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Week of Feb. 1, 1999

February 1, 1999


HAVE YOU DRIVEN A VOLVO LATELY? Another independent carmaker disappeared last week when Ford, the world’s No. 2 carmaker, announced it would acquire the passenger car business of AB Volvo. The long-rumored $6.45 billion purchase ends speculation that Volvo would complete a $7 billion merger with Fiat, or would be sold to Volkswagen. Volvo’s strong sales — 399,700 cars last year, up 3.4 percent from 1997 — and its low debt made it a key takeover target. Its U.S. sales of 110,700 cars last year (up 8.5 percent) to a largely upscale, heavily female buyer body proved a big selling point for Ford. So did Volvo’s safe and green image. “Volvo has a world-class reputation for safety, quality, durability and environmental responsibility,” said Ford CEO Jac Nasser, “all of which are attributes that are increasingly important to customers, and fit with our 21st century vision of Ford.”
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VOLVO KEEPS ON TRUCKING.The acquisition splits the Volvo brand name between two companies. Ford will own Volvo’s passenger car business, its three car factories and two engine plants in Sweden, as well as its car-development facilities. It will hold the rights to make and market cars, light trucks, sport-utility vehicles, and minivans under the Volvo name. Meanwhile, AB Volvo will continue as the world’s second-largest heavy-truck maker, and a likely suitor for merger with Swedish truck rival Scania. It recently bought a 13 percent stake in Scania, and CEO Leif Johansson said the proceeds from the Volvo Cars deal would help his company pursue further growth on the truck side. As a prelude to its new structure, Volvo announced that it would end bus and truck production at its plant at Irvine in Scotland, cutting 450 jobs.
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GM DENIES VOLVO COUNTERBID. General Motors Corp, the world's largest automaker, denied Friday that it would bid $15 billion for all of Sweden’s AB Volvo, according to a Reuters report. The Detroit News had reported Thursday that GM would counterbid against Ford Motor Co.’s planned $6.45 billion acquisition of Volvo’s car business. “There is absolutely no truth to any rumor of a counteroffer for Volvo,” GM spokesman John Mueller, in Detroit, told Reuters. “We're not making any offer on Volvo.” Still, auto analyst Maryann Keller warned that Ford’s purchase would not be assured until Volvo stockholders vote on March 1. The most likely challenge could occur if a rival, such as Fiat or Volkswagen, were to come in and make an attractive bid for all of Volvo, including both car and truck operations.
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IS NISSAN MORE THAN DAIMLERCHRYSLER CAN CHEW? DaimlerChrysler AG’s recent merger could make it difficult to take a bite out of ailing Nissan Motor Co., analysts told Reuters on Friday. Speculation that DaimlerChrysler would invest in Nissan rose last week when Co-Chairman Juergen Schrempp said on a visit to Tokyo that his company was impatient to build up its Asian business. “I think they would find it too big a fish to swallow,” U.K.-based European Auto Research analyst Jonathan Storey said, adding, “I think they would be foolish not to run a slide rule over the possibility, however.” Not all were dismayed, though: “I think that the talks with Nissan could be made to work for both parties and would make the resulting company, after the DaimlerChrysler merger, a truly global car manufacturer,” London-based Credit Suisse First Boston auto analyst Susanne Oliver said. Despite such concerns, Schrempp cancelled out as the keynote speaker at this week’s convention of the National Automobile Dealers Association. Instead, the German executive intends to remain in Tokyo in order to spur to conclusion negotiations with Nissan.
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NEW CHILD-SEAT STANDARDS COMING. The U.S. National Highway Traffic Safety Administration is preparing to issue new child-seat safety standards that will require auto manufacturers to install universal anchoring systems in new cars, according to a Bloomberg report. Under the new rules, automakers will have to install a rigid bar behind the rear seats on which child seats can be anchored. New car seats would then be required to offer either a metal bar or webbed straps that would be hooked onto the anchor rod, as well as a tether strap on the top of the car seat that would be latched to the shelf behind the rear passenger seat. It’s likely that regulators will make a formal announcement during National Child Passenger Safety Week — the week of Feb. 14 — the report said. Automakers estimate the new child seat latches would add $10 to the price of a car; while the new restraint systems could add as much as $65 to the cost of car seats.
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PEDESTRIANS, BABIES AT RISK. Two European consumer groups are calling for improved car designs after crash tests showed some vehicles could pose a risk to passengers and pedestrians, according to Reuters. The BEUC and ANEC groups released a statement that underscores the results of recent tests: “EuroNCAP crash test results … show that manufacturers are still ignoring the safety of some of the most vulnerable road users, pedestrians and babies, in the design of their cars,” they said in a joint statement. The groups called on manufacturers to warn drivers of the “potentially fatal” risk to babies travelling in rear-facing child seats in the front seats of cars with frontal airbags. They also noted that of four recent strong performers in the European safety tests — Ford Focus, Mercedes A-Class, Opel Astra, and Renault Megane — none gained more than two stars for pedestrian safety. BEUC and ANEC said they wanted to see new safety legislation focus on the design of car bumpers and hoods, the parts most likely to hit pedestrians in a collision.

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BMW SALES CLIMB, BUT IS “BP” IN TROUBLE? German automaker BMW reported Friday that its group sales rose to $36.9 billion (63.13 billion marks) in 1998, up from 60.13 billion marks in 1997. However, vehicle deliveries dropped slightly, to 1.18 million units from 1.19 million the previous year. Meanwhile, the company denied on Friday that BMW chairman Bernd Pischetsrieder (known within the company as “BP”) was the subject of a secret meeting held to discuss continued losses at BMW’s Rover brand. German daily Die Welt said in its Friday edition that some shareholders had called for Pischetsrieder to step down at a Berlin meeting. The paper added that some BMW shareholders hold Pischetsrieder responsible for the company's failure to turn around the loss-making Rover Group since buying it in 1994. “We deny that,” Quandt family spokesman Thomas Gauly told Reuters. “This meeting never happened.” The Quandt family owns about 42.2 percent of BMW.
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GM AD PLAN HITS SNAG. General Motors Corp.’s plan to streamline its regional advertising has been met with a lawsuit. A group of 60 Illinois GM dealers have filed suit to block GM’s effort to control advertising money once spent by regional dealer groups. GM had planned to direct all regional advertising through one agency starting April 1. The dealers complain that the overhaul of the $500 million ad budget — which comes from a 1 percent deduction from the price of each GM vehicle sold — violates state franchise laws that forbid companies from requiring franchisees to pay for company advertising. A GM spokesperson had no comment on the lawsuit filed in Cook County, Illinois.
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OLDS DEEP-SIXES THE EIGHTY-EIGHT. America’s longest-lived car brand was retired last week when Oldsmobile donated the last production Eighty-Eight to its museum in Lansing, Michigan. The Eighty-Eight nameplate made its debut in 1949, when GM introduced the Futuramic 88 convertible behind the slogan, “Make a date with the Rocket 88.” The car, powered by America’s first high-compression V-8 engine, quickly became Oldsmobile's best seller. A red Rocket 88 paced the 1949 Indianapolis 500 and, 10 years later, a Rocket 88 won the first Daytona 500. More than 10 million Eighty-Eights were built before the last car, a special black Eighty-Eight 50th Anniversary edition with gold trim, rolled off GM’s Orion Assembly Center line on Jan. 6. The final car joins other historic Oldsmobiles at the R.E. Olds Transportation Museum in Lansing.
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PORSCHE DIALS 911. Porsche announced on Friday that it would recall 5,300 units of its 911 and 911 Turbo models worldwide because of an airbag defect. The company disclosed that an electrical problem could cause the driver-side airbags in the 1996 model-year cars to inflate unintentionally — perhaps even while using the horn — causing cuts or bone fractures.
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A SMARTER SMART CAR? DaimlerChrysler said it would overhaul the stability system of its Smart cars, the Dow Jones reports. “The measure is a result of tests of the (car’s) driving behavior in winter under extreme weather conditions,” the company said. The change reflects concerns raised by a Swiss auto magazine, which faulted the car’s handling in snow and ice. The company said it had assumed drivers would ease up on the gas in unstable driving situations, but experience has shown a lot of customers keep the pedal floored. The “Trust” stability system, a derivative of the ESP technology on Mercedes-Benz cars, uses anti-lock brake technology to improve traction; the expanded version, to be called “Trust Plus,” will be available by the middle of the year, and current Smart owners will not be charged for an upgrade.
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BP AMOCO CLEANS UP ITS GAS. BP Amoco will offer cleaner fuels in cities with the worst pollution, the Washington Post reports. The company, one of the world’s largest oil vendors, created from the merger of British Petroleum and Amoco, said it would offer the reformulated fuel in 40 cities over the next two years. The decision anticipates tougher EPA rules expected next year that would require oil companies to provide low-sulfur gasoline across the nation. Recently, major automakers have complained that they could not reduce emissions in cars because of gasoline’s high level of sulfur, which collects in the metal screens of catalytic converters.
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TOYOTA COROLLA NOT NO. 1. For the first time in 30 years, the Toyota Corolla lost its lead as the best-selling car in Japan. The honor for 1998 went instead to the Suzuki Wagon R minicar, which sold 206,548 units last year, largely on the heels of a major redesign. In a slumping domestic market, Corolla sales fell 17 percent to 196,498 vehicles last year. The Corolla had been Japan’s best-selling car since 1969 and is still the top seller among compact cars in Japan; the Wagon R has been Japan’s best-selling minicar since 1996.
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TOYOTA TO CREATE NEW BRAND? In an effort to win over younger customers, Toyota may launch a new brand in its domestic Japanese market. Executive Vice President Akihiro Wada says that, “within the company, we're indeed discussing” coming up with a new brand name for sporty cars, he said. “But what's difficult is how to sort all our numerous products into two categories.” The change may already be occurring, however; some recent Toyota models such as the Progres sedan and the Altezza sports coupe don't even carry the Toyota logo, which has come to stand for reliability and conservative design. Instead, each model has its own symbol. The next step, Wada said, is to come up with a new product line under a non-Toyota name, as the company did in the U.S. in 1989 when it began sales of two luxury sedans under the Lexus brand name.
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TOYOTA TO GO F1 RACING. Toyota president Hiroshi Okuda says his company, Japan’s largest automaker, will join the Formula One racing circuit in 2003. Toyota will develop its own engines, suspension and transmissions for its F1 race cars, Okuda said. Toyota and other Japanese auto companies are looking to boost their image in Europe, where Formula One racing is popular, and Japanese automakers’ market share is small compared to that in North America and Asia.
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QUOTE OF THE WEEK. Responding to the recent mergers in the auto industry, analyst Maryann Keller of the brokerage firm ING Baring Furman Selz, offered this wisdom for companies picking partners from the remaining field of players: “Nobody is going to buy Nissan unless they are completely out of their minds … And French companies? Tackle that corporate culture. Have fun, guys.”
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