Daily Edition: Jun. 30, 2004

June 29, 2004

Power: Lexus Still Tops, Domestics Improving

The latest survey from J.D. Power and Associates measuring vehicle quality over three years shows that U.S. automakers are continuing to gain on leaders Toyota and Honda, and that most luxury import brands are declining in long-term quality.

Power executives have been saying that its Vehicle Dependability Study has become more important to consumers than its Initial Quality Study, which measures complaints in the first three months ownership. That's because the differences in initial quality among most car companies has become relatively small and auto companies have gotten good at eliminating problems that would hurt them in that study.

In fact, Power sells its services to automakers, running new models through a gauntlet of its own design to identify problems that will cost it points in the IQS, and which automakers can fix before the cars wind up in customer driveways.

Three years of ownership, though, reveals problems that get fixed or at least covered up when the vehicle is new.

"Maintaining very high levels of quality off the assembly line as well as three years later...is no small feat," says Power's Joe Ivers.

Toyota leads all automakers in long-term quality, but that top spot is helped by the ever-improving Lexus brand, while Toyota brand vehicles have fallen. Lexus improved to 162 problems per 100 cars from 169 last year, while Toyota slipped to 216 problems per 100 from 201 last year.

As Toyota has proliferated new models, especially SUVs like Sequoia and Highlander and the high tech Prius gas-electric hybrid, and launched a new factory in Indiana, it has been receiving more complaints from consumers than in past years.

While General Motors, Ford and Chrysler all posted improvements from last year, GM is the only domestic automaker to score above the industry average at 262 problems per 100 vehicles. The industry average improved to 269 problems, versus 273 last year. GM's Buick and Cadillac brands scored better than Toyota-brand vehicles.

Consumers have come to assume that the study shows that Caddy and Buicks are better quality than Toyota. Maybe - but what it really means is that owners of Cadillacs and Buicks had fewer complaints than Toyota owners. Toyota owners, however, are younger than those of Buick and Cadillac tend to be tougher evaluators.

Still, U.S. automakers are improving every year. "The domestics are putting their money where their mouths are in terms of consistent long-term quality improvement," said Ivers.

Ford VP of quality Louise Goeser called Ford's improvement of 12 problems per 100 vehicles "a great improvement," and said it underscores Ford's commitment to reverse the quality problems it suffered in the last five years.

Though Ford is below industry average, behind GM, and a long way off from matching Toyota or Honda, Goeser said there is a "perception gap" between the perception and reality of the improvements in Big Three quality. "Getting the message across is always a challenge," says Goeser.

Toyota spokeswoman Nancy Hubbell said that Toyota is not losing ground on "defects," but more in the area of customer preferences. She noted that some Toyotas lost points on brake noise, a typical characteristic of many Asian cars, and uneven tire wear.

Import luxury cars generally scored worse compared with last year and the year before. BMW, Infiniti, Mercedes, Porsche, Jaguar and Land Rover and Saab all scored worse, with Ford's Jaguar worsening by 63 problems per 100 and Land Rover falling by 31 problems. Land Rover officials said Tuesday that the survey reflects Land Rovers designed and manufactured either by the Rover Group or BMW, which owned Rover in the mid-1990s. The company, now a unit of Ford and never known for quality, will climb out of the cellar starting in 2006 when the all-new 2003 Range Rover is counted and in 2008 when the LR3 is counted.

Jaguar improved this year in IQS from tenth to third. "We hope that is an indication of improvements in VDS going forward," said Jaguar spokeswoman Rose Marinello.

Among the highlights of the study:

-Lexus topped the list for the tenth straight year.

-Toyota topped seven out of seventeen segments. It finished second in four others.

-Kia was most improved brand since last year, bettering its score by 77 problems per 100 vehicles, but still scoring next-to-last ahead of just Land Rover.

-Audi was most improved luxury make, scoring 23 fewer problems per 100 vehicles since last year's study.

-The Honda Odyssey was top ranked minivan. The Toyota MR2 Spyder was top ranked sporty car, while Honda S2000 topped the premium sports car segment.

-Porsche topped the corporate rankings last year and placed an impressive fourth among individual brands. Porsche went from top automaker last year, ahead of Toyota, to third place among corporations and tenth among brands.

-The Ford F-150 was the top-ranked pickup. The Chevy Tahoe was top ranked full-size SUV. The Chevy Malibu topped entry mid-size cars including Toyota Camry Honda Accord.

To see the whole VDS, go to //www.thecarconnection.com

Harbour: DCX Gains Productivity by Jim Burt (6/14/2004)
U.S. automakers improve productivity, but profits still elusive.

Lear Daily Edition

New Head for BMW in S.C.

The man in charge at BMW's expansive plant in South Carolina will be headed to Germany. Helmut Leube, in charge of the Spartanburg facility that builds the X5 and Z4 models since 2000, is headed to BMW's plant outside Munich effective July 1. His place in the States will be taken by Clemens Schmitz-Justen, now in charge of the painted-body division of BMW's facility in Munich.

Smart Prepares U.S.for Downsizing

2006 smart formore

2006 smart formore

DaimlerChrysler's smart brand, the only two-seat personal minicar ever to become a commercial success, is being prepared for the day in 2006 when it will go on sale in the U.S. DC is doing so by working to dispel the fear Americans have of the safety aspects of small cars. One of the biggest selling points of the SUV is the perception that the bigger the vehicle, the safer it is; the tiny, buglike, smart fortwo (there are no capital letters in smartland) is therefore at a massive disadvantage in the eyes of potential U.S. customers. Smart is aware of this, and its marketing people, already installed in the headquarters of parent company Mercedes-Benz USA in Montvale, New Jersey, have started to spread the word that small doesn't necessarily mean weak.

Smart Prepares the U.S. for Downsizing by Ian Norris (6/28/2004)
The formore is coming - but what will Americans think of its crash safety?

Ernst & Young Daily Edition STD

Hybrids: Where Are The Profits?

Is there a viable (meaning profitable) future for hybrid electric vehicles (HEVs)? Honda's two-seat Insight was first to hit U.S. shores in 1999. Except for GM's fullelectric EV1, which was mercifully euthanized that same year, it was (and is) the most energyefficient production automobile on the planet. Toyota's Prius, a less efficient but more powerful and practical small sedan that debuted in Japan in 1997, arrived in 2000. Honda countered with its Civic Hybrid in 2002, and Toyota trumped that last October with its Gen II Prius, powered by its thirdgeneration Hybrid Synergy Drive (HSD). Claiming 12,000 advance orders and 10k deliveries in the first six weeks, Toyota upped its '04 U.S. Prius ante from 36k to 47k - still less than 0.28 percent of a 17 million vehicle year. Honda, meanwhile, through 2003 had moved a total of 47k U.S. hybrids, 75 percent of them Civics. Despite their high efficiency, low emissions and (heavily subsidized) low prices, these pioneer HEVs have been handicapped here as small cars in a large-vehicle market and by concerns over long-term durability, used-vehicle value and scary potential costs of replacement motors, controllers, and battery packs once the warranty is done.

Hybrids: Where Are the Profits? by Gary Witzenburg (6/28/2004)
Can a case be made for making money off the newest auto celebrities?

Class Action Against DC Minivans Moves Ahead

A class-action lawsuit charging that Chrysler Group's minivans have faulty airbags will proceed, the U.S. Supreme Court ruled on Monday. The Court refused to overrule an Oklahoma court's decision that a lawsuit against DaimlerChrysler could go forward. The lawsuit, brought by two minivan owners, charges that in as many as one million 1996-1997 minivans, airbags are set to deploy too quickly and too harshly at low speeds, with the potential to hurt smaller occupants. The Oklahoma Supreme Court sanctioned it as a class action, ruling that no single minivan owner could find adequate representation for the case, because the repair costs would be $500 or less. The case is DaimlerChrysler v. Ysbrand, 03-1342, Reuters reports.

DAILY IN DEPTH

Mercedes-Benz Diesel Cars Rack Sales

2005 Mercedes-Benz E320 CDI

2005 Mercedes-Benz E320 CDI

Mercedes-BenzUSA have already sold more than 1000 diesel-powered, E-Class sedans.
Donna Boland, a spokeswoman for MBUSA, said its still too early to predict demand new but Mercedes-Benz dealers in the United States have sold 1,000 units since they were introduced in mid-April.

Geoff Day, MBUSA director of corporate communications, noted Mercedes has sold diesel-powered cars in the United States in the past. Thus, there was some pent-up demand for vehicles, Day said. Mercedes-Benz had phased out the diesel in the late 1999 because of tougher air-quality regulations.

The reintroduction of diesel-powered E-Class is considered a test of the demand for diesel engines, which generally have had a poor image with American consumers, who associate them with heavy-duty trucks rather than passenger vehicles. Prices for the E-Class sedan start at $48,795, but the E-Class with the V-6 diesel engine costs about $1000 more.

Sales of the E-Class models increased 5 percent during May, the first full-month in which the diesel-powered car was available. Overall, Mercedes sales dropped 5 percent last month, according to DaimlerChrysler sales reports. Day added buyers of the diesel model, despite their relative affluence, also are sensitive to the price of fuel. "You get 20 percent more power and 30 percent more fuel efficiency," he said. "What's not to like about the diesel?"

Added Jim Resnick, a Mercedes-Benz spokesman, "We keep hearing all these stories about how people went 715 miles or 750 miles on one tank of gas."

Mercedes-Benz hasn't said if it will offer diesel as an option on other models, such as the C-Class or the M-Class, which will be completely overhauled next year. DaimlerChrysler executives, however, have stressed they believe diesel engines are still a good alternative for American motorists, who are looking for both power and fuel efficiency. The Chrysler Group plans to bring out a diesel-powered version of the Jeep Liberty this fall and has hinted it is looking around for other plans to utilize new diesel technology.

However, DaimlerChrysler can only sell the new diesel-powered vehicles in 45 states. The engines do not meet the tougher air-quality standards now in California and New YorkState but that will change in 2007 when oil companies will be required to reduce the sulfur content of fuel they sell in the U.S. Sulfur-free fuel is required for anti-pollution equipment used on modern diesel to work properly. -Joe Szczesny

2005 Mercedes-Benz E320 CDI by William L. Sharfman, Ph.D (4/26/2004)
Love that diesel driver.

FROM THE SOURCE headlines from the latest press releases

PRNewswire

AutoVIBES, a monthly automotive study from Harris Interactive(R) and Kelley Blue Book Marketing Research tracking new vehicle nameplates, reveals that the 2005 Chrysler 300 is creating the most buzz of the 41 vehicles currently being tracked. Two Nissan vehicle launches -- the Armada and Titan, were in the top 5, with the Cadillac SRX and Pontiac GTO also making the list.

Name Symbol Last Change
Autobytel, Inc. ABTL 8.93 +0.02 (+0.22%)
Autoliv Inc. ALV 42.04 -0.45 (-1.06%)
AutoNation Inc. AN 17.02 +0.02 (+0.12%)
ArvinMeritor Inc. ARM 19.59 -0.29 (-1.46%)
American Axle & Mfr. Holdings Inc. AXL 36.58 -0.91 (-2.43%)
Ballard Power Systems Inc. BLDP 9.10 +0.05 (+0.55%)
BorgWarner Inc. BWA 43.19 -0.54 (-1.23%)
Collins & Aikman Corporation CKC 5.69 -0.21 (-3.56%)
Cummins Inc. CMI 62.93 -0.28 (-0.44%)
Dana Corporation DCN 19.54 -0.04 (-0.20%)
DaimlerChrysler AG (ADR) DCX 46.76 +0.05 (+0.11%)
Delphi Corporation DPH 10.52 unch (unch)
Dura Automotive Systems DRRA 8.80 +0.03 (+0.34%)
Eaton Corporation ETN 63.45 +0.58 (+0.92%)
Ford Motor Company F 15.87 +0.22 (+1.41%)
General Motors Corporation GM 46.82 +0.31 (+0.67%)
Gentex Corporation GNTX 39.95 -0.13 (-0.32%)
Goodyear Tire & Rubber GT 9.14 -0.12 (-1.30%)
Honda Motor Co. Ltd. (ADR) HMC 24.48 +0.15 (+0.62%)
Johnson Controls Inc. JCI 53.49 -0.01 (-0.02%)
Lear Corporation LEA 59.93 -0.07 (-0.12%)
Magna International Inc. MGA 84.69 -0.01 (-0.01%)
Motorola Inc. MOT 18.00 +0.03 (+0.17%)
Nissan Motor Co. Ltd. (ADR) NSANY 22.14 +0.07 (+0.32%)
Sonic Automotive Inc. SAH 22.23 -0.42 (-1.85%)
Sirius Satellite Radio SIRI 3.08 +0.01 (+0.33%)
Toyota Motor Corporation (ADR) TM 81.73 +1.73 (+2.16%)
TRW Automotive Holdings TRW 18.83 -0.22 (-1.15%)
Tower Automotive Inc. TWR 3.72 +0.06 (+1.64%)
United Auto Group Inc. UAG 31.00 -1.08 (-3.37%)
Visteon Corporation VC 11.99 unch (unch)
XM Satellite Radio Hold. XMSR 26.95 +1.53 (+6.02%)

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