INDUSTRY REPORT: Feb. 9, 2004

February 8, 2004

Lutz To Focus On Europe Temporarily

Vice Chairman Robert Lutz will fill in as General Motors' top executive in Europe until June 1, following the abrupt departure of Mike Burns, who resigned this week to become the chief executive officer of Dana Corp. in Toledo, Ohio. The CEO post at Dana had been vacant since the sudden death of Joe Magliochetti last autumn.

Burns had been responsible for implementing plans to end a string of losses GM of Europe has suffered through in recent years and which actually widened in 2003. Consequently, Burns departure set off a scramble inside GM to cover a job that will ultimately go to Fritz Henderson, the executive vice president in charge of GM Asia Pacific. Henderson is now scheduled to become president of GM Europe on June 1 after he has a chance to coach his successor, Troy Clarke, on the intricacies of the Asian market, Lutz said.

"Asia is based on relationship and we have to make sure that's taken care of," said Lutz.

"Continuing our recent outstanding success in Asia Pacific is critical to GM's future and I'm confident Troy will build on the momentum GM has seen in that region over the past several years," GM Chairman Richard Wagoner said as he announced the personnel changes. "I also very much appreciate Bob Lutz's willingness to go to Europe and lead this great organization on an interim basis.

Lutz said he was looking forward to the temporary assignment but said he also planned to stay on top of his responsibilities in North America via e-mail and telephone. "I'll split my time between the two. I'll be back in the states for blocks of four and five days at time," Lutz said. Lutz added it made more sense to move him to Europe, than to saddle Wagoner or John Devine, GM's Chief Financial officer, with extra duties. Gary Cowger is still in charge of the North American Operations day to day, Lutz noted. "There is no danger of North America being undermanaged," Lutz added. —Jim Burt

Ford Jr.: U.S. Dollar Slump Good

The strength of the U.S. dollar against the Euro and other world currencies may have gained oomph in recent days, but one of the automotive industry's top dogs is not necessarily looking for any heroic American currency rallies. "A weakened dollar is very good for the American industry," Ford Motor Co. chairman Bill Ford Jr. said Wednesday speaking before the Economic Club of Chicago. "I'm not troubled at all by its weakness." He said vehicles either made in America or carrying loads of American content will benefit from the weak dollar, but was quick to point out that Ford makes cars in a wide variety of markets, so the company is never clear of currency concerns. Even if U.S. currency woes contribute a spring to the chairman's step, the healthcare situation at Ford is anything but rosy. "Of all the things I lose sleep over," healthcare tops the list, he said, adding healthcare costs are the "biggest disincentive" to investing in American industry. "We don't have a solution…Ford Motor Co. is not going to unilaterally solve this...it's the one issue big and small business can agree on." He says that even though the automaker has whittled away at its healthcare cost problem, he anticipates the cost-per-vehicle rate of healthcare to continue to escalate in coming years. — John D. Stoll

XM Expects To Double Subscribers In 2004

XM Satellite Radio expects to more than double its list of subscribers in 2004, XM officials said during a press conference at the Chicago Auto Show. Chance Patterson, XM vice president of corporate affairs, said XM had 1.36 million subscribers now but expects to finish the year with twice as many in 2004 as it continues to expand its presence on new models offered by carmakers such General Motors, Toyota, Volkswagen, Honda, and Nissan. In the past week, GM announced plans to equip thirteen more models with the service and VW announced it was putting XM into a "Satellite Blue" Beetle.

In addition, XM also has boosted its aftermarket business, teaming up with Delphi Corp. to sell more than 500,000 units at $199 each for used cars. A less expensive "Roady" aftermarket model was a huge hit at Christmas, added George Lynch, XM's director of radio. Patterson added that surveys by GM indicated the system extremely popular with consumers. The churn rate, the number of subscribers who drop the service after one year, are extremely low — just over one percent. The renewal rate among new car buyers who were offered free, trial subscriptions when they buy their new car is running at better than 70 percent, Lynch said. "This is the fastest growing entertainment category ever," Patterson added.

Patterson said XM is also trying to upgrade its service. Its music channels went commercial free on February 1 and on March 1 it will begin offering a traffic and weather reports in 21 top markets across the United States. The traffic system will rely on traffic counts from a system developed by Mobility Inc., which also gathers traffic data for the U.S. government.

XM also is getting ready to kick off a new promotion next month — the Dashboard Concert Series, Patterson said. Car buyers activating XM service on new vehicles purchased at Acura, Audi, Honda, Lexus, Scion, or Toyota dealerships between March 1 and May 31 will have a chance to win private concerts at XM Live Performance Theater at the company's broadcast headquarters in Washington D.C. The winner can choose among concerts by B.B. King, Leann Rimes, Everclear, and Michelle Branch, XM officials said. — Joe Szczesny

2004 Chicago Auto Show Index by TCC Team (2/3/2004)

Diesel, Europe May Be in Dakota's Future

Dodge's new Dakota mid-size truck may be big, bulky and American to its core, but it also may destined for sale in Europe, according to Frank Klegon, DaimlerChrysler vice president in charge of the truck product team. Klegon told TCC Wednesday that the company will consider the truck as part of the future product mix that DaimlerChrysler is planning to sell in Europe, pointing to the vehicle's success in Asian markets, such as South Korea, as reason to expect possible demand in Europe. Klegon says that the company will also consider a diesel powertrain for the truck for America and other markets. The engine would likely be produced by Cummins, Detroit Diesel, or taken from the shelf of diesel-rich Mercedes-Benz. If a diesel engine becomes part of the Dakota's option list, its attractiveness to the European market would likely increase substantially. —John D. Stoll

Scion Expands Sales Network

Scion, Toyota's youth brand, has now expanded out behind its original base in California and as of this month is now on sale in 20 different states, stretching from Maine down the East Coast to Florida and West to Texas. "Our sales numbers are going to jump from 1500 per month to around 5000 per month," predicted Jim Farley, Scion's general manager. Farley added Scion now has 50 dealerships up and running and is shooting for sales of around 75,000 units this year. It could be or it could be less, he added. Farley also said the Scion xB model remains the best-selling Scion and now accounts for 75 percent of all Scion sales. But Scion is scheduled to add a third model in June, Farley said. Farley added the average age of the Scion buyers remains in the 30s but Toyota is satisfied that Scion is attracting the target audience of young, hip, urban buyers. — Joe Szczesny

Small Cars Making a Comeback? by TCC Team (2/2/2004)
Against all odds, small cars seem to be in the midst of a revival.

Compuware to Buy Covisint Assets

Detroit-based Compuware Corp. will purchase the remnants of Covisint, the online supplier portal envisioned as the ultimate web tool for partsmakers. Launched in 2000, Covisint was begun by the Big Three as a tool to transform parts procurement over the Internet. The Detroit Free Press says the transaction will involve a minimal amount of cash and will be completed within 30 days. The paper also pegs Covisint as the biggest Internet flop in Michigan's history.

Who Is BMW Kidding?

There's a war on for the hearts and minds of Gen-Y car buyers, but it could be years before they actually open up their pocketbooks. In TV commercials and auto show displays, automakers are turning to the latest pop stars and rock video directors to connect with young motorists. But with rare exception, these youth-oriented campaigns are likely to have little success — at least immediately, cautions Tom Purves, CEO of BMW North America. "You can argue that all the marketing we do to younger people is (really) aimed to get them to aspire to our brand, rather than to actually get them to buy today," he told TheCarConnection.com. With rare exception, the so-called Millennials are buying what they can afford — used cars. But there is a payoff in the long-run, because eventually, as they age, people try to buy the cars they aspired to in their youth, said Purves. BMW's average buyer is in the mid-to-late 40s, which is actually on the young side among automotive brands. A few nameplates have driven their demographics down, Mitsubishi the prime example. But the Japanese automaker learned the hard way the cost of offering easy credit to young buyers: roughly a half-billion dollars in loan losses. — TCC Team

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