Daily Edition: Aug. 6, 2004

August 6, 2004

Detroit Incentives Hit $4k

Detroit is spending a whopping $4011 in incentives per vehicle sold in July on average, according to Edmunds's True Cost of Incentives report. That figure remains significantly higher than the record industry average $2885 per vehicle. GM remains the biggest spender of the Big Three and the industry as a whole, increasing its pay out for the fourth straight month to $4467 — a figure that has them spending $800 more than Ford ($3686), which had the biggest monthly increase in spending ($358), and well over $1000 more than Chrysler ($3384) The automaker kicked off August with a fresh round of incentives, with its uppermost rebate now reaching $5000. While many continue to criticize the General's cutthroat incentives, the automaker is gaining market share, up 3.4 percent in July, while Ford and Chrysler have fallen 1.3 percent and 2.3 percent respectively, Edmunds says.

While the Big Three spend, spend, spend, most of their counterparts are doing their job to keep incentive levels moderate. Korean automakers Kia and Hyundai are the only firms able to actually deflate spending, despite July being a traditionally competitive month when most automakers are moving out 2004 models to make room for 2005. The Koreans reduced incentives $35 to $1833, while Europeans boosted spending $228 to $2562. The Japanese remain the most frugal, spending just a shade above $1000 in incentives per vehicles, Edmunds says. Luxury nameplates Cadillac ($7878), Lincoln ($5480), and Jaguar ($5248) are the most liberal spending of brands in the U.S. market, while specialty players MINI ($80), Scion ($212), and Porsche ($257) dish out the least. —Jack Gilbert

July Sales Rebound; Ford, GM Down by Joseph Szczesny (8/3/2004)
Chrysler and Japan's Big Three have a month to remember.

Arvin Meritor

Chrysler Issues Pair of Recalls

A power steering problem has driven Chrysler to call back 681,000 V-6 minivans sold between the 2002 and 2004 model years. Power steering hoses potentially could leak in chilly weather, leading to fires. In addition, 2000 Dodge Ram pickups are recalled for wiring problems.

Siemens

C6 Ads to Invade Olympics

Television commercials for the Chevy's C6 'Vette debut during the Summer Olympics. GM turned to Guy Ritchie, best known for his highly-publicize fling with Madonna, but also known for his short movie-directing talent — including BMW commercials staring The Material Girl — to call the shots on the new TV spots. Created by longtime Chevrolet ad shop Campbell-Ewald in Warren, the ads are set to the tune of the Rolling Stones' "Jumping Jack Flash," and retell the daydream of a boy who imagines himself racing through the streets of New York in nothing less than America's most storied sports car. —Jack Gilbert

2005 Chevrolet Corvette by TCC Team (8/2/2004)
With the "C6," the little changes make a big difference

Ernst & Young Daily Edition STD

GM Wins ChinaFinancing Approval

Like crosstown rival Ford, General Motors now has permission to finance vehicles in China through its captive-finance arm. General Motors Acceptance Corp. has partnered with Shanghai Automotive Group Finance Co. Ltd., and together, the two will begin to sell Chinese consumers vehicles on credit. General Motors will actually beat Ford to the punch in China with its financing; Ford has received initial approval for its Ford Credit branch to operate in China, while GM's deal with its Chinese partner is final approval. GMAC will own 60 percent of its venture and will fund it to the tune of $60 million.

SPECIAL REPORT: Management Briefing Seminars

2004 Traverse City Coverage (8/3/2004)
Automakers face "the perfect storm."

2004 Traverse City Coverage, Part II by TCC Team (8/4/2004)
Toyota plans new proving grounds, no new brands from Chrysler.

Saturn VUE in Big Recall

2002 Saturn VUE

2002 Saturn VUE

Nearly 250,000 of Saturn's VUE SUVs will be recalled to fix a suspension problem that could cause a rollover if a driver makes an emergency maneuver. The defect was discovered during tests by the National Highway Traffic Safety Administration. The sport-utility vehicle's rear suspension failed during two separate rollover tests. The vehicles were put through maneuvers in which they were subject to sharp turns at 45 mph. In both cases, a wheel collapsed. Following a speech to the Management Briefing Seminars, General Motors Corp.'s Chief Financial Officer, John Devine, said owners will be asked to return their vehicles to dealers to have the rear suspensions modified. A total of 246,433 Saturn utes are involved. Devine said he did not know how much the recall would cost the automaker, but stressed that "Rather than talk about it, we'd rather fix it." It's not the first problem for Saturn's first sport-ute, which was launched in 2002. The automaker was forced to drop a fuel-efficient continuously variable transmission, or CVT, when it failed to meet durability requirements.

Daily Edition: Jul. 27, 2004 by TCC Team (7/26/2004)
Chrysler working on a Scion-alike, GM kills CVT.

GM Cashing Out on CoCos

Facing the threat that new federal accounting rules would damage its stock price, General Motors expects to use cash, rather than stock, to cover the roughly $8 billion debt it has mounted in the form of contingent convertible bonds. "Frankly, we would have gone a different direction," had GM known in advance that it would be penalized for using convertible bonds, acknowledged GM CFO John Devine. The terms of the bonds allow the automaker to pay them off with cash, stock, or a combination of the two. But under new rules being considered by the Financial Accounting Standards Board, or FASB, so-called CoCos would have to be considered when calculating the earnings per share of a company. And in the case of GM, Devine said, that would have a potential impact of something under a dollar a share. Even though that would have little real meaning, the write-down would hurt the image of GM's stock with investors, the company fears. So to avoid that, he said, "This means that we would use cash rather than stock and significantly limit any diluted effect. The $8.1 billion in CoCos GM has outstanding don't come due until 2032 and 2033.

Jeep ToledoProject "No Miracle"

The competition will be keeping a close eye on the new Jeep plant in Toledo, Ohio, where suppliers will fund and operate major portions of the factory. But it's far from certain the concept will be copied by other manufacturers. "It sounds innovative," Gary Cowger, president of General Motors' North American operations, told TheCarConnection, "and obviously, we need to look at it." Various industry officials stressed that the Toledo strategy is not an entirely new concept. Variations on the theme were previously used by Volkswagen at a pickup plant in Brazil, and by DaimlerChrysler's European Smart plant. And in both circumstances, there were problems with implementation. Nonetheless, industry insiders admitted they're open to any idea that could reduce investment costs and improve productivity. The question is whether Jeep's approach will achieve those goals. "While it may reduce (DCX's) investment, somebody has to pay for that $300 million," stressed Ford president Jim Padilla who, like Cowger, spoke at the annual Traverse City conference. The question, Padilla posed, is whether Jeep will save money up front, only to have to pay more "on a per-unit basis." The Toledo plan required DaimlerChrysler to win the approval of the United Autoworkers Union, the union permitting many of its DCX workers to be transferred to supplier payrolls. "There are all kinds of innovations going on," said UAW Vice President Dick Shoemaker, who was in Traverse City to receive an award for his work in the auto industry. "New ways are being explored on a daily basis," he added, but quickly cautioned that "What we do in one situation doesn't necessarily provide a basis for what we might do somewhere else."

Chrysler Builds New Jeeps with Suppliers by Joseph Szczesny (8/3/2004)
New Toledo plant subs out more work than ever for Jeep.

Global Auto Sales to Hit Record

These days, it's easy to take a gloom-and-doom view of the auto industry, but there are some positive trends to stay focused on, declared General Motors CFO John Devine during a speech at the Management Briefing Seminars. Global sales have grown more than ten percent since 1997, and will top a record 60 million this year, Devine forecast, adding that a "reasonably conservative estimate" for 2009 moves the figure up above the 70 million mark. The biggest share of that growth, about 29 percent will come from China, according to GM projections, with other emerging markets, including India, making up most of the rest. Devine predicted the U.S. auto market will continue growing at a modest one percent annual rate. But he also expects to see revenues climb by as much as eight percent. The explanation? In a word, he said, "mix." U.S. motorist continue to upgrade their purchases, opting for larger, more luxurious vehicles, with bigger engines and more options.

Full Steam Ahead on China

Despite a sudden and unexpected downturn in Chinese car sales, Western auto and partsmakers remain determined to invest in the populous Asian nation. "We're in it for the long-term," General Motors CFO John Devine told TheCarConnection, and will continue with the $3 billion expansion announced in June. That confirmation came despite the fact that Chinese car sales were nearly flat last month, and have been steadily declining from a growth rate that has topped 100 percent in recent years. Meanwhile, the Detroit-based supplier, Metaldyne, will also proceed with plans to set up as many as five joint ventures and wholly-owned operations in China over the next five years. "It's still the hottest market in the world," explained Senior Vice President E. Scott Ferriman, adding his belief that the slowdown is a temporary one resulting from a Chinese government effort to cool down an overheated economy. Like other companies investing in China, Metaldyne has had problems protecting itself from the theft of its intellectual property. A Chinese manufacturer has copied the U.S. firm's CV joints. So when a powdered metal operation opens next year, Metaldyne will ship the materials over pre-mixed to prevent the Chinese from copying its proprietary formula.

Casesa: Good News, Bad News

"I do think the worst is over for pricing," said MBS regular John Casesa, the lead auto analyst at Merrill Lynch. The U.S. auto industry has faced a steady decline of nearly one percent in vehicle pricing annually over the last decade, but the recovering economy could turn things in the industry's favor, suggested Casesa. But the competitive market won't give makers room for big price hikes, he quickly cautioned. The industry is facing a mixed bag of news, the oft-quoted analyst pronounced during his speech in Traverse City. People have been upgrading the vehicles they buy, but they're also financing more of their purchases, Casesa noted, stressing "This could be a time bomb if the economy goes south."

If you want to see which manufacturer is likely to do well, check the age of its average vehicle, suggested Casesa. "Those companies with older products, like General Motors, have tended to lose volume. Those with newer-than-average products, like the Koreans, tended to gain share." That message hasn't been lost on automakers, who are flooding the market with new cars and trucks. Until recently, Casesa pointed out, about one in seven vehicles were new in any given year. Now it's approaching one in five. "So it will be even harder for those who "are having a tough time catching up with the mean." The Merrill Lynch analyst specifically pointed to Ford, which despite several new products, now has the oldest fleet among major automakers, and will likely face problems with market share as a result.

One For the Sopranos?

As it prepares to launch its new Five Hundred sedan, Ford is heavily promoting the car's roomy interior, as well as its massive cargo capacity. "The trunk can fit eight golf bags," noted Ford President Jim Padilla, "or, if you are from New Jersey, four bodies." That prompted a supplier executive to ask, "Does that mean that instead of another Bill Blass Edition, they'll add a Jimmy Hoffa Edition?" Or perhaps a custom cruiser for the Sopranos?

FROM THE SOURCE headlines from the latest press releases

PRNewswire

Car enthusiasts, collectors, and race fans can look forward to spending this Labor Day weekend with some of the most significant racing and classic cars in the world. This world-class collection of historic cars, including Robert Rauschenberg's BMW "Art Car" will be the center of attention at the Rolex Vintage Festival Presented by BMW, which takes place at LimeRockPark in Lakeville, Connecticut, from September 3rd September 6th.

Lear Daily Edition

Name Symbol Last Change
Autobytel, Inc. ABTL 6.81 -0.02 (-0.29%)
Autoliv Inc. ALV 42.09 +0.29 (+0.69%)
AutoNation Inc. AN 16.12 +0.26 (+1.64%)
ArvinMeritor Inc. ARM 19.87 +0.10 (+0.51%)
American Axle & Mfr. Holdings Inc. AXL 34.35 +0.27 (+0.79%)
Ballard Power Systems Inc. BLDP 7.07 +0.24 (+3.51%)
BorgWarner Inc. BWA 47.19 +0.62 (+1.33%)
Collins & Aikman Corporation CKC 5.10 +0.01 (+0.20%)
Cummins Inc. CMI 69.43 -0.76 (-1.08%)
Dana Corporation DCN 19.29 -0.13 (-0.67%)
DaimlerChrysler AG (ADR) DCX 44.89 -0.02 (-0.04%)
Delphi Corporation DPH 9.51 -0.01 (-0.11%)
Dura Automotive Systems DRRA 9.15 +0.39 (+4.45%)
Eaton Corporation ETN 64.64 -0.34 (-0.52%)
Ford Motor Company F 14.72 -0.23 (-1.54%)
General Motors Corporation GM 43.14 +0.39 (+0.91%)
Gentex Corporation GNTX 35.80 -0.05 (-0.14%)
Goodyear Tire & Rubber GT 10.95 -0.13 (-1.17%)
Honda Motor Co. Ltd. (ADR) HMC 24.27 +0.32 (+1.34%)
Johnson Controls Inc. JCI 56.45 -0.26 (-0.46%)
Lear Corporation LEA 55.13 -0.67 (-1.20%)
Magna International Inc. MGA 80.50 +0.25 (+0.31%)
Motorola Inc. MOT 15.93 -0.08 (-0.50%)
Nissan Motor Co. Ltd. (ADR) NSANY 21.44 -0.06 (-0.28%)
Sonic Automotive Inc. SAH 22.35 +0.35 (+1.59%)
Sirius Satellite Radio SIRI 2.51 +0.01 (+0.40%)
Toyota Motor Corporation (ADR) TM 80.00 +1.07 (+1.36%)
TRW Automotive Holdings TRW 20.80 +0.69 (+3.43%)
Tower Automotive Inc. TWR 3.15 -0.01 (-0.32%)
United Auto Group Inc. UAG 27.44 +0.06 (+0.22%)
Visteon Corporation VC 10.28 +0.17 (+1.68%)
XM Satellite Radio Hold. XMSR 26.37 +0.83 (+3.25%)

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