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When NASA released the results of a 10-month study on Toyota vehicles on Feb. 8 concluding that the automaker's cars did not have an electronics problem that caused unintended acceleration, one of Bloomberg BusinessWeek's columnists said the media owed the company an apology. There is no ghost in the machine and the intense media coverage caused a frenzy, Bloomberg BusinessWeek columnist Ed Wallace wrote. I know Ed personally and have tremendous respect for him. But I must part ways on this issue.
Toyota may not have had electronic throttle issues. But certainly the company had plenty of other problems. Just today, Toyota announced its biggest recall in a year. The Japanese auto giant recalled 2.17 million vehicles because of carpet and floor mat flaws that could jam gas pedals. Toyota has recalled more than 12 million vehicles globally since November 2009, many of them related to unintended acceleration claims. Of those actions, 5.3 million vehicles were recalled to fix floor mat problems. Some of the cars were recalled because of a sticking accelerator pedal. It may not have been electronics, but there were problems.
Toyota has had other investigations and recalls not related to unintended acceleration. Last week, the National Highway Traffic and Safety Administration opened an investigation into the 2006 Highlander hybrid amid claims that the SUV stalls frequently. In January, Toyota voluntarily recalled 1.7 million vehicles for potential defects in fuel pipes and pumps, Bloomberg reported. On Jan. 10, Toyota CEO Akio Toyoda told reporters that the recalls have inflicted "big damage" on the company, but he maintained that its cars are safe, Bloomberg reported at the time.
Back to the apology. While it's clear that there is no mystery magnetic glitch in Toyota's cars and that they are as safe as anyone else's vehicles, forget the apology. First of all, investigations are news. So long as the media reports the conclusion, it's in the public's interest to know what's happening. Second, Toyota's lost its once-astute focus on quality. Rapid expansion of its model lines and sprawling archipelago of factories has made it difficult to mind every detail, which was a principal tenet of the company.
Consumer Reports has found a decline in the quality of interior finishes in Toyotas for the past three or four years, David Champion, the magazine's director of automotive testing, told Bloomberg for a Jan. 12 story. The company whose customers once relied on Toyota for bullet-proof quality and reliability suddenly suffered a rash of problems. In fairness to my old pal Ed, some media reports accepted the unintended acceleration claims as gospel. But that alone does not exonerate Toyota. Sorry Ed, but it's the customers - not Toyota - who deserve the apology. Toyota's executives have apologized, and justifiably so.
After my last missive gave a 'thumbs down' to Chrysler's 200 ad, which aired during the Super Bowl, one reader asked for my take on Volkswagen's "Darth Vader" spot for the Passat. Since more of you disagreed with my view on Chrysler's Eminem ad than sided with me, I'm flattered. In VW's ad, a young boy is marching around his house in a Darth Vader costume that must be the envy of the neighborhood. He tries to use The Force to get his dog to rise, open the dryer, move a sandwich across the counter, and all in vain. Finally, dad comes home in the Passat. Junior Darth starts with the Jedi gesticulations to get the car to do something. We don't know what exactly. Dad uses remote start from inside the house to fire up the ignition. His son is shocked. He got the force to work. He thinks he started the car with Jedi mind tricks.
My take: It's a great ad, and not just because I like John Williams' score "Darth Vader's Theme." This ad is a lot of fun and shows once again that VW doesn't take itself too seriously. VW's marketing efforts have usually displayed some joie de vivre and consistently cast a fun image. They have done some more serious ads when talking about safety features, but generally VW's marketing has been pretty loose. It's a testament to VW marketing that the brand has so much recognition in the U.S., even though its actual sales presence is so small. About 19% of car buyers shop it, according to research firm Strategic Vision. But only 2% of Americans buy VWs. Fat sticker prices have long kept many buyers away. That may change as the new Passat starts around $20,000, which is a $7,000 drop from the last-generation car. Giving up so much price in the name of sales volume is a questionable strategy. For now, let's stick to the ad. It was humorous and right for VW.
The Super Bowl is getting smaller in the rearview mirror at this point, but while I'm on it let me talk about one more ad. It must be said. Mini's "Cram it in the Boot" ad was truly terrible. The theme is you can cram all kinds of things in the back of a Mini Countryman. But the fraternity house double entendre is beneath a car brand that has great cachet and appeals to a sophisticated buyer. They really missed the mark with that one.
It can only be a good sign that Detroit carmakers have the cash on hand to advertise in pricey venues like the Super Bowl. But in Chrysler's case, the money for its "Imported from Detroit" ad for the new 200 sedan may have been better spent elsewhere. The commercial starts with gritty images of bleak urban ruins, smoke stacks and downtown Detroit set against a lead-grey sky. The narrator asks, "what does this city know about luxury?" As we see more images, rapper Eminem comes onscreen driving a Chrysler 200, which replaced the weak-selling Sebring sedan late last year. The opening riff to his tune "Lose Yourself" eerily starts in and Eminem cruises the city. By the end of the ad he walks into Detroit's Fox Theater where a gospel choir is singing. He then points into the camera and says, "This is the Motor City. And this is what we do." The imagery is nicely done and Eminem is cool, but this ad misses the mark for several reasons.
1. The 200 is the wrong car. No one confused the old Sebring with luxury and this car is an upgrade, but not a completely-new model. The 300 is Chrysler's big, stylish, pseudo-luxury car for the gangsta set. No way Eminem drives a 200. His bag man probably wouldn't drive a 200. The 300 would have been a better choice.
2. We didn't see enough of the car. The ad is expertly shot and brings to life the idea of a tough and resurgent Chrysler and Detroit. It shows a side to the human side to Motown that most outsiders don't know, but it shows so little of the car that it's tough to conclude that Detroit, or more specifically Chrysler, can do luxury.
3. To the rest of the nation watching the Super Bowl, Chrysler is struggling to make it back and Detroit as a city has been left for dead. Trying to raise the prospects of both in one ad is, shall we say, extremely ambitious.
4. Troubled American car brands need to get away from gritty Detroit imagery. No one needs reminding that Detroit is a city in serious trouble and that two of the Big Three would have disappeared if not for a government bailout. Domestic brands have to change the conversation for generations of Americans who abandoned them years ago and for young consumers who don't know them. Ford has been plugging quality and technology like Sync. Chevrolet and Buick have been talking about fuel economy, Bluetooth and 40-gig hard drives in the dash. Both ideas are getting traction.
Chrysler can boast that the 2-minute ad, which is long for a Super Bowl commercial, got the new car some much-needed attention. Auto research website Edmunds.com said that after the ad aired, 1,619% more people (about 8,300 in total) went to the site to look at the 200 than typically search for it on a Sunday evening. The problem with the comparison is that few people were looking at the car to begin with. Edmunds says that 681 people on average were shopping the car before the ad aired. An average of 15,911 typically shopped for the competing Hyundai Sonata. Will these new visitors buy the car? That will be the real test. The Sebring sold fewer than 25,000 cars last year. For comparison, Ford sold 219,000 of the competing Fusion. Chrysler got some sizzle with the ad, but there may not be enough substance to generate sales.
There's a subtle rivalry brewing in the luxury car business. Audi and Cadillac are both hamming it up with television advertising to make the case that they're the hip antidote to stodgy traditional luxury (read: Mercedes). In recent ads, both of them have new commercials loaded with imagery painting luxury as cold and stuffy as they take a fun stab at old money.
One of Cadillac's newest ads depicts an older couple having an anniversary dinner at their long dining room table. Actor Laurence Fishburne intones, "blue-blooded, cold." Cut to racy imagery: a motorcycle roaring down the highway, a young guy eyeballing a beautiful woman in a glass elevator. The ad eventually goes to a Cadillac CTS and Fishburne asks, "What happened to luxury? Where did the personality go?" The point, of course, is that Cadillac brings something new and edgy to the luxury market. The theme is "red-blooded luxury."
Audi takes it a step further. On one of the German brand's newest ads is an obvious play off the classic Margaret Wise Brown kids' book "Goodnight Moon," with a vaguely creepy animated fox fur and other classic luxury items such as a well-coiffed French poodle and gold cuff links. "Goodnight outdated. Goodnight stuffy," the ad says. "Good night old luxury and all of your wares." Then we see a Mercedes sedan. Its lights go out. The ad concludes with a beauty shot of an Audi A8 sedan and we hear, "good morning, innovation. Good morning, unequalled inspiration."
Audi likes throwing down the gauntlet before its German rivals. The brand has taken on BMW several times. Audi actually staked its claim as the newest and coolest luxury brand several years ago with an ad that had an old rich man waking up to the grille of his big luxury car in his bed. It's a knockoff of the horse's head from "The Godfather."
So who has the better shout? Both brands are growing fast, Audi sales rose 23% last year and Cadillac was up 35%. Cadillac sells almost 50% more vehicles. But in terms of burnishing the brand as the coolest newcomer, Audi has the edge. Its average buyer makes more money. The A8 is a legitimate competitor to the Mercedes S-class and BMW 7-series flagship sedans. Audi's A4, which is smaller than the Cadillac CTS, attracts nouveau luxe buyers. Cadillac is still working on cars to battle it out in those two vital market segments. Plus, Cadillac marketers readily admit that they are trying to expunge the image of old, stuffy Cadillac. You have to appreciate the moxie shown by both brands.
Think small. Think fuel efficient. That is the theme at this year's Detroit auto show, also known by the official name North American International Auto Show. This year's expo does not have the kind of heart-pounding displays of horsepower and luxury of past years. But there are some very significant models that tell us where higher fuel prices and tougher emissions regulations are pushing the cars of tomorrow.
Judging by the new models and concepts on display, carmakers are trying to make the case that you can have a hot car and a bit of fun driving it but without having a panic attack at the pump. There are compact Buicks and a subcompact from Chevrolet. Ford has a small people mover. Honda has the new Civic and both Mini and Hyundai are trying to give us more fun in a small package. Here are seven cars worth checking out.
Most significant: Honda showed off a new concept car that is, more or less, going to be the new 2012 Civic when it goes on sale this spring. You can tell by the aggressive curves in the car that Honda is trying to get its mojo back. Honda's market share fell to 10.6% in 2010 from 11% the year before. The Civic is a perennial winner for the company and vital to its success. Styling has never been the Civic's calling card. This one takes a bold step with a fast backward-sloping roofline and some curves in the side panels that reminded me a bit of a Hyundai Tiburon. More important for Hondaphiles, the car has the company's vaunted i-VTEC engine and a hybrid option will be available. We'll see if its bold new look will get any love from outside Honda's loyal followers.
Biggest turnabout: You've heard the cliché "as big as a Buick." It comes from a description of a spider in Woody Allen's film "annie Hall." I doubt anyone will say "as small as a Buick" when the compact Verano goes on sale late this year, but the 2012 Verano compact tells us where carmakers think the market is headed. General Motors figures fuel will only get more expensive and that luxury buyers will want creature comforts without shelling out a fortune for gasoline. The car's 177-horsepower engine will get 31 miles per gallon on the highway with the 2.4-liter engine. A 2-liter turbo model comes later. The Verano will be an interesting test. Can Buick, which grew 52% last year, sell small cars to younger luxury buyers? On the surface it's a tough sell. But who would have thought a year ago that the Lacrosse sedan would be one of the hottest cars on the market?
Pick of the show: The Mini Paceman is my pick for the best design at the show. It's Mini's future crossover SUV and it probably it is dead one for the brand. It's stylish, sporty, has a bit more space than a Mini Cooper but can go off-road. Stylistically, the two-door Paceman is an athletic version of the Countryman, Mini's existing crossover suv. The two-door Paceman doesn't look as upright as its more practical forebear. In the rear, it has haunches like it's going to pounce. The concept had Mini's 1.6-liter turbo engine used in the John Cooper Works performance cars and the ALL4 all-wheel drive system. That's a strong hint that the Paceman will offer both as options. That will make it an off-roader with tire-burning potential. One bonus: They will probably ditch the Paceman name. Mini USA President Jim McDowell said in an interview that, onfortunately, consumers associate it with '80s video-game sensation Pac Man.
The comeback kid: Beating up on Toyota is a favorite pastime these days, what with their quality woes, lost market share and fallen image. I'll give the company some accolades. The Prius c concept takes a hybrid franchise known for its egg-shaped fuel sippers and takes it out on the edge. The car leans forward like it's in motion. The headlights are pushed up the hood and closer to the windshield as if the car is barreling down the highway. The car has shoulders, which makes it look more muscular. This car will come to market in the first half of 2012. One word of caution: There is no telling how much of the concept car's edgy design will make it to the showroom.
Ford gets in the game: Nissan and GM have a jump on Ford in the green-car game. Next year, Ford will make a big statement with the C-Max Energi, a five-passenger plug-in hybrid small SUV that the automaker says will get better fuel economy that the Chevy Volt. Untested fuel economy ratings are always suspect; the Volt gets 37 mpg if it runs the gas tank dry. GM may even upgrade the Volt before the C-Max Energi goes to market. But it still looks like a good package. It's more spacious that the other EVs and hybrids on the market and can go 500 miles using a full battery charge and tank of gas.
Hyundai makes a bold statement: The Hyundai Veloster will go on sale in 2012 as a boldly-styled three-door coupe that promises to be a fun ride that gets 40 mpg on the highway. It doesn't need a hybrid-electric system to do it, either. It mates a dual-clutch transmission with a direct-injection 1.6-liter engine to maximize fuel economy. The interior is inspired by sporty motorcycles. This could be a hit with younger buyers given the curvy styling and fuel economy. Hyundai has moved well beyond selling just on price.
Biggest snoozer: And last, the new Volkswagen Passat is the German carmaker's attempt to offer more value and become a big-volume seller in the U.S. market. The company only has 2.2% of the market, so it is dropping the price of the Passat by some $7,000 to get close to $20,000. The cabin looks like a VW, with well-crafted appointments and a certain German precision to the construction. On the outside? There isn't much to it. The sides of the car are pretty flat. The back end reminds me of a Saab. Overall, the Passat is undistinctive. The selling point is affordable German engineering with options like a 2-liter diesel engine that is expected to get 43 mpg on the highway. That will have to win buyers because the design won't turn many heads.
By David Welch
The mood in Detroit is considerably better at this year's North American International Auto Show than it was a year ago when General Motors was hunting momentum and Chrysler's very survival was in question. I'll get into the new models and concept cars as they roll out. In the meantime, here are a few notable comments from the auto executives I tracked down at the show.
Chrysler going public
Fiat-Chrysler CEO Sergio Marchionne said he wants to take Chrysler public in the second half of this year. Fiat won't sell any of its Chrysler stock. The sellers will be the United Auto Workers retiree healthcare trust, and possibly the U.S. Treasury Department and Canadian government.
The Italian automaker owns 25% of Chrysler. The UAW owns 63.5% of Chrysler. The U.S. Treasury holds 9.2%, while Canadian municipalities have a 2.3% stake. Marchionne told reporters that he wants to pay back $7.5 billion in debt to the U.S. and Canadian governments in 2011 and then go public. Following GM's successful IPO, Marchionne says Chrysler can launch its IPO following a couple quarters of profitability. "I'd love to do it in the second half of this year."
IPO yes, but electric cars... maybe not
Marchionne bucked the trend among auto executives by casting some doubt on the potential of electric cars. Fiat plans to sell an electric version of its tiny 500 hatchback, he said. But that's not where the market will be. If carmakers want to meet fuel economy regulations and boost efficiency, they're better off just wringing more mileage out of gasoline engines, he said. "I'm reluctant to embrace full electrics as a solution," Marchionne said. "The dollars spent for reduction in fuel use is not there. We have to be careful not to chase a rainbow."
BMW's U.S. boss throws down the gauntlet
BMW and Audi have gone toe to toe with their advertising efforts, taking shots at each other in the past. Audi had a billboard featuring the A4 that read, "Your move, BMW." In response, BMW put up its own billboard for the 3-series saying, "Checkmate." Audi has been gunning for its German rivals with its own brand of German engineering and sporty luxury cars. Jim O'Donnell, CEO of BMW US, took a shot at his rivals. With 220,000 cars sold in the U.S., BMW more than doubled Audi's take in the market. Audi is "too worried about having a go at Mercedes and BMW," O'Donnell said. "They have to learn to swing first. I think their whole communications strategy is wrong."
GM tries to make money on small cars
For Detroit's carmakers, small-car profits have been almost as elusive as a playoff appearance by the Detroit Lions. GM-North America President Mark Reuss said in an interview that GM should be able to make money on cars like the Chevy Cruze compact and Sonic subcompact, which are built in the U.S. with union labor. The company's break-even point has fallen drastically since bankruptcy wiped away billions in debt and healthcare obligations. GM is wagering that cars like the Cruze and Sonic will offer a sportier ride and more creature comforts, so they should get a better price. The Buick Verano, which also had its debut at the show, will be built with many of the same parts as the Cruze. Its higher price should help the entire small-car program make money, he said.
The gamble is that cars like the Sonic--which have traditionally been cheap, entry-level transportation--can fetch a higher price by offering more horsepower, better ride and handling and features like MyChevrolet, a phone app that allows drivers to unlock doors, start the engine and check the vehicle's diagnostics remotely. Ford is making the same bet with its Fiesta, which can sell for more than $20,000. Chevy has not priced the Sonic, but GM won't set a ridiculously low price on the model, Reuss said. "If we're going to make the cheapest, silliest car in the U.S. and try to make money on it, that isn't going to work," he says.
Government regulations, when done right, are supposed to either prohibit bad behavior or encourage the right ones. I came across one proposal that may have it backwards. Right now, the Environmental Protection Agency, National Highway Traffic and Safety Administration and California Air Resources Board are mulling rules that would push the average car sold to a mandated 60 miles per gallon by 2025. The green lobby is pushing to include one new rule that could discourage some of the technologies that they want to see sold in greater numbers.
They want to assign electric vehicles a carbon dioxide emissions rating based how much of the greenhouse gas is generated by the power plants that supply the juice to the car. They call it "upstream emissions." The government would measure how much electricity the car uses, calculate how much carbon dioxide is emitted while generating that power and assign that value to the car. There is a direct calculation that gets you from carbon dioxide emissions to fuel economy. If you live in an area that gets a lot of power from coal, a hybrid-electric car that burns gasoline could actually be counted as emitting less carbon dioxide and using less fuel than an EV like the Nissan Leaf, according to the American Council for an Energy Efficient Economy. That's right. Even though the Leaf burns no gasoline and has no tailpipe, the feds would say that its greenhouse gas emissions are higher than the gas-burning hybrid.
Such a rule could discourage carmakers from selling more EVs. If environmentalists and regulators want to encourage the growth of a nascent electric-car market, this could give carmakers more credit for developing hybrids instead. It also gives the power utilities, whose power generation is creating the emissions, a free pass.
The green lobby has a reason for pushing for some kind of measure of EV emissions. The carmakers have a long history of exploiting loopholes in the law to sell more inefficient vehicles. In this case, the environmentalists are worried that the carmakers will use very low carbon dioxide emissions numbers assigned to their EVs to offset the emissions of gas hogs and sell more of them. If the government goes with a 60 mpg rule (which is 44 mpg in real-world fuel economy) they will be pushing the industry to get more efficient. If the regulations encourage more EVs, the industry will have a better chance of getting there.
Chevrolet started rolling the first Volts off the assembly line and onto car haulers on Dec. 13, sending them off to anxious customers who have been waiting months for their electric car, or advanced hybrid or whatever you like to call the Volt. That same day, Nissan delivered its first Leaf electric car to a customer in San Diego. Normally, handing over the keys of a new model's first buyer is about as scintillating as ribbon-cutting ceremonies photographed in community newspapers.
In this case, the first deliveries kicked off a closely-watched sales race that will begin to answer some big questions about fuel-efficient technology and what consumers really want. General Motors has argued that the Volt is the way to go. You'll never get stranded in a car that recharges the battery using a gasoline engine. Nissan differs, of course. As long as there's a tailpipe, it's not the genuine green article. As an aside, Toyota's Prius is no longer in the conversation. Unless the Leaf and Volt end up with major quality or performance problems, Toyota has dithered away its position as the unquestioned technology kingpin.
Which car will win? The Leaf is the cheaper option, costing almost $33,000 before federal tax incentives, compared with $41,000 for the Volt. But I think the Volt is a better proposition for most consumers. Nissan says the Leaf can go 100 miles on a charge. But if you drive a pure EV hard on the highway, where the regenerative brakes will do less recharging, you can get a lot less. If the driver has a lead foot or if the weather is especially cold, that will also drop the car's range. For consumers with a short commute--and if they only drive to work and back everyday--it's a great option. For the rest of us, that just won't do. The Volt can go 379 miles on a tank of gas and a full battery charge.
There's something else about the Volt. If you strip away the green allure and techno-geek appeal, it's just a really good car. I tested it out last month. It's smooth, quiet and handles nicely. The Volt is not a car for smoky burnouts, but it has a nice amount of zip. Its interior has a certain Star Trek appeal. The flat control panel that turns on the audio or environmental control with a touch, as opposed to pushing a button, is very avant garde. The two video screens provide all kinds of information and the graphics that show the flow of power from the engine to the battery to the wheels and motors is nicely done. There is one flaw. GM has a ball on one screen that moves up and down and when you're driving most efficiently, it hovers in the middle. It was confusing. But overall, the car has the kind of futuristic feel you'd expect from this kind of car.
I have not tested a Leaf. But I have driven a Mini E and felt the specter of range anxiety. I got the car with a full charge, which means it should go up to 156 miles. Like any electric car, it can be considerably less if you drive it more on the highway when you use more power and the regenerative braking system does less recharging. I drove it until the battery was down to 83%. The next day, I had a 10-mile trek of mostly suburban streets and it got down to 67%. The battery still had plenty of juice. The real problem is that you can't just drive all day without planning out your trip and when you will recharge. You have to plan around range and allow some leeway in case you get fewer than 100 miles. That gives the Volt or any other hybrid a huge advantage for most car buyers.
This gets hotly debated in the green blogosphere. I think the Volt will be more successful. Now, let's sit back and watch.
Shares in General Motors are a pretty hot item. The stock opened today at $35 a share just a week after GM and its bankers decided to price the deal at $33. It closed at $34.19 a share and was originally slated to sell for between $26 and $29 a share. After two weeks of pitching investors, GM and the Treasury Department saw so much demand that they raised the price and decided to up the size of the IPO by 31% to 478 million shares. Including the overallotment option, which lets the banks take even more shares to sell to eager investors, they could be selling 550 million of them. Since it takes a share price of $43.67 a share for the government to break even on the remaining $40 billion investment in GM, one must wonder, what was Treasury thinking by putting even more shares into the deal?
Assuming it all sells as planned, the government will still own 500 million shares in GM, which is 33% of the company. To break even, those remaining shares must sell an average price of $53.07 in the secondary offerings, according to data compiled by Bloomberg. That means GM stock needs to take a 61% runup before the secondary offering for the feds to break even. It's not unheard of. Ford stock is up 65% this year. GM has made a profit of $4.8 billion in the first nine months of this year despite a wretched car market. So some investors have said that they see potential for a big jump over the long haul.
Here's the other possible calculus. Let's say GM stock runs up 20% between now and whenever the feds decide to launch the secondary offering. That means the stock sells for $39.60 a share. At that price, the government would be $13.47 a share short. On 500 million shares, the government would lose $6.7 billion on the investment. Can they justify $6.7 billion to save GM? Some would argue it's a small price to pay given the jobs preserved at GM, parts makers, dealers, etc. The fact is, those who hate the bailout will hate it whether it makes a small amount of money or not, purely on the principle of the thing. The Center for Automotive Research estimates that letting GM and Chrysler fail would have cost the Treasury $28.6 billion in 2009 and 2010 in lost income tax and social programs anyway. They say we made a good deal. So no matter how the IPO pans out, the legacy of GM's bailout -- presuming the company performs as expected from here out -- is fairly well settled.
To hear one critic tell it, General Motors got caught in an out-and-out lie when the company described labeled the Chevrolet Volt an extended-range electric vehicle. Edmunds.com said in a headline that "GM Lied." The Volt is really a hybrid-electric vehicle like the Toyota Prius, Edmunds said. Critics from Motor Trend and Popular Mechanics made a similar argument, though they stopped short of saying GM was dishonest. In any case, there is an electric dust up over the Volt and what to call it. Is it a hybrid or an EV?
The argument goes like this. When the Volt is driving hard, say, over 70 miles per hour or it's climbing hills, the gasoline engine will directly power the car's second electric motor, which then turns the wheels. This came as a surprise because GM has billed the car as an electric vehicle that uses the gasoline engine to charge the battery. The company has said that the car's electric motors draw power straight from the battery. That gasoline engine is only there to charge the battery. GM's engineers didn't reveal until recently that the engine can power a secondary electric motor that turns the wheels. Critics say this new revelation makes the Volt a hybrid, because the Prius does drive in a similar way. GM counters that there is no direct mechanical linkage from the gasoline engine to the wheels. So it's an electric vehicle.
GM opened itself up to this kind of criticism. They should have just explained how it worked in the first place. If GM had just explained in more detail how the Volt worked during the three years of hype leading up to the introduction, the technology geeks, the technology geeks, auto buff magazine writers and green commentariat would have hashed over whether it's a hybrid or an extended-range EV and been done with it. The debate wouldn't be making headlines a couple of weeks before GM starts selling the car. But GM was trying to distinguish the Volt from the Prius and establish a leadership position. In point of fact, the Volt is different and more advanced regardless of its label.
That said, I doubt most consumers will care what label anyone slaps on the Volt. This is inside baseball. Eric Noble, whose auto consulting firm The CarLab in Orange (Calif.) interviews consumers about car technology routinely, told me that they don't care about labels, or when the engine powers the car or the gasoline engine. They ask about battery range, mileage, plug-in requirements and battery durability. They want to know if the fuel savings justifies the extra cost of the car. I also called Dan Becker, who heads up the environmental activist group Safe Climate Campaign. He didn't care, either. So long as it gets high mileage and delivers low emissions, "I don't care what you call it," Becker told me. So this is much ado about nothing. It's also a flare up that GM could have avoided.
I sat down with Audi of America President Johan de Nysschen last week to chat about the brand's plans for the U.S. market. As de Nysschen prepares to launch the new A8 sedan later this year, he had a few refreshing things to say. The first was that he thinks Audi should cap its growth in the U.S. He thinks that the sporty luxury brand should max out its U.S. sales volume somewhere between 150,000 and 200,000 cars - almost twice what the brand sells in a typical year but still less than its chief rivals have sold in the market. His thinking is that luxury brands can become ubiquitous and lose their cachet; the next thing that goes is pricing power. Cadillac and Lincoln both lost their luster in the '80s and '90s in part because they were in a mad race to sell more cars than the other. By the end of the '90s, both brands had cars everywhere. Having fleets of Town Cars and Devilles lined up with the taxis at airports probably didn't help. His other push is to keep moving Audi upscale.
Make no mistake, Audi wants growth. It is the top seller in Europe and China these days. In the U.S. this year, sales have surged 25%. Only Cadillac has outpaced its growth among luxury brands. But the brand would rather have prestige than gaudy sales numbers. Audi's U.S. sales of 86,000 cars is less than half Lexus's total. Take the new A8 that hits showrooms in November. Its starting price of $78,050 is about $2,000 more than the current car. Audi is loading up the car with a slew of new technology, like an 8-speed transmission that boosts fuel economy. The car will get 27 mpg on the highway, 4 mpg better than rival BMW's ActiveHybrid 7i. It will also have a night vision system, a Bang and Olufsen sound system and, starting next year, a WiFi hot spot in the car. Later next year, the company will start selling the A7, a prestige coupe to compete with BMW's 6-series.
Bottom line, the brand is moving into more expensive models, not big sellers. That's the kind of thinking that has pushed Audi into the top tier of luxury brands along with BMW, Mercedes, and Lexus.
Some big questions are being asked of the Chevrolet Cruze compact, which is just about hit the market. First, will its conservative styling draw showroom traffic? Will GM's new marketing minds--namely new marketing Vice President Joel Ewanick and his hand-picked Chevrolet marketing chief Chris Perry, both Hyundai veterans--come up with a way to get consumers interested in this car and the Chevy brand. And will consumers, who are accustomed to shopping Chevy for a low-priced compact, pay up for the $17,000 Cruze? The outgoing Cobalt sold for $1,300 less, though Chevy says the new car has more content and therefore is still a good value.
Every one of those questions will pose a challenge for a car that GM absolutely needs to be successful as the automaker tries to rebuild the Chevy brand. Make no mistake, this will be a big marketing challenge. Chevy has never really had a good compact. The Cobalt was an also-ran, and that's very generous. The Cavalier before that was also a cut-priced loser. When people think of Chevy, they think of trucks, SUVs, Camaros, maybe the Impala, maybe the Corvette. Small cars have never been the brand's raison d'etre. So now they are trying to get fatter pricing on a pretty conservative car sold by a brand with no reputation for selling small cars.
The good news is that if GM can get people to give the car a look, the Cruze has some great selling points. I sat in the car at a Chevy event yesterday. The cabin is first rate with attractive design, solid materials in the dash and comfortable seating. Chevy brags that if you load up competing models like the Toyota Corolla, Honda Civic and Ford Focus with comparable options, the base model Cruze LS is anywhere from $635 to $1,770 better value.
The best news Chevy has may be the Eco version of the Cruze. A regular Cruze gets 36 miles per gallon on the highway, 2 mpg more than the Focus. The Eco model gets 40 mpg. There's no hybrid system or high-tech solution. GM's engineers just wrung out weight, made a few aerodynamic tweaks, added a gear to the manual transmission and gave it some low-rolling resistance tires. It was an old-tech solution to a long-standing problem. At highway speeds, for example, a shutter closes and blocks part of the grille. That cuts wind flow under the can and makes the Cruze slicker in the wind. Simplicity.
Will enough buyers take notice? That's going to be the real challenge. Sometimes in the car business it takes a few generations of good models before consumers realize that the brand selling them is worth a look. Ewanick and Perry experienced that with Hyundai. They may have to do the same with Chevy.
With all the hype surrounding the pending launch of the Chevrolet Volt and Nissan Leaf electric cars, Ford's Transit Connect EV has gone almost unnoticed. It's easy to see why. When the van goes on sale later this year, it will sell primarily to commercial fleets. In the car business, there are few things less sexy than commercial vans.
Still, Ford and Azure Dynamics, the company that engineered the electric drive system for the car, may be onto something. Companies like AT&T, which has agreed to buy a few Transit Connect EVs, have drivers motoring around all day in stop-and-go traffic. They burn a lot of fuel even though they travel fewer than 50 miles in a day, says Curt Huston, Chief Operating Officer of Azure. Since the Transit Connect EV can go about 80 miles on a charge, their needs are mostly met. The van has a 28 kilowatt-hour battery that takes six to eight hours to charge and has a top speed of 75 mph. The Leaf can go 100 miles on a charge, but it's a compact car. This is a small deliver van. For range, the Volt beats both since it can go 40 miles on electric drive and another 300 miles once the gasoline engine kicks in and starts charging the battery. Again, it's a small car. The Transit Connect will appeal to business owners.
Commercial fleet owners can install a charging station in the garage and get the vans juiced up overnight before heading out the next day. It's actually a great application. Huston says the fuel savings should return the added cost of an EV in four or five years. Unlike some of the startup EV companies, Azure partnered with Ford. That means vehicle owners can take them to a Ford dealer for service. The company will have 75 dealers to start and may add more later on.
If it takes off, building sales volume through fleet sales can help drive down the cost of the technology and make electric cars more affordable in the future. There is one catch to the whole plan. The price has to be right. Ford and Azure have not set a price yet. Commercial buyers will look at the car purely on a fuel cost savings basis. It's dollars and cents. If the car costs too much, they won't see the savings at the pump that they want as quickly as they want it, says Jim Hall, principal of consulting firm 2953 Analytics in Birmingham, Mich. The car also won't appeal to environmentalists and technology buffs the way a Volt or Leaf will. But for what its target buyer wants, Azure's Transit Connect may be the right idea.
President Obama served up red meat for his hard-core supporters in Detroit yesterday, proclaiming that the government's bailout of General Motors and Chrysler to be a success. Had he not intervened and invested in the two companies, Obama said, they would have fallen into liquidation and 1.1 million jobs would have evaporated. In the past year, the auto industry has regained 55,000 of the 334,000 jobs lost, he went on. "The fact that we're standing in this magnificent factory today is a testament to the decisions we made," Obama said while visiting Chrysler's Jeep Grand Cherokee plant in Detroit. His comments were aimed clearly at the critics on the other side of the political aisle who opposed the bailout 18 months ago and who still criticize government ownership of GM and Chrysler to this day.
So far, it is tough to argue that the bailout hasn't worked. GM is in the black, having reported an $865 million profit in the first quarter with black ink looking likely for the rest of the year. GM's results are strong enough that the company is preparing for an initial public offering that should start selling stock in November. Chrysler is at least making an operating profit, which puts the company in much better shape than most analysts thought it would be a year ago. With much lower costs, both companies should be able to make money going forward. Let's not forget that GM, Chrysler and cross-town rival Ford cut out 2.9 million cars worth of production capacity during the crisis, according to the Center for Automotive Research. That was a quarter of capacity in the U.S., Canada, and Mexico. Cutting out the fat has allowed them to post profits even though sales are slow.
The real test will be if the government breaks even on its investment, or at least comes close. Obama Administration officials say they are hopeful that the taxpayers will be paid back in full. GM got $49.5 billion from the feds and Chrysler took $10.8 billion. For the government to break even on GM, the company must be worth at least $66 billion, and even more if the bondholders and United Auto Workers union exercise warrants and dilute the government's investment. But nearly breaking even would still be an accomplishment. Here's what I mean: Based on where GM's bonds trade, the company is worth about $53 billion right now. That would be an 80% pay back on the government's investment if GM's stock were so valued. Stock in GM will be more liquid than its current bonds, so it should be worth even more, analysts say. But for the sake of argument, assume an 80% recovery on the $60.3 billion direct investment in GM and Chrysler. That would leave $12 billion unpaid. Would that be a reasonable price to save two industrial icons and hundreds of thousands of jobs? I would have taken that deal in the depths of the financial crisis, and I wager that most critics would have, too.
The Chevrolet Volt may be wearing out its welcome. General Motors has been hyping the gasoline-electric car ever since the company showed it off to the public 1,300 days ago. The company has let countless reporters into its battery labs and given interviews with its engineers, all in a very credible attempt to show that GM has smart people with good ideas. And it has worked. GM has picked up some technological credibility and fostered goodwill with the environmental crowd.
Now that GM is finally, after three and a half years, getting close to selling one, the commentariat is taking shots at the Volt. In an editorial in the New York Times today, Truth About Cars Editor Edward Niedermeyer panned the car as "GM's Electric Lemon." He criticized the car for, among other things, having bland styling and because it will likely lose GM money. Before that, "Tonight Show" host Jay Leno, a well-known car buff, also took a shot at the Volt's styling, telling the Detroit news that, "if you didn't know, you might think it's a Cobalt or a Camry."
What gives? It could be a case of Volt fatigue. Sure, documenting the tale of the car's development gave GM a great story to tell. But in the past few months the company has amped up the noise on a car that has been hyped for years. I count 14 press releases on the Volt since June, including an announcement today that GM will boost 2012 production from 30,000 to 45,000. Some of those releases were absolutely necessary, like vital information on pricing, warranty and ordering options. Others were less weighty, such as a release saying that the car can get water under the hood without the electronics going haywire. Another details a test that proves dust won't get in the car or affect its vitals while driving. The Volt goes on sale in November. At this point, it's probably time to just market the car to consumers.