…which is not actually as bad as it sounds

by David Surace

04.30.2008

First the bad news: GM reported a first-quarter loss of $3.25 billion this morning, thanks in no small part to the UAW strike at American Axle & Manufacturing, Delphi’s bankruptcy, a big chunk of interest spent on money-losing GMAC, and plummeting automotive sales thanks to high gas prices, the hardest-hit being light truck and SUV sales.

Now before I go on, I’d like to put that in perspective. If I lost $3.25 billion in the first three months of this year, you would find charred pieces of me in several different states. Or rather, you wouldn’t find me, because my wife is very clever at hiding things.

But, because we’re talking about GM, there is still a silver lining.

The good news: most of that loss stems from “one-time items”, like the $1.45bn change in GMAC’s value before its spin-off, and another $731 million reflecting an increase in GM’s liability of Delphi’s bankruptcy, and the two-month strike at American Axle, which cost $800 million.

With all that aside however, the actual operating loss is pegged at around $350 million, or 62 cents a share. Now, Wall Street analysts had expected an operating loss of more like $1.50-$1.60 a share, plus all the one-time baggage to go with it.

A big reason for the discrepancy between expected losses and actual losses is that GM did far better than expected outside the US. Sales soared (a 20% increase overall) in places that aren’t affected as much by our not-really-a-recession. In fact, the Asia-Pacific and Latin America-Africa-Middle East regions had actually doubled their earnings.

And in response to the American Axle strike (which cost some 100,000 vehicles) and depressed US and Europe sales on soaring oil prices and a slowing economy, GM announced it will cut production on its light-duty trucks and SUVs, and also lowered its sales expectations for the year, too.

So in early trading this morning, shareholders applauded, and GM gained 4.3%. All’s well that ends well? We’ll see.

By Chris Haak

04.29.2008

In an interesting development, considering the difficulty of negotations in late 2007 between the Detroit 3 and the UAW, plus the increasingly belligerent statements from the CAW’s leadership (particularly its president, Buzz Hargrove, pictured) about how it would never accept some of the concessions that the UAW agreed to in its historic negotiations, Ford and the CAW have agreed to a framework for a new long-term labor deal nearly five months before the current pact is set to expire. The current agreement is set to expire at midnight on September 16, 2008.

While the agreement is not the final version, the parties have hammered out the major financial issues, including wages, benefits, and pensions. Once local agreements are bargained (expected to occur in the next week), the agreement will be presented to rank-and-file membership for a ratification vote. The local agreements cover items such as skilled trades and health and safety issues.

Although Ford has not yet released specific terms of the framework, the CAW said Monday that base wages are frozen and temporary lower starting wages (similar to those in the UAW agreements for new hires) are established for the first time. However, in a break with the pattern set by the UAW, the CAW did not concede a two-tier wage structure. Mr. Hargrove vehemently has said over the past several months that the CAW would never, ever accept a two-tier structure. As an outside observer, I thought that he’d have no choice, but apparently, he got his way on that issue. Finally, the endangered St. Thomas plant, which builds the body-on-frame Crown Victoria, Grand Marquis, and Town Car will remain open at least until the end of the agreement, which will expire in 2011.

The deal is important for Ford, which is depending on CAW workers to assemble some of its important, high-profile launches later this year, including the Ford Flex crossover. The UAW’s concessionary contracts late last year, coupled with the weak US dollar relative to the Canadian dollar also increased pressure on the CAW, because it was becoming much more expensive to build a vehicle in Canada than in the US. (See related article HERE). Although at the current exchange rate, CAW employees will still receive about $7 per hour more in pay and benefits than their UAW counterparts under their new contracts (about $67 per hour for the CAW versus about $60 per hour for the UAW, according to the CAW), the CAW justifies this disparity by stating that their workers are more productive than UAW workers. However,

Ford will give each worker a $2,200 signing bonus (called a “productivity and quality bonus”) upon contract ratification, plus another $3,500 cash payment in January 2009 in return for giving up one week of paid vacation going forward. It also includes improved buy-out offers for employees who would like to take the cash and run.

It will be interesting to see if talks with GM and Chrysler, each of whom are bringing their own wish lists to the table, and neither of whom have immediate high-profile launches scheduled of Canadian-built vehicles in the next few months, progress as quickly or follow the pattern set by Ford and the CAW. Did Ford hurt itself or help itself by settling unexpectedly quickly? On one hand, they averted a labor stoppage that could torpedo the Flex’s launch, but on the other hand, they may have been able to wring more concessions from the CAW had they spent more time bargaining or at least driven a harder bargain.

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by Andy Bannister

04.28.2008

Following Renault’s success with its low-priced Dacia brand, reports suggest Fiat is looking at getting a slice of the growing budget market by reviving a defunct brand, most probably Innocenti.

Whilst not exactly the most universally famous deceased Italian make, Innocenti (pronounced Inno-chen-ti) will always be remembered for two things. One is as the maker of the iconic Lambretta scooter, and the other is for producing intriguing versions of the classic British Mini with some extra helpings of Italian brio.

In fact, the company founded by Ferdinando Innocenti had a long and successful association with the manufacturer of Austin and Morris cars, British Motor Corporation – later the ill-fated British Leyland. Innocenti built various Italianised models of the Austin A40 Farina and Austin 1100/1300 saloons as well as its own unique little Ghia-styled Spyder (a rebodied Austin-Healey Sprite). Although never huge sellers, these cars gave the giant Fiat concern a run for its money in the home market, then almost entirely dominated by Italian-built cars.

Innocenti Mins were by far the company’s biggest success story. Exported to some parts of Europe they were often faster and better equipped than their British equivalents, particularly the Cooper 1300, which lived on in Italy after the UK version died in 1971.

In 1974 a disastrous departure for Innocenti led to the launch of the Regent, a locally-made version of the underdeveloped Austin Allegro, which proved unsaleable in Italy. Soon after, the company was taken over by Alejandro De Tomaso, best known as the manufacturer of the Pantera sports car. He later also owned Maserati, another then-struggling brand.

With the 90 and 120 hatchbacks of 1975, featuring a bang-up-to-date Bertone-penned body, Innocenti got straight back on track and clearly signalled how it saw the Mini’s future.

The company’s British partners, however, were less impressed, and the newcomer was destined to remain an Italian-only product, although sold through Leyland dealers in some European countries until after the belated arrival of the BL’s own small hatchback, the 1980 Austin Metro.

A sporty version of the 120 hatchback was a particular trend-setter with lots of black trim and prominent De Tomaso badges, inheriting the Mini Cooper’s mantle for the 1980s. Later Innocentis acquired Japanese Daihatsu 1.0-litre three-cylinder engines, including a turbo model and a frugal diesel.

Other derivatives included smaller-engined 650 and 500 models, by which time the body design was getting very long-in-the-tooth. They were running out of marketing ideas too: the final version of the hatchback rejoiced in the name Innocenti Small.

It was in the late 1980s that Innocenti was finally acquired by Fiat, which already owned most other Italian makes. After that, the company’s own designs were soon phased out, and remaining exports ceased.

For a few more years, the Innocenti badge was applied to the Yugoslavian Zastava Koral on the Italian market, as well as to the Fiat Elba, a station wagon derivative of the Fiat Uno made in Brazil, and to a Piaggio-built Daihatsu microvan.

None of these rag-bag of models proved a great success, and in 1996 Fiat laid Innocenti to rest.

Despite this rather inglorious end, however, it now seems that the name could be dusted off the shelf to adorn a new low-priced “world car” to be built in India, Brazil or China. This will probably replace the Fiat Palio, a basic design sold in a number of developing markets.

If it comes to fruition, then, the new Innocenti is unlikely to owe much to the sprit of those long-ago Mini derivatives, which seems a shame. Instead, it will be a riposte to the global phenomenon which is the Dacia/Renault Logan.

After the ecstatic reception accorded to the retro-inspired new 500, the reigning European Car of the Year, Fiat clearly has ambitions to shed its image as a bargain-basement manufacturer, even if its range is still overwhelmingly based on smaller cars, including the Panda and Punto.

Innocenti isn’t the only possible name from the past which is being considered by the Italians for this project. Autobianchi, another small car marque which gradually got absorbed into Fiat’s Lancia division before disappearing altogether in the early 1990s, is also a possibility to make a comeback.

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…at a plumped-up price of $8.50 per share, too

by David Surace

04.28.2008

This morning Kirk Kerkorian’s holding corporation, Tracinda, made it possible for thousands of auto-heads to forego their morning coffee with the announcement that it plans to make a cash offer for 20 million common shares of Ford Motor Co. stock, which would be added to the 100 million shares they already own. The total would end up at about 5.6% of Ford’s total outstanding shares, which is certainly not hostile takeover territory. The price they offered, $8.50 per share, is actually 13.3% higher than Friday’s closing price of $7.50 a share.

Whether Kirk & Co. made the decision based on the 13.3% figure or went with the “let’s just make it a buck more” strategy is still up for debate. More brilliant analysis after the jump.

This news comes somewhat warm on the heels of Ford’s announcement last week that it tendered an actual profit ($100m USD) during Q1 of this year, thanks to brilliant products overseas and a smaller-than-expected loss Stateside. Far from being coincidental, the Tracinda purchase is considered a good-faith maneuver, or perhaps just good old-fashioned investorship: “Tracinda believes that Ford management under the leadership of Chief Executive Officer Alan Mulally will continue to show significant improvements in its results going forward.”

The rest, as they say, is in the full text of the press release.

PRESS RELEASE: Tracinda Announces Tender Offer for 20,000,000 Shares of Common Stock of Ford Motor Co.

The tender offer will be subject to customary conditions for transactions of this type, including expiration of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Tracinda’s offer will not be subject to financing.

By Andy Bannister

04.28.2008

Advertising is a phenomenon which has been around since the very earliest days of the motor car, with a successful campaign often making the difference between best-seller and also-ran in today’s cut-throat market.
For some makers in relatively closed markets, however, publicity of this kind has been a distinctly low priority. Zastava of Serbia, for example, are only now embracing modern principles and grappling with how to sell a value-for-money but essentially dated range to consumers with more choice than before

Zastava, to remind you, is the maker of the much-derided Yugo, sold in the US in the late 1980s, and still in production at the Serbian factory in largely unchanged form, as the Koral.

The company has somehow survived the disintegration of Yugoslavia and years of economic sanctions, and is still going strong, although the future lies in all probability in foreign ownership. VW and Fiat have both been cited as future partners in recent weeks.

Zastava has put quite a lot of thought into how to sell itself in 2008, and has come up with three slogans pitched at selling the attributes of its three long-serving models, none of which are exactly at the cutting-edge of technology.

A major advertising campaign is a remarkable undertaking in the Serbian home market, where Zastava has until recently had a virtual monopoly.

Understandably, the company is a little unsure how to pitch its products against new and more modern low-priced competition from east European rivals like Skoda and Dacia.

After some thought the company has summarised its three longest-serving models into three words in Serbian, and is currently seeking feedback before unleashing its campaign on the car-buying public.

Functionality (“funkcionalnost”) sums up he Skala 55, a five-door hatchback derived from the 1969 Fiat 128 and in continuous production since 1971, making it easily one of Europe’s longest-serving models.

Simplicity (“jednostavnost”) is the word to describe the Koral (Yugo), one of the world’s smallest three-door city cars.

Finally, the more upscale five-door Florida, Zastava’s newest model apart from the Fiat Punto-clone Zastava 10, is characterised by Spaciousness (“prostranost”).

Key to the advertising campaign is reinforcing the perception that Zastava is a well-known and trusted brand with attributes still relevant to local consumers who may otherwise be swayed by the lure of more expensive, exotic products from overseas.

The company’s redoubtable press office takes up the story at this stage: “Any advertising campaign must reinforce positive perceptions of Zastava, without overtly threatening negative perceptions. Advertising, by nature, has low credibility.

“What these advertisements hope to do is to present well-known products in a new, interesting light, thus establishing a baseline for the brand – an anchor of sorts, which future campaigns can use as a base.

“An x-percent-off deal might seem attractive, for a moment, but the low-price advantage is fleeting. What are we being enticed to buy? The implication here is that the only talking point a Zastava has is its price. This, however inadvertently, plays into the hands of the perception gap that exists vis à vis Zastava’s cars.

“Zastava Automobili builds some of the most affordable cars in the world, but a car – any car – represents a major investment. Once we have taken advantage of the sale, what have we bought? Did we want a Zastava in the first place? A few percent off on a major investment – one which a buyer will live with for several years – is not enticing enough.”

In other words, Zastava cars are frequently seen as some throw-back to the days when all eastern Europe had to offer was inferior quality, antiquated designs.

Whilst there may be more than a grain of truth in this, it is hard not to admire Zastava’s drive to succeed agaisnst the odds. The company claims the second, fourth, eighth, and fifteenth most affordable automobiles in the world and has access to modern Peugeot-Citroën engines and some sophisticated technology including independent suspensions, key to a car’s long life on poorly-surfaced Balkan roads. The task advertising needs to do is to reinforce positive associations potential buyers have with Zastava, ie low price, low running costs and simplicity, whilst making the cars seem as desirable as possible in today’s world.

Traditional Zastava attributes like a flat loading space and unburstable mechanicals are positioned in adverts with objects intended to show the same functionality as they did when they first saw the light of day.

In the Skala ads this means a light switch, a Swiss Army knife, a hammer, a pair of scissors and a cue ball. The implication here is that the cue ball is the sole surviving ball on the pool table, once the more decorative balls have outlived their usefulness.

Similarly, the Koral adverts show shots of the car alongside the most basic objects of everyday life; fruit = apple; storage = box. Car = Yugo. “More abstractly – a ball is simple and indivisible, while the Ferris wheel is the most perfect, most simple design for its function,” according to the press office.

Shots of the Florida are intended to evoke seemingly infinite space: winding stairs; a single tree against a faraway background.

Among ads for all three models, the new feature for 2008 – described as “an electroluminescent instrument cluster” hints to Serbian consumers of the advancing pace of technology.

It’s easy to make fun of some of these cars but the truth behind the advertising is that a simple product at the right price still deserves to be taken seriously.

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But did they tone it down for North America?

by David Surace

04.25.2008

Last night Mazda of North America let loose with official media shots and stats for one of the most important cars in their lineup, the 2009 Mazda6. The original Mazda6, which sold to the public between model years 2003-2008, was easily one of the best-looking and best-driving family sedans among its competition.

It’s tough to tell at this point if they’ve messed with the “best-driving” part of the formula, but a big hint may lie in the cherry-picked phrases “larger body and greater engine displacement” and “Handling and comfort were also optimized” and perhaps most importantly, “North American road conditions”. Uh oh.

So she is slightly bigger than the svelte European version, and has a heavier nose up front thanks to the bigger engines we get, but they do promise to be nice engines: a 2.5 liter inline-4 flowing through either a six-speed manual or five-speed automatic, or a 3.7 liter V6 mated only to a six-speed autobox with manual shift capability.

But the looks are definitely there, even if they’re slightly different than the European version. There are Mazda’s trademark arched fenders up front which echo the front end treatment of the RX-8, and subsequently the CX-7 and CX-9. The side-window profile is tall enough for the driver and front passenger, but then it steeply rakes off toward the rear past the B-pillar, which is almost necessary these days to give that “four-door coupe” look everyone’s after.

The only other piece of disturbing news should affect fans (myself included!) of the stellar but low-selling Mazda6 wagon and hatchback: this press release puts in very plain English that those two variants are not to be found in the 2009 model year. Sedan only, folks. The rest of you, move along.

As before, the new “six” will be produced at AutoAlliance International in Flat Rock, MI.

PRESS RELEASE:

Headquartered in Irvine, Calif., Mazda North American Operations oversees the sales, marketing, parts and customer service support of Mazda vehicles in the United States, Canada and Mexico. Operations in Canada are managed by Mazda Canada, Inc., located in Ontario, Canada, and in Mexico by Mazda Motor de Mexico in Mexico City.

Continuing a Saab Tradition

By Kevin Miller

04.25.2008

Saab has announced the 2008 9-3 Yellow Edition convertible for the US market. Mechanically, the car has the 9-3’s two-liter turbo engine with 210 HP, and it sports the 9-3 Aero wheels and body kit which is typically unavailable without ordering Aero with its 6-cylinder engine. Of course, the most noticeable thing about the car is its Lynx Yellow paint.

A trim edition of a Saab convertible might not seem like big news in and of itself, but this is a yellow Saab convertible. Truly the stuff of legends. In 1991, Saab offered a limited production 900 SPG convertible in Monte Carlo Yellow, with charcoal lower body panels. The SPG (known as Aero in European markets) stood for Saab Performance Group, and it featured a lower suspension, higher-output engine, and limited production numbers. While the 900 SPG hatchback was offered between 1985 and 1991, the SPG convertible was only available in 1991- and that was the only year the 900 was offered in Monte Carlo Yellow. That vehicle remains among the most rare and sought-after Saab models today.

Fast forward six years, and the second-generation 900 convertible was in its third year of production. Saab offered its convertible in Monte Carlo Yellow again that year, though the color was not associated with a special edition that year. The car looked sharp in that color, and it was not a particularly common color sold that year. Though distinctive, the 1997 900 Convertible in MC Yellow has not reached the cult status of the ‘91 in the same color; however the same could be said about the first-generation (or classic) 900 vs. the second-generation 900 in general: while the classic Saab 900 has reached a cult status in and of itself, the second-generation 900 right now is simply another used car.

Just today a 1991 900 SPG convertible passed me on my commute home. It was clean and in great shape; to a Saab geek like me it is always enjoyable to catch a glimpse of such a rare classic 900. I look forward to seeing a 2008 9-3 Yellow Edition convertible on the road, so I can check it out in person. Of course, if GM/Saab wants to loan me one from their press fleet for a week of review, that would be even better. The next time you see a yellow Saab convertible, take a second look, to appreciate the rare beauty. And be sure to give the driver a thumb’s up.

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