AUTOLINE ON AUTOBLOG: Big Problems with California’s CO2 Standard

January 31st, 2009 at 10:05am

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Earlier this week President Obama instructed the EPA to determine whether it should grant California a waiver to set its own CO2 standards for cars. It’s a hugely controversial issue, and one that’s fraught with major problems for the auto industry.First off, cars and trucks account for only 18% of total CO2 emissions in the United States. Yet it’s the automotive industry that’s in the cross-hairs, and California’s rules are designed to “hold the automaker’s feet to the fire.” But even if it eliminated all automotive CO2, that still leaves 80% of other man-made sources untouched.

Besides, California’s standard will merely bring the federal standard forward by four years. What’s the big rush? Even more importantly, California only accounts for 1% of global CO2 emissions. So is it really fixing anything? And above all else, whatever reduction the state achieves will be immediately replenished by CO2 and other green house gasses blowing in from India, China and other points in Asia.

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Toyota’s Weakening Financials

January 22nd, 2009 at 11:17am

Toyota used to be in such a strong financial position that it earned the nickname the Bank of Toyota. That description no longer replies. Also, many industry observers are under the mistaken impression that Toyota has no corporate debt. That doesn’t apply anymore, either.As part of its ambitious global expansion efforts, Toyota’s borrowing and have debt load more than doubled over the last decade. In 2000 Toyota’s current liabilities* totaled ¥5.5 trillion, right now that stands at ¥12.4 trillion.

Although the company still has a solid balance sheet, it’s not as solid as it used to be. Moreover, the company is projecting it will lose money in the current fiscal year, something that has never happened before in its history.

This helps explain why Toyota is taking drastic action in the face of the current economic downturn, such as temporarily shutting down all of its manufacturing facilities in Japan. Now, even Toyota has to worry about how much cash it has on hand.

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Fiat Rescues Chrysler

January 20th, 2009 at 11:37am

Hallelujah, Chrysler has been rescued — – — again! The company that keeps bouncing back from the dead may have just gained a new lease on life.Fiat is going to take a 35% equity position in Chrysler, even though no cash will be involved. Instead, Chrysler will have immediate access to Fiat’s platforms, powertrains, components, and global distribution system. That alone could be worth billions to Chrysler.

Moreover, Fiat will provide management services supporting Chrysler’s restructuring plan that it has to submit to the US Treasury. That probably means Fiat will help convince the Treasury that Chrysler is going to survive and that it should get additional funding.

While most Americans don’t have a very good impression of Fiat, that’s because they are not familiar with the current state of the company. Fiat pulled off one of the most amazing turnaround in the automotive industry during this decade. It’s been solidly profitable, and has been carefully nurturing its three primary brands (Fiat, Alfa Romeo and Lancia) with attractive new products. So it could make a terrific partner for Chrysler.

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Live from NAIAS 2009

January 11th, 2009 at 2:22pm

Autoline’s live coverage of the 2009 North American International Auto Show in Detroit.

Archived Broadcasts:

Hour 1: Subaru, GM, Ford, Chrysler and More
Hour 2: Ford, Hyundai, BMW, Mercedes and More
Hour 3: BYD, MINI, GM and More
Hour 4: Fisker, Cadillac, Lincoln, Ford and More

What Is An “American” Car?

January 7th, 2009 at 6:59pm

I get a lot of people asking me to define exactly what is an American car? Is it a vehicle made by one of the Detroit automakers, yet assembled in Canada, Mexico, or some other country? Or is it a vehicle made by a Japanese, European, or Korean company with assembly plants in America? Or something in between?  My definition of an “American car” is a vehicle which was conceived, designed, engineered, developed and manufactured in America. It might have a Big Three logo on it, it might have a Japanese logo on it. As long as it meets that criteria, it doesn’t matter to me.

But I also allow for some slack in my definition. Product creation is what really counts. That’s what generates the greatest value for the economy, much more than assembly of the vehicle. To their credit Toyota, Honda and Nissan are doing some of their product creation, at least with some of their truck products, in the US. Hyundai’s getting there.

Even if they repatriate the profits of those trucks back to Japan or Korea, it’s still worth having them do their product creation here. Roughly 90% of all the value created by creating those products will stay in the US. Conversely, if that vehicle was mostly created in Japan or Korea or where ever, I don’t consider it “American” even if it is assembled in the USA.

The same goes for a GM, Ford or Chrysler product that’s assembled in Canada or Mexico. As long as the product creation took place in the US, the overwhelming amount of value generated by it will stay in the US. So for me, even if a vehicle like that is assembled north or south of the border, it’s still American.

Hybrid Sales Collapse

January 6th, 2009 at 8:21am

Car sales were dismal in December, but guess which part of the market suffered the most? While the overall market fell to 35%, sales of hybrids were down nearly 43%. Contrast that to only six months ago when hybrids were so hot you practically couldn’t buy one.

Especially hard hit were the most popular hybrids out there. The Toyota Prius was down nearly 45%, the Honda Civic hybrid was down 67%.

Two factors are to blame for this. First, with gasoline prices half of what they were last summer consumers are not as worried about fuel economy. Second, with the economy in a full-blown recession consumers are looking for cheaper alternatives to pricey hybrids.

None of this bodes well for automakers who are about to cram their showrooms chock full of hybrids in the next couple of years. That is, not as long as gasoline prices stay as cheap as they are.

Have We Hit Bottom In The Market?

January 5th, 2009 at 7:20pm

Yes, car sales look terrible for December. But that’s if you compare sales to the same month a year ago. The market has changed so much from then that I would argue you can’t get an accurate read on what’s going on right now, if you’re only measuring today’s sales against 12 months ago. A better gauge is a running average over the last 6 months. Car sales are in a terrible state, but the bottom may actually have been reached in November. In fact, sales were up by nearly 150,000 units or nearly 20% in December vs. November.

January could be better. GM and Chrysler received the first installments on their bridge loans, which instilled some level of confidence in the market. GMAC received TARP money which will help stabilize quite a number of dealers. GM immediately began offering low interest loans and resuming national television advertising.

That’s not to say the market is on a rebound. But it may well be that we hit the low point two months ago and are starting to inch up.

No Card Check This Year?

January 5th, 2009 at 3:50pm

There was a fascinating opinion piece in the Wall Street Journal last week about the Employee Free Choice Act. Better known as EFCA or the “card check,” if enacted, it would make it far easier for unions to organize non-union factories or companies. Last year it looked like a slam dunk that EFCA would be enacted in the new Congress this year. There’s strong support for it in the House and the Obama Administration indicated it would make this a priority. Democrats in the Senate also strongly backed the bill–as long as it looked like it would not pass.

But now that the new Administration and new Congress are about to take over in Washington, and enacting this legislation should be a sure thing, the Journal reports that many Democratic Senators are getting cold feet.

The reason is two fold: unions, especially the UAW are extremely unpopular, thanks to all the attacks on them by Republican southern Senators who dumped on them during the Big Three bailout talks. Also, EFCA eliminates secret ballots in holding union elections, and many people are very uncomfortable about getting rid of the secret ballot. Former Democratic Senator George McGovern is even doing television commercials attacking EFCA and pleading with liberals to oppose this legislation.

So the transplants and many automotive suppliers may heave a sigh of relief that they won’t get unionized, thanks to Democratic Senators who are suddenly no longer as supportive as they were just a month or two ago.