Week of October 4, 1999

October 4, 1999

FUEL ECONOMY FALLS
GM, DELPHI SETTLE
SALES SPECTACULAR
ZARRELLA FORECASTS
GM TO BUY DEALERS
CARORDER.COM ALSO BUYING
AUTONATION SPINOFF
MAZDA FINED
GM FIRE SETTLEMENT
AUTO TRADE DEFICIT GROWS
TOYOTA ON NYSE
ROVER BACK IN THE BLACK?
FIAT STILL DENYING RUMORS

 

FUEL ECONOMY FALLS The Honda Insight, the first gasoline/electric hybrid sold in the United States, topped the list as America’s most fuel-efficient automobile, according to a new report by the Environmental Protection Agency. The Insight, which goes on sale in December — and which is reviewed in this week’s edition of The Car Connection — gets 61 mpg in the city and 70 mpg highway. It was the most fuel efficient of 800 vehicles tested by the EPA. But overall, the agency noted that the fuel economy of the typical American motor vehicle has fallen to the lowest level since 1980, during the last energy crisis. The agency blamed that on bigger, more powerful motors, and America’s love of the light truck. The Land Rover Range Rover anchored the bottom of the EPA’s SUV list, getting just 12 mpg city, 15 mpg highway. The Ferrari 550 Maranello came in at 8/13 mpg, and was one of 20 vehicles subject to the federal gas-guzzler tax.

For more on what the plunge in fuel economy could mean for the future, click here.
For a list of the Best and Worst vehicles, by category, click here.
For a review of the Honda Insight, click here.

 

 

GM, DELPHI SETTLE Just one more to go. The United Auto Workers union wrapped up an unusually docile round of bargaining with General Motors Corp. last week, lining up an unusual four-year contract patterned after the settlement with DaimlerChrysler AG. The swift settlement at GM came as something of a surprise in light of last year’s 54-day walkout, which virtually shut down the automaker’s North American automotive operations. GM Chairman "Jack Smith and the people who run this company have been making a concerted effort to improve the relationship," declared UAW President Stephen Yokich. The average assembly line worker can expect an extra $29,900 in wage increases, bonuses and holidays over the next four years, as a result of the settlement. The new GM contract was rubber-stamped by Delphi Automotive Systems, the parts subsidiary spun off by General Motors last spring. The UAW had pressed both companies hard for job guarantees, and they both agreed not to spin off any operations or close factories over the life of the contract. The union will now try to make that language stick as it focuses its attention on Ford Motor Co. The No. 2 automaker intends to press the UAW to let it sell off its Visteon auto parts subsidiary. That dispute could make this round of talks the most difficult, many observers fear.

 

For a closer look at the GM and Delphi settlements and the talks at Ford, click here.

 

 

SALES SPECTACULAR The auto industry is still on track to set a record year. Though several automakers had yet to report their latest numbers, sales for September appeared to be running at close to an 18 million annualized rate. Most industry analysts expect the final tally to reach a bit over 17.2 million, well above the previous record set back in 1986. "These are good times, declared Roy Roberts, General Motors Corp. group vice president of North America vehicle sales, service and marketing. GM posted an 8.5-percent overall gain last month, with a big surge in light-truck sales offsetting a decline on the passenger-car side. Sales on the Chrysler side of DaimlerChrysler AG rose 7 percent overall, with both cars and trucks posting gains. Toyota set a record for the month, while Nissan, Mitsubishi and Subaru, among the other Japanese makers, also posted double-digit increases. On the European side, Mercedes-Benz sales rose 9 percent, while Volkswagen continued scoring with its hot lineup. With Beetle sales nearly double for the month, VW’s overall sales for September increased 52 percent.

 

 

 

ZARRELLA FORECASTS Strong sales should continue through at least the next year, predicts Ron Zarrella, president of General Motors’ North American operations. In an exclusive interview with The Car Connection, Zarrella said: "We think the market will certainly be smaller. We started planning at 15.5 million, but it’s probably going to be 16 million. That’s a million off from this year but … it’s still a terrific year, and we’ll take it every time." The complete interview will appear in the Oct. 11, 1999 edition of TCC.

 

 

GM TO BUY DEALERS Taking its cue from Ford Motor Co., General Motors Corp. says it also plans to create a company-controlled retail network. The giant automaker plans to purchase up to 10 percent of its 7,700 U.S. dealerships over the course of the next decade. General Motors Retail Holdings will focus on the top 130 American car markets. The operation will be headed by GM Vice President Darwin Clark. The announcement drew quick criticism. Jim Willingham, president of the National Auto Dealers Association in McLean, Virginia, and a GM dealer in Southern California, decried the move as "a huge threat." Unlike Ford’s approach, GM officials say they will not try to buy up all their dealers in a particular market in order to create one giant superstore network.

 

 

CARORDER.COM ALSO BUYING The Big Two aren’t the only ones looking to get big in the auto retail system. CarOrder.com, an Internet auto-buying site, plans to invest up to $100 million to create a network of "e-dealers." CarOrder intends to go after poorly performing auto retailers, which could be bought at a discount. Owning its outlets should help the virtual retailer trim costs. Several other Web buying services, including Autobytel, AutoWeb and AutoNation, are considering similar steps. CarOrder’s parent, Trilogy Software Inc., plans an initial public offering for the retail operation by the beginning of next year.

 

 

AUTONATION SPINOFF In an effort to concentrate on its automotive retailing operations, AutoNation Inc. said it will spin off its automotive rental operations. AutoNation, the country’s largest auto dealership chain, will conduct the spinoff by providing current stockholders with shares in the new company. It will include the rental operations of Alamo Rent-A-Car, CarTemps USA, and National Car Rental Systems, operations accounting for $3.5 billion of the parent company’s $12.7 billion in annual revenues. AutoNation chose to use the tax-free spinoff after failing to find a buyer for its troubled rental operations. AutoNation has gone through a number of changes in recent months as its earnings and stock price have sagged. Last month, it unexpectedly announced the hiring of Michael Jackson, former president of Mercedes-Benz USA. Jackson will serve as president and CEO of AutoNation, which is owned by billionaire Wayne Huizenga, founder of the Blockbuster Video chain.

 

 

MAZDA FINED The Japanese automaker Mazda Motors has agreed to pay a $5.25 million fine in order to settle charges it violated an agreement with the government to disclose car-leasing terms in its advertising. The earlier order stemmed from charges by the Federal Trade Commission that Mazda did not disclose details of its lease, such as the money due up front. The automaker’s U.S. subsidiary also announced last week that it would pay another $900,000 penalty for violating the federal Clean Air Act by failing to promptly report defective emission-control devices on its MPV minivans.

 

 

GM FIRE SETTLEMENT General Motors Corp. has reached a tentative settlement with the family of a young man killed in a fiery 1997 crash involving a Chevrolet Chevette. The case, filed by the widow of George Yaw Bampoe-Parry, has been closely watched because Fulton County State Court Judge Gino Brogdon had ruled last month that GM obstructed justice and defrauded the courts by withholding damaging evidence. GM had tried to suppress a controversial collection of internal notes and memos connected with a report prepared 26 years ago questioning the safety of its fuel tanks. The memo, by engineer Edward Ivey, was subsequently used in a Los Angeles case in which six people burned in the crash of a Chevrolet Malibu were awarded $4.9 billion in compensatory and punitive damages last July. The judgment was later reduced to $1.2 billion, still a record. The settlement of the Bampoe-Parry case still requires approval of the trial judge.

 

 

AUTO TRADE DEFICIT GROWS The U.S. automotive trade deficit swelled to $48.6 billion during the first six months of 1999, a 38-percent increase, according to the Autoparts Report. And U.S. Commerce Secretary William Daley has warned that the overall trade deficit could grow even larger in the coming months. Japan rang up the biggest auto deficit, nearly $19 billion, the trade paper reported. That was up 13.3 percent. But the automotive deficit with Mexico surged 39 percent, to $10.3 billion. The increasingly lopsided trade numbers reflect greater offshore sourcing by American carmakers and auto suppliers, noted the Autoparts Report.

 

 

TOYOTA ON NYSE Japan’s biggest automaker has positioned itself to become a major international stock player. Toyota Motor Corp. simultaneously debuted on both the New York and London Stock Exchanges on Wednesday, Sept. 29. In New York, it will trade under the symbol "TM," as an American Depositary Receipt, or ADR. Toyota is the second Japanese automaker and just the 13th Japanese firm to list on the NYSE. (Honda Motor Co. listed in 1977.) Toyota Chairman Hiroshi Okuda marked the occasion by bullishly announcing, "We have the aim of achieving a 10 percent share in this U.S. market." But that didn’t keep bearish investors from taking a wary view, with TM stock dipping 56 cents, to $60.94, at the end of its first day of trading.

 

 

ROVER BACK IN THE BLACK? The troubled British marque should be turning a profit by 2002, according to Joachim Milberg, the chief executive officer of BMW AG. The financial woes of its subsidiary have shaken the German automaker hard. Early this year, BMW’s two top executives were ousted in a boardroom battle over the fate of Rover, which has suffered a sharp decline in global sales despite billions of BMW dollars invested in an effort to turn things around. Milberg told the German weekly Welt am Sonntag: "Customer confidence in Rover products has improved and will continue to improve, and we're therefore convinced we'll post black numbers in 2002."

 

 

 

FIAT STILL DENYING RUMORS The Italian automaker has its own problems, leading many in the automotive world to wonder whether Fiat can go it alone long term. The Car Connection recently revealed that talks with General Motors Corp. failed to achieve a sought-after relationship. But rumors about a possible deal with Ford Motor Co. and other possible partners continue to circulate. Fiat’s share price briefly rose 6 percent on word of a possible deal with DaimlerChrysler. But the Italian manufacturer followed up with a response insisting that rumors of "an accord between Fiat and another carmaker are completely without foundation."

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