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Episode 1007 – Toyota Posts Earnings, Nissan Saves Air, Honda’s New Kei-Car

November 5th, 2012 at 12:59pm

Runtime: 7:43

Even amid an earthquake and flooding Toyota posts spectacular financial earnings. Nissan says by fixing of one type of wasted energy it could reduce consumption by 25 percent in its plants. Honda continues its man maximum, machine minimum concept with the N-ONE. All that and more, plus VW AG is the 8th largest employer in the world, but has done so in a unconventional way.

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Thank you for joining us for a brand-new week of Autoline Daily, we’re glad you’re here! Later on we’ll have the results of our poll regarding the presidential election, but now the news.

THE BANK OF TOYOTA
Toyota posted its latest financial earnings and the numbers are nothing short of spectacular. It sold 2.2 million vehicles worldwide in the last three months an increase of almost 20 percent. This is before the big impact of the drop-off in sales in China. Total revenue came to a jaw-dropping $68 billion, an 18 percent increase. The company posted a $4.3 billion operating profit up 351 percent, while its net profit was $3.2 billion an increase of 220 percent. While Toyota continues to face challenges this is a very impressive comeback after the earthquake in Japan and the flooding in Thailand.

TOYOTA PONDERS PRIUS
Toyota is also reportedly trying to figure out how it should change the styling of the Prius to make it more popular. It’s trying to decide if it should just sort of evolve the design, or really change it. How about you? Which way would you go? Post your comments, we would love to know.

RENAULT REVIVES ALPINE
Renault announced it’s reviving the iconic Alpine sports car brand. It’s teaming up with Caterham to design, develop and build sports cars. Caterham gets a 50 percent stake in Alpine which Renault currently owns 100 percent. Both companies will sell vehicles under their own brands and say the models will be distinct from each other. The cars will be built at Alpine’s plant in France, with the first vehicles on sale within the next 3 to 4 years.

WASTED AIR
Automakers aren’t just looking to make their cars more efficient, they’re making their plants more efficient too. Nissan created an air-leak detection squad at its factories in North America, to find and fix wasted compressed air. Believe it or not this one of the most wasted of forms of energy at car plants, even more than electricity. There are miles of hose in a plant that provide compressed air for thousands of devices. The company says this can reduce energy consumption by 25 percent within the next ten years.

HONDA’S NEWEST KEI-CAR
Honda continues its man maximum, machine minimum concept with the newest vehicle in the Kei-car lineup, the N-ONE. It features a 660cc engine, that can be turbocharged, mated to a CVT trans in either front-wheel-drive or all-wheel- drive configurations. The N-ONE expands on Honda’s N-line and joins the N-BOX and the N-BOX+.

NISSAN’S BRAZILIAN CONCEPT CAR
Nissan says it has been inspired by Brazilian culture. It shows in the concept released at this years Sao Paulo auto show, the Extrem. The paint color called solar cortex draws from the sunrise and sunsets to the profile that embodies the vitality, the energy and the personality of Brazil. Nissan expects continued growth in Brazil with plans for eight new models by 2016.

Okay, now for our latest poll. We said: Pres. Obama claims he saved the auto industry. Mitt Romney said GM and Chrysler should’ve gone bankrupt. Who do you think is right? And the results show that 51 percent of you agree with Mitt Romney while 49 percent agree with Pres. Obama. That tracks with other polls, and shows just how closely this presidential election is running.

Coming up next, a look at why Volkswagen is the most amazing car company in the industry.

Any efficiency expert studying Volkswagen would have a fit. On paper the company looks like a productivity basket case.

Get this. VW AG employs 550,000 people globally. That’s a staggering number. Fortune magazine lists it as the 8th biggest employer in the world, behind giants such as Wall Mart and the Chinese post office. VW has almost as many full-time employees as General Motors, Ford and Fiat-Chrysler put together.

On an employee-per-vehicle basis, or a revenue-per-employee basis, Volkswagen looks hopelessly inefficient. And yet VW’s revenue of $200 billion dwarfs everyone else. Last year’s operating profit of $14 billion is the kind of bottom line performance you expect from Big Oil companies. While VW’s stated goal is to become the world’s largest car company by 2018, it’s already there if you measure it by revenue and profits.

So how can VW look so uncompetitive from a productivity standpoint, yet be so profitable?

That’s because today’s business schools have got it all wrong. They teach MBA’s that centralized operations eliminate overlap and duplication. Yet VW maintains strongly decentralized operations with lots of overlap. Business schools preach the benefits of outsourcing to cut cost. Yet VW is very vertically integrated.

All of VW’s brands from Audi to Skoda are treated as stand-alone companies. They have their own boards of directors, their own annual report, their own separate design, engineering and manufacturing. Yes, they do share some platforms and powertrains and purchasing, but that’s it. In other words, they have lots of overlap and duplication.

Guess what? That’s how GM used to run. In the 1960’s GM had over 700,000 employees, was very vertically integrated, and was the most profitable corporation in the world. Then the MBA’s ruined it all.

VW has an enormous competitive advantage that no amount of rationalization, cost-cutting, outsourcing or strategic partnerships is going to overcome. This is a direct threat to every car company in the world, but I wonder how many automotive executives are even aware of what they’re up against.

Anyway that’s how I see it. And that wraps up today’s show please join us again here tomorrow.

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62 Comments to “Episode 1007 – Toyota Posts Earnings, Nissan Saves Air, Honda’s New Kei-Car”

  1. Kit Gerhart Says:

    If they could make make the Prius’ styling different, and less polarizing, while keeping the low CD and hatchback utility, I’d say go for it. If they would have to compromise what the current car does well, they should just evolve the styling, while continuing the same basic shape.

  2. David Sprowl Says:

    John,

    Years ago on Autoline Detroit you interviewed I believe Ron Harbinger. You asked him what was the biggest threat the the US auto industry. His response was the Harvard business school. I also heard Bob Lutz allude to the same thing. When you look at short term matrices (I.E. quarterly goals) no exec dare look at continuous improvement taking longer than three months. The US capitalist model stacks the deck against long term success in favor of very short term gains. Unless or until the investment public learns more patients this is not likely to change soon.

  3. Bradley Says:

    The Prius should evolve, like Toyota has done with every other car. In the long run it creates a visual pedigree, that will help sell cars.

    Survey…there is a lot of spin in the question. A better question would be, do you agree with the GM and Chrysler bailout?

    GM simply stopped being an auto company, and started being a cash machine to upper atmosphere stock holders.

  4. G.A.Branigan Says:

    I was pleasantly surprised by the latest poll results.Very close indeed.

    John,do you mean to say the MBA’s may be wrong? LOL.Good show this morning.

  5. HtG Says:

    Actually, I’ve stopped noticing Priuses. It’s harder for owners to make a statement.

  6. Lex Says:

    It seems that Bob Lutz’s words are ringing true about those MBA’s were responsible for ruining GM.

  7. G.A.Branigan Says:

    @ #2: I seem to remember reading an article on Japanese companies.It said that they look and plan for 10 to 20 years ahead,unlike,as you pointed out,American companies look at a business plan for every quarter.Big differences there.

  8. Lex Says:

    What’s wrong with the current design of the Prius? Let is remain the same as did the iconic VW Beetle remained the same for decades.

  9. HtG Says:

    Perhaps the books are little squiffy over at VW?

    I read that somewhere;)

  10. HtG Says:
  11. HtG Says:

    A link to a Reuters piece on one reason power is taking more time to restore after Sandy. Poles.

    http://www.reuters.com/article/2012/11/03/us-storm-sandy-powerpoles-idUSBRE8A201F20121103

  12. ColoradoKid Says:

    Renault + Caterham = the first truly sensible automotive alliance to arise in over a decade . Take Caterham’s obsession with light weight and simple design – add in Renaults resources as well as hopefully a good dose of eclectic French design ( as well as Nissan sourced engines ) and you’ve got the potential for a 1st class winner . Assuming of course the two can manage to work together in a productive and meaningful manner . Unlike the current US Congress/Senate

    In as far as the overwhelming majority of automotive manufactures and what their main problems are : these can be summed up in two simple lines ;

    1) They’ve all to a number embraced the Morganism ( as in JP Morgan ) business model

    2) They’ve all to a number allowed the ” Package to Define the Contents ” vs the other way around .e.g. The contents may be ( and most often are ) utter garbage : but if the package says its a Premium , Efficient , Green or Luxury car , well then it is : with the price and marketing reflecting the package and not the contents within .

  13. Lex Says:

    VW’s business model promotes competition between the brands and prevents the entire organizations resources from being dumped into the same basket. This allows the strong to survive and ample time for the weaker divisions to reorganize and redeploy resources to improve
    profitabilty / survival.

  14. aliisdad Says:

    I like the Prius, but the design is getting a little “long of tooth” for me…While I do agree that it should evolve to keep the “greenies” coming, it would be nice to get a more conventional looking model, as well…
    I am thinking of the Honda Civic hybrid model and some of the Ford models that look more mainstream, but are still hybrids…Still, it seems wise to keep someting with the “hybrid shape” to hold on to the business from those who want to show their “green-ness”…
    Either way, hybrids are a great way to go for many smaller to midsize cars (but, not full EV’s!!)
    This reminds me of something I saw, yesterday…I saw a Nissan Leaf on the freeway many miles from the last town heading into a very rural section of country with the next small town about 100 miles up the road…I thought, “That guy must really have rocks to drive that so far from a power source; hope he makes it!!”….

  15. ColoradoKid Says:

    #9

    How very very right you are good sir ! Squiffy perhaps even being a bit of an understatement in light of the amount of US $$$ Bernanke has sent VW-AG’s way over the last few years ?

  16. HtG Says:

    :)

  17. Kit Gerhart Says:

    #5,
    Interesting comment.

    I still run across “Prius haters” that say people like myself are buying the cars to make a statement, rather than because they work well. I think most people, though, don’t even notice them any more. After all, there are about a million Priuses on the road in the U.S., nearly all of them used as daily drivers. With that many on the road, you don’t notice them, just as you don’t notice PT Cruisers, even though they stood out when there were only a few of them.

  18. Kate McLeod Says:

    The decision to make the original design of the Prius different so that it could project a greener than thou message isn’t really necessary anymore. They’ve sold a couple of million of them. We all know it’s a Prius and most people know its strengths. The current design isn’t its strong suit. Yet it now has an identity and that’s tough to walk away from. Still if a totally new design was beautiful and sexy it would get enough press so that the transition from frog to prince would be smooth. That could be an outstanding decision. But the design would have to be great and not in a polarizing way. Just good design that doesn’t scream “design” if you know what I mean.

  19. Kit Gerhart Says:

    #14,
    The trouble with making “normal looking” hybrids like the Civic, is that they are gas hogs at highway speed compared to a Prius, because the “normal” car has 20+ % higher aero drag than a Prius/Insight/Volt-shaped car of the same size. Also, a Civic hybrid isn’t nearly as useful as a Prius to some people, including myself, because it isn’t a liftback.

  20. HtG Says:

    18 One principal of good design as stated by Dieter Rams of Braun appliance is that ‘good design is unobtrusive.’ (Something I wish one Jony Ive had taken on board. I kid, I kid)

  21. Lex Says:

    The Nissan Compress Air piece was good, however Nissan needs to allocate additional resources to their product reliablity / warranty and not the flashy Brazilian design and paint job like on the Extrem. The Nissan Juke is a bad Joke!

    I believe in the wake of Super Storm Sandy may people will be rethinking the EV’s and Gas Guzzles. This storm brought back the gas lines of the 1970′s here in the Northeast.
    I would love to see Chevy Volt’s powertrain in the Chevy Equinox or Chevy Orlando available in all of North America. We need to squeeze out every mile out of every gallon of fuel.

  22. W L Simpson Says:

    Make the Prius look like an HHR,w/a
    diffrunt grill. always preferred clean lines.

  23. Kit Gerhart Says:

    That’s an interesting comparison between today’s VW, and GM in the 60′s.

    As I’ve heard it, GM got away from vertical integration, largely to get lower cost parts from low wage, non-union suppliers. Does VW pay their in-house parts suppliers the same wages as the assembly and powertrain employees, etc.? I don’t know, but I’m curious.

  24. Chuck Grenci Says:

    Toyota would be wise to ‘evolve’ the Prius. The reason I say this is because people who buy Prius are making a statement (as mentioned above, the ‘greenies’) and want the notoriety that goes with it. Just look at Toyota’s other hybrids (they don’t sell very well either, as with the rest); the Prius has a distinct shape (known for being a hybrid) and some of that is what people are buying.

  25. W L Simpson Says:

    Polls reflect an uninformed populace.

  26. Kit Gerhart Says:

    22,
    That would be an ok city car for low speed, stop-and-go driving, but would be a real gas hog at 75 mph. It would probably have at least 30% higher drag than a Prius.

  27. Kit Gerhart Says:

    #24,
    The Prius C is selling as fast as they can build them, both in central Indiana, and here in the “space coast” area of Florida, and the C looks pretty much like a Yaris, not very distinctive at all.

    I’ve said this several times before, but I’ll say it again. Most Prius drivers I know, including myself, DID NOT buy a Prius to make a statement. We bought it because it works very well, and very efficiently, for moving people and stuff around. As HtG alluded, Priuses don’t even “make a statement” any more. There are so many of them, you don’t really even notice them.

  28. Bryan Williams Says:

    Brilliant reporting on VW – I was fascinated! Ford should learn a thing or two from this…GM, I’m afraid, is a lost cause.

    As for the Prius…I think it should be revolutionary…Prius is known to be the personification of “Moving forward,” so let’s move forward the debate…give us something new! It’s the name that matters, not the styling!

  29. Phoenix Mark Says:

    On the Prius question, I say total new design. Toyota did it between the 1st and 2nd generation designs. It is time for a new look, just don’t grow the overall size.

  30. HtG Says:

    Kit, when I first saw the C I thought Toyota had deliberately made a car that would fit in. It’s only those shiny tail lights that give it away, and that’s really only for those in the know. Perhaps the psychology of hybrid owners includes many who want to signal quietly to their friends.

    I do that in other categories.

  31. Jim A Says:

    Dear John,
    Your commentary today was arguably the most intelligent and accurate of all editorials found in the 1000 show term (of which I joined ~ #100). The MBA’s ignorance and arrogance will be the downfall of the US economy.
    VERY well done.
    Keep getting the message out, US industry needs this back to basics on so many levels!
    Regards,
    Jim in GA.

  32. W L Simpson Says:

    Interiors above all else should be comfortable,
    non reflective ,& non distractive. Ego serving has a short life span.

  33. pedro fernandez Says:

    I don’t get this Scion IQ at all, I’ve seen a few of them in So Fla including one going over 70 on the pike, I thought these were supposed to be “city” cars. I was surprised it did not take off like a plane, it was a windy day when I saw it.

  34. Brett Says:

    I strongly recommend “The Reckoning” by David Halberstam. Excellent expose of the domestic automotive industry and where it went wrong in the 60s.

  35. C-Tech Says:

    Prius – I would evolve, their is enough of a brand presence to respect the customer base who buys them. Since Toyota is expanding the brand, you can introdue a radically different design to test the market waters.

    There are a vast number of dealerships and auto repair shops which also could benefit from the type of analysis and review Nissan is doing at its plants.

    Honda KEI-Car = Honda 600

    Just like Florida elections, there was irregularities at the voting booth.

    The REAL question (to me anyway) how do compare the industry heavyweights TOYOTA, an absolute text-book study in centralization and outsourcing, vs. VOLKSWAGEN, who is as successful with the opposite approach?

  36. Ed Says:

    I looked at the Prius and the Lexus h and the volt the problem for me is the inside , most of our time with a vehicle is inside driving or riding, none of these are for a tall person, I am right at 6’5″ and my head hits the roof on them all, and the toyotas have a short wheel well for your left foot, the emergency brake is just riding above you left ankle, in a collision that pedal might go through and sever your for or leg, BMW makes small cars that tall people can fit in, so it is clearly , thought about the total design. The volt was like a Malibu with a low roof. Just my thoughts.

  37. pedro fernandez Says:

    Seems like a lot of designers have adapted the Prius futuristic styling in some of the new vehicles I’ve seen, btw you guys did not show the rear end of that Brazilian Nissan, I was looking forward to it.

  38. G W Groovey Says:

    Prius: It’s style (unique) is what sells it to tree-huggers; it’s economy for the rest. They do need to keep some of it’s uniqueness but jazz it up a little.

  39. Ken Stadden Says:

    John,

    Your story about Nissan’s focus on air leaks gave me a chuckle, as I wrote an article several years ago about similar air leaks in the concrete industry. Audits of manufacturing plants typically turn up wasted compressor output of 20-30 percent via leaks in couplings, hoses, valves, pressure regulators, et cetera– an atrocious waste of energy. This was a nice little bit of PR from Nissan, but air leak audits are something plant managers should be doing routinely.

  40. Kit Gerhart Says:

    I’m still waiting for someone to make a car that is shaped like a Prius, but with a conventional power train. It would get great high speed mpg because of the low aero drag, but could be sold for substantially less money than the hybrids.

  41. Bill Schultz Says:

    Ya know John, if Craig Cole wants to review the 2013 Buick Regal Turbo Premium 3…you should let him!

  42. john 878 Says:

    It’s a no brainer if GM did not get any help from someone, (only the government could help in this case, banks had their own major problem),the auto industry would no longer exist in the USA.
    It’s to show what kind of people backs up Romney.

  43. ColoradoKid Says:

    #42

    The problem is they also gave aid to Chrysler who in truth has had one foot in the grave since 1977 . Had only GM been bailed out and Chrysler thrown to the wolves we’d most likely have two at least financially stable automakers now ( GM & Ford ) rather that two on the verge of collapse ( Chrysler and GM ) and one barely holding its own ( Ford )

  44. ColoradoKid Says:

    VW- AG

    A closing note ;

    I’ll wager that within the next 36 months the truth will finally surface as to the reality of VW-AG’s so called financial ‘ health ‘ and ‘ profitability ‘ . And when it does all of VW-AG’s cheerleaders : much like the fans of Lance Armstrong recently will be crying in their soup wondering why and when it all went so very very wrong . When in fact all they’d of had to of done was to pay attention to the subtext / listen to what the likes of Bernanke etc have said ( rather than what the press is reporting ) as well as paying attention to what the money men are saying behind closed doors

    A simple axiom for both business and life . When it looks too good to be true . It isn’t ! True that is ;-)

  45. ColoradoKid Says:

    A well done older interview with recently deceased American Automotive ( racing and industry ) Legend John Fitch that shows the depth and breadth of the mans accomplishments ;

    http://www.motorsportmagazine.com/race/racing-history/lunch-with-john-fitch/

  46. Kit Gerhart Says:

    #43,
    Chrysler has played a major part in preserving a “middle class” in my home town in Indiana, both before and since the 1977 rescue. Also, they have made some worthwhile contributions to the automotive landscape along the way. It’s not as simple as “Hyundai, Toyota, fill-in-the-blank can take up the slack. A lot of communities would be devestated if a company like Chrysler abruptly shut down, and a lot of suppliers would also be in deep trouble.

  47. Dave Marsh Says:

    @39 – Ken is correct – Chrysler put a push on this (air leaks) over ten years ago in their plants. Although the facts regarding lost energy are valid and bear out – often plant metrics don’t permit it being a focus – limited hours and budgets generally push maintenance resrouces to engage with critical work, then PM and rarely is there enough left over for continuous improvement – let alone chasing air leaks. Perhaps it is a sad commentary but it is often the truth in many plant organizational structures.

    Combine the above with the fact that likely the costs for the air leaks are in no way associated with the performance metric of the average maintenance crew (uptime & hourly labor costs) and you can see how it happens.

  48. Kit Gerhart Says:

    Yeah, when I was working for GM and Delphi, the only air leaks that got attention were the ones that hissed really loudly.

  49. M360 Says:

    I think Toyota should redesign the Prius in the near future becasue the Ford Fustion is going to make the Prius look outdated if they don’t. Toyota must keep up.

  50. pedro fernandez Says:

    Looking like a regular car has not helped GM move more Volts out the door.

  51. Ian Hendrie Says:

    Hi John,
    I think it’s quite simple. The systems you outsource make the supplier a profit. If you have the capacity to keep it in house, you capture the profit for yourselves. VW does it that way. They have patient long-term focused investors.

    If you don’t have the resources to develop in house, you have to share the work and the profit with others.
    In the past automakers were very vertically integrated; they kept all the profit. Nowadays you have suppliers like Magna even assembling cars.
    Not rocket science, and don’t blame MBA graduates for these changes. It’s more due to the tremendous one off profits that were available to the OEMs by spinning off these divisions. Short term view stock holders are to blame. And let’s not forget the role the U.S. government played in forcing short sighted anti- monopoly rulings, such as LOF and Autolite on Ford.
    Ian

  52. Kit Gerhart Says:

    49,
    Toyota’s competition for the Fusion hybrid is Camry hybrid, not Prius. The Prius is smaller, and is a liftback. Ford’s closest competition is C Max, which should do well.

  53. T. Bejma Says:

    #43

    How do you figure GM (or even Chrysler) are on the verge of collapse? GM has $38Billion in the bank, stock price up 25% this year, pension obligations being reduced, margins rising and they are putting out some of the best (and well received) products in the industry (ATS vs. BMW 3 for instance)…

  54. Kit Gerhart Says:

    Today, on NPR, I heard a little more about the Hyundai gas mileage thing. It turned out that the EPA had received an abnormally large number of complaints about Elantras underperforming the ratings, so the EPA tested the car. They also tested some other Hyundais and KIA’s. All of them fell short of their original ratings. The guy on the radio, named Hirsch, said the only other times the EPA had tested vehicles and found discrepancies were with a Dodge truck years ago, and a BMW more recently.

  55. Bob in Atlanta Says:

    #25 W L: Unfortunately, so do elections.

  56. HtG Says:

    54 It’s hard not to think that Kravchik’s reputation will take a hit off this 40mpg thing. But I’ve also read that there were some rules interpretation issues at Hyundai’s labs in MI.

  57. Kit Gerhart Says:

    I think the EPA should test all of the cars, using actual production models. Yeah, it might cost us a couple cents a year in taxes, but the cars could be a few cents cheaper because of the money the manufacturers save by not doing the testing.

  58. Jon M Says:

    Very interesting insight on VW, John. A problem I perceive in academia is a tenured, too out of touch faculty that has lost sight of what really happens in business. A company as large as VW can make the most of decentralization (obviously in this case) because they’re basically individually operated. I would say this perhaps most effective when a company has multiple brands serving different markets—as VW does. That’s why I say you go to college to get a piece of paper, but you go to work to learn how it’s really done—regardless of what “it” is.

  59. pedro fernandez Says:

    Kit why not make the manufacturers go through the test and have them pay for it in order to get EPA certification and this way we know the tests are accurate.

  60. Steve Ashley Says:

    There are two types of ugly in this world, 1.ugly and 2. BUTT UGLY!!! The ’70s Datsun F10 comes to mind. Toyota needs to scrape the current Prius styling and START OVER!
    Regards,
    Steve Ashley

  61. Kit Gerhart Says:

    If they “start over” with the styling of Prius, if you are talking about its basic shape, you will ruin the car. The whole point of the Prius is exceptional fuel economy, and the aero shape is part of what enables that exceptional fuel economy.

  62. pedro fernandez Says:

    People have “accepted” the look of the Prius, because they realize it’s what’s inside that counts, never heard anyone tell me they would not buy it because the way it looks. Bottom line: saves gas and there is little, if any, compromise.