Steve Parker Motoring / The Car Nut

TOYOTA NOW #1, BUT WAIT FOR CHINA

Toyota is now officially the world's top auto seller -- for the last quarter, at least. The Japanese giant beat GM on the global level for the first time ever, selling 2.348 million cars to the General's 2.26 million. General Motors held the "world's-largest vehicle-maker" title for the past 76 years. But the Toyota/Lexus/Scion juggernaut might eventually be compared to a gnat on the rear-end of an elephant in a few more years. What happens in about 2010? By that time, several Chinese companies will have begun selling cars and trucks in the US. Already a Chinese company is setting-up the plants and the employees to assemble Chinese-made parts into a new-generation of MG sports cars on an Indian reservation in the American Midwest (a story covered elsewhere in this BLOG). That's the kind of story a Hollywood screenwriter couldn't make-up. And that's just the first step.

The Chinese market alone is so huge and growing so quickly that all American car-makers are manufacturing and selling vehicles there, all involved with Chinese "partners" (which is a fundamental part of any agreement for all foreign car companies doing business in China, mandated by their still-proudly Communist government). This week, at the Shanghai Auto Show, DaimlerChrysler announced the introduction and launch of the Dodge brand into the Chinese market. Motor vehicle new car and truck registrations in the Beijing area alone are approaching the 60,000 vehicles a week mark. Yes, that's 60,000 a week.

Interestingly, Buick is a strong seller in China and throughout much of Asia. Why? After the close of   WWII, thousands of Buicks were shipped to Japan, Korea and China and other Asian nations as cars for American officials and occupation military officers. Cadillacs were the vehicle of choice for the US ambassadors, generals and other high-ranking personnel throughout the area, and of course the local populace picked-up on the "Cadillac" name and quickly learned that they were the American "Standard of Excellence" (as the cars used to be known in their advertising). (Photo - Chinese ad for the MG-TF).

But Buicks, which were much more numerous and used in more utilitarian ways, and driven by officials who were much more likely to have direct contact with the average man and woman on the street, also quickly became known for their high-quality and good looks. For this reason, the Buick nameplate has been well-known and highly-regarded throughout Asia for over 60 years. In fact, at the Shanghai show this week, Buick introduced several new vehicles to the Chinese market, including one with the fabled name "Riviera". (Photo - Chinese Geely model, aimed for US market).

Why is the Chinese auto industry such a gigantic threat to America? Two words: Hourly pay.

Auto workers in the US, Germany and Japan all earn about the same per-hour pay. In point of fact, for those of you who might be tempted to blame America's auto industry problems on the workers and their United Auto Workers union, the highest-paid auto assembly line workers in the world are not in this country, but in Germany. South Korea's workers pay is quite lower, on average, but they are catching-up to the traditional giants.

But the pay for China's burgeoning assembly line workers is much lower than any other nation where there  is a major auto industry. That alone will make the first Chinese vehicles to be imported to the US priced much lower than comparable vehicles built in the US, Germany or Japan, and even more than Korea's cars and trucks which are sold here in great numbers. (Photo - Chinese Changhan V8).

Quality and safety will no doubt be a major issue for the first Chinese vehicles coming into the USA. Both these questions will probably be non-issues. China's executives are at least as smart as those in any other nation.

Let's use the example of Hyundai, and we can assume the Chinese will learn lessons from that company's initial problems in the US market. Hyundai's first few years of their Excel small cars, with US sales beginning in 1986,  were so poorly-built that thousands of them literally fell apart after just a few thousand miles. Also, Hyundai was so determined to set the "100,000 sold in one year " record that the company would sell a car to essentially anyone who wanted one, credit standing of the buyer not taken into consideration. Hyundai developed a reputation for selling cars which sat at the side of the road, slowly deteriorating until someone towed them away. But they did set that sales record, and their introduction of the industry's first 100,000-mile warranty forced people to consider the product (the repair costs which Hyundai was forced to spend based on that warranty nearly put the company out of business in this country). Hyundai is responsible for almost 15% of the GNP for South Korea, and the home office was always able to bail-out the American subsidiary.

Another problem Hyundai created for itself was when they introduced their first larger car, using the Super Bowl to launch the model with the first Korean car to be advertised during that huge American event. The problem was that the ships carrying the cars from South Korea to the US arrived late, and people who saw the TV spot and went to their local dealers found out that the car was not yet available ... "Still on the boat", they were. Hyundai (and their wholly-owned subsidiary, Kia) now manufactures vehicles in plants in the USA, as the Chinese no doubt will soon, using the successful philosophy developed by Toyota called "Build where you sell". (Photo - Chinese New Dadi Yuadongli Motivity).

Another reason quality and safety will probably be at least "average" on the first Chinese-made cars and trucks sold in the US is that virtually every Chinese car-maker has a JV (joint venture) with either a Japanese, US or Korean car-maker. The Chinese companies will certainly be able to "borrow" their partners' design and production methods when it comes to these two important, crucial factors in the marketplace.

So don't worry too much about Toyota becoming, for the first time, the world's largest vehicle-seller. Where we should cast our collective American gaze is farther east, towards China, where cheap labor and shipping costs (the Chinese government owns COSCO, the huge Chinese container lines ship owner).  (Photo - Chinese 2007 Chery, probably aimed at US market).

Will American car companies start asking our government for tariffs against the coming wave of Chinese vehicle imports? And when the Chinese begin building plants in the USA, what protections will the American, German, Japanese and Korea vehicle-makers in this country ask for? Tough questions which need to be considered now, not after the fact.

LUTZ: BUSH SAYS "LET REAR DRIVE DIE!!!"

Well, there he goes again! Just a few days after claiming that the Bush  Administration's attempts to increase fuel economy will cost anywhere from $5,000 to $6,000 per vehicle, at least as far as the company's Product Maven Bob Lutz and GM are apparently concerned, (Lutz is seen in photo introducing his first major sales loser for GM, the Australian-made Pontiac GTO), he now says things are worse than he first thought! Yes, the President's proposals will not only raise the price of GM vehicles way out of proportion to their competition's models, but will also KILL ... you hear me: KILL ... GM's much-vaunted rear wheel drive efforts, starting, perhaps, with the all-new CAMARO!!! (The car which more males with mullet haircuts want more than anything else in the world, as reported in a recent CNN poll).

Here's a quick wrap-up of Jim Mateja's ChiTrib column and the basics from it ...

General Motor’s rear-drive initiative is in trouble. While the next Camaro is still moving forward (but who knows, really, right? - SP) , car czar Bob Lutz has indicated that “…anything after that is questionable or on the bubble.” That shocking bit of news means that the Chevrolet Impala, Monte Carlo, and even any Camaro derivatives (Pontiac Firebird, etc.) are all a big question mark. So too, is a replacement for Buick’s Lucerne, and a sub-CTS-sized Cadillac.

According to Lutz (in photo intro'ing Chevy Volt concept car at this week's NY Auto Show), the problem is that the company’s planned rear-drivers are all larger and heavier, which exacts a heavy toll on fuel economy. President George Bush’s new Corporate Average Fuel Economy standards, if enacted, would make it very tough for GM to be compliant with these new cars. Says Lutz: “We don’t know how to get 30 percent better mileage” [from these cars]. Lutz says that GM will decide the fate of these models when the government figures out how to proceed on CO(-2) levels and updated CAFE standards.

Could this all be a bit more of Lutz screaming that the "sky is falling", when what really is falling are GM's mpg numbers?  Are Lutz' words  (pray no!) designed to discourage Washington from enacting tougher emissions and fuel-economy standards? Of course they are. Or are a good portion of GM’s future vehicles now well-and-truly on the ropes? What say YOU?

Let's see --- First Lutz says earlier this week that improving mpg in GM cars and trucks will cost consumers many thousands per vehicles ... Now he says GM's rear-drive initiative might be dead in the water because of the Prez ... Hmmm ... Seems to us if Lutz really does not know how to improve mileage by 30% in those vehicles, he ought to be looking for a new job (or at least enjoy his retirement flying his old fighter jets). Here's an idea: Hey Bobby! Try putting HYBRID powerplants in those cars!

To read Mateja's complete column, simply click anywhere on this line.

CHRYSLER: LET'S START THE BIDDING!

Well, it's official: DaimlerChrysler chieftain Dieter Zetsche (photo), has  announced that the company had talked to potential buyers of its U.S. division. And this is one auction which you won't see being held in some circus tent (and ever think about how appropriate those tents are?) on SPEED with a bunch of sleaze-oid Hawaiian-shirted mid-life crisis idiots and their fat wives in the steaming, drunken audience holding up those 'buy' paddles to stave off the "not tonight" they're going to get later that evening in the hotel room ... No, this auction is (so far) between a 90-year old megalomaniac (who has many reasons to have a huge ego, so don't hold that against him), who has bought and sold MGM films (not the films ... the entire company) three times and made a huge profit each go-round, Canada's Magna Corporation and some things called The Blackstone Group and Cerberus, two of those mysterious "Wall Street Investment Firms" which keep their operations as secret as "The Man From U.N.C.L.E" used to do on '60s TV. Finally, as of today, Magna, a gigantic Canada-based parts supplier (which also manufactures entire cars and trucks under contract to OEMs) has also popped-in with their stated intention to own Chrysler. Perhaps the only positive thing to come so far in this auction for what was once one of the world's single greatest engineering companies is that it's now clear to everyone that Daimler's so-called "merger" with Chrysler in 1998 was, in reality, nothing short of a complete take-over, as critics (and Chrysler shareholders, with lawsuits against Daimler yet to be resolved) have charged. Right now, Kirk Kerkorian, through his Tracinda Corporation, is the man of the hour. His offer seems low, but at least someone has the cojones to get the ball rolling, so to speak.

The LOS ANGELES TIMES covered the DaimlerChrysler story in their April 6 editions. Interestingly, the newspaper itself and its parent company, Tribune Corporation, is also a public company in the process of being sold  to either a Chicago-based self-described "grave dancer" named Sam Zell (photo), known to the business world as a "real estate entrepreneur" or a "slum lord", depending on the source, or perhaps to one of several Los Angeles-based billionaires, including Eli Broad (real estate), Ronald Burkle (supermarkets) and David Geffen (show biz). It appears Zell has the upper hand and he might get away with buying Tribune, which owns several money-making newspapers, 26 TV stations (some in the same cities as their newspapers) and the Chicago Cubs, for a personal investment of only $350 million. His trick? Use the money from Tribune's employee retirement fund to finance the sale and take the company private. Then he can do as he will with it, which is what many people are afraid will happen to Chrysler if it too goes private. Whoever is the boss man can sell-off money-losing parts of the companies (in Chrysler's case, perhaps the Dodge or Jeep divisions, in Tribune's, maybe some of the smaller papers and TV outlets). So Tribune and all their employees certainly have their own problems, in some ways quite similar to those facing DaimlerChrysler and its far-flung employees.

The Detroit News reports that Kirk Kerkorian was born in 1917 in Fresno, Calif., to Armenian immigrants. He dropped out of school in eighth grade and became a skilled amateur boxer, fighting under the name of "Rifle Right Kerkorian." During World War II, he piloted de Havilland Mossquito airplanes over the north Atlantic as part of the Royal Air Force.

In 1947, in his first "big" deal, he paid $60,000 for TransInternational Airlines, a small air-charter service  mostly used by gamblers who flew from Los Angeles to Las Vega. He operated the airline until 1968 when he sold it for $104 million to Trans-American Corp.

According to the LA Times, the first time Kerkorian (photo) got involved in the auto business, he was a Los Angeles teenager. He bought old cars, refurbished them and resold them for a $10 or $15 profit.

Seventy-five years later, only the scale of Kerkorian's operation has changed.

The investor unveiled a $4.5-billion all-cash bid Thursday to buy Chrysler Group, the faltering No. 3 U.S.-based automaker, from its German parent, DaimlerChrysler. It was the latest effort by the billionaire to buy a stake in America's once-high-flying automotive industry.

How far has Chrysler Group fallen? Kerkorian's bid to take the company private was seen as credible by some on Wall Street, even though the offer is one-eighth of the $36 billion the then-Daimler-Benz paid for the American automaker in 1998.  Kerkorian's offer contains potential stumbling blocks such as a condition that Chrysler reach a "satisfactory" conclusion to what could be rocky contract talks with the United Auto Workers this fall.

Kerkorian has a good track record of seeing such possibilities when others do not. He made a $22.8-billion offer for Chrysler in the mid-1990s, teaming with former company Chairman Lee Iacocca. Kerkorian, who held a sizable stake in Chrysler, was rebuffed but eventually made $2.7 billion on his investment after the deal with Daimler-Benz.

In 2005 he began accumulating shares in a foundering General Motors Corp. Although stymied in his attempt to revamp the company, he still made some pocket change off the venture: about $100 million.

Kerkorian, who runs his empire out of nondescript, unmarked offices in Beverly Hills, has no interest in cars as such. To get around town, he chooses such middle-of-the-road vehicles as a Pontiac Firebird, a Jeep Grand Cherokee and a Ford Taurus. His visits to Detroit are exceedingly rare.

He bought and sold Metro-Goldwyn-Mayer Inc. three times, making a profit each time. Kerkorian first visited Las Vegas during World War II, shortly before mobster Bugsy Siegel opened the Flamingo Hotel and essentially made the town a tourist destination. Kerkorian later bought the Flamingo and many other hotels and casinos.

MGM Grand, a public company of which Kerkorian owns 62%, is now the biggest single player in Vegas, with properties such as the Mirage, Bellagio and Mandalay Bay. Forbes magazine recently estimated his net worth at $15 billion. He's loyal, too; He ordered a fleet of stretched K-car limousines for MGM's Las Vegas high-roller's use when his friend Iacocca was running Chrysler for $1 a year and the K-car was the only "new" thing the company had to promote.

Analysts saw potential problems in two conditions Tracinda placed on its offer: a satisfactory new contract with the UAW and an agreement with DaimlerChrysler to share the unfunded pension and health care liabilities for Chrysler retirees, which have been estimated as approaching $20 billion. The offer letter didn't say what would constitute an acceptable labor contract or how the liabilities might be divided. (Photo - Chrysler 300 stretched limo with gull wing doors, similar to what Kerkorian had in his MGM Grand Hotel high-roller's fleet over 20 years ago when his friend Lee Iacocca supplied him with a fleet of stretched K-cars made to "be seen around town" being used by MGM Grand's special guests).

The offer is meaningless until those issues are resolved, said David Healy, an analyst at Burnham Securities Inc.

At least three groups have reportedly expressed interest in Chrysler, including Canadian auto parts supplier Magna International Inc., which has reportedly submitted a bid to buy the business for as much as $4.7 billion.

Cerberus Capital Management and a consortium of investors led by Blackstone Group each have reviewed Chrysler's finances and are expected to make bids. Spokesmen for the two firms declined to comment.

Estimates of Chrysler Group's value have ranged from zero, because of its liabilities, to $13.7 billion.

Even if it stalls, Kerkorian's bid — in particular, an offer to post a $100-million deposit in exchange for an exclusive 60-day negotiating period — may help the Chrysler sale process get going, one analyst said.

'GM SAVIOR' BOB LUTZ INSULTS AMERICA, AGAIN --- "BUSH'S PROPOSALS TO COST $5,000 PER CAR!"

We're listing this under "personalities" because, when it comes down to it, that's what Bob Lutz, 72 or so, really is at this point in his long, checkered career. Younger auto journos just love Lutz (see photo, left, taken after Lutz intro'd some Chevy minicar concepts at this week NY Auto Show); he's always good for a great "quote", and he stays away from talking about anything deep or important or crucial by telling them great industry stories from 40 or 50 years ago, which the young scribes naturally eat up. Lutz is a former Marine who collects race cars and fighter jets. He's the next best thing to Carroll Shelby for uninformed and inexperienced industry writers and plays his "curmudgeonly old man of the industry" to the hilt. He has had no major mass-production successes to crow about since taking the job as the top person at "GM North American Cars and Trucks", his given goal being to develop vehicles Americans "really want to buy". Some point to the Pontiac Solstice (photo below) as having Lutz' handiwork all over it, but a two-seat sports car is not going to move the 400,000 units annually GM needs at least one of their new cars to sell. But with Lutz now spending a good amount of time trying to scare American consumers into believing that fuel economy = higher vehicle costs and that Americans still have a god-given right to buy as many Hummers as they want, Lutz is taking on a new persona: He is playing the Dick Cheney role to GM chieftain Rick Wagoner's George Bush. Look at it this way: Wagoner was busy this past week glad-handing the President at the White House during a "showcase" of US-made alternative fuel vehicles. Wagoner was there along with Bill Mulally of Ford (who's now being criticized for making over $28 million in his first four months with FoMoCo, as that company  lost $12.7 billion in 2006; we criticized Mulally and the company the day he was hired and his planned compensation was announced) and Tom LaSorda from that great American company, Chrysler. Well, it might be an American company (again) in the next 72 hours or so. By the way, Toyota and Honda, leaders in alt fuels, were not invited to the White House, and neither was Mercedes-Benz, which is touting their Bluetec diesel system which will make diesel-powered cars and trucks widely available in the US for the first time in decades. So see the connection: While Bush and Wagoner hang-out at The Big House, Cheney and Lutz bad-mouth their respective enemies and let their bosses relax and bask in the wonderful, warm glow of power. By the way, as far as fuel economy = higher vehicle costs: Our Toyota Prius, which we bought 4 years ago, cost us $20,500 fully-loaded brand new, and is worth as much as $5,000 MORE than that now. With over 48,000 miles on the car, apart from regular maintenance and front tires wearing out faster than we'd like, NOTHING on the car has broken. Nothing. So here's Lutz take on America's car companies being bale to reach even Bush's meager targets for fuel economy --- Take our word for it, it's pretty shocking and graphic, as well as the usual Detroit BS. What's also bothersome is that Lutz falls back on the sure-thing of the midwest --- Ethanol! And ethanol made from corn. There are so many problems with this product, which we have covered in this BLOG and will continue to as they develop, starting with nations and huge nation/corporations now wanting to chop down whatever rainforest and protected land might be left so they can plant corn and sell it to the US for processing into ethanol ... But don't get us started!

(Detroit News) General Motors Corp. Vice Chairman Bob Lutz said President Bush's proposed fuel efficiency increases could add more than $5,000 to the price of a new car. (Photo - Heads of the former Big Three meet in the Oval Office with President Bush earlier this year).

A Bush administration analysis of its proposal for a 4 percent average annual fuel economy increase would cost the automotive industry $114 billion between 2010 and 2017. That included a $40 billion estimate of GM' costs -- a figure the automaker has called "probably low."

The Bush administration wants to reduce the country's gasoline usage by 20 percent a year by 2017, with 5 percent of the reduction coming from improved required fuel efficiency standards for passenger cars and light trucks.

Meeting those mandates could require making nearly every vehicle a hybrid and other expensive steps. That is an "unaffordable solution," Lutz said. "This technology does not come for free."

A better way to reduce oil dependence is to dramatically boost the availability of ethanol-based fuels, like E85, said Lutz said. Improving access to E85 is key, since there are only about 1,100 E85 pumps out of 170,000 nationwide.

Lutz's comments at the New York International Auto Show came in the wake of the Supreme Court's 5-4  ruling Monday that the Environmental Protection Agency has the express authority to regulate carbon dioxide emissions under the Clean Air Act. The rising level of carbon dioxide in the atmosphere has been linked to the warming of the earth.

Lutz said it wasn't yet clear whether the Supreme Court determination would hurt or help the auto industry. "We're still studying the decision," he said.

Dave McCurdy, top lobbyist for automakers (the job Bush's former Chief of Staff, Andrew Card, had before he entered public service in the White House --- Our CAR NUT BLOG comment, not the Detroit News'), said in an interview the Supreme Court decision helps pre-empt individual state efforts to reduce carbon dioxide emissions. The industry wants a national policy that spreads the burden across industries.

But McCurdy, who heads the Alliance of Automobile Manufacturers -- a trade group that represents General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Toyota and other manufacturers -- agreed that the decision has boosted momentum for Congress to take some action to reduce greenhouse gas emissions.