AD #1367 – The Mercedes Money Machine, Lexus’ Anti-Diesel Ads, Breaking Down Toyota’s Move

April 30th, 2014 at 11:59am

Runtime: 9:44

- Daimler Posts Fantastic Q1 Earnings
- Environmental Activist Blasts CAFE Loopholes
- Lexus’ Anti-Diesel Ads
- BRIC Nation’s Sales Stall
- What Toyota Workers Can Expect

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Hello and welcome to Autoline Daily where we help keep you up to speed on the most important developments in the global automotive industry.

Holy cow, you should see the numbers that Daimler just put down for the first quarter! The German automaker racked up worldwide sales of 565,000 cars, trucks and busses. That includes record sales for Mercedes-Benz cars. That pushed its revenue to more than $40 billion, up a strong 13%. But here’s where the numbers get real interesting. Daimler’s earnings before income taxes hit nearly $2.5 billion, but that was up a jaw dropping 95%. And the bottom line is just as impressive, a billion three, up 92%. You know once a car company passes its breakeven point it becomes a cash machine, and clearly Daimler has blown past its breakeven point. I’m sure CEO Dieter Zetsche is doing a victory jig. Just last year he was only awarded a three year extension on his contract instead of the normal five years. What better way to shut up the critics than to damn near double the profits?


Sales: 565,800, +13%
Revenue: $40.7 B, +13%
EBIT $2.4 B, +95%
Net Profit $1.3 B, +92%

Source: Daimler

Have you seen this opinion piece that’s making the rounds about how automakers can’t meet CAFE without resorting to loopholes in the regulation? It’s written by long-time environmental activist Daniel Becker, director of the Safe Climate Campaign. He laments the fact that automakers, especially GM, Ford and Chrysler, are using these loopholes. And he berates all automakers for not selling more hybrids and electric cars. Well here’s my Autoline Insight. Daniel Becker knows better than this. Those loopholes have been part of CAFE almost from the beginning, because everybody knows that automakers can’t meet CAFE without them. Becker points out that Honda has, but Honda is not a full line manufacturer. It doesn’t sell full-size pickups, SUVs or passenger cars. And as for selling more hybrids and EV’s? Well, that’s a problem with the car buyers. They’re just not buying enough of them. And guess what? This is true all around the world, even in countries with double the price for gasoline. And that leads us right into the next interesting story.

While thumbing through the latest issue of Time magazine I came across this interesting Lexus ad. What makes it remarkable is that it’s an anti-diesel ad. It tries to convince readers that if they buy a diesel they’re going to spend all their time hunting gas stations that sell diesel fuel. That makes no sense, since diesel is almost everywhere. We contacted Lexus to ask why it’s running the ad, but have not gotten a response back yet. But we think we know why Lexus is concerned about diesels. Over the last three months Lexus’ hybrid sales dropped 3%, and this despite the fact that Lexus has added more hybrid vehicles to its lineup. Are you listening Daniel Becker? Meanwhile diesel sales at BMW are up 223% and at Audi they’re up 230%. At Mercedes they’re down slightly. But the trend is clear. Hybrid sales are stalling while diesels are surging ahead.

A few years back, automakers were very bullish on the BRIC nations, Brazil, Russia, India and China. But now car sales are starting to stall in those countries. General Motors’, senior manager of Economic and Industry Forecasting International, David Teolis says Russia’s shaky economy is cause for concern. He says the country relies too much on gas and oil exports, leaving it vulnerable to price fluctuations. Russia faces sanctions over its belligerent actions in Ukraine which will hurt its economy, and worse, from a long-term perspective, its population is in decline. Despite this, Teolis says there is still upside to the Russian market if it changes those policies and he even recommends that it join the European Union.

Coming up next, a look at what the people at Toyota in California must be going through right now.

Yesterday I had an interesting Skype interview with Larry Dominique, the executive vice president of TrueCar, but who used to be the head of product planning for Nissan in the Americas. With Toyota announcing that it’s going to pull out of southern California I wanted to talk to Larry about it because he went through the same thing when Nissan pulled out of there.

(Skype interview with Larry Dominique can only be viewed in the video version of today’s show.)

I have a lot of sympathy for the Toyota workers. This is going to be one of the most disruptive experiences of their careers.

And with that we wrap up today’s report. Thanks for watching, please join us again tomorrow.

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27 Comments to “AD #1367 – The Mercedes Money Machine, Lexus’ Anti-Diesel Ads, Breaking Down Toyota’s Move”

  1. raynman Says:

    The auto makers engineers can attain CAFE but the beancounters won’t let them because it might cost $5.00 more. It’s not a technical limitation, it’s a money limitation.

  2. Kit Gerhart Says:

    Toyota will move down a notch or two the next time I’m car shopping. I know why they are moving to Texas; it’s cheaper, but they are screwing a lot of employees, and it’s not like Toyota is in financial trouble. Also, the diverse culture of southern CA just seems better for a headquarters/design center. I suppose they will sell more Tundras, though.

  3. Brett Says:

    My local Sunoco station has unleaded Regular for $3.69 a gallon. They have diesel for $3.93.

    That’s only 6.5 percent more expensive. If a diesel version of a vehicle is 20% more efficient than a gasoline version, the payback in fuel savings starts to ameliorate the higher vehicle cost over time.

    I do expect that with all of the work done on gasoline engine efficiency, the gap is probably narrower now than it once was.

  4. Jon M Says:

    Lexus better take a look around and consider where it runs such an advertisement. I’m sure it’s not the same everywhere, but in my corner of the world the hunt for a station that sells diesel is much like the hunt for a McDonalds, CVS, or Wal-Mart; it’s only a question of which street corner!

  5. Lex Says:

    Governor Rick Perry is doing his best to attract and create jobs in Texas. The cost of living in Texas is far less than California or New York. The recent trend of foreign OEM’s building state of the art automotive manufacturing plants in Mexico also makes Texas very attractive because it’s location next to Mexico. Toyota also has an assembly plant in San Antonio TX. California and New York need to re-evaluate their taxing structures otherwise many cities in both of these states will end up like Detroit, reduced populations (no tax revenue) and broke (because of legacy costs).

  6. G.A.Branigan Says:

    A few weeks ago diesel fuel in my area was the same price as high test,#3.96@.Owning a diesel is not just for economy but for overall hill pulling grunt,at least for me since I’m surrounded by mountains.Add in a trailer and then it really shines.I’ve never been worried about the ‘payback’ part of it.When you need a diesel,only a diesel will do.

  7. G.A.Branigan Says:

    The toypta tundra is built in San Antonio.I think maybe the ancient taco is too.

  8. G.A.Branigan Says:

    That should read: toyota…sorry bout that.Hey Ben,we want an edit button,we want an edit button…

  9. Lex Says:

    @ 1. raynman: The Beancounters always seem to get the blame for when things go bad. The ignition switch problem was not a Beancounter issue but simply poor engineering. Five Dollars ($5.00) a vehicle in immaterial in accounting logic. GM Senior Leadership, Engineers, Lawyers and Actuaries need to do some soul searching also. I hope Mary Barra can fix General Motors bloated and wasteful 1950′s old boy / profit driven narrow minded culture into a Good Corporate Citizen that can build world class vehicles that benefit their customers and not hurt them.

  10. Chuck @ GM Says:

    @Brett – Been busy the last few days and haven’t been able to get here. Just to clarify, a few days ago I said I wasn’t sure about JFK’s commitment to a phrase in his inaugural speech. Later on you posted about someone died without even a 2 week notice. If it wasn’t about JFK then please disregard this. If you were referring to JFK, he lived long enough to give us the Bay of Pigs fiasco, where a lot of Cubans died because he bailed at the last minute. That’s the sort of thing I was talking about.

  11. Tony Gray Says:

    Like Lex said, folks may complain about the move but they will be pleased when they see their salary goes a lot further than in SoCal.

  12. Todd T Says:

    Not everything can be “bottom-lined” cost/benefit analysis is sometimes very difficult and downright deceiving. The success or challenges of where a company locates depends as much on local talent as anything else. No amount of Tax incentive would likely overcome the loss of talent and experience a major advertising agency would incur moving from NYC or Chicago to someplace “cheaper”.

    Toyota has always looked far down the road on strategic decisions, only time will tell if Toyota’s move will pay dividends…and that amount of time could be very long indeed.

    As much as those who don’t live in California love to bag on the state for regulations, taxes, traffic…whatever, the fact remains, more people want to live here than the area can support. In a twist of irony that is one of the things that makes Toyota’s move more affordable. The property they are sitting on in Torrance, is worth a fortune.

    It’s been years since Nissan relocated to Nashville, and while I’m sure they’ve saved money on many line items on the balance sheet, what has the price been in momentum lost by replacing people? Nissan has picked up some additional great people in the process.

    Another consideration is those that will not make the move, will end up at a competitor…Hyundai, Kia or Honda…what effect will that have?

  13. Lex Says:

    @ #12 Todd T: I foresee Honda one day moving out of California to some other part of the country. Realize that Honda has several operations and a major plant in Marysville Ohio. The addition of the new Celaya, Mexico plant might make Honda leadership move Corporate Offices out of California, just like Nissan and Toyota to be closer to those two faciliates. Here is a list of OEM’s and the states they manufacture in: Georgia has KIA, S. Carolina has BMW, Mercedes Benz is in Alabama, Tennessee has Nissan and VW. The only one that might be left in California in the future maybe Tesla. There are talented people all around this country of ours. The lower the cost of living and good working conditions and environment will attract good talent and labor.

  14. Lex Says:

    Lexus is going Anti-Diesel because M-Benz,BMW and othe OEM’s are attracting sales away from Lexus’ hybrid models. John McElroy was right to predict that diesel and the entire family of ICE powered vehicles still has alot of innovation and life in them. The complicated nature of Hybrids make them unappealing to alot of consumers. People want simple comfortable vehicles that are easy to maintain with a lower purchase price and low cost of ownership.

  15. bwob Says:

    I think I must be missing something:

    “…Honda is not a full line manufacturer. It doesn’t sell full-size pickups, SUVs or passenger cars.”

    Is the Accord a minivan?

  16. Mike Says:

    The 2008-9 debacle left tens of thousands of Engineers out of work in the Detroit area. Many, myself included, were forced to move out of state, at our own expense, to get work. for the last couple of years Detroit has been struggling to re-hire the needed talent. Even if Toyota moves some of their people to Texas, this is a real financial disaster for those who have to sell their real estate and purchase new in another town. The Re-lo people must be cackling with glee.

  17. w l simpson Says:

    out of context—-my next car, if senility hasn’t set in .

  18. T. Bejma Says:


    Key word is “full-size” bwo – no full-size cars (Accord is mid-size), no full-size pickups (Ridgeline is a mid-size) and no full-size SUV’s (CRV is compact and Pilot is mid-size).

  19. Jim Haines Says:

    Texas as a state is on the way up for good blue collar jobs because of manufacturing and energy production so I’m sure that is why a lot of companies are moving operation to states like Texas. California is no longer the gold coast for your average worker or company.

  20. raynman Says:

    How did I know that was going to be the example used? I must b clairvoyant. One should understand the difference between design engineering and a vendor mistake before commenting on engineering expertise.

  21. Brett Says:


    So, Chuck, you’re damning a 44 year old, first year President for relying upon the advice of veteran CIA leadership?

    It never should’ve been mounted in the first place. Cutting ones losses is never a bad idea. Just look how great things went by staying the course in Vietnam.

  22. Enn Norak Says:

    Shame on Lexus for running anti-diesel ads. Hybrid battery packs are heavy to lug around and expensive to replace. I’d rather have the torque, fuel economy and long range of a diesel engine. That said, my nephew recently broke a connecting rod on his Mercedes GL V6 diesel engine ($30K for a new engine). this is only the second time I have a close connection to a broken con rod on a diesel. Over 50 years ago, I replaced a broken connecting rod and entire crankcase on a Gardner industrial diesel engine. The broken con rod whipped the crankcase in half. Do some research before purchasing a diesel engine.

  23. Kit Gerhart Says:

    13, BMW and Mercedes are building in the old confederacy, but they still do most of the design work in Germany. Part of Toyota’s California operation was design, but maybe they have decided to move all of that back to Japan, and the U.S. manufacturing headquarters to Texas. Just a thought.

  24. Kit Gerhart Says:

    22, I have had a diesel car, and may have another some day. They have advantages, and disadvantages compared to gas cars, but difficulty in finding fuel is certainly no one of the disadvantages. You don’t need fuel very often, and when you do, it is available at a lot of stations.

    As far as Lexus selling diesels, it might not be worth their bother. The Avalon and ES hybrids work well, for those who want fuel economy. The same applies, sort of, with Lexus’ best selling RX. The LS, GS, and Land Cruiser based SUV are such low volume that it would make sense to dieselize those either, at least for the U.S. market.

  25. Kit Gerhart Says:

    24, Oops, I meant “wouldn’t make sense to dieselize.”

  26. Kit Gerhart Says:

    I just checked the Lexus UK and Germany sites, and found that Lexus sells no diesels, even where diesels make up almost half of the market. They must not want to really compete with the Germans, even in Europe.

  27. Bob Wilson Says:

    “Over the last three months Lexus’ hybrid sales dropped 3%” -

    Lexus hybrid sales, Mar->Jan:
    Lexus CT200h: 1480, 1230, 1290
    ES Hybrid: 1384, 945, 866
    RX 400/450h: 852, 621, 637

    Might want to check the monthly order as this looks more like a sales increase over the last three months. We don’t have April numbers, yet.

    “Meanwhile diesel sales at BMW are up 223% and at Audi they’re up 230%.” Congratulations are in order. Their absolute numbers per model have been under 500 per month and it is past time they become serious players.

    Bob Wilson, Huntsville