February 21st, 2012 at 12:02pm
Chinese automakers are invading Europe from Bulgaria to Britain to Sicily. Despite an overall trend downward, teen traffic deaths jump by several percentage points. Peugeot unveils two B-segment concepts ahead of Geneva. All that and more, plus John McElroy explains what Mazda must do to turn itself around.
This is Autoline Daily for February 21, and now the news.
CHINESE OEMs TARGET EURO ZONE
Chinese automakers are really beginning to expand in Europe. Great Wall Motor will begin production this week in Bulgaria. Geely, which owns Volvo, plans to start selling a mid-size sedan in Great Britain by the end of the year. And Chery bought the Fiat factory in Termini, Sicily last year. Chinese automakers want to get into the European market because they feel it will help improve their image and quality.
CHINA TAPS THE BRAKES
Back home, China is starting to address its overcapacity problem. According to Bloomberg, foreign automakers will only be eligible for government incentives on new factories if their plans have been approved by Beijing before January 30th. The approval process is also slowing down. This will benefit automakers with big capacity in the country like GM and Volkswagen. Smaller players including Ford and Renault will be at a disadvantage. These steps will keep more foreign companies from getting into China, but will they actually curb overcapacity? Some analysts predict China’s overcapacity will continue to get worse through at least 2015.
TEEN DRIVERS DEFY SAFETY TREND
Even though traffic deaths in the U.S. have been declining the last several years, one age group is seeing an increase. According to a new report from the Governor’s Highway Safety Association, traffic deaths for 16- and 17-year-old drivers are up in the U.S. Preliminary data shows that teen deaths were up 11 percent in the first half of 2011 even though a new report from NHTSA shows that overall traffic deaths were down nearly one percent the first half of 2011. Researchers attribute the increase to more teens driving because of the improved economy and the benefit of graduated driver licenses leveling off. But I wonder if it’s got more to do with distracted driving which seems to be a major concern to lawmakers.
You’ve probably heard us report that the average age of a car in the United States is now almost 11 years, the highest it’s ever been. That includes the used car market. But now Polk reports that even people who buy those cars new are holding onto them longer than ever, 71.4 months, or nearly six years. That’s because of economic uncertainty, longer financing terms, and that fact that cars last a lot longer these days. Interestingly, people who buy used cars tend to keep them for about four years.
PEUGEOT’S XY COORDINATES
Peugeot just released information on two “concept” cars it will show off at next month’s Geneva Motor Show. Both models are based off its 208 B-segment hatchback. The first of this French duet is the XY. It gets diesel power to the tune of 115 horsepower and a six-speed manual transmission. Pretty standard fare for the European market. What sets it apart though is its paint job. It supposedly changes color when viewed from different angles. To achieve this effect, the XY is finished in 16 different coats of paint and lacquer! This cannot be cheap! Next up is the sporty model, the GTi. It gets a variety of detail upgrades like Napa-leather seats and an Alcantara-wrapped dashboard. A subtle French flag or the Union Jack can be painted on the lower-grille, which actually looks kind of nice.
Mazda is a great car company that’s in deep trouble. Coming up next I’ll tell you what I think the company has to do to turn itself around.
WHAT MAZDA MUST DO
Mazda is a beautiful little gem of a car company, but it’s in trouble, and it’s not as if there are any quick fixes that the company can turn to. It’s been losing money for four straight years and it will likely lose $1.3 billion this year, its worst financial performance in over a decade. Company CEO Takashi Yamanouchi says that Mazda is aggressively looking for a new partner after it and Ford divorced.
Mazda is reportedly considering borrowing and issuing new stock to raise $2 billion to raise capital for future operations. It is facing a credit downgrade, possibly to a junk rating, so now’s the time to try and raise that money.
Even so, more capital and a new partner are not going to turn the company around. Here’s my Autoline Insight as to what’s crippling Mazda and what the company must do to straighten out its own house.
Mazda’s problem is similar to the one that destroyed the Detroit automakers before the Big Collapse. It makes too many different models in too many plants. Mazda makes 13 different models, including a bunch of different passenger cars, crossovers and vans. And yet, its global sales are about 1.3 million a year. That averages out to 100,000 sales per model, with some far above that and others well below it. That’s too many models. Mazda probably needs three passenger cars: small, medium and large, and three crossovers based on those platforms. Then it needs to choose: MX-5 Miata or RX-8? You get to do one, not both. That means three mass market platforms and one specialty. That’s it.
Mazda also makes its vehicles in 13 assembly plants around the world, mainly in Japan, China and Thailand. But it also includes small CKD plants in Colombia, Equador, Zimbabwe and South Africa. For its level of sales Mazda really only needs 5 assembly plants. It should not be building new plants, including the one coming in Mexico, unless it closes similar-sized facilities in Japan.
One of the great advantages that Mazda has is that most people have a favorable impression of the cars and the brand. The problem is that not enough people buy them. But the Zoom Zoom campaign resonates everywhere in the world. Mazda needs to build on that to become the Alfa-Romeo of Japan. With the proper styling, not the goofy grinning grille, I believe it could pull that off.
And that wraps up today’s show, thanks for watching, we’ll see you tomorrow.