Posted by: David Welch on November 24
Swedish sports car maker Koenigsegg Group AB has come to its senses. The company decided to pull out of its earlier agreement to buy Saab from General Motors. Barring some new edict from GM’s board, the auto maker will likely just wind the brand down. Management doesn’t want to keep it, say two GM executives familiar with the company’s planning. So unless the board overturns their wishes, Saab will join Pontiac and Saturn on their way to the auto industry’s Boot Hill.
For GM CEO Fritz Henderson, this is the third attempted deal that has fallen apart. His own board decided to keep Opel rather than sell it to a consortium of parts maker Magna International and Russia’s OAO Sberbank. Renault-Nissan wouldn’t provide the new cars to fill Saturn showrooms once dealer chain Penske Automotive Group took it over. So the deal died. And now the Saab deal has fallen apart.
Of the three failed deals, only the Opel sale effort puts heat on Henderson. Two sources inside GM say he never liked the deal. But the German government wouldn’t fund a GM-led restructuring or a sale to another bidder. The German government would only fund the sale of a controlling stake to Magna and Sberbank. But several board members thought that GM could have used its leverage to get the German government to bend, say two sources who are familiar with the discussions. Eventually, the board’s stubbornness succeeded in getting the German government to bend. GM will keep Opel and the German government appears more willing to help with financing.
As for Saab, collapsing the brand really is the best thing for GM. The last thing the company needs as it is trying to find profits in North America, get attention for its besmirched brands and restructure Opel in Europe is wrestle with Saab. GM has never been able to adequately fund it ever since buying 50% of it back in 1990. The brand commands a niche in the northeastern U.S. quite nicely. But that only gets GM 7,441 sales in the U.S. this year. That’s off 62%. Sales in Europe are off just as much.
We’re talking about a brand that struggles to sell 100,000 cars a year globally. It only really sells two models, the 9-3 and 9-5 sedans. Even sharing parts and platforms with Opel, it’s tough to make a profit. “I don’t know that you can make a business case for it,” says IHS Global Insight analyst John Wolkonowicz. That’s especially true for GM.
Posted by: David Welch on November 19
Will Americans buy wagons? History says no. And by history I mean after 1980. Sure, Subaru sells wagons quite successfully to some outdoorsy types on the coasts. You also see the occasionall BMW lover in a 3-series wagon. But the jury has been in for years. Americans would rather have a crossover suv of some kind. It’s easy to understand why. Wagons were America’s family car of choice before the minivan forced their near extinction. How nerdy does a car have to be for a minivan to beat it on pure coolness factor? Just think about fake wood-grain panel wagons and the picture is complete.
Enter the Cadillac CTS sport wagon, which I took on a test run a week ago. It’s quite impressive. GM engineered a tight handling ride. The direct injection 3.6-liter V-6 is powerful and smooth and the fuel economy is pretty good with 26 mpg on the highway. Combined fuel economy is less exciting at 21 mpg. But this is a luxury car that gets 304 horsepower. That’s the same impressive combination that can be had in the Chevrolet Camaro RS.
With the 2010 CTS, General Motors has proven that Cadillac is in step with what luxury cabins are all about. The dashboard and surrounding decor is as modern-looking as anything on the market. It’s more artistic than Audi’s interior appointments and just as posh as a Lexus. When you close the doors, for example, they seal shut automatically. It’s a nice touch that shows a bit of craftsmanship.
The best thing about this wagon is the styling. GM didn’t just take the CTS sedan and stretch it back with some extra sheet metal. The company spent the money to design a different back end. It’s the right way to go. Design is subjective, but the CTS wagon looks like it’s cocked and ready to go. In the past, carmakers just stretched their sedans, creating oblong wagons with awkward design proportions. Past-generation Toyota Camry and Ford Taurus wagons come to mind. This one is actually a head turner.
As fine a car as this is, don’t expect Americans to come pouring into showrooms for a CTS wagon. GM is launching a Cadillac SRX crossover suv at the same time. That will pull in many buyers who want a Caddy with some storage space. Plus, a lot of what makes this a good car have less to do with the fact that it’s a wagon and more from the fact that the CTS is the best car made by a resurgent Cadillac brand. Surely GM will sell a few thousand CTS wagons. But don’t expect this car to resurrect a market that has been dead for years.
It’s a shame, too. Most buyers who want a luxury car with cargo space would opt for the SRX, which gets lower fuel economy with a combined 19 mpg. The CTS wagon has 53.4 cubic feet of cargo space compared with 61.2 cubic feet in the SRX. So most buyers will opt for worse fuel economy and pass up on the tighter handling of the CTS wagon just to ride up high on the road and get a few more feet of cargo space that they’ll probably never use. Maybe this wagon will break through. If not, there’s always the European market.
Posted by: David Welch on November 13
American seems to be obsessed with small cars these days. Not American consumers, mind you, but policy makers and executives at the companies who must bend to their will. First, we had General Motors and Fiat-Chrysler rushing small cars to market as part of their argument for federal assistance earlier this year. Ford has a few of them coming in response both to high fuel prices and new fuel economy rules. Not to be outdone, Daimler AG CEO Dieter Zetsche says Mercedes may export some small cars to the U.S. Luxury buyers still want luxury, he told the Wall Street Journal, but some may want to make a less ostentatious, low-carbon dioxide statement.
This is wrong on so many levels. The article says that the Mercedes compacts will take on the Audi A3, BMW 1-series and BMW’s Mini Cooper brand. As for the A3 and 1-series, yes the Baby Benz will take them on, battling for all 12,000 cars worth of sales that the two models have sold this year. That’s right. Audi has sold about 2,900 copies of the A3, one-tenth the sales of its A4 sedan. The 1-series has done a bit better, selling almost 9,500 cars. That pales next to 3-series sales of 75,500 cars. Even if Mercedes gets a piece of that compact luxury biz, it will be small potatoes. As if Mercedes needs another model that sells fewer than 10,000 cars a year. The company has about half a dozen or so right now. By the way, Mercedes once shelved plans to bring its small B-class (pictured above) to the U.S. because of currency problems. Well, the dollar is still pretty weak. That will make the car either expensive to buy for consumers or profit-challenged.
And what about taking on Mini? The brand has sold almost 40,000 cars through October and just keeps growing. But it has everyone fooled. First of all, the brand has an incredibly unique image that blends modern technology of BMW’s vaunted engineering with the British styling and heritage of its past. And it is quirky. Mini stands alone unlike any brand in the car market as accessible exclusivity, though not traditional luxury. Will its buyers look at a Baby Benz? I doubt it. One BMW marketer once told me that in their research, they found that Mini owners view BMW owners the way most people view Ferrari owners. Loosely translated from the original profane description, Mini owners seem them as men with more money than confidence. I doubt Mini owners will see the Mercedes brand any differently.
I’ll give you one more practical reason why small cars won’t sell as fuel savers or as a green statement. Take a four-cylinder Chevrolet Malibu. It gets 26 miles per gallon combined and costs $1,526 a year to fuel up. A compact Chevy Cobalt gets 27 mpg and costs $1,482 a year at the pump. Who will sacrifice the passenger space of a Malibu to save $44 a year in gas? Answer: The buyer who can’t afford the Malibu.
Translate that to the luxury market where buyers are less concerned about gasoline prices, and there is even less incentive to go small. As for the low carbon statement, that won’t wash either. By the time Mercedes gets its compacts to the U.S., there will be Chevy Volts, plug-in Priuses, Fisker plug-in hybrids, Tesla electric sedans and plenty more expensive greenery for well-to-do do-gooders. Isn't this idea just a wee bit silly?
Posted by: David Welch on November 09
The drama in Germany between General Motors and Europe just keeps dragging on. Now, its top European executive, Carl-Peter Forster, is leaving the company and GM Vice Chairman Bob Lutz will take over on an interim basis as Chairman of the company's Supervisory Board. But it's a non-executive post. Lutz won't manage day-to-day workings.
This shouldn’t surprise anyone. Forster supported selling Opel to Magna and Russia’s OAO Sberbank, which GM management and the board opposed all along. Given his stance on the sale, it’s surprising that he has lasted this long. Sending Lutz to oversee Europe makes sense, since he spent a lot of time over there early in his tenure as GM’s new-car czar. His job was to get vehicle engineering in Germany mated to GM’s global product development works. He knows Opel’s inner workings.
But it’s obviously not a long-term solution. First of all, Lutz is supposed to be in the U.S. marketing GM’s new cars. Sparking sales in the U.S. remains GM’s biggest challenge. While critics have wondered aloud how a 77-year-old car guy can be a marketing maven, the 60-day money-back guarantee and “May the Best Car Win” campaign have increased brand consideration for GM. Market share has ticked up during the past couple of months. But the job is far from done. Lutz can't manage Opel's operations. He is too busy in the U.S.
More to the point, GM needs a German with good labor relations to run Opel. Right now, the German government and IG Metall, the labor union representing Opel’s workers, want nothing to do with GM management in Detroit. They don’t respect GM’s American executives. Lutz is Swiss German, but I scarcely believe they will view him much differently than they view the rest of American management.
GM could go hire a German. They did with Forster. But GM is having a tough time finding talent. Salaries are limited, there is no stock to give just yet, though the company can certainly promise to give share as it nears an IPO. But what’s it worth? And bonuses? Good luck with that. It amounts to a turnaround job with limited financial reward. On top of it, whoever takes that Opel job will have to win over an angry government and hostile union. GM has had trouble landing a new CFO to replace Ray Young in North America. Imagine the challenge of finding the right German executive to lead Opel.
Posted by: David Welch on November 04
Contrary to popular view, Chrysler isn’t flat broke. That was the first thing Fiat CEO Sergio Marchionne said when kicking off a six-hour presentation that seeks to convince the world that the Italians have a plan to bring Chrysler back from the brink. The company has $5.7 billion in cash and has actually grown its cash hoard by $1.7 billion since exiting from bankruptcy in June, Marchionne said.
And get this. Chrysler made $200 million in profit since emerging from bankruptcy in June. Well, let’s qualify that. The company made $200 million in EBITDA, which is earnings before interest, taxes, depreciation and amortization. That is to say, they made money before counting a lot of things that cost the company money. So Chrysler still lost money since June.
But Marchionne did say that Chrysler broke even in September. One month’s profit is practically meaningless in the car business. Put off some major spending on a future vehicle program for a month and you can make any month look good. Marchionne said Chrysler did it by being very parsimonious. His point is that Chrysler’s financial position is not as hopeless as many outsiders think.
Given the debt reduction and cost cuts made during bankruptcy, Chrysler’s financial position is probably not as dire as everyone thinks. But its sales are. Chrysler sales are off 39% this year. The company said it has a slew of new models coming from its joint engineering projects with controlling partner Fiat, but stopping that drop off in sales will be very difficult. If it gets worse, Marchionne will have to slash deeper for Chrysler to make it.
