Autoline Daily

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A new supplier survey shows that while they still remain the best, Toyota’s and Honda’s popularity with suppliers is plummeting. Sales of medium- and heavy-duty trucks were up big last month in the U.S. and Canada. Bentley’s new Continental GT V-8 is a lot less damaging to your wallet and the environment. All that and more, plus consulting firm KPMG explains what’s driving mergers and acquisitions in the auto industry.

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Thank you for joining us for another week of Autoline Daily. I’m John McElroy and here’s the latest news.

R.I.P. CARROLL SHELBY
Well you probably heard this one already, but motorsports legend Carroll Shelby passed away at the age of 89. Best remembered for his Cobra sports cars and Shelby Mustangs, I actually got to know Carroll on a first name basis back in the 1980s when he was working with Lee Iacocca at Chrysler to come out with a performance version of the Dodge Omni, known as the GLH. That stood for “Go Like Hell.” Carroll always was a blunt and colorful speaker. When I asked him why he felt the need to do a performance version of a car like the Dodge Omni he said, “Sheet John, that car couldn’t pull a wet string out of a cat’s ass.” And that sounded like as good a reason as any to me. Carroll was one of the greats and he left the car business in better shape than how he found it.

TOYOTA & HONDA SLIP IN SUPPLIER SURVEY
Supplier companies have always rated Toyota and Honda as the best automakers to do business with. But that is changing fast. The latest supplier survey from a company called Planning Perspectives shows that while they still remain the best, Toyota’s and Honda’s popularity with suppliers is plummeting, while GM, Ford and Chrysler are climbing quickly. This rings true to me. I’ve heard suppliers complain recently that Toyota and Honda are pounding them to cut prices and treating them like General Motors did back in the 1990s, which is to say, with no sense of partnership whatsoever.

BUY A SIERRA DENALI, GET 5 TONS OF GAS!
Car dealers love to come up with gimmicks to sell vehicles but this is one of the crazier ones I’ve seen. A GMC dealer in Shanghai is giving away five tons of gasoline with the purchase of a new Sierra Denali. Yes, five tons! A gallon of gas weighs about six pounds so that’s either 1,600 or 1,800 gallons of gas, depending on whether it’s a metric ton or not. In either case, that’s worth about $8,000 in China. It may seem like a lot, but with the Sierra Denali costing about $130,000 in China, dealers have to come up with gimmicks like this to get someone to pay that much for a pickup.

BIG TRUCK SALES UP
We’ve been tracking this for some time now but sales of big trucks are still screaming ahead. According to WardsAuto, they were up close to 40 percent in April compared to a year ago in the U.S. And it’s the same story in Canada where big truck sales jumped 38 percent. As I keep saying, this a good sign that the economy will continue to grow

CONTINENTAL’S IMPRESSIVE EPA NUMBERS
Yin and yang, give and take, that’s the way it is in the automotive industry. Supercars for instance come with super-sized price tags. Their ferocious performance is tempered by frightening fuel consumption. But Bentley’s new Continental GT V-8 is a lot less damaging to your wallet and the environment. According to the EPA, this British Bruiser stickers at a not unreasonable 15 miles per gallon around town and 24 on the highway. The W-12-powered version musters just 12 in the city and 19 on the open road. The GT’s twin-trurbo 4.0-liter V-8 delivers 500 brake horsepower. From a standstill, 60 miles an hour is attainable in just 4.6 seconds. The car gives up very little performance compared to the 12-cylinder model. What it does sacrifice though is expense. It costs about $18,000 less!

PORSCHE DROPS SMALL CAR PLANS
Porsche’s plans to offer a smaller, cheaper sports car have been scrapped. Reuters reports the proposed sub-Boxster-sized model has been jettisoned because the company is worried about diluting the brand and alienating existing customers. Porsche wants to sell about 200,000 vehicles annually, and a more affordable car would be a great way to boost volume. But, apparently, not the right way.

Say, has all that merger and acquisition activity finally died down in the automotive industry? The consulting firm KPMG doesn’t think so, and coming up next you’ll see why.

KPMG MERGER & ACQUISITION SURVEY
KPMG is a company that provides tax and audit and advisory services for all kinds of corporate clients. It also keeps a very close eye on what drives M&A, mergers and acquisitions, in the automotive industry. Gary Silberg, with KPMG, conducts a survey of automotive executives to track what’s driving M&A and the latest survey turned up some interesting results.

Hello, I’m Gary Silberg the National Automotive Sector Leader at KPMG, here to talk to you about some key strategic issues facing the automotive industry today.

Whether it’s Geely acquiring Volvo, Tata buying Jaguar and Land Rover, GM taking an equity investment in PSA, or other tie-ups that seem to be announced on a regular basis, mergers, acquisitions and alliances are alive and well in the automotive industry.

We believe there are three primary trends driving all this M&A: First, Growth. Manufacturers want access to new markets and customers. Second, new technologies. Access to new technologies and products will be critical for success in the marketplace. Third, cost savings. Management sees acquisitions or alliances as a means to reduce risk, share development cost and gain scale.

To validate our hypothesis, our 2012 KPMG Global Automotive Executive Survey interviewed 200 senior executives from the world’s leading automotive companies, suppliers, dealers, financial service providers, and, for the first time, mobility service providers.

They confirmed the shift towards partnerships. A large majority — 68 percent– view joint ventures and strategic alliances at an OEM level as a key strategy to compete in the marketplace.

Tier 1 suppliers responded strongly in favor of mergers and acquisitions. With most of their restructuring behind them, they now have the profits, strong balance sheets and cash to do them.

Interestingly, previous respondents saw joint ventures and alliances primarily as a way to minimize debt and risk of bankruptcy. But in our most recent survey this was barely mentioned, a sign the industry is now looking to grow, rather than merely survive.

To survive and thrive in this intensely competitive market, automotive companies must move to the next level of product innovation, quality and cost competitiveness. Keeping strategic core competencies in house will remain critical. However, companies must also be able to look outside and see what others are investing and innovating in. The ability to balance internal and external competencies will determine the winners and losers. We believe that through collaboration, acquisitions, joint ventures and alliances, companies will be better able to compete and win in the marketplace and we believe you will see more announcements about this in the headlines in the future.

Thanks for your interest and I look forward to updating you again.

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