AD #1644 – NHTSA Needs More Gigabytes, 2016 Mercedes GLC, FCA/GM Merger Not a Good Idea
June 18th, 2015 at 11:56am
Runtime: 8:07
- Insurers Unprepared for Autonomy
- Japan Pushing for More LNG
- NHTSA Needs More Computing Power
- Mercedes Unveils New 2016 GLC
- FCA/GM Merger Not a Good Idea
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On today’s show… insurance companies are not prepared for autonomous vehicles, Mercedes takes the wraps off its new mid-size SUV and why a merger between FCA and GM could be bad news. All that and more coming right up on Autoline Daily.
This is Autoline Daily for June 18th, 2015.
INSURERS UNPREPARED FOR AUTONOMY
Even though most major automakers and suppliers are developing and testing autonomous vehicles, most insurance companies aren’t ready for them. KPMG surveyed insurance executives and found that 84% said they don’t expect autonomous vehicles to have a significant impact on their business until 2025. Nearly three-quarters say they’re unprepared for self-driving cars today and only 10% have a strategic plan in place to deal with them. Since autonomous vehicles and connected cars will dramatically reduce traffic accidents, this could cripple the automotive insurance business. But if automakers have to assume liability for autonomous cars, insurers have an opportunity to start selling insurance to carmakers instead of car owners.
JAPAN PUSHING FOR MORE LNG
To help cut emissions and reliance on diesel fuel, Japan is pushing for more liquefied natural gas in commercial trucks and ships. Reuters reports that Japan wants 10% of the 300,000 trucks used for long distance hauling to run on LNG soon, with plans to increase that over time. But it needs to build up its infrastructure. Today, there aren’t any vehicles that run on LNG and only 44,000 use CNG. But not everyone is on board for the switch, and for now the government will not offer subsidies for LNG trucks or for the infrastructure.
Make sure you tune into Autoline After Hours this afternoon. That’s because our special guest is Craig Metros, the exterior designer of the Ford GT. So if you’ve got any questions send them our way to [email protected]. And then join John and Gary Vasilash for some of the best insider discussions in the industry. That’s today at 3PM eastern time on Autoline.tv.
And we’ll be back with more right after this.
NHTSA NEEDS MORE GIGABYTES
As we reported earlier in the week the former head of NHTSA, David Strickland, says the agency is under-funded which is holding back its ability to investigate defects. But how would a larger budget benefit the agency? Strickland says NHTSA needs to improve its computing and analytical power, especially with autonomy on the horizon. He tells Autoline “You’re going to be dealing with not just crashes in cars anymore, you’re going to be dealing with simulations because you’re having cars that are making decisions for themselves. How do you figure out that system is rigorous enough?” So does David Strickland believe Congress will boost the agency’s funding? Check out that interview on our website or YouTube channel to hear his answer.
MERCEDES UNVEILS NEW GLK… I MEAN GLC
Mercedes just took the wraps off the second-generation of its mid-size SUV, the GLC, which was previously known as the GLK. The outer dimensions of the vehicle have increased and the wheelbase is more than 4.5-inches longer. Even so it’s 176 pounds lighter. And where the GLK had a rugged appearance with hard, sharp lines, the GLC has a much more subdued look with more swooping features. The same can be said for the interior; less utilitarian and more elegant, except for that infotainment screen, which looks like an afterthought just plopped above the 3 heating vents. In the U.S. power will come from a 2.0L 4-cylinder engine mated to a 9-speed automatic. Other powertrain options will follow in 2016 and 2017. If you’d like to learn more about the new GLC just click the headline in today’s transcript. And you can look for it to start hitting dealer showrooms this November.
Coming up next, John is going to share some of his ideas on this talk of Fiat chrysler merging with General Motors. Here’s a hint. He does not like it.
FCA/GM MERGER NOT A GOOD IDEA
Even though it’s not in the headlines right this instant, Fiat-Chrysler is still pursuing a merger with General Motors. Reuters reports that both companies have turned to investment bankers to advise them, with GM retaining Goldman Sachs and FCA retaining UBS. Far from being over, this has all the markings of turning really nasty. We could even see FCA launch a hostile takeover of GM.
Here’s my Autoline Insight. I see this merger as a troubling development. Back during the bankruptcies of GM and Chrysler, the Obama Administration’s Automotive Task Force seriously considered merging both companies together. I was completely opposed to that move because it would have wiped out thousands of Chrysler jobs. Fortunately, Sergio Marchionne stepped forward and said he would merge Chrysler with Fiat. Not only did he save Chrysler, the turnaround has been breath taking.
So it’s kind of weird to hear him say he now wants to merge with General Motors. A year ago Sergio said that FCA would not need another partner if it could get to an annual sales volume of 6 million vehicles. He said, and I quote, “If we can get to 6 million cars, it’s D-Day.” In other words, at that level he was ready for a full scale invasion of the market. FCA will sell nearly 5 million vehicles this year, so it’s getting real close.
If Sergio wants to slash R&D and capital investment costs, there are a lot of alternatives to a full blown merger. Want to slash R&D costs on electric cars? Ford announced it will let anyone license its EV patents, Tesla says anyone can have its patents for free!
If FCA wants to sidestep spending billions developing new powertrains, why not cut a deal with GM or Ford to simply buy engines from them? Or cut a deal with ZF or Getrag to buy transmissions from them. Heck, Chrysler already buys diesel engines from Cummins and that 9-speed it has comes from ZF. So the precedent has already been set.
But there’s a problem with this too. If you want to merge powertrains, which Sergio has said he wants to do, you can kiss the credibility of the Hemi brand goodbye. Kiss the Hellcat goodbye, too. I think those brands have a tremendous amount of value.
And that’s the danger in all this merger talk. It looks great on paper because financial people are really good at capturing and documenting cost. That’s why they call it Cost Accounting. But finance departments are not good at capturing value. There is no mechanism to do so. And that’s why a merger could destroy a lot of value that will only show up years later in the form of weak sales and eroding market share.
Anyway, that’s how I see it. What do you think? I’d like to hear from you.
That’s it for today’s show, thanks for watching and we’ll be right back here tomorrow.
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Comments (40)
June 18th, 2015 at 12:18 pm
Manufacturers spend millions of dollars to build brand and model recognition, and then just decide to change a vehicles name. It has been a couple years now, anyone yet made sense of Infiniti’s new lineup?
June 18th, 2015 at 12:27 pm
Its a bad idea, they have many overlaping models, and it’ll require a major restructuring before they would most likely see a company about the size of GM now. GM needs a commercial truck division, so everything else at Fiat is redundant. Sergio’s comment about needing to reduce the industry’s capital investments is marketing to get the public on board with a merger. Company’s don’t merge to save the industry, they merge to strenghten their industrial position aganist other firms.
June 18th, 2015 at 12:32 pm
I’ve been a Chrysler guy since day one, and now 57 years later I still am a Chrysler guy. In fact, I just bought a new Dodge in February. I actually and honestly looked at other makes and models this time around because I thought it might be time for a change. But after looking at what the market has to offer, I discovered that I am still truly a Chrysler guy at heart for many reasons, the least of which is because I simply like the products they offer and their products have always treated me well. I’ve lived (and suffered) from the Germans taking them over, Cerebus was a complete failure, and now the Italians own my beloved Chrysler. But the one thing I won’t put up with is GM taking them over. The idea of a hostile takeover with FCA in charge does kind of opens up some possibilities. But having said all of that, if GM takes them over, I am finished and will move to Hyundai/Kia. I have too many friends who are GM freaks and my three older brothers are all Ford freaks, so to maintain any type of self-respect, I’m finally going to have to join the ranks of the imports. That will be a sad day ………..
June 18th, 2015 at 12:33 pm
#1
I never understood why, after teaching everyone that “Ford Taurus” was synonymous with “boring rental car” and retiring the name, Ford suddenly decided that it was a highly valuable, recognized brand name that must be resurrected. The new unit could’ve been called the “500″ and wouldn’t have sold any more or any less vehicles.
June 18th, 2015 at 12:37 pm
With respect to the video clip of a person making notes in a portfolio while the vehicle is operating autonomously:
If something is leaning on the steering wheel, will that provide enough resistance to make the vehicle drop out of autonomous mode? Or, like cruise control, what if the driver accidentally taps the brake pedal? If unexpected, this reversion to manual driving mode could surprise the driver and create panic. Comments?
June 18th, 2015 at 12:43 pm
John your insight into a merger between GM and Chrysler is spot on! I Sergio wants to reduce R&D and engine / powertrain costs why not buy engines from Mitsubishi like they did in the past. My family owned a Dodge Caravan with a 3.0 litre Mitsubishi engine that was wonderful on gas. The Whole Hemi brand needs to be reserved for select car and truck models as an option.
Sergio needs to also keep the Caravan nameplate for all of their minivans and use the Town & Country brand as the highest trim level on a Caravan IMHO. The Caravan nameplate is iconic to that product segment. It would be like BMW dropping the “Ultimate Driving Machine” tag line.
Maybe The Detroit Big Three should partner on engine technology and create a engine supplier who can merge all of their technologies into a flexible engine building facility and family of engines with universal applications in their mainstream vehicles. This same idea could also work for Transmissions and CVTs. The recent lowered ratings of the Jeep and Fiat Brands is not a thing for FCA.
June 18th, 2015 at 12:47 pm
I believe GM will have a sales decrease in 2016. In 2016 GM is dropping their powertrain warranty from 5 years / 100K miles to 5 years / 60K miles. This does not promote consumer confidence in their products compared to their Korean Competition. I believe Mary Bara is very smart business person and will rescind this change immediately. I just picked up a brand new 2015 GMC because the powertrain warranty is longer on the 2015 model then on 2016 model. This decrease in the GM Powertrain Warranty will cause residual / resale values to plummet. GM will need to through more money on the hood and Zero financing at consumers to move the metal IMHO.
June 18th, 2015 at 12:52 pm
I’m persuaded but not convinced that Sergio’s corporate matchmaking interest has more to do with personal financial opportunities than with R&D advantages, revenue growth, or competitive advantages. You point out well, John, FCA’s alternatives to R&D and capital investment costs. With such alternatives to R&D spending, it just doesn’t seem like a good enough excuse to merge. The alternatives even make a JV unworthy. I too think it’s a bad idea, and although it is not a major headline, I won’t be surprised if is before too long.
June 18th, 2015 at 12:58 pm
The reason why FCA / Sergio Marchionne is looking for a merger partner is that the combining of Chrysler and Fiat is not as profitable as they thought it would be. Chrysler is now carrying Fiat. The Fiat Brand is nowhere in the USA, especially since ranking at the bottom of the 2015 JD Powers Vehicle Dependability Study (VDS).
June 18th, 2015 at 1:03 pm
Just read in today’s news that FCA vehicles are among the worst in JD Power initial quality surveys for 2015 models, nice to see that some things never change. Now try to merge with some other OEM, Sergio carrying that enigma.
June 18th, 2015 at 1:14 pm
As long as a part is not part of your USP (unique selling proposition), then using common parts is a good idea. In the tech industry, Intel supplies the majority of the most important part in the computer, the CPU. Manufacturers, whether they are Apple, HP, Dell and others fight it out based on other criteria and even which Intel chip they used.
In the auto industry, Brembo brakes for example are found on many different cars.
I apologize for hurting any manufacturer’s feelings, but a good 2 litre turbocharged engine is as close to a commodity power plant as you can get. Who doesn’t make a good one? Think of the savings and economies of scale with just that one standardization. Also consider repair parts, technical training and after sale service.
June 18th, 2015 at 1:19 pm
The merger talk about Chrysler and GM is unbelievable I think John is 100% correct that this will end badly. The whole deal must just look good on paper to a few people who are in position to benefit from it short term. For the integrity of the brand (both brands really) the whole thing is just foul. Some things just don’t mix and I think GM and Chrysler are one of them. Why doesn’t Chrysler put its sights on any of the dozen or more other company’s out there that could be merged with? Why piss in your own front yard? Just like lex says it seems like Mitsubishi would be a great target for them, they are struggling now so might be in a bargaining position but they have a reputation and a history with Chrysler already so it would be more accepted by the customer and they did turn out some nice vehicles together last time they collaborated. Maybe we could get some more turbo AWD vehicles out of it??? (probably wishful thinking).
As for the insurance company’s getting scared about losing there ever growing and record profits from autonomous vehicles I say screw them. Who likes them anyway. Add them to the list of people who’s jobs will be jeopardized by autonomous vehicles. Insurance company’s, cops, oil companies, DMV revenue? Do u really need a liscense to drive an autonomous vehicle? Could I put my dog in it and have him “drive” himself to the groomer?
June 18th, 2015 at 2:20 pm
In my day FIAT stood for Fix It Again, Tony.
It still does, apparently
June 18th, 2015 at 2:24 pm
FCA wants to merge its culture with GM’s? I think Sergio wants to take over culturally in the guise of combination. The question is does he think Barra is an easy mark and what financial penalty can he impose on GM for spurning him. Sergio is so desperate looking forward he might try anything. He can count, after all
Just my two tiny cents
June 18th, 2015 at 2:32 pm
GM already has a huge insurance division GMAC insurance. I doubt they will buy insurance from an outside source.
#12 I like that idea of not having to run some errands and this could open a whole new market for food delivery, Grocery shopping, justsend the car and have them load it..
June 18th, 2015 at 2:38 pm
John,
I do indeed agree with you that a merger of FCA and GM is a bad idea. They are already viable entities with very different vehicles. GM proved earlier that they had too many brands to profitability carry on with them all so they shucked Oldsmobile and Pontiac.
You have it right too regarding the financial aspect….those guys often don’t see the intrinsic value of product image…where is the gain in such a marriage?
June 18th, 2015 at 2:51 pm
So GM has US based Goldman and maybe Morgan Stanley via Dan Ammann in its corner, and FCA has the criminal muppets of UBS of der Schweiz. Lots o’ luck.
Yeah, I’m biased. Too bad we won’t be able to enjoy the spicy apercus of our Denver based errant bad boy.
June 18th, 2015 at 3:12 pm
great comments on the merger John,couldn’t agree more.
June 18th, 2015 at 3:53 pm
The more things change, the more they stay the same! The history of the auto industry is a story of mergers, acquisitions and bankruptcies. So why should things be different today then they have been in the past.
In the mergers of the mid-1900s Hudsons became Nashs, Parkards became studebakers, and the mergers only prolonged their miserable death.
When like products combine, they might save costs but they add no value to the marketplace.
Jeep is the exception, because it added a new and a different demographic of buyers to all of its acquiring owners over the years
FCA doesn’t need a GM to survive and GM certainly doesn’t need a FCA to survive. What they both need is a new direction. I would have thought the Tesla or a Fisker merger would have been a new direction. Or even a Google!
Wayne Gretzky said: Don’t skate to the puck, skate to where it is going!
Sergio Marchionne needs to remove his blinders and look in a different direction. This is a new Century and he is living in the past!!
June 18th, 2015 at 4:09 pm
An FCA and GM merger makes no sense in the eyes of this 40 year retired veteran of GM. I couldn’t believe it when GM accepted a very costly put from Fiat years ago. Cost GM plenty, and they still did not get Fiat diesel tech that they wanted.
Marchione is a very clever man and could sell snow to Eskimos! Interestingly, all of GMs current execs were with the company back when the put went south. GM should vote with their feet and run away fast!!
June 18th, 2015 at 5:43 pm
@20: Good point Ivan. You are the first one to mention the $2 billion dollar debacle GM had with Fiat. I can’t believe the press has not mentioned that in all of the many articles I have read on this merger/hostile takeover situation.
@15: Rob, you are a little outdated on your information. GM has not owned GMAC for years now. That went to Cerberus and now is part of Ally Bank. GM is creating a new captive finance division called GM Financial, but it does not sell insurance.
June 18th, 2015 at 5:49 pm
If there were a merger between GM and FCA, it would not be long before a brand or two, or certainly quite a few models would bite the dust. Fiat only has small cars and doesn’t really make any money, so that might be the first brand to go. Chrysler would likely be next, by housing the minivan under the Dodge brand. Jeep would likely stay intact. Lancia would be gone. Not sure what would happen to the reincarnation of Alfa Romeo. With GM’s lack of success with Cadillac so far, I can’t see a board of the merged companies authorizing the tremendous capital outlay to fund the Alfa plan.
John is right on the money. What looks great on paper doesn’t always translate well to the real world. FCA should pursue PSA and stay away from GM.
June 18th, 2015 at 6:10 pm
I can’t quite figure out how Sergio might make use of his hostages. Hostages like people working at Chrysler and Dodge. He’s got something in mind though.
I should stick to areas I know something about, but autoworld is too interesting.
——-
Sighted today, a Jeep Renegade. Why do I feel condescended to? Nope, it feels like FCA is making fun of Jeep. (I also thought the interior was cheap and empty at the NY show. Just me)
June 18th, 2015 at 6:42 pm
I agree with about everyone that a GM/FCA merger would make no sense at all, for this reason. They have almost complete product overlap, and are strong, and not so strong in the same areas. In North America, both companies are overly dependent on pickups and SUV’s. Both have ok, but nothing special mid-size sedans. Both have pretty good, though much different big sedans.
Going to Europe, Fiat and Opel compete in the second string of the mass market.
Maybe I’m missing something regarding commercial vehicles, but it can’t make up for the other things.
June 18th, 2015 at 6:51 pm
23 I’ve sat in a Renegade, and an HR-V, and thought the interior of both was decent, for that type vehicle. I don’t know the trim level of either, which could make a difference. I haven’t driven either.
I certainly understand people saying the Renegade is not a “real Jeep,” but if they made only real Jeeps, like CJ5′s, not many Jeeps would be sold.
June 18th, 2015 at 6:58 pm
I’ve said this before,macaroni wasted money on bringing fiat back to our shores.The same goes for alfa’s,just a money pit.
June 18th, 2015 at 7:15 pm
25* Cars look so different in photos, at shows, and on the road. Maybe the black Renegade I saw today just needs a different color to please me. But did you hear the AAH guest today talking about how he worked on the Ford GT’s surfacing and details? These elements are so important now, and can’t be appreciated until you see the car on the road in my opinion. Camillo Pardo also has previously spoken about surfacing.
*I recently learned that my own mother learned to drive on a WWII surplus Willis Jeep with a crash box. Can you believe it? Her uncle had bought it.
June 18th, 2015 at 7:33 pm
26 It was easpecially the case with the 500L, which by all accounts, is pretty bad.
I drove a regular 500 when they first arrived, and at Nissan Versa prices, it would be a decent, and cute around town car. The trouble is, the one I drove wasn’t that much less expensive than my base Mini, which drives much better. The 509 I drove was a manual. I suspect the automatic is seriously slow.
June 18th, 2015 at 7:49 pm
27 The Renegade that I sat in was white, with black or dark grey interior. I don’t buy that type vehicles, but I thought it looked ok. I generally don’t particularly like black cars, but I thought black looked good on the ’55 Cadillac I saw last weekend at the Cole Porter festival 20 miles north of here.
I didn’t see AAH, but probably will tomorrow. The Ford GT is cool, but somehow, I have a hard time getting interested in cars that cost 10 times as much as anything I’d ever buy.
June 18th, 2015 at 7:54 pm
yeah, the GT is really a race car aimed at LeMans with some being offered to the public
June 18th, 2015 at 7:58 pm
Why does it sound to me that Sergio is hoping lightning strikes twice? He got a couple of billion out of GM before. No it does not make sense to merge with GM. There are other ways to get new (and hopefully better ) vehicles to the market. It may be time for a new president of FCA.
With the financial clout of the insurance companies, this will be an interesting battle.
June 18th, 2015 at 7:58 pm
The GLC looks wimpy to me.
June 18th, 2015 at 8:06 pm
31 he’s tasted blood and now he’s coming back
32 It’s like Merc hired the Acura design squad.
June 18th, 2015 at 8:24 pm
32, 33 …and according to Autocar, it will have mandatory 4wd, even in the UK. So much for the GLC, if I ever wanted a tall wagon, and wanted to splurge on a Benz.
June 18th, 2015 at 8:39 pm
Not that cars interest me much,all of the ‘super cars’to me are a waste of money.Sure rich folks buy them,drive them a little,then make them into garage queens to show off to their friends,but I love multi purpose vehicles,and aircraft.It don’t have to be pretty,it has to be useful and fun.
June 18th, 2015 at 9:06 pm
John, I like your insight on why the FCA-GM merger is a bad idea. I’m still a little confused on why you see FCA launching a “hostile takeover” of GM. Also, what company do you think will see a greater decrease in value, GM or FCA and how devastating with the decrease in value be?
June 18th, 2015 at 9:09 pm
34 Kit, between the Prius and the Corvette you’ve got the AOA of cars.
36 There was an article where either Serge or Elkann mentioned hostile takeover.
June 20th, 2015 at 8:02 pm
I think if GM was going to merge with anyone…it would be BMW. It would give them the total market spread that neither enjoys now, and BMW expertise could trickle down to the mass market.
It won’t happen of course for a ton of reasons, all of them valid. But I think that would be the only dance partner GM would ever consider.
June 22nd, 2015 at 6:53 pm
The GM FCA merger talk is just blather.
Why should FCA merge with a GM firm that continues for half a century to year in, and year out, to lose market share?
Chrysler had to sell off its foreign subsidiaries and allies in the Iacocca bailout. The result was unstable and unhealthy.
In the last Bankruptcy, Chrysler was brutalized deeply enough, to force a fundamental restructuring and alteration of its failing culture and middle level management, unlike GM. Its engineering departments were decimated but are being rebuilt with youngsters who are becoming young veterans now.
The Fiat merger restored overseas subsidiaries. Over the past years since, its Chrysler side market share has rebounded and is growing, unlike GM.
Plus obsolete factory capacity was closed, and one of the unemphasized and unestimated Sergio effort has been the thorough refurbishing and complete modernization of its remaining residual plant capacity.
Plus the entire Chrysler product line has been renewed, with models that are much more competitive than obsolescent and poorer models they replaced.
Its platform architectures are superior. The engines are thoroughly modern as are the transmissions and axles.
Having spent heavily for the first 5 or 6 years on Chrysler’s problems, while deferring modernization on Fiat models.
Only in the past few years has Sergio turned his attention and attempted to develop and modernize Fiat’s models, engendering some domestic complaints that FCA is now spending disproportionately on the Fiat side of FCA.
Ferrari and Maserati’s product lines now are thoroughly modern. Lancia is still starved, and Fiat is about half through its product line introductions.
The major effort is ongoing and now about to emerge to introduce a renewed Alfa Romeo product line, developed, but unseen as yet.
FCA is now big enough to compete and could even absorb a subsidiary for the Far East that would make them more competitive there. Suzuki for India, and/or a Chinese affiliate seems to be the smartest acquisitions, if any are really needed.
In my view the combined FCA company is healthy now, and getting healthier.
June 22nd, 2015 at 10:20 pm
This merger stuff does not make sense?? If sergio really wanted to cut costs wouldnt it make sense to do a merger on a couplle of vehicles itself instead of the entire company? Ive read theat people under him and dealers are starting to lose faith with his leadership .. they dont get it either. However one party did say.. this was a ploy to deal the UAW negotiations. ? Is that possible?