Ford Should Make & Sell Only Hybrids & Small Cars

What if Ford stopped building big pickups and SUVs and made only hybrid vehicles as of January 1, 2009?

Ford sales in October were only a little over 130,000 units, many of which had to be sales to car rental customers like Hertz-- and were not small, fuel effecient vehicles. Instead, it looks like Ford is going to "ramp up production of trucks and SUVs, according to the Wall Street Journal.

It is very hard to really tell what is going on inside Ford and in the staff meetings on Monday morning with Mullaly, Farley, and Fields. One cannot even really get through the "car guy mentality" in the interviews published in Automotive News. But it does seem that Ford is really trying to bring small cars from Europe. However, it also seems possible for Ford to just outright convert their plants to making hybrids, small vehicles, and vehicles powered by ethanal, diesel, CNG, even electrics. The impact on the brand and their branding would be immense. The big challenge would be to raise the capital (they have some it already in the $25 B package) and keep dealers from going broke till the new vehicle line could be delivered.

Captives & Banks Leasing Losses Caused by Ignorance & Greed

Chrysler & Some Banks Halting Leasing is About Vehicle Capitalization: The reason that banks and captives keep reporting that they are losing money lease funding vehicles is because of the practice of putting the lease transactions on their books at the full MSRP as the capitalized cost, rather than at either the dealer cost or even the factory cost.

The capitalized cost or "starting point" of a vehicle for purposes of computing the lease residual, the "interest factor", and the ultimate monthly lease cost to the lessee is based, then, on an inflated "cost" or the MSRP of the vehicle, sometime even amount greater than the MSRP.

It is no wonder that the monthly depreciation reserve or the ultimate projected end of lease residual does not represent the wholesale used vehicle market value at the end of the lease.

At the same time, "Loan" funding transactions orginated by dealers and sent to captives and banks every day are also "inflated" because of "execessive loan profit markups" and the added "cost" of getting the buyer out of the "under water" situation with the customer's trade-in. So what is the difference between this loan and the lease transaction ?--- the customer is taking the "loss" on the residual or market value on the loan vehicle not the captive finance company or the bank.

Now, Chrysler and even the market saavy, Jim Press, are saying the "economic advantages of leasing has disappeared". Nonsense-- it actually is in Chrysler's best interest to immediate crank up their leasing entity by "capping the cars" at Dealer Invoice and using 1% over prime interest and then merchandize payments -- and they will start selling cars and even trucks again.

With all due respect, it all about how a loan or lease transaction are structured at the beginning of the transaction. By giving dealers the "carte blanche" on how vehicle leases and loans are booked and funded, the captives and banks are burying either their captives or their customers in funding transactions that are comparable to housing mess now causing all the market and financial downturn and subsequent recession and sales impact.

New Street Level GPS is HOT & Leading

STREET LEVEL, HI DENSITY 360 IMAGERY IS HOT NAV:

See http://www.bluedashertech.com/faq.php

From now on -- Nav systems are going to have to actually show you, if not take you, to your destination and the give your a street view of the route to get there.

How Street Nav Works: The latest and more technologically advanced seems to be Blue Dasher Technologies out of Florida, the leading creator and distributor of street level high-density, geo-coded 360-degree spherical digital imagery. The Company’s highly versatile images are applied to any location, navigation system, device or map-based application, including mobile devices. Unlike other approaches, when viewed online, the 360° images from Blue Dasher Technologies are seamless, creating an experience similar to driving down the street.

What is the Unique Selling Feature? This Miami-based company hopes to set itself apart by producing better-quality, seamless images that beat those of rivals such as EveryScape and Google’s Streetview.

GPS Nav Systems & Gas Mileage: There is a convincing argument that the judicious use of a good nav system can save fuel as well as save time.

Auto Buyers On Financial High Wire

New Book for Auto Execs & Dealers to Read & Ingest: The "book for the month of July" may well be Peter Gosselin's "High Wire: The Precarious Financial Lives of American Families".

The book's premise: A shift of economic risk has arrived at the door step of working Americans and their families and they are ill-equipped to handle or cope with the consequences. The financial fall "out" brought by astronomical gas prices, a weakened dollar, and massive layoffs are making people "pay" in every way including the loss of pensions and diminished security for their familes.

What this means: People are nervous and uncertain because they sense that they are only one or two steps from a deep financial fall. We are seeing it in housing, food purchases and car buying. They are looking for a "net" for their future.

What can dealers and manufacturers do about this?: Help people "manage their vehicles"-- by counseling them on how to deal with vehicle(s) they now own from gas mileage to sound maintenance practices. Dealers can survive and make it through this period by becoming "transportation management centers" and NOT car dealerships who are perceived to be only out to sell a car or truck. This will take some "high wire" leadership, marketing, and plain guts to position the entire dealership to help existing and new customers deal the reality of the "high wire" financial situation that every American is facing at the moment. As an industry, we have the opportunity to take the economic risk by getting on the "wire" with our customers.

Lending Detroit a Helping Hand

Detroit Calling Washington for Help Again: Both candidates for president are actively suggesting that they will lend a helping hand to Detroit-- from something less than a "classic bailout" to a fed investment of $150 B in green technology ideas. One candidate has suggested "some bridges" to help produce flex fuel vehicles and the other would make R&D tax credits permenant and keep the fed subsidies flowing to have midwest farmers produce more corn for ethanol.

GM officials who attended the sessions and panels held by the two candidates seemed "encouraged", welcomed a national debate on a solution, and talked about how GM and the Detroit manufacturers were engaged in a technology race with foriegn based rivals.

At this time, it does not look like Detroit can expect or will receive much relief from Washington, Congress, or the American consumer who is struggling to fill gas tanks each week. Meantime, we keep hearing a lot of talk about gaining a "level playing field" rather resolve to take action by getting on the market "field" with vehicles, solutions, and leadership that will provide the solutions to the problems Detroit brought on themselves and will NOT be solved in Washington --no matter who is the next president.

Stop Watching Women & Start Following

Top 50 Women Executives To "Follow" : Every once in a while a major business magazine publishes a 'list" of extraordinary women executives that we are all supposed to "watch".

The latest is an inhouse print ad in the Wall Street Journal this past week, asking for nominations by July 7th, The ad copy talks all about "women poised to play important roles in business in the years ahead." The car-guy, male dominated Automotive News does the same thing once a year, focusing on female executives in the automotive business that have somehow come to their attention.

It is time that we started putting more women into leadership roles at the automotive manufacturers, dealers, and the suppliers--not just in marketing, administration, and the legal department. We can "watch" them but really we should be listening to them and taking action on what they are saying-- following their leadership. What we would have happened or would be happening if a woman were now running Chrysler or GM -- or even more startlingly--Toyota-- or even AutoNation or Delphi?

The white, male car guys seem to be really struggling to figure out what vehicles to make, how to sell them, and how to adjust to a whole new market paradigm. It is time to mobilize & empower the people who can solve the current industry problems-- Women -- They buy or influence 85% of car purchase decisions -- why not have them make at least 85% of the "major decisions" about what vehicles (cars) get made and sold?

Role of Oil Futures Speculators Finally Under Scrutiny

A probe by the Commodity Futures Trading Commission & the UK's Financial Services Authority is finally underway to look into how oil trades are being made in at least two exchanges around the globe: the Intercontinental Exchange (ICE) and the New York Mercantile Exchange. Both ICE and NYMERC have agreed to provide "enhancements to energy market data reporting" or give out some more information about who and how these oil futures are made by and with energy traders.

If you want to get a sense of what is really going on with the major derivative contracts being bought and sold by your pension fund or insurance company, or your bank, read "RIGGED" The True Story of an Ivy League kid who changed the world of oil from Wall Street to Dubai".

You begin to understand that the bad guys in all of this gas price fiasco is not necessarily OPEC, the oil companies, or even an incompetent president, but rather a bunch of institutional investors buying and selling oil futures at the "MERC" in New York and make big gains on the back to U.S. economy and American drivers.---and no one is talking about how their speculation is driving up the price of a barrel of oil and thus of a gallon of gas---and making the American people pay for it.

Hyundai Genesis Vision is a Tower of Babel

Hyundai is about to spend $80M to promote and advertise a car that they believe will provide a "brand halo" for the company's vehicle line. They believe that they actually need a so-called luxury car to reach new customers and deal with what seems to be some kind of a complex about their historic lack of quality or at least the perception thereof.

Joel Ewanick, the cheer leading VP Marketing, was really hyping the car this past week at the annual Automotive News Marketing Seminar in downtown LA. He wholeheartedly seems to have staked his tenure at Hyundai on the success of selling this car to economically depressed American consumer. The term of office for a CMO at Hyundai and KIA is less than the national average of 18 months.

What Hyundai and the Koreans ought to be doing is NOT trying to compete with Mercedes, Lexus, and BMW by building bigger, less efficient luxury cars at a lesser price, but rather building a series of small "green" cars with 4 cylinder engines and hybrid power plants. This is what the Koreans have done well for their own brands, for GM, and other manufacturers who did not have the interest, the plants, or the capability to build small cars. What do you suppose America and the World wants right now? -- Small, fuel efficient vehicles that that are safe and built with quality and versatility.

What is Hyundai doing ? Squandering an opportunity to really make a name for themselves by building quality small vehicles and instead chasing after a idea sold to them by a bunch of car guys from Detroit who are living, thinking, and marketing in the past. This not going to work and some how Mr. Ewanick seems to telegraph his doubts in the press and on the podium. Maybe he should really have made his Korean bosses "test drive" the idea of going into this market segment for at least another block before pouring all their precious marketing dollars into advertising and Ride and Drives this summer.

Blood Spilling in China Auto Market

Fierce competition between China CarMakers & Foriegn Brands: Domestic car manufacturers in China are locked in a brutal struggle for market share and pricing edge. Foriegn brands including GM have formed partnerships with local Chinese manufacturers to gain a growing portion of the Chinese annual car sales of over 7 M in 2008 [6.2M in 2007].

Only 4% of the Chinese population owns a car, compared to 80% in the U.S. VW and GM are well entrenched in the market. VW has 17% market share; GM 10%. Chery had the most sales in 2007 with nearly 500,000 in sales.

Prices are falling as the competition sets in and a shakeout is near so smaller companies are going to be taken over by larger Chinese manufacturers and foreign makes.

What this means to U.S. Auto dealers? -- Aggressive and persistent efforts to sell franchises for Chinese vehicles and to sell small China-made cars and small trucks in the U.S. in the next 3 years. As in China -- which ones are going to be the "winners" in the market with safe, fuel effecient, even green vehicles? We have new competitor on U.S. soil and in the marketplace.

Used Vehicle How To Sales Book Picking Up Speed

Dale Pollak's Book "Velocity" Gaining Sales Speed: Most books written about the used car buying process have been all about how the poor, helpless consumer can keep from being scammed by the vultuous used car salesman-- with the image of that used car sales person (always a guy) foremost in the depiction of the sales platform and the sale itself.

For the first time, the automotive industry has a chance to get behind a book that will not help to restore the image and reputation of the used car and its distribution channel, but will give franchise and independent dealers a guide, a reference, and a "must-read" for every one workng in a dealership--every member of the dealer management team --not just "the Used Car Guys".

The book outlines a number of used vehicle remarketing strategies, practices, actions, and tips that are really timely based on the current declining new car sales market and the increasing emphasis and focus of every dealer on pre-owned and certified cars and truck sales to help bring and keep profitablity in the dealership.

There are at least 6 or 7 raving reviews on Amazon, praising the book and what Dale Pollak has accomplished, not only by just getting such a book actually published, but the style, content, and readibility of this new "play book" for used vehicle merchandising and management. Every management person in every dealership, whether franchise or independent, should be going on Amazon and ordering this book with their own credit card. Careers and promotions in the new dealership sales and management environment will flourish and move for those who invest in reading books like this one. Do it Now.

Ford's Global Car To Work This Time

Fiesta is the gamble for Mulally: If one is to take the editorial assessment of Alex Taylor's article in the May 5 issue of Fortune [see link] as some kind of insider view of what Ford has accomplished with its third attempt at a "World Car", then the design and engineering team that Ford as assembled is on to the right formula this time.

It is more and more apparent that Ford'a future in not in U.S. market but globally-- in China and India but really in Mexico and Africa by 2015 or sooner. With global design, marketing, and strategic positioning, Ford (and GM) could well be more successful by focusing primarily on markets outside the U.S. in the next 10 years.

The biggest challenge for Mulally may not be to get his design and engineering teams to come up with winning ideas and new approaches to new and old markets, but rather, getting a group of people who have thought "the Detroit Way" for years and years to adopt a whole new way of thinking, managing, and communicating. The Car Guy from Michigan State needs to bring the Major in Fine Arts from Columbia into the room and listen-- and include -- with the Airplane guy from Boeing orchestrating this new and exciting adventure

Does the Volt have the voltage to power GM?

So what is the issue? Whether the essential battery technology in Chevrolet's Volt electric car will be commercially viable. GM's # 1 priority is to prove that they can put real vehicles on the road by 2010 with a significant advance in fuel-effecient technology and performance to lift GM's standing with "green' consumers. Testing will go on up until about 6 months prior to the launch of Volt 2 and half years from now.

So what does this mean?: GM is putting it all on the line with designs and power systems based on the massive lithium-ion battery technology from several sources. There is big risk and managers in the project say it is not done deal. GM lost the technological and environmental leadership to the Japanese manufacturers when a bunch of traditional car guys opted not to go ahead with hybrids. Putting the "voltage" into the Volt is only the beginning of what GM has to do to keep up with Toyota and Honda.

Hogs at the Trough or Saviors of the Automotive Sector

So what is the big deal? Ron Gettelfinger is putting the "finger" on the outrageous 2007 compensation package for the great saviour of Ford, Alan Mullaly. Mullally got $2M in salary [which is about right] and $ 4M in bonus [for doing what it is not clear] and $11M in stock. A total if over $50M has been paid to Mr. Mulally since he came on board as the "White Knight" to save Ford two years ago. James McNerney, Mulally's successor at Boeing, earned about the same amount in 2007.

What does this seem to mean?: Gettelfinger, stockholders, and those of us in the media really wonder if this kind of comp package represents a "substantial sacrifice to help Ford survive so that the company can rebuild and reinvest" and if the employees in or out of the UAW made a sacrifice with job losses and reduced benefits so that management could reward themselves with higher compensation packages. You got to sell a lot of cars to pay these guys this kind of money.

Who really is going "save" Ford? The top seven Ford executives were paid a total of nearly $65 M last year--that is a little less that $ 10 M each. Is it really a guy like Mulally that turns around a company, particularly car company worth $17M per year? Are these front line managers really worth it? Are they really the ones who are going to turn Ford around? Or is it really a band of hard working, loyal second and third echelon managers in the offices and in the trenches of the market place-- and every last employees who elected to remain and fight-- that really are going to "save" Ford--not to mention the dealers who are moving metal and closing sales in what could be the toughest car market in 15 years?

Auto Loan Delinquencies Highest on Record

So here is what is happening: Late "indirect" auto loan payments or those originated and made through dealerships are the highest on record-- totaling 3.13%. Direct auto loan deliquencies rose to 1.90%. The rate of delinquencies reported by the American Bankers Assn was the highest at 2.75% rate since the first quarter of 1992-- that is 16 years ago.

So what does it mean? The consumers who normally would be buying or replacing vehicles this spring will not. Banks, CUs, and subprime lenders are tightening their credit standards. Dealer F & I management are going to have really be creative, aggressive, and resourceful to get new and even used vehicle customers financed. DealerTrack and RouteOne orginated loan apps are going to come bouncing back. But a lot of people are going to put off buying an new car for a long as possible. This is serious and means that a 15M new car year is really being optimistic at this point.

Hottest Car Company on the Globe Right Now

With a string of hits, the installation of a younger internal cadre of managers to replace "senior" management, and setting out to match their best performing competitors-- it is Fiat.

New models, faster development, and a pumped up attitude has transformed Fiat from the laughing stock of global car makers into a very profitable, innovative, and creative company that produced Europe Car of the Year 2008, the Fiat 500.

Now there is talk of a spinoff of the car company or a merger. Maybe Case New Holland based in Wisconsin will go. All this seems to come from the kick ass leadership of Sergio Marchionne with straight talking, tuttle neck business wear, and a team that know that the competition is Toyota, Scania, and John Deere.

Tata's Driving Jaguar & Range Rover Wrecklessly?

Investors are really nervous about how Tata is going "drive" the Jaguar brand and its sister in the JLR brands, Land Rover. They cite the 3 things for concern-- Jaguar is a loser, costing Ford $10B; The U.S. Car Market is in downturn; and more so-- Jaguar does not find the into Tata line, particularly vehicles like the Nano. More unsettling are things like "No synergies", new carbon emission laws, no hybrid technology, and keeping the 3 plants in the UK.

Did Tata get a bargain or a basket of trouble? Tata has got to sell assets including it steel company to pay Ford. The JLR management team has sold Tata on their ability to deliver on a 5 year business plan of which no one on the outside has seen.

At the moment, it looks like what the U.S. Global market needs is not more luxury cars powered by 400 plus HP engines but a smaller, more effecient, green, and functional vehicles-- a mix of what Tata has been touting globally and what Toyota and Honda are doing, and what Ford and GM keep trying to convince us they are making or going to be making.

If you want to gain a better understanding of the Tata Turmoil, see the March 29th issue of the Economist or go to www.ft.com and find the great reporting that the Financial Times has been doing and will keep doing. Also monitor www.automotivedigest.com to keep abreast of the impact of this sale on the Ford and the U.S. market.

Would You Like to Buy a Bridge?

Want an investment tip that will really impact the traffic in your town, make you some money, and fix our roads, & bridges-- all at the same time? Kiplingers and others are saying that developing and rich countries (we are still one of those) will spend $ 30 Trillion, with a "T", on upgrading the physical infrastructures over the next 20 years.

Putting money into companies that build and fund bridges, roads, and other public infrastrucures will render steady dividends and returns.---like over 20% on a five year annualized return computation. Right now these "bridge-loan investments" are going on overseas, but soon will come to the U.S. as we realize that the cost of Iraq, health care, and investment bank bailouts is create a need to bring private investment to the streets, literally-- and probably from Wall Street.

Key to Dealer Survival is Selling Used Cars

The March 31st issue of Fortune has an timely article on page 24 about the success of John Zapp, a multi-franchise dealer in Oklahoma City, who shifted the focus of his GM & Chrysler stores from trying to sell more new cars to selling used cars. He outsold the Toyota dealer down the street, uped the net profit per sale, and motiviated his sales team with immediate cash payments. This retailing strategy is working great as Zapp is selling trade-ins off his lot for increased used car profit.

Opportunity for Dealers & Wholesalers: A lot of automobile dealers figured this out back in the 4th quarter of last year. However, wholesale used vehicle prices showed continued softness in February and auction inventories are still high. Any improvement in retail used vehicle market continues to favor franchised dealers. Retail used vehicle sales up by 40K+ units in February and 1.7%, YTD. This shows recession-resistance in the auto channel and a great used car market ahead in 2008 for dealers, auctions, and remarketers-- OEMs, too.--as the economic slowdown continues.

Renault Rushing to Car Wreck in Russia

Carlos Ghosn personally flew to Moscow last week to invest $1B for 25% of the mafia-infested automaker, Avtovaz. As Putin is re-nationalizing the major industries in Russia, he is fixing them up using some of the same tactics that U.S. private equity firms employ-- and then selling a minority stake to foriegn investors for a tidy profit.

The issue is: Avtovaz is bloated with over 100,000 employees making 736,000 cars last year vs. the effecient Renault with 130,000 employess making 2.43 M vehicles last year. Handing the keys to Russia's lead car maker to Ghosn maybe comparable to the Nissan take over of years back, but this time Mr. Ghosn may not have the backing of Putin, Acvtovaz management, the Russian Mafia, and desparate stockholders as he did when it went to Japan to tell Nissan that it was Renault's way or the "Road"--Plus the sales of 5 "foreign" brands including Chevrolet were up by over 50% in 2007 for a total of nearly 70% market share. Ghosn is going to groan over this deal before the vodka toasts begin.

The Emotional Economics of Ethanol

The stocks of major ethanol producers like VeraSun Energy reported major profit declines this past week (81% down). Stocks of other ethanol companies are trading below book value. The price of corn has gone from $1.90 to $5.64 per bushel while enthanol has gone from $4.50/gallon to $ 2.60/ gal so ethanol is now just another commodity. Ethanol companies and investors are claiming that high corn prices, overcapacity, and uncertainies over future government mandates for the use of ethanol are making the market "emotional".

Whatever, it appears that the "Ethanol Blitz" to replace the MBTE additive which was claimed to have carcinogenic groundwater pollutants may have it own kind of "cancer" on the investors and growers who have "bet the farm" as they seek to create a new source of fuel and a new world of energy prices. [See Herb Greenberg's column in the Saturday's issue of WSJ (March 15th) for more insight and erudition on what is really going on]

Don't Buy Gas from Exxon and Mobil

"The price of gas is killing me" -- that is the message in emails that are coming in from a dozens of intelligent, upscale professionals from New Jersey to LA, encouraging a chain of email recipients (people they know or do biz with) to not just stop buying gas from Exxon and Mobil for the month of April and May but permenantly.

The rationale is that this will somehow create a price war and drive the cost of gas back down to $1.30 per gallon. They hope to send this message to an ever increasing number of people until the purchase boycott becomes a national campaign, thus impacting the sales of gas , causing brands E and M to knuckle under and drop the price.

This is probably just an expression of frustration and futility. The price of gas, ironically enough, has little to do with the retailers at the pump or even OPEC, but with the Mercantile Exchange in New York and Dubai where union and retirement funds, investment banks on Wall Street, foreign investors, insurance companies, and speculaters are all "playing the futures market" -- all betting their entrusted funds on the future price of crude. Most of our crude oil comes from Canada, Mexico, and Venzuela so one has to wonder if OPEC is really the culprit or even Big Oil--maybe it our leaders in Washington who cannot seem to decide on anything including how to deal with why the people who have most of the oil hate us.

Books of Significance to Automotive Management

http://www.automotivedigest.com

There seems to be a need for and a lot of interest in someone in trade publishing who would monitor recently published automotive industry and business books that might be of significance to automotive management including dealers, remarketers, OEM executives, fleet, aftermarket---everyone in the channel.

So I plan to select books of significance from time to time and post a summary of their content and most importantly, how they might be useful to automotive managment. These "significantly informed opinions" about books may end up being posted on the industry's leading online automotive trade magazine, www.automotivedigest.com also.