Episode 308 – China Protects Domestics, Ford & Mazda Drift Apart, Honda Upset At Hyundai
January 18th, 2010 at 12:00pm
Runtime 6:48
By 2015 the Chinese government would like to see domestic vehicles make up half of the market. Ford and Mazda are looking at ways to separate their joint venture in China. Honda is mad that Hyundai is beating it in fuel economy. All that and more, plus a look at the spectacular video presentation that Ford put on at the Detroit auto show.
Transcript and Story Links after the jump . . .
Here are today’s top headlines. China wants its domestic brands to take more market share. Ford and Mazda continue to drift apart. And Honda is mad that Hyundai is beating it in fuel economy.
Up next, we’ll be back with the news behind the headlines.
This is Autoline Daily for Monday, January 18, 2010 – Martin Luther King, Jr. Day, and now, the news.
Even though China had record auto sales last year, less than half of those were from domestic brands, and according to Edmunds Inside Line, the government is looking to change that. By 2015 the country would like to see domestic vehicles make up half of the market. China is looking at ways to reduce its reliance on foreign automakers and promoting its own. Through the first 11 months of last year, domestic vehicles made up 44 percent of the market.
Looks like Ford and Mazda are continuing to drift apart (subscription required). The Wall Street Journal reports they are looking at ways to separate their joint venture in China. Right now they operate two plants with Chinese automaker Changan, and supposedly want to split that into one plant each for Ford and Mazda. The AFP and Reuters report that Mazda is calling these reports “speculation,” which doesn’t sound like much of a denial to me.
The cooperative arrangement that Mercedes and BMW were trying to put together may be falling apart. Bloomberg reports that the two companies were trying to find areas where they could work together, such as in purchasing, but that talks broke off. Yet Daimler is denying the talks have collapsed. It is also in talks with Renault to jointly develop small cars.
We know that Subaru defied the odds last year and actually saw its sales increase in the U.S. but how did they do around the globe? According to the Detroit Free Press, the company set record sales in a number of other markets as well. Its market share in Australia increased, sales in China were up an eye-popping 86 percent and the company set record sales in other Asian markets. It goes to show that a small niche vehicle company can survive, although the company is now partly owned by Toyota.
Ward’s reports that the average fuel economy for new vehicles sold in the U.S. went down last month (subscription required) as consumers bought bigger. December light-truck sales achieved their highest monthly market share since January 2009 hitting 50.1 percent. Still, the average fuel economy for new, light vehicles sold in the U.S. was up 3.3 percent for the year reaching 22.2 miles per gallon, or about 10.6 L/100km.
Hyundai is now advertising itself as the fuel economy leader in the American market. Company insiders tell Autoline Daily that Honda – the former fuel economy leader – is complaining about those ads because Hyundai is not a full-line manufacturer. Of course, Honda is not a full line manufacturer either. The only full line manufacturers are the Detroit Three and that’s why they always come in at the bottom of these surveys
So you’re thinking about getting a Bugatti Veyron? That’s terrific, but this story may change your mind. Autoblog reports that maintenance costs for the million-dollar supercar rival that of a private jet! Take the tires for instance. The company recommends you swap out the specially made Michelins every 4,000 kilometers or 2,500 miles at a cost of about $30,000! Every 10,000 miles Bugatti recommends a tire AND wheel change which will set you back about $50,000! Some estimates put annual operating expense at $300,000! Yikes! It’s expensive to be rich.
Coming up next, a look at the spectacular video presentation that Ford put on at the Detroit auto show.
Last year’s auto show in Detroit was a conspicuously frugal affair. With the automotive market in a free fall, automakers slashed their spending on the show. And it showed!
This year, the budgets were a lot better and you could notice the difference. The exhibits were not as extravagant as in the past, but were definitely a step up from a year ago.
To me, the most impressive of all the press previews was the one Ford did, where it used a massive video screen, the biggest I’ve ever seen. But it also used the floor of its stage to double as a video screen, and the visual impact was dazzling. Even more than that, all the graphics swirling, moving and flowing on such a grand scale actually created a feeling of euphoria. The impact was electric. You only appreciate how large these video screens were when you see cars and people on the stage. And while the videos themselves were good, it was the giant format that transformed the experience of watching them. When you compare this to how other automakers introduced their new products, the contrast is stark. Ford, knowing the value of showmanship, created a memorable experience.
Mark your calendar for January 26 when we’ll be webcasting live from the Washington DC auto show. We’ll be specifically talking to automakers, lawmakers and regulators about the prospects for clean diesels in the American market. That’s January 26 from 12:30 to 2:30 p.m. Eastern Time.
And that’s it for today’s top news in the global automotive industry. Thanks for watching, we’ll see you tomorrow.
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Comments (32)
January 18th, 2010 at 12:38 pm
John McElroy said: “So you’re thinking about getting a Bugatti Veyron? That’s terrific, but this story may change your mind. Autoblog reports that maintenance costs for the million-dollar supercar rival that of a private jet! Take the tires for instance. The company recommends you swap out the specially made Michelins every 4,000 kilometers or 2,500 miles at a cost of about $30,000! Every 10,000 miles Bugatti recommends a tire AND wheel change which will set you back about $50,000!”
This is so amusing, John. I admit the upkeep costs are much higher than I expected (although I must say I never thought about them before), BUT:
If I am willing to pay the $1,500,000 cash to get one of these (or much more, for special editions), do you really think a measly $30,000 or $50,000 would make me worry?
Assuming depreciation laws of luxury cars apply, the car would lose $500,000 in its first year alone, just after you drive it off the lot! (33% depreciation for th efirst year is actually low among Mercs and BMWs flagships)
Insurance should run another $25,000 a year, extrapolating from pleibeian $100,000 cheapo mere mortal top luxury cars.
Secondly, the costs you mention assume one does a lot of miles with this supercar, which is patently false. The owners of such cars own another 10 or 20 in their garage and are too bysy to put too many miles on any of them. For the Veyron especially, I doubt any of them would let anybody else touch it, let alone drive it! So I estimate less than ONE thousand miles a year, and a tire change every 3 years, and a wheel change every TEN years, which make the total cost insignificant compared to the $1,500,000 purchase price and the estimated $500,000 first year depreciation!!!
January 18th, 2010 at 12:42 pm
PS John, everybody and his mother in law have a couple million $ in their pension funds or their investments, these people are not rich, just well off. The word “millionaire”, as you may remember, was coined 100 years ago, when a dollar was literally worth 100 dollars of today. A real millionaire today is worth in excess of 100 million. For such a [person, $1.5 million for a car or $10 million for a mansion are prohibitive. And if you are really wealthy, a billionaire, the 1.5 million is not even o ne half of o ne percent of what you own. It is actually difficult to spend all that $ after some level 1 or 10 billion), you can only invest them, you can’t make them dissapear.
January 18th, 2010 at 12:43 pm
Correction: I meant are NOT prohibitive, above.
January 18th, 2010 at 1:12 pm
“China is looking at ways to reduce its reliance on foreign automakers and promoting its own.”
What’s that old saying “If it looks like a duck and quacks like a duck…must be a duck (or protectionism!)” Nice work Obama; hope you and your cronies in the domestic tire industry are happy!
January 18th, 2010 at 1:45 pm
John,
Once China Auto Industry “Cracks the Code” and are able to sell their cars in the America’s the domestic OEM’s are sunk! The Chinese will flood the North American Auto Market with clones of Buick’s, Chevy’s, Volvo’s, Ford’s and anything else that is being currently manufactured in US & Chinese Partnered Automotive Plants in China. These vehicles will be lower cost and be attractive alternatives to domestic models.
NAFTA was just the tip of the Iceberg. The Chinese will just low ball the entire North American Auto Industry out of business. China will then step in and buy up GM, Ford and Chysler for pennies on the dollar which we gave them. You can see the beginning of this strategy in the way Google is being forced out of China. It is under a well formulated cyber attack and the same will happen to those Non-Chinese Auto Makers which have invested heavily in China.
January 18th, 2010 at 1:50 pm
I completely agree with Lex only if the Chinese cars coming here are half way decent, if they prove to be unreliable, unsafe POS then people will just keep buying used cars. Otherwise it’s hard for anyone to resist that feeling of getting into a new car, no matter where it’s made.
January 18th, 2010 at 2:01 pm
JohnMc, since you mention next week auto show in DC, is there anyway you know/or could tell us -who (among automakers, law makers and regulators) are you going to be talking to?? -So, we can start sending questions in advance.
January 18th, 2010 at 2:06 pm
Is there any info on what these Subarus are replacing? I find it interesting that a car company that is doing well happens to be a car company that would not even be on my shopping list because of the mandatory AWD. I’ve never “gone with the flow” much in my car purchases, though.
January 18th, 2010 at 2:13 pm
Lex is correct, unless the Chinese bring here crappy, unreliable, unsafe cars, they will kill the small to mid size market, both domestic and foreign.
January 18th, 2010 at 3:33 pm
The U.S. is not beyond tariffs (i.e. motorcycles and small pickups come to mind in past decades). All said though, so far, is supposition and conjecture; China is wisely trying to protect their own market (perhaps what we should have done to some sort of extent). Capitalism, in theory, works great (it’s the real world capitalism model) that throws a chink in the armour (no pun intended……………this time).
January 18th, 2010 at 3:40 pm
Lex is not correct, as usual. If it was just a matter of low wages, Indians would have flooded the world with econoboxes, but as it is they cannot even make cars for their own people.
If it was a matter of lpwer wages, the Koreans would have obliterated BOTH the Japanese (in mid-priced cars_ and the Germans (in top-end luxury cars), but again this was NOT the case.
It is far more complicated than that.
January 18th, 2010 at 4:13 pm
I think any sensible person can see that China is far more advanced than India in manufacturing and marketing, until the Tata was in the news, most people were not even aware that India made cars. . China will flood this market with inexpensive cars, others will struggle to compete with them, unless the govt puts in quotas like they did in the 80′s, they will rule the low and middle end of the market
January 18th, 2010 at 4:28 pm
My experience with Indian vehicles is Royal Enfield motorcycles. They were building and importing these 1950′s machines, complete with 50′s reliability and point-and-coil ignition, until very recently. The bikes now have electronic ignition and electric start, but are still in no way serious motorcycles. They are interesting toys for nostalgia buffs. I can’t see any serious cars, or bikes coming from India any time soon. Now China, that could be a lot different unless there is protectionism. I don’t expect that, though. At least it never happened with the Japanese or Korean car makers.
January 18th, 2010 at 6:52 pm
I would presume that the DC show is mostly armored limos.
January 18th, 2010 at 8:02 pm
Let’s see, I changed my bike (non-motorized) tires three years ago. I rode 2000 miles in ’09, 1600 in ’08, and about 700 in ’07 (an unusually low year).
Michigan roads for about $8000 miles.
I’ll never complain about $28 per tire again.
The front wheel came with the bike and it is still true after lugging part of my 220 lb around on our smooth
January 18th, 2010 at 9:05 pm
All I have to say to Honda is, “AWW POOR BABIES!!!!!”
January 18th, 2010 at 9:07 pm
John and Honda, those arent technically ads, as that is certtified verifiable government fact that anybody can get from the EPA website.
It’s not like Hyundai is pulling those numbers out of its ass here.
January 18th, 2010 at 9:35 pm
There is a Honda dealer near my home and every time Hyundai come out with a new car that car is in their lot, presumably to evaluate. I hope the US companies are doing the same. If we’ve learned anything they can’t take these companies lightly. Gm did a great job responding to the Toyota truck threat. Unfortunately maybe to their mutual destruction.
January 18th, 2010 at 9:44 pm
It seems that Lexus is really losing its way. I am seeing a steady stream of ads for this GX460, a trucky, pricey, kind of ugly, not-too-roomy SUV that does nothing to do with what Lexus really should be, a luxury name plate with the LS460 as its flagship car.
January 18th, 2010 at 10:44 pm
Exactly John, Subaru is partly owned by Toyota and you hit the crux of my debate I had with Kit Gerhart the other day.
Since Subaru is partly owned by Toyota, it has the benefit of everything GMOYOTA has to offer. Honda doesnt have that benefit, with a rapidly deteriorating product line. Let’s be real, Mazda and Ford are done.
The Big 8 (Toyota, VW, GM, Hyundai/KIA, Citroen/PSA, Ford, Renualt/Nissan, FIAT/Chrysler) are about to go to war Globally, and the small independent Niche Comapnies like Mazda and Honda will be forced to submit.
Look at Suzuki and Mitsubishi, they know whats good for them by joining the big 8.
Id like to see Mazda accquired by Proton/Lotus-which I think will be another foce to reckon with soon like TATA and Geely.
Call me crazy, but I can see Honda as a BMW company; an econo car retailer for them.
January 19th, 2010 at 8:39 am
TO: John McElroy
Re:
“We’ll be specifically talking to automakers, lawmakers and regulators about the prospects for clean diesels in the American market.”
John,
What is the most reliable, economical, and cost effective turbo diesel in the American Market ?
Is it the VW TDI’s ?
Can you do a comparative review of the contenders from the point of view of the buyer with the demands of a daily LONG commute faced with rising fuel prices?
Thanks.
January 19th, 2010 at 8:53 am
Sorry Honda (and Hyundai), the EPA numbers just don’t tell much of a story (other than ‘general’ bragging rights, which really don’t hold much to brag about after evaluation). A customer doesn’t buy a car because the company’s fuel average is higher than someone else’s, it buys a fuel efficient model because that’s the one the customer is going to fill-up.
January 19th, 2010 at 8:58 am
Requiem for the “Dumb”:
“Smart”’s new President, former Saturn overseer/undertaker Jill Lajdziak, knows how the dying brand thing works. With Smart sales down a (barely) Chrysler-beating 41 percent on the year, the Penske-owned Smart USA is teaming up with Daimler Financial Services (Smart vehicles are produced by Daimler in Europe) for a good-old captive lease deal right out the old GM playbook. According to Automotive News [sub], Smart is offering
a 36-month lease for $169 a month, $999 down, a $595 acquisition fee and the first month’s payment due at the time of the lease.
That’s a lot more realistic than the the old deal they were offering ($3k down, $200/month)
But, we’re still talking about a 10k miles-per-year lease. On a car makes a Yaris seem luxurious, overpowered and confidence-inspiring. (!)
Incidentally, were you aware that the Smart ForTwo was first introduced way back in 1998, and never made a dime even in Europe for 90% of its run? The more you know!
January 19th, 2010 at 9:35 am
We note the high price of tires for the latest Bugatti.
Why is this so? One theory I have is this: If you drive a high performance exoticar to the limit of what its drivetrain, suspension and tires can deliver, you’re going to leave a lot of rubber on the road. Hence the need for the owner of a Bugatti to spend a lot of money on tires — if he or she drives that way.
But how much would you be spending on tires, if you didn’t fancy yourself to be another A.J. Foyt, Mario Andretti, et cetera?
Before I sign off I’d like to ask: what is the cost of regular replacement of a Bugatti’s tires, compared to what USAC or Formula I teams spend for tires?
January 19th, 2010 at 10:25 am
Here are some facts about China that many here seem to ignore or not be aware of:
1. US companies make BILLIONS producing their cars in China and selling them to the CHINESE, NOT the US, market.
2. Many other companies (european, Japanese and Korean) make a TON of Money also selling and/or producing their cars in China.
3. Unlike INDIA, which EXPORTS most of the cars it makes so far, China, like the USA, has a HUGE INTERNAL market, and unlike Korea or Japan or even Germany, does not NEED to EXPORT its cars, it can not even satisfy DOMESTIC demand with 3 shifts in its plants!!!!!!
4. In fact, the CHINESE market should be several TIMES the size of the huge US market, due to a five-fold larger population AND an insatiable appetite for cars, and a fleet that is barely 80 cars per 1000 people (Vs the very big US fleet which is almost 1 car per US citizen).
5. China is an OPPORTUNITY, NOT a threat, to the domestic losers in Detroit and to all kinds of other Automakers. GM would be in FAR worse shape if not for its CHINA profits. IF it continues on its rapiod growth path, China will be the SECOND LOCOMOTIVE, after the US which is getting weaker and less important by the day, that pulls the World Economy ahead, and we should all welcome that, above all the USA, having done this for more than 60 years and being quite tired of doing it!.
6. It will take DECADES to satisfy its domestic market before it bothers exporting its cars, and it will take a few decades from THAT time for its exports to be of the same quality as the brands with 100 yeasrs of history!
January 19th, 2010 at 11:03 am
Alex Kovnat Says:
January 19th, 2010 at 9:35 am
“We note the high price of tires for the latest Bugatti.
Why is this so? One theory I have is this: If you drive a high performance exoticar to the limit of what its drivetrain, suspension and tires can deliver, you’re going to leave a lot of rubber on the road.”
Part of the reason for the high price of Bugatti tires might be the extremely small number made. F1 tires are a mass-market product compared to tires for a Veyron. Anyway, $2M road cars are in another world where prices of tires and parts have little to do with the real world of auto-dom.
January 19th, 2010 at 11:12 am
If the “central planners” in China know what’s good for them, they will not allow their country to ever become auto-centric like the US. The congestion is already terrible in the cities, and then there’s the imminent peaking of world-wide oil supply. Over time, alterative energy sources could negate some of that, but a country with 4 times the population density of the US does not need cars. In most parts of their country, they need good alternatives to cars.
January 19th, 2010 at 11:46 am
I lived in the biggest chinese City, Shanghai, with its over 20,000,000 people and a ton of cars, being the commercial capital of China, and the traffic jams were NOT bad. THAILAND and Bangkok have horrible jams, not China. I have also been in Beijing for a 3 day stay and traffic was also reaso nable. CHinese drivers seem reckless, at least to a visitor from the Midwest, when they squeeze in tight places, but usually they are good enough to do so without any fender benders. Pollution is worse than here, but in a couple days you are used to it.
CHina has 2 trillion dollars that are worth less and less, and is not amused. That is why they are trying to develop their local economy rather than be an export-driven one as Japan and Korea used to be. They encourage the chinese to spend their $ and buy cars, among many other things.
China has excellent trains, from big slow regular trains like the US, to MAGLEVs that nobody else has, and in between the 12-hour Shanghai-beijing express I took and slept in the brand newe sheets and beds back in 06 (7 PM – 7 AM). I also used buses extensively, and of course the uncomfortable and cramped taxis (old PAssats) that are however plentiful and dirt-cheap (most short fares were $1-0$2!)
January 19th, 2010 at 12:40 pm
My only trip to China was to Shanghai in the mid-90′s. The group I was with stayed at a hotel near a sports complex and had “special” buses to take us to our competition venue about 15 miles away. The trip took about 1.5-2 hours. Maybe things have gotter better since then, as more of the subway system has been completed. At the time, though, the traffic was bad, at least through our route across the city.
I was impressed with the lack of accidents, considering the chaos of the traffic and the mix of bicycles, mopeds, buses, taxis, and a few privately owned cars. I too was impressed at how good the taxi drivers were at fitting their cars through any hole big enough for it to go through. I was also impressed with how skillful the taxis drivers were at driving those VW Santana taxis, old design Passats with 4-speed manual transmissions. The drivers obviously had training in how to shift smoothly, and to drive for fuel economy.
The air was nasty, mainly the result of all the small two-stroke mopeds. I suspect that has improved as those machines are being replaced with newer bikes, mostly 4-strokes.
January 19th, 2010 at 12:42 pm
I’m ready for today’show, John!
January 19th, 2010 at 12:56 pm
When i was in Shanghai, there were also a lot of very interesting small electric scooters, usually driven by young women students, usually two of them, the one in the back held an umbrella covering both her and the driver’s face. I asked how much they cost and they told me an unbelievably low $1,000. for an ELECTRIC scooter. here you can’t even buy a silly-ass bicycle with a tiny electric assist for fove to ten times that!
January 19th, 2010 at 12:58 pm
The subway system in Shanghai is very modern and excellent, in 2006 it was almost brand new, the stops are announced also in english, and the fare is automatically dedicted from a card, it is usually 10-20 cents for a few stops, so a 100 yuan ($12-14) card can last you a month, if you also use other mass transit.