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Year End 2007 – Auto Industry in the Rear View Mirror

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A stream of consciousness look at the auto industry in 2007. Whew, what a year it was!!!!!!!
Not the Trauma We Expected, but 2007 was Tough
We began the 2007 thinking the year was going to tank into the mid-15,000,000 unit range. That didn’t happen and the industry struggled to just over 16,000,000 units. This reasonably good year was in the face of negative media coverage, a severe housing downturn, a subprime mortgage crisis, soaring gasoline prices, etc.
Saying 2007 at just over 16 million units was a good year will be criticized as nuts, but we have been conditioned since 2000 to think that 17 million is good. It wasn’t too many years ago that 15 million was good. So, 16 million ain’t too bad. Just not what we have become accustomed to. And, by accustomed to, I mean we have plant capacity for many more units. We have dealers in place to sell many more units. We have built our business models and breakeven points on 17 million units and not 16 million.
We began the year with turmoil. Ford was in turmoil and embarking on an aggressive restructuring program with a new CEO at the helm. There were rumors of bankruptcy hovering over Detroit. DaimlerChrysler AG announced that it would off-load its American Chrysler Group and rely on upscale Mercedes-Benz cars, commercial trucks and, of course, Maybach and smart.
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Ford Struggles Through 2007
By year end, Ford is still with us and there are some bright spots in its lineup – Fusion, Edge, MKX, MKZ. The Five Hundred, Montego and Freestyle were freshened, got new engines and renamed Taurus, Sable, Taurus X. Well, the upgrades took, but sales did not and Taurus, have languished on dealer lots. I did see a ton of them on Kauai along with a very high number of Dodge Calibers. So, we know that retail sales for the Ford large cars and Crossover are not doing too well. Ford has retained top spot in big truck sales with F-Series remaining the sales leader even with Silverado and Tundra coming on strong and the Dodge Ram pickup offered at fire sale prices. Ford unloaded Aston Martin and spent the year doing due diligence on off-loading Jaguar and Land Rover (probably to India’s Tata Motors). Ford will keep Volvo, however.
To help Ford with sales and marketing, Ford lured Jim Farley to the Company. Formerly Group Vice President of Toyota’s Lexus Division, Farley was a rising star in the Toyota ranks. A friend of the Ford family, Farley appears positioned to challenge Ford’s other young star – Mark Fields – as the heir apparent to Alan Mulally in four or five years.
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Now, It’s Chrysler LLC
DaimlerChrysler gave Chrysler Group to Cerberus Capital Management retaining a 19.9% stake. Cerberus promptly named Bob Nardelli – formerly hard charging CEO of Home Depot and General Electric – as CEO of Chrysler LLC. Nardelli’s lack of specific auto industry experience was offset by Cerberus adding highly respected Toyota executive Jim Press as co-COO. Press is working his way through Chrysler’s activities using the revered Toyota Five Whys approach (a question asking method used to explore the cause/effect relationships underlying a particular problem. Ultimately, the goal of applying the 5 Whys method is to determine a root cause of a defect or problem). Five Whys, understandably, has Chrysler vets on edge. They now have to justify everything. Nardelli, Press and Tom LaSorda are facing soft sales, high inventories, sub-par interiors in many cars and an image gap. With $10 billion in loans, Chrysler LLC has some time to prove itself or position itself for a takeover or a parceling out of components (like Jeep, Dodge Truck, Minivans, etc). Oh, yeah, DaimlerChrysler became Daimler AG in October.
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General Motors Has Turned the Corner

General Motors appears to have turned the corner. GM has kept its head down during 2007 staying out of the feeding frenzy the media has directed at Ford and Chrysler. Not that there aren’t numerous stories written about GM, it’s just that there hasn’t been the bad news to whet the appetite of journalists.
GM’s products are improving now that the early efforts of Bob Lutz are being seen. While cars like the Saturn Aura and trucks like the Lambda Crossover SUVs and GMT900s have set the tone, Lutz’ real impact has been seen on the 2008 Cadillac CTS and 2008 Chevrolet Malibu. Both of these cars will serve to cement GM’s car lineup for years to come.

We won’t spend so much time on the import brands, but lets give some highlights/lowlights…
Lowlight – Volkswagen of America
Announced that it was moving its headquarters from Auburn Hills, Michigan to the Virginia suburbs of Washington DC. The people that VWoA invited to move from Michigan to Virginia received notice in mid-December, but like any major move many of the people invited to leave opted to stay in Michigan. Why? Many folks have family or other ties in the Southeastern Michigan area and don’t want to leave no matter how bleak the job prospects and economy are. Many folks are so upside down on their homes and mortgages that they cannot afford to move even if Volkswagen makes extraordinary efforts to help (which we understand they are are not). Some will balk at moving because the cost of living in the DC environs is considerably more than in DTW.
But all of this fits into VW’s grand plan of reducing headcount and rebuilding their distributor operations almost from the ground up. We’ll watch the transition closely over the coming months.

Lowlight – Nissan North America… Highlight – Sales are Up

Nissan moved its headquarters from Los Angeles to Nashville, Tennessee beginning in 2006 and ending in 2007. They moved to reduce costs, get closer to their manufacturing base in Tennessee and Mississippi, eliminate unwanted personnel, restaff with fresh faces and ideas. The NNA move was not as clumsily implemented at the Volkswagen move, but NNA is still reeling. There is the Nissan old guard. There are folks they brought in from the DB3 – Detroit Big Three. There were folks they brought in locally. All of these contingents have different backgrounds and different ways of working. It will take years for NNA to work as a harmonious whole.
In the meantime, Carlos Ghosn, head man at Nissan and Renault has been trying to identify a tie up with one of the DB3. He failed to develop a strategic relationship with General Motors in 2006, so Chrysler LLC looks like his next target as a partner. Nissan’s Canton, Mississippi plant is struggling and rumors are rife that Nissan is talking with Chrysler LLC about sharing the Dodge Ram pickup and killing the Nissan Titan (an excellent half ton pickup). Nissan will be moving the slow-selling Quest minivan to Japan and it would not be a surprise if they abandoned the minivan market in total… or used Chrysler as a partner.
Highlight – Toyota Motor Sales
Toyota keeps motoring along increasing sales month-by-month and setting new annual sales records. Not as bulletproof as they were a few years ago, Toyota is now in the sights of everyone playing in the USA market. They had the Motor Trend Car of the Year with the 2007 Camry and the 2008 Truck of the Year with the Tundra. The Lexus LS460 has been getting rave reviews as possibly the best of the Premium Luxury Cars. AutoPacific research has identified the Prius as the most successful halo vehicle in the industry. It goes on and on.
Even with Deborah Wahl Meyer (former Lexus marketing chief) and Jim Press (former COO of Toyota in the USA) moving to Chrysler LLC and Jim Farley (former head of Scion and Lexus) moving to Ford, Toyota will not miss a beat. They have a tremendously strong bench.

Footlight – American Honda Motor Company

Honda continues to evolve its new products. The eighth generation Accord is arguably the best Accord ever, but has not been getting the kudos Honda is accustomed to receiving for the car. Honda is offering a fuel cell car – the FCX Clarity – in mid-2008 that sets Honda at the forefront of hydrogen technology. The new CR-V Crossover SUV has become the darling of the Crossover SUV world and is selling extremely well even though it only has a 4-cylinder engine.
Footlight – The Other Germans
BMW and Mercedes continue to battle each other and Lexus is pulling away in the sales race. While cars like the Lexus LS460 are technology tours de force, the Lexus example is intuitively easy to use. The German engineers at BMW and Mercedes make outstanding machines that are difficult to learn. BMW and Lexus are very different brands but very close in terms of future brand consideration in AutoPacific research. Mercedes is falling behind.
Lowlight – Jaguar Land Rover

Great cars and SUVs didn’t make these two iconic British brands a viable business proposition for Ford Motor Company and their sale to India’s Tata Motors is expected early in 2008. Land Rover is strongly profitable and would have been an excellent standalone company were it not for the interrelationships between Jag and LR and Ford’s Premier Automotive Group. They will be sold as a pair. Not individually. What was the death knell? The outstanding Jaguar XJ looks just like its predecessor. Great car that has not sold well, but deserved to sell much better. Styling did it in. The X-Type… a derivative of the 1st generation Ford Mondeo with all wheel drive never lived up to the Jaguar badge. Every one sold in the USA hurt Jag’s image (just as every Freelander sold in the USA hurt Land Rover’s image). Jag is just on the verge of launching the XF – the replacement for the S-Type. XF looks like a winner and should go a long way toward proving an investment by Tata (or others) in Jaguar is not wasted.

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