Notes From the Detroit Auto Show

Posted by: Justin Bachman on January 10, 2011

By David Welch

The mood in Detroit is considerably better at this year’s North American International Auto Show than it was a year ago when General Motors was hunting momentum and Chrysler’s very survival was in question. I’ll get into the new models and concept cars as they roll out. In the meantime, here are a few notable comments from the auto executives I tracked down at the show.

Chrysler going public
Fiat-Chrysler CEO Sergio Marchionne said he wants to take Chrysler public in the second half of this year. Fiat won’t sell any of its Chrysler stock. The sellers will be the United Auto Workers retiree healthcare trust, and possibly the U.S. Treasury Department and Canadian government.

The Italian automaker owns 25% of Chrysler. The UAW owns 63.5% of Chrysler. The U.S. Treasury holds 9.2%, while Canadian municipalities have a 2.3% stake. Marchionne told reporters that he wants to pay back $7.5 billion in debt to the U.S. and Canadian governments in 2011 and then go public. Following GM’s successful IPO, Marchionne says Chrysler can launch its IPO following a couple quarters of profitability. “I’d love to do it in the second half of this year.”

IPO yes, but electric cars… maybe not
Marchionne bucked the trend among auto executives by casting some doubt on the potential of electric cars. Fiat plans to sell an electric version of its tiny 500 hatchback, he said. But that’s not where the market will be. If carmakers want to meet fuel economy regulations and boost efficiency, they’re better off just wringing more mileage out of gasoline engines, he said. “I’m reluctant to embrace full electrics as a solution,” Marchionne said. “The dollars spent for reduction in fuel use is not there. We have to be careful not to chase a rainbow.”

BMW’s U.S. boss throws down the gauntlet
BMW and Audi have gone toe to toe with their advertising efforts, taking shots at each other in the past. Audi had a billboard featuring the A4 that read, “Your move, BMW.” In response, BMW put up its own billboard for the 3-series saying, “Checkmate.” Audi has been gunning for its German rivals with its own brand of German engineering and sporty luxury cars. Jim O’Donnell, CEO of BMW US, took a shot at his rivals. With 220,000 cars sold in the U.S., BMW more than doubled Audi’s take in the market. Audi is “too worried about having a go at Mercedes and BMW,” O’Donnell said. “They have to learn to swing first. I think their whole communications strategy is wrong.”

GM tries to make money on small cars
For Detroit’s carmakers, small-car profits have been almost as elusive as a playoff appearance by the Detroit Lions. GM-North America President Mark Reuss said in an interview that GM should be able to make money on cars like the Chevy Cruze compact and Sonic subcompact, which are built in the U.S. with union labor. The company’s break-even point has fallen drastically since bankruptcy wiped away billions in debt and healthcare obligations. GM is wagering that cars like the Cruze and Sonic will offer a sportier ride and more creature comforts, so they should get a better price. The Buick Verano, which also had its debut at the show, will be built with many of the same parts as the Cruze. Its higher price should help the entire small-car program make money, he said.

The gamble is that cars like the Sonic—which have traditionally been cheap, entry-level transportation—can fetch a higher price by offering more horsepower, better ride and handling and features like MyChevrolet, a phone app that allows drivers to unlock doors, start the engine and check the vehicle’s diagnostics remotely. Ford is making the same bet with its Fiesta, which can sell for more than $20,000. Chevy has not priced the Sonic, but GM won’t set a ridiculously low price on the model, Reuss said. “If we’re going to make the cheapest, silliest car in the U.S. and try to make money on it, that isn’t going to work,” he says.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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