The Automotive Lyceum is devoted to the objective analysis and astute commentary on the global automotive industry. The intent is to present analysis and insight into the pressing issues the industry faces in this highly competitive environment. Discussion will focus on all aspects of the industry including manufacturing, engineering, design, corporate finance, labor, product plans, marketing and finally the economic and regulatory environment. With the severe global economic downturn unfolding, particular consideration is being placed on the imminent challenges that threaten the very survival of the industry.

Latest Articles:

November 11, 2009

• Analysis Chrysler Unveils its Latest Recovery Plan:  On November 4th, the new management team at Chrysler Group LLC conducted an all-day presentation outlining its 5-Year Business Plan (Chrysler LLC Business Homepage) to the public.  The company outlined its marketing strategy and focus for each brand, including its future product plans.  Chrysler updated the status on its cash flow position and business objectives over the next 5-years, including market share and profit-loss goals. However, Chrysler's 5-Year Business Plan is certainly suspect and whether the company can meet the aggressive targets set in 2014 is very questionable.

• October 2009 US and European Auto Sales Report: US automobile sales in October were relatively brisk at a seasonally adjusted rate of 11.2 million vehicles per year.  For most of 2009 the sales rate was under 10 million excluding July and August when the industry benefited from the government's cash-for-clunkers subsidy.  It is encouraging the sales pace quickly recovered from the cash-for-clunkers hangover in September.  More importantly it appears the market has regained a natural upward momentum without artificial stimulation. 

November 3, 2009

• GM Decides Not To Sell Opel to Magna and Sberbank: Yesterday, GM’s Board of Directors decided to terminate the sale of its European division Opel to Canadian parts supplier Magna and Russian partner Sberbank.  In September GM had agreed to sell a majority position in the operations, in exchange for financial support from the German Government.  However, shortly after the agreement was announced, concern was raised by the European Union and some member states with Opel operations over the terms of the funding pledged by Germany.

• Ford 3rd Quarter 2009 Financial Results: Ford announced  pre-tax earnings of $1.1 billion in the 3Q 2009 on revenue of $30.9 billion.  Moreover, the most significant improvement is that Ford stopped the cash burn.  Ford avoided bankruptcy at all cost to prevent the Ford Family from losing control over the company but the road to recovery by gaining parity with post-bankruptcy GM and Chrysler is a must to remain competitive. 

• GM’s Saturn Brand to Close After Penske Deal Abruptly Collapses:  On September 30th it was announced that Penske Automotive Group (PAG) would not finalize a deal to take over GM's Saturn franchise. More importantly, GM’s subsequent decision to shutter the brand is likely in its best interest as it eliminates a potential competitor.  Furthermore, PAG averts what could have been a colossal business mistake.  By not going forward with supplying vehicles to PAG, Renault also does not unintentionally create competition for its partner Nissan in the US.  For all involved, not finalizing the sale of Saturn is the most rational decision and limits future fall out in this uncertain environment. 
  

October 4, 2009

• September 2009 US Auto Sales – The Cash for Clunkers Hangover: As consumer credit remains tight and with unemployment now at 9.8% and underemployment at 17%, a robust recovery in auto sales is not likely.  Cash for Clunkers was a blip but it will have no lasting impact on the US auto industry as the credit markets are more responsible in lending and the economy remains depressed.  My position on the industry has not changed.  Vehicle production will increase but to sustain current market levels.  These are not "Green Shoots" but a recovery to a new normal after the credit driven bubble in auto sales popped.

September 23, 2009

• Tesla Motors – The Tucker for the 21st Century:  Tesla plans to sell 200,000 vehicles a year within the next five years.  It took Toyota 10 years to sell that many Prius vehicle in the US and at a price point well below anything Tesla plans.  Tesla will have to compete with all the electric and hybrid vehicles traditional automakers plan to release over the next few years.  Let us not count the traditional automakers out just yet and be more realistic about the business plans of the upstart automakers such as Tesla.  With the global push by governments across the globe for automakers to produce more fuel efficient vehicles, car companies have plans in place to develop electric and advanced hybrid vehicle that could rain on Tesla's parade.

September 13, 2009

• GM Agrees to Sell Opel to Magna and Sberbank: On Thursday GM announced that auto component supplier Magna International and the Russian bank Sberbank were selected to take over controlling interest in its European operations.   My biggest question is, after Magna failed at gaining control of Chrysler when Daimler sold the business to Cerberus a couple years ago and seeing what happened, why would they want to take over Opel? 

August 19, 2009

• July 2009 US Auto Sales – Can Cash for Clunkers Create Momentum?:  It has been a couple months since The Automotive Lyceum published it last article, right as General Motors (GM) was entering Chapter 11 bankruptcy protection.  In that time there really has not been much to report on.  The intent of this latest article is to focus on the market conditions in the US and try to gauge where the situation is heading.  In summary, the market may be stable but serious growth toward pre-crisis levels may be years away. The doom in the industry might be over but the gloom will certainly persist for the rest of this year and likely into the next.  However, with inventories cleared because of low production and Cash for Clunkers, the manufacturers can build vehicles again but at a much lower rate.

June 16, 2009

• GM Bankruptcy Part III: Why GM Failed: As I wrote in part two in this series of articles on the GM bankruptcy, the reality of GM’s problems are complex and deeply rooted.  Technically, GM failed late last year because it was insolvent.  Furthermore, Brand Management failed to revive the company’s product which was needed right after the crisis in the early 1990s. During that time, nothing has suffered more than the product and the once distinguished brands under the company’s umbrella.  In 2005, GM Vice Chairman Bob Lutz went as far as to publicaly call Buick and Pontiac “damage brands.  I will add to Lutz’s statement that by the time he came on board in 2001, all of the company’s North American brands were either damaged or severely tarnished by years of neglect.

June 6, 2009

• GM Bankruptcy Part II: The Reaction:There is no question that the GM Chapter 11 filing was historic.  Since the filing on June 1st, I have compiled a number of articles commenting on the event.  Much like politics, everyone seems to have their thoughts on why GM failed.  What I have generally found and will present was a perversion of the GM’s problems over the years and in general a complete lack of insight into what lead to the bankruptcy and what the New GM will mean under government ownership. 

June 4, 2009

• GM Bankruptcy Part I: A Bright Future Awaits: On June 1, 2009, GM formally filed for Chapter 11 bankruptcy protection in New York.  I am bullish on New GM emerging from court protection quickly and with the right plan in place.  I am more bullish of the fact GM has a strong leadership team in place that is highly focused on delivering world class product as this is not something GM's culture needs to learn but continue to execute.  More importantly GM's product development portfolio is full of product that will be released to the market in the next 12-18 months.  To be successful in this business the company must have the right product and I believe it does.

May 29, 2009

•  The German Auto Industry: Daimler, Porsche and Opel Struggle:The saga in the auto industry keeps getting richer as the global economic recession unfolds.  There is no doubt that the sharp and sudden contraction in global auto sales since last October has placed a huge strain on the balance sheets of the top tier global auto companies including the German manufacturers. Daimler, Porsche-VW and Opel have had an interesting few months as Daimler needed to raise cash, Porsche turned into a troubled hedge fund and Opel sought a new owner.

May 20, 2009

• 2009 US Auto Sales May Have Reached Bottom - Slow Recovery Expected: Early last March I conducted an analysis of the relationship between fullsize pickup truck sales and new housing units started (See "A Going Concern" – The Global Auto Industry). With three additional months of data now available, the data was reevaluated for potential new insight. Today there is enough evidence to suggest that automobile sales in the US have hit bottom.

 May 9, 2009

• Chrysler LLC in Chapter 11 Bankruptcy Protection – Business Case Analysis: On Thursday April 30th, 2009 Chrysler LLC filed for Chapter 11 bankruptcy protection in New York (Court filing). When all is said and done, this exercise is not about saving Chrysler but saving face for the Obama administration.  If not for the Fiat alliance, Chrysler would have to be liquidated as no other suitable suitors have stepped up to take on the company.  With the Fiat offer out there, the government has to give the appearance it is making an attempt to save jobs and protect the company's retirees.  Chrysler's situation will not change under Fiat and will likely have to close more plants especially if the current market conditions persist or remain relatively depressed.  Fiat also gives the administration a scape goat if the alliance falls a part.

April 27, 2009

• Fiat Should Form an Alliance with GM, Not Chrysler: A GM-Fiat tie-up still holds a lot of promise.  If a deal is agreed upon with Fiat, I am more bullish on this arrangement than the Chrysler-Fiat deal.  Ultimately, I think a full fledge merger or formal alliance between GM-Fiat merger is a likely outcome when the global auto market is finally stabilized. In the end I would like to see Marchionne walk away from Chrysler and cut a deal with GM for their Saturn assets in addition to Opel.  In return GM would take a position in Fiat again.  This will give Fiat true economics of scale and GM's vast technical resources.  I just hope Marchionne wakes up and sees Chrysler is not worth the trouble.  

 April 16, 2009

• Hardball or Backdoor: Fiat CEO Willing to Walk Away From Chrysler Alliance: In an interview this week with a Canadian newspaper Globe and Mail, Fiat CEO Sergio Marchionne said he is ready to abandon plans to form a partnership with Chrysler unless the unions accept substantial labor cost reductions by the end of the month.  It appears the Canadian Autoworkers Union has been reluctant to make concession with the company.

April 15, 2009

• Book Review: Why GM Matters by William J. Holstein:  Why GM Matters – Inside the Race to Transform an American Icon is a fair and refreshing account of the systemic changes that have been made at the company.  Moreover, the relevance of the story is that it reflects the current economic crisis that forever changed the fortunes of the company, sending Wagoner to Washington to ask for federal assistance early last winter.  Holstein even foreshadows his firing by the Obama administration a few weeks ago.

April 6, 2009

• GM and Chrysler Restructuring Plans Not Viable: On March 30^th President Obama’s automotive Task Force released its assessment of GM and Chrysler’s viability plans submitted to the administration last February (See Analysis of GM and Chrysler's February 17th Restructuring Plans).  In December 2008, the outgoing Bush administration set a deadline of March 31, for both GM and Chrysler to restructure and show they can be viable business entities. The five page analysis of GM and Chrysler viability plans conducted by the President’s Task Force were suspect and maybe considered naïve, however, that may have been the point.  I disagreed with how the Task Force came to their conclusion but not their conclusions - both plans do not result in viable companies.

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