard bargain with the UAW as it tries to impose a stage-managed replica of bankruptcy on GM and Chrysler. Please.
In a real bankruptcy, which is the natural fate of companies unable to meet their obligations, Chrysler and GM would be run (or liquidated) for the benefit of their creditors, not their workers. But, here, "pattern bargaining" will remain the law of the Detroit jungle. The UAW will continue to use its unnaturally augmented clout to extract uncompetitive pay and benefits (it can do no other given its internal incentives). As it has for 40 years, Washington will pitch in with one improvisation after another, disguised as energy policy, trade policy, health-care policy or environmental policy, to stop the rivets from popping off. Politics, especially Democratic electoral politics, will play a more dominant role than ever.
Look closely and the hidden subsidies to keep the dismal beast alive have already started flowing -- tax credits for UAW retirees to make up for reduced health-care benefits, loans to help Detroit "invest in green cars." And plenty more will be needed to sustain Obama Motors on life support, at least through the 2012 election.
The Obama strategy does nothing to change the basic dynamics of the homegrown auto sector -- a labor monopoly combined with endless finagles in Washington to help the Big Three survive competition from Japanese, German and Korean auto makers. But maybe the shock of seeing GM nationalized will at least cause some in politics and the press finally to think about how we got here.
Union workers at Chrysler and General Motors (GM) have long lamented that they could run the automakers better than management. Now they'll get their chance—to a degree, at least. But if the experience of workers at other companies— such as United Airlines (UAUA), where employees also made financial concessions in exchange for equity and a larger voice in operations—serve as any guide, auto workers should be careful what they wish for.
Under the terms of the government's bailout of the two troubled automakers, union workers at Chrysler will gain 55% ownership in return for reducing by half the automaker's $10.6 billion obligation to the United Auto Workers' retiree healh-care fund. Similarly, UAW members will own 39% of General Motors through a deal that allows GM to use stock instead of cash to fund half of its $20.4 billion obligation to the UAW's retiree health-care fund.
While there are no guarantees that the automakers will survive their current downward spirals, UAW leaders clearly feel they had no good alternatives. "We fought to maintain our wages, our health care, and our jobs," UAW President Ron Gettelfinger said in a letter to workers. "In the face of adversity, we secured new product guarantees and we negotiated new opportunities for UAW involvement in future business decisions."
Can automaker management adapt?
Those very words could have been spoken by union leaders at United Airlines in 1994, when management and workers at the Chicago-based company struck a similar deal to bring the carrier back from the brink of financial crisis. In exchange for $700 million in wage concessions, workers for key union groups received three board seats and a 55% ownership stake in the form of an employee stock ownership plan.
What happened at United over the following decade could provide valuable lessons to the workers at Chrysler and GM. The biggest key? Whether management at the automakers motivates workers to buy in to the turnaround and gets them to act as owners. "If the [companies] see this as just financing engineering and don't adapt their management style, then [unions] are just going to behave the way they always did," says Charles O'Reilly, the Frank E. Buck Professor of Management at Stanford University.
In the first year out of the gate, the new management-labor partnership at United looked like a winner for all parties. The airline made the most of its new ownership structure: United encouraged customers to "fly our friendly skies," and callers to its reservation system were told that "one of our owner-representatives will be with you shortly." But the changes went beyond slogans. The union-influenced board quickly replaced polarizing CEO Stephen Wolf with Gerald Greenwald, a former auto executive who vowed to give workers a greater voice in making decisions. Indeed, workers from across the airline were brought together in new "best of business" teams that generated tens of millions of dollars in cost savings across the system. With United's historically disenfranchised workers suddenly feeling—and acting—like owners, the number of formal grievances dropped by nearly three-quarters, and absenteeism and workers' compensation claims fell as well. Buoyed by the strengthening economy, United's shares more than tripled over the next several years—boosting the value of those ESOP shares by more than $2 billion.
United prospered until business fell
But by the late 1990s, cracks began to form. The ascendancy of new low-cost rivals such as Southwest (LUV) and AirTran (AAI) crimped profits at traditional carriers like United, burdened as they were by the high costs of both maintaining hub-and-spoke networks and having workforces that were older and mostly unionized. But at United, the problems ran even deeper. Despite its special heritage—United claims it was the first airline to offer commercial service—the relationship between management and the unions had been fractious for decades.
So while then-CEO Greenwald was able to bridge the differing interests of both Wall Street and his unionized workforce, the reservoir of goodwill wasn't deep enough to survive the industry's inevitable downturns. What's more, employees at United were divided over the ESOP from the start. The flight attendants declined to participate in it and the vote at the machinists' union was a 52%-to-48% squeaker because many of the company's mechanics felt the pilots were reaping most of the spoils.
These fissures were laid bare for all to see when Greenwald tried to hand the reins to his successor. In 1998, union representatives forced out his first choice, then-President John Edwardson. The job fell to Edwardson's successor as president, James E. Goodwin, a veteran executive. But it quickly became clear that the next generation of managers didn't share Greenwald's reverence for the new ownership structure. United's pilots felt betrayed when Goodwin negotiated a merger—later aborted—with US Airways (LCC) that would have pushed many United pilots down the seniority ranks. They felt even more furious when the new CEO let their contract lapse without negotiating a new deal.
With labor relations poisoned, pilots began staging "sickouts" that, when combined with a stretch of bad weather in the summer of 2000, forced United to cancel 26,000 flights, driving many passengers to other airlines. The cure only made matters worse: To appease the pilots, Goodwin agreed to an expensive new labor contract that sent United's costs through the roof. The problems came to a head when the 2001 terrorist attacks sent passenger traffic plunging. Goodwin resigned in October 2001, and the company filed for bankruptcy the following year. Instead of the untold riches they'd hoped for, United's employees saw the value of their ESOPs become largely worthless. The structure was "fatally flawed," says Rick Dubinsky, a retired United pilot and union leader at the time. "The airline never changed its corporate culture. The business model wasn't modified in many respects and squandered the cost savings from the ESOP."
Needed: "a huge shift in culture"
To be sure, some ESOP experts say that certain of the problems were unique to United and won't necessarily be encountered at GM and Chrysler. For instance, while labor relations at the automakers have long been poor, at United "the union-union relations were terrible, too," notes Corey Rosen, who runs the National Center for Employee Ownership, a nonprofit research and advocacy group.
These experts do say that GM and Chrysler can learn from the United debacle—namely, that labor-as-owner arrangements work only when the management team truly brings workers into decisions and can communicate well about the ongoing trade-offs and sacrifices that owners sometime have to make. "Managers must have an 'open book' policy with high employee involvement," Rosen says. "For most companies, this is a huge shift in culture."
Experts concede that ESOPs work best when a company is thriving; the risks are much larger at companies that are struggling. That's because recriminations between management and workers rise if the turnaround doesn't take hold. "When business is bad and the outlook for the company isn't great, an 'I-told-you-so' attitude starts to form among workers," notes Michael Keeling, president of the ESOP Assn., a Washington-based trade group whose membership consists of companies that have done ESOPs.
Then again, it worked once before in Detroit: As part of the government's 1979 bailout of Chrysler, workers traded concessions for a 15% stake in the company, which paid off handsomely when a turnaround bloomed. But now it's up to the next generation of workers and managers to demonstrate that they can learn from history.
TOKYO -- Honda Motor Co. posted its first quarterly loss in 15 years in the three months ended March 31, but still squeaked out a full-year profit. It forecasts continuing black ink despite falling sales in the fiscal year that began April 1.
In the quarter that ended March 31, Honda posted an operating loss of ¥283.0 billion or $2.91 billion at current exchange rates, Executive Vice President Koichi Kondo said today .
The results marked a dramatic reversal from a year earlier, when the company reported an operating profit of $1.74 billion .
Global unit sales to dealers or distributors in the fourth quarter slid 35.3 percent to 680,000. In North America, volume plummeted by more than half, to 219,000 vehicles from 459,000 the year before.
Revenue tumbled 41.6 percent in the quarter to $18.33 billion. Net income swung to a loss of $1.91 billion from a year-earlier profit of $261.1 million.
All major markets saw regional operating losses.
In North America, Honda swung to a $1.10 billion loss for the quarter from a $648.7 million profit a year earlier.
For the fiscal year that ended March 31, operating profit at Japan's second-biggest automaker collapsed 80.1 percent to $1.95 billion.
Revenue fell 16.6 percent to $102.90 billion, the first drop in nine years. But Kondo said an adverse exchange rate hurt full-year profits even more than falling sales. Net profit fell 77.2 percent to $1.41 billion.
Looking ahead, Kondo warned that operating income will plunge an additional 94.7 percent, to $102.8 million, in the current fiscal year, and net income will drop 70.8 percent to $411.1 million.
Despite plunging profits, Honda is in better shape than some of its rivals. General Motors and Chrysler LLC are struggling for survival, and Toyota Motor Corp. expects to announce its first loss in decades later this month. Honda has yet to post a full-year loss since its founding in 1948.
Honda says it can weather the storm with flexible manufacturing and an emphasis on fuel-efficient cars. Kondo said aggressive cost cuts will keep Honda profitable in the current fiscal year, even though global sales are seen retreating 8.7 percent to 3.21 million vehicles.
In North America, Honda's biggest market, unit sales dropped 19.1 percent to 1.50 million in the year just ended. The decline is expected to continue but at a slower pace, with North American sales shedding an additional 9.8 percent to 1.35 million vehicles this year.
Kondo said the United States is showing signs of bottoming out after Honda's business took an especially steep dive in the January-March fiscal fourth quarter.
Honda aims to bolster this year's operating profit by cutting $433.8 million in r&d costs. The company also will trim capital expenditures by a third, to $4.0 billion.
The latest developments in Washington's restructuring of the auto industry amount to this irony: Having burdened the Detroit companies for decades with restrictive work rules, enormous health-care obligations and generous retiree benefits, the United Auto Workers union will now end up controlling two of them. Specifically, the UAW will own 55% of Chrysler and 39% of General Motors, where only the government will have a larger ownership interest.
Assuming that negotiations over the next few days or weeks don't change things, it's hard to know whether this outcome is perversity or poetic justice. The UAW finally will end up having a direct stake in the survival and prosperity of General Motors and Chrysler -- even though the union's shares in the companies will be held by special trust funds instead of by the UAW itself.
Whether the union's rank and file will recognize its interest in the companies and act accordingly is another matter. Consider that one of the terms of Chrysler's pending deal with the union is that workers won't receive overtime pay until they work more than 40 hours in any given week.
One might well ask: Wasn't it always that way? Well, no. Often enough, the union negotiated production quotas in local plant contracts that workers could fill in five or six hours a day -- after which any work they did qualified for overtime pay. Now you understand one key reason why Detroit has arrived at this unhappy juncture.
It's hard to imagine the mind-set that produced this sort of thing will change just because the workers will become the owners, albeit indirectly. Years ago, at the University of Wisconsin, I wrote a master's paper on the student-union store, where the workers were the owners. Many came to work and left when they wanted, because they were the bosses, after all. (The big debate, as I recall, was whether they could come to work stoned.) There's an inherent conflict between the cost discipline required of owners and the understandable desire of employees to make more money for less work (hey, why not?). Keeping those two powerful forces in balance is critical to the success of any profit-making -- or profit-aspiring -- private enterprise. Even a clean and well-run union such as the UAW will have trouble squaring this circle in the long run.
What's occurring now is the culmination of a steady, decades-long transfer of wealth from the owners of GM and Chrysler to the employees. It began in 1970, when GM caved in to UAW contract demands after a two-month strike that scared management for the next four decades. After that, health-care and pension benefits steadily got richer and early-retirement provisions progressively got looser. Today, workers can retire after 30 years on the job, regardless of age. In GM's 1992 annual report, CEO Jack Smith reported that the company's health-care tab for employees, retirees and dependents averaged about $9,500 per active employee each year. That was up from just $3,500 a decade earlier, "a staggering 170% increase in only 10 years," as Mr. Smith wrote. After that, costs ballooned further. Not until 2005 did the UAW agree to pay modest monthly premiums and deductibles for doctor visits that almost all Americans -- including GM's white-collar employees -- had for years.
As this burden grew, and as GM downsized further because its plethora of unneeded brands resulted in too many mediocre cars, the cost became more than the company could bear. So in late 2007, with disaster at the door, the union finally agreed to the creation of trust funds -- financed by a one-time payment by the car companies -- to handle all medical benefits for retirees.
But now, because car sales have fallen off a cliff, GM and Chrysler can't afford to make that payment in cash, so they'll have to pay a big portion of it with their stock. (Ford has cut a similar deal with the union, without government intervention, but it has more flexibility in how to make its payment.) Voila! Existing owners will be diluted and the transfer of wealth will occur.
Actually, the existing shareholders in General Motors (and Chrysler too, but it's privately owned) won't merely be diluted; they'll be wiped out. The restructuring plan that GM unveiled this week, which is the company's third such plan in the last four months, has many numbers, but the one that stands out is 90. That's the percentage of approval for the plan that's required from the company's bondholders, who are being offered just 10% of GM's stock in return for wiping out their $27 billion in unsecured debt, if GM is to avoid a formal bankruptcy filing.
There's little chance the company will get it. When was the last time that 90% of voters approved anything, at least outside North Korea?
Make no mistake. GM's latest-latest restructuring plan is tantamount to declaring Chapter 11 bankruptcy. Yet this shouldn't be viewed as a bad thing. Chapter 11 is all about letting companies shed obligations they can't meet, and the more obligations that GM and Chrysler shed, the better they'll be able to build cars and preserve jobs.
Considering the mess it walked into, it's hard to see how President Barack Obama's automotive task force could have avoided ending up with the federal government and union trust funds owning most of GM and Chrysler. Unfortunately, the money the companies owe to the UAW health-care trust constitutes a legal claim on their assets. As mentioned earlier, if the companies can't make the payments in cash, they'll have to make them partially in stock.
As for the government, it is providing what lawyers call the "debtor-in-possession" financing that is keeping GM and Chrysler going just now. If these "loans" remain as debt, the two companies will be crushed under the burden. So the only other choice is the government taking equity, aka stock. The good news here, government sources say, is that the union trust funds will get just one seat on each company's board, and the government will get none.
Nonetheless, there are steps that would further minimize the complications of the UAW and the federal government owning most of GM and Chrysler. First, cut the bondholders in for a greater ownership share, at least in GM's case. (Chrysler's debt is owned by banks, which basically want out of the company.) If GM bondholders were to get 25% or 30% of the stock in return for their debt, instead of the 10% that GM proposed Monday, they might find the deal more palatable, and more stock might remain in private hands.
Second, let's have a clear exit timetable for the government to sell its shares in both Chrysler and GM, and get the companies back in the hands of private investors. Mr. Obama has an exit strategy for Iraq; he needs one for Detroit, too.
In the same vein, the UAW should seek to sell its trust-fund stakes in GM and Chrysler as early as possible. Instead of owning these companies, the UAW's leadership surely would rather milk them -- one hopes less successfully than in the past.
[Source: Ford, Toyota | Image: Jewel Samad/AFP/Getty]
PRESS RELEASES:
FORD GAINS RETAIL SHARE AS FUSION SETS SALES RECORD
* Ford gains retail share – for the sixth time in last seven months * Ford Fusion sets monthly sales record and grows strength in mid-size car segment * Ford hybrids combine to eclipse year-ago sales; Kelley Blue Book names Fusion Hybrid and Escape Hybrid to Top 10 Green Cars list * Ford, Lincoln and Mercury sales totaled 129,898
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Soundbites: April 2009 Sales
DEARBORN, Mich., May 1, 2009 – New, fuel-efficient products and quality on par with the best in the industry helped Ford increase retail market share in April – the sixth time in the last seven months that Ford's share of the retail market was higher than a year ago.
In April, the Ford Fusion paced the share performance. Fusion sales totaled 18,321, a record for any month. April was the first full month of sales for the redesigned 2010 model and the new Fusion Hybrid version, and April is believed to be the first month that Fusion was among the top three-selling mid-size sedans. Recent independent studies rate Fusion and the Mercury Milan – the most fuel-efficient mid-size sedans in America – as having the best predicted reliability among all mid-size sedans.
"We continue to operate in a very challenging economic and competitive environment," said Ken Czubay, Ford vice president, Sales and Marketing. "Especially given this external environment, we're very encouraged by the consumer response to our new mid-size sedans."
"Sales of the 2010 Ford Fusion, Mercury Milan, Lincoln MKZ and hybrid versions exceeded our plan and customers also are equipping our new products with levels of content and features that are higher than we expected," he added. "This suggests consumers view our high-quality, fuel-efficient new products as offering outstanding value."
The new Fusion Hybrid is one of four hybrid models offered by Ford. Hybrid models also are offered in the Mercury Milan mid-size sedan and the Ford Escape and Mercury Mariner small utility vehicles. All Ford hybrid models are the most fuel-efficient vehicles in their class, and the Ford Escape and Ford Fusion recently were named to Kelley Blue Book's list of Top 10 Green Cars. In April, combined sales of all hybrid models totaled 2,299, up 21 percent versus a year ago.
Other new Ford products contributed to the retail share performance, including the new F-150 pickup, America's best-selling vehicle, and Ford Flex, the distinctively styled crossover utility that had its best sales month ever (3,190).
Growing awareness and consideration of Ford and its high-quality, fuel-efficient products are starting to take hold. Plus, through June 1, Ford is offering consumers additional reasons to "Drive one."
The Ford Advantage Plan offers payment protection up to 12 months for up to $700 per month on any new Ford, Lincoln or Mercury vehicle if a customer loses his or her job. Plus, 0 percent financing from Ford Motor Credit is available on select vehicles.
On Tuesday, April 28, Ford launched a community engagement phase of the Ford Advantage Plan. Through June 1, Ford will donate $20 to Susan G. Komen for the Cure for every test drive taken at a participating Ford, Lincoln and Mercury dealership to Komen – up to $1 million. That amount could grow even higher as more than a thousand dealers around the country are joining in to match the company's donation. During the past 15 years, Ford has contributed more than $100 million to the fight against breast cancer.
Ford, Lincoln and Mercury sales totaled 129,898, down 31 percent compared with April 2008. Retail sales were down 32 percent compared with a year ago and fleet sales were down 30 percent.
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Note: The sales data included in this release and the accompanying tables are based largely on data reported by dealers representing their sales to retail and fleet customers.
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Toyota Reports April Sales
TOYOTA REPORTS APRIL SALES TORRANCE, Calif. (May 1, 2009) – Toyota Motor Sales (TMS), U.S.A., Inc., today reported month-end sales of 126,540 vehicles, a decrease of 41.9 percent from last April, on a daily selling rate basis.
The Toyota Division posted April sales of 112,345 units, a decrease of 42.2 percent from the same period last year. The Lexus Division reported April sales of 14,195 units, a decrease of 39.2 percent from the year-ago month.
Toyota Division
Toyota Division passenger cars recorded April sales of 70,662 units, down 41.6 percent from the same period last year. Camry and Camry Hybrid remained Toyota's volume leader in April, posting combined monthly sales of 25,324 units. Corolla recorded sales of 18,534 units. Yaris reported sales of 8,118 units for the month. The Prius mid-size gas-electric hybrid posted April sales of 8,385 units.
Toyota Division light trucks posted April sales of 41,683 units, down 43.1 percent from the year-ago month. Light truck sales were led by the RAV4 compact SUV with sales of 11,126 units. The Tacoma mid-size pickup reported sales of 9,027 units for the month. The Tundra full-size pickup recorded April sales of 6,156 units. Highlander and Highlander Hybrid posted combined sales of 5,595 units.
Scion posted April sales of 4,442 units. The xB urban utility vehicle led the way with sales of 2,036 units. The tC sports coupe recorded sales of 1,526 units. The xD reported sales of 880 units for the month.
Lexus Division
Lexus passenger cars reported April sales of 7,189 units, a decrease of 47.8 percent from April 2008. Passenger car sales were led by the ES entry luxury sedan with April sales of 3,549 units. The IS entry luxury sport sedan posted combined sales of 2,324 units. The LS flagship luxury sedan recorded combined sales of 765 units. The GS luxury sport sedan reported combined April sales of 468 units.
Lexus Division light trucks recorded April sales of 7,006 units, down 26.9 percent from the year-ago month. Lexus sales were led by the RX and RX Hybrid luxury utility vehicle, which posted combined April sales of 6,237 units. Thanks to strong sales of the new 2010 RX 350, the RX was the industry's best-selling luxury vehicle for the month of April.
TMS Hybrids
TMS posted April sales of 12,223 hybrid vehicles. Toyota Division recorded sales of 11,516 hybrids for the month. Lexus Division reported April sales of 707 hybrids.
There were 26 selling days this month and last April.
May 6 (Bloomberg) -- Nissan Motor Co., Japan's third-largest automaker, may join a venture with U.S. retailer Penske Automotive Group Inc. and General Motors Corp.'s Saturn car brand, two people familiar with the matter said.
The idea is that Nissan, its affiliate Renault SA or another automaker may make Saturn-brand vehicles for a new venture that could be operated by Penske and distributed through Saturn's retail network, said the people, who asked not to be named because discussions are private. GM is seeking to spin off or sell the Saturn brand and its distribution network that links 350 to 400 U.S. dealerships.
Chief Executive Officer Carlos Ghosn may want to put Nissan's North American factories to work producing vehicles under the Saturn nameplate after Nissan and Infiniti sales in the U.S. fell by a third. Nissan shares have gained 59 percent this year.
For Penske Automotive, such a venture may allow it to expand its business, similar to its distribution of Daimler AG's Smart brand.
“We've looked at Saturn,” Chief Executive Officer Roger Penske said May 4 in an interview. “We look at a lot of opportunities. It would be premature to say we're anywhere close to a deal.”
U.S. Saturn franchisees have collectively invested from $1 billion to $2 billion in their stores, parts and related equipment, according to dealer estimates.
GM, facing a June 1 deadline to cut debt and other costs or file for bankruptcy protection, plans to shrink its eight U.S. automotive brands to four.
Multiple Bidders
The automaker has committed to producing Saturn models through the end of this year and is willing to make them on a contract basis through 2011, Jill Lajdziak, general manager for the brand, said April 28.
GM is entertaining interest from multiple bidders, Lajdziak said last week. Detroit-based GM will accept bids for the brand until June 1 and will narrow down the list through the summer, with a goal of selling or winding down the brand by the end of the year.
Steve Janisse, a GM spokesman, declined to comment on Saturn bidders. GM is being advised by former equity analyst Stephen Girsky, the automaker reiterated in a statement May 4.
In addition to selling cars at retail through 310 dealerships in the U.S. and U.K., Penske is the U.S. distributor of Smart cars. Unlike most other vehicle-distribution networks, Smart takes customer orders and deposits via a Web site, allowing dealers to keep fewer cars in inventory.
‘Plug and Play'
Penske executives refer to such a vehicle distribution method, sidestepping the traditional U.S. franchises in which only dealers can take retail orders, as “plug and play.”
Nissan's U.S. sales, including its Infiniti luxury brand, have tumbled 36 percent this year, similar to the industry's 37 percent plunge. The Tokyo-based automaker has excess manufacturing capacity in North America and could build versions of its current models branded as Saturns.
Nissan and Renault have expressed tentative interest in the venture, one of the people said. Fred Standish, a Nissan spokesman, and Frederique Le Greves, a Renault spokeswoman, declined to comment.
GM introduced Saturn in 1990 to take on Japanese brands in the U.S. with a low-pressure sales approach and no-haggle pricing. U.S. sales tumbled 58 percent through the first four months of this year. Only Hummer, among GM brands, declined more sharply at 67 percent.
Penske Automotive, the second-largest publicly held dealer group, earned $16.3 million in first-quarter net income or 18 cents per share, down 50 percent from last year's $32.3 million or 33 cents per share.
Penske lost 9 cents, or 0.7 percent, today to close at $13.47. It has gained 75 percent this year.
After running up the biggest loss in its history, Toyota Motor Corp. will focus on finding ways to make more money selling small cars to cope with a devastating shift in consumer demand.
Toyota executives outlined their back-to-basics approach Friday as the company disclosed a stunning $7.7 billion loss for the January-March quarter, a bigger loss than General Motors Corp. suffered in the same period.
For the fiscal year ended on March 31, Toyota lost $4.3 billion, its first annual loss since 1950 and a huge swing from a record $15 billion profit the previous year.
The Japanese automaker expects to report an even bigger $5.8 billion loss this year because of persistent weakness in the U.S. and other key markets.
While the severe downturn has buffeted all automakers, even Honda Motor Co. and BMW AG, 'Toyota has some self-inflicted problems,' said consultant Maryann Keller, who heads her own firm in Stamford, Conn. 'They were on a mad tear to become No. 1 and as a result generated a lot of excess capacity. They also have excess labor, as a result.' Such problems, normally associated with Detroit's Big Three, are new for Toyota.
But Japan's and, as of last year, the world's biggest automaker retains a big advantage over the struggling U.S. automakers. It still has large cash reserves that afford it some flexibility. Toyota's total liquid assets amounted to $33 billion at the end of March, down from $38 billion a year ago. 'They have the opportunity to do something that GM in the 1960s did not do,' which is to learn to make and sell small cars profitably, Keller said. 'GM in the 1960s was richer than Croesus.'Toyota earns more selling large vehicles than compact models, and that leaves the automaker vulnerable to potentially long-term changes in the market, Toyota Senior Managing Director Takahiko Ijichi said on a teleconference with financial analysts. 'We believe the market will shift to smaller and more environmentally friendly vehicles.' Starting with the next-generation Corolla compact, 'We're going to engineer in initiatives to reduce the cost of producing such vehicles,' he said. 'We'll apply these efforts to all compact vehicles so that we can drastically reduce the cost of producing compact vehicles at Toyota.' The strategy marks a reversal from the company's recent aggressive push into new large-vehicle segments, such as full-size pickups like the Toyota Tundra.
Toyota's rival Honda, which offers fewer large models, appears set to recover faster. Honda also slid into the red in the second half of the year ended on March 31, and it expects to lose money in the first half of this year. But it expects to return to profit in the second half and report a small profit for the year.
By contrast, Toyota does not see a turnaround this fiscal year, although it expects its quarterly results to improve from the huge fourth-quarter loss, Ijichi said.
He estimated the company would show an operating loss of $6.3 billion in the first half of the year but expects that to narrow to a second-half loss of $2.6 billion.
He added that Toyota would accelerate cost cuts, slash capital spending, postpone projects and take other emergency steps but maintain research and development in key areas, such as hybrid vehicle development and other alternative technologies.
James Womack, a manufacturing expert and chairman of the Lean Enterprise Institute in Boston, said Toyota has been too optimistic in its global growth forecasts. He noted that similar over-optimism about Japanese sales prospects nearly brought the company to ruin in 1950.
Earlier this year, Toyota announced Akio Toyoda, grandson of the founder, would take over as president in June. He succeeds Katsuaki Watanabe.
Its current difficulties underscore the huge challenges the industry faces in an environment of weak demand and excess production capacity. GM, which is struggling to stave off bankruptcy, reported a $6 billion loss Thursday for the January-March quarter after losing $31 billion last year.
LONDON (Reuters) -- Toyota Motor Corp. is planning one of the most drastic management overhauls in its history next month when Akio Toyoda, grandson of the Japanese car company's founder, takes over as president, the Financial Times reported on its Web site on Thursday.
The company will replace 40 percent of its senior managers and is said to be preparing a sweeping reorganization of its key North American business, the newspaper said.
Toyota has said it would bring back a former senior executive, Yoshimi Inaba, to lead its U.S. operations after he had left the company in 2007 to run an airport in Nagoya, near Toyota's headquarters.
His appointment comes as Toyota has struggled to make the most of a North American unit it established a few years ago to bring sales and manufacturing operations there closer together.
Forgettable first
Last Friday, Toyota reported the first operating loss in its 71-year history. Stung by the global meltdown, Toyota slumped to an operating loss of ¥461.0 billion, ($4.74 billion) in the fiscal year that ended March 31.
Departing Toyota President Katsuaki Watanabe warned the automaker faces even worse losses this year despite a campaign to slash $8.22 billion in costs.
Watanabe projected that the loss will widen to $8.74 billion in the current fiscal year on plunging sales and unfavorable exchange rates.
In the latest quarter, Toyota's net loss of $7.87 billion surpassed General Motors' net loss of $5.97 billion.
The new management, including family scion Akio Toyoda as president, will be appointed officially at the annual shareholders' meeting on June 23. (Reporting by Chang-Ran Kim in TOKYO, David Holmes in LONDON)
DETROIT -- Car dealer Jamie Auffenberg knew he would get a letter from Chrysler Thursday. He just didn't know what it would say.
When he opened the UPS package Thursday morning, he found a letter saying Chrysler is terminating the franchise for his Chrysler/Jeep store in O'Fallon, Ill. His brother Chris operates four Chrysler-branded stores in Missouri and was told that two would close.
"I didn't see this coming," Auffenberg says. Even after talking to Chrysler later in the day, he still wasn't sure why his store, or his brother's, were cut. He says recent tax trouble, for which he was cleared, was not cited.
Many car dealers, independent businesses with franchise agreements with the automakers, are family-run stores staying in the same bloodlines for generations.
As Chrysler announced its closings Thursday, several families were dealt blows. Kim Hendren in Pineville, Mo., was told his stores would stay open. His son Mark Hendren was told his Neosho, Mo., store would close.
"It's kind of overwhelming to get a letter that says goodbye," says Alan Wilson, a Chrysler/Jeep dealer in Jackson, Miss. Wilson is keeping his franchise, but his brother Doug, who operates the Dodge dealership on the same property, is facing closure. Wilson says his brother is dealing with "the emotional stuff and the pragmatic stuff. ... It's obviously very difficult."
On Thursday, Chrysler announced it is cutting off 789 of its nearly 3,200 dealers by June 9. Dealers across the nation said they were saddened by the news.
"It's a sad day for America when, with the stroke of a pen, dealers that have been in the community hiring local employees and paying taxes are suddenly wiped out," says Howard Kuperman, owner of a Jeep store in Port Jervis, N.Y., who was told it would close.
Chrysler, which is operating on government loans and filed for bankruptcy reorganization this month, says it decided which dealers to cut based on sales, customer satisfaction rates, how much capital they have on hand and whether the dealer sells all three company brands under one roof.
"This is a difficult day for us, and not a day anybody could be prepared for," says Jim Press, Chrysler's president and vice chairman. "There are no winners. There are no losers."
After struggling for years to trim its dealer network, Press says, the automaker is taking advantage of the fact that being in bankruptcy court frees it from state franchise protection laws. "The bankruptcy process does allow us a once-in-a-lifetime chance to accomplish a right-sized, realigned dealer body," he says.
The auto industry overall supports one in 10 U.S. jobs, according to the Alliance of Automobile Manufacturers. Dealers alone employ more than 1.1 million and generate nearly 20% of retail sales in most states. The National Automobile Dealers Association estimates Chrysler's closures affect more than 40,000 jobs.
"We believe that these draconian dealer cuts are not only misguided but counterproductive," NADA said in a statement. "Fewer dealers mean less revenue for the automakers. Dealers are the manufacturer's customer. They buy the cars and parts and even the signs in front of their dealerships."
The economic slowdown has hit the auto industry like a brick. Sales have been below the 10 million annualized rate all year. Just two years ago, they were topping 16.5 million. But even when times were good, the domestic automakers were trying to trim their dealer ranks. Toyota, Honda and Nissan have far fewer dealers than the Detroit 3, meaning there is less competition among them for customers.
A study done by Grant Thornton found a typical Toyota dealer sold 1,628 vehicles in 2007; Ford stores averaged 236. The average for all new car dealers: 322.
Chrysler says many of the stores on its cut list sold fewer than 100 vehicles a year.
"They clearly have too many dealers in the system," says Pat O'Keefe, a turnaround expert at O'Keefe & Associates. "They don't need as many dealers as they have, and they won't for some period of time."
Even AutoNation, the country's largest chain of car dealerships, was affected. Five of AutoNation's 234 stores will close: two in Florida, one each in Colorado, Alabama and Texas.
But they represent just 1% of AutoNation's revenue, the company said. CEO Mike Jackson says he's fine with the consolidation and that it's overdue. "Domestic market share went from 60% to 40% in the last decade, but the rationalization of the dealer network has not kept pace with this," he says. "They were already behind."
Domestic automakers have tried buying out dealerships or encouraging them to consolidate, but now they're out of time and money, Jackson says. He says Chrysler should use the power of bankruptcy court to get rid of the franchise agreements.
"The track record has shown over the past decade that it's extremely difficult to deal with," Jackson says. "It's an intractable problem."
During yesterday's Audi AG investors meeting, Rupert Stadler, the automaker's chairman, confirmed what's been assumed for some time: the RS5 will be available in both coupe and cabrio forms, the A5 Sportback is due out later this year and the redesigned A8 will debut in late 2009.
On the RS5 front, the UK's CAR magazine has confirmed that the 4.2-liter V8 found in the RS4 and R8 will be fitted to the new high-po coupe, with output pegged at around 450 horsepower and 332 lb-ft of torque and delivering a 0-60 time in the mid-four-second range. A series of weight reduction measures will be employed in addition to the beefed-up brakes and suspension, and a topless variant will arrive soon after the RS5 hits dealers later this year.
The A5 Sportback, originally shown in concept form at the Detroit Auto Show, will be available sometime this year, likely packing the 211-hp, 2.0-liter TFSI, the company's new supercharged 3.0-liter V6 and a revised diesel V6 putting out around 240 hp and a boatload of torque. Stadler is convinced the A5 Sportback is a model that will be embraced by consumers looking for something that offers, "the ideal blend of functionality and aesthetics."
Stadler went on to say the next-generation A8 will be the sportiest model in its segment "and set new standards with regard to interiors." The 2010 A8 will debut sometime in November, so we expect Audi's flagship to appear at the Los Angeles Auto Show.
Stadler also discussed the new A1 minicar, which will go on sale in 2010, along with a hybrid Q5 CUV and the smaller Q3 crossover arriving in 2011. Audi's detailed product outline also included an announcement that start-stop technology is in the works and will join kinetic energy recovery systems as early as late 2009. At first, the new tech will be fitted to the A3 1.4 TFSI and A4/A5 with the 2.0-liter four fitted with a manual transmission. Audi's goal is to reduce fuel consumption in its range by 20% by 2012, compared to 2007 levels, so it's expected that all of this new tech will filter through to the rest of the Audi line-up in the next three years.
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