Posted by: Ian Rowley on July 18
With the October launch of Tata's 100,000 rupee (about $2,400) Nano getting closer, expect the hype surrounding the world's cheapest car to soon revisit January levels. Back then, the Nano's debut in Delhi grabbed more headlines than any car at the North America International Auto Show in Detroit held the same month.
Still, one discussion Tata will probably want to avoid is how much the cheap car will cost to build. In recent weeks a slew of stories coming out of India suggest that costs are rising sharply. On July 7, Automotive News reported that Tata is (like all automakers) struggling with rising steel prices, which rose by about half in the last year. One possibility is that Tata Motors might receive discounts on the steel it buys from sibling company Tata Steel, although that sounds suspiciously like robbing Peter to pay Paul.
Meanwhile, in an interesting twist on cost cutting, on July 3, India’s Economic Times reported that India's carmakers are cutting back on ad spends to offset rising input costs and warned that the Nano may be "launched without much fanfare." Tata says that suggestions it is slashing the Nano ad budget are just speculation.
What isn’t speculation is that the new factory where the Nano will be built is costing more than hoped after flooding at the site during the rainy season. Tata managing director Ravi Kant told reporters on June 28 that the price of the plant had risen to 20 billion rupees ($470 million). That’s 18% higher than the projection back in January.
Here in Japan, where Suzuki (the biggest automaker in India) and Nissan (which is planning a cheap car of its own) are watching events carefully, local Japanese media also noted that trial runs at the plant are slated to begin either this month or next. That doesn't leave much time to iron out any glitches ahead of an October launch. "At least half a year will be needed after the factory is completed (for production to get on track)," an anonymous official from one Japanese manufacturer told the Nihon Keizai newspaper.
Posted by: David Welch on July 17
Here’s something that’s long overdue. The Associated Press today reports that General Motors is cutting back spending on NASCAR. It’s about time. Here’s a company in crisis that can’t afford enough advertising for its bloated family of eight brands, and they have been blowing more than $100 million a year on NASCAR.
Before I explain why I think GM has put too much into NASCAR, let me admit my bias. I hate NASCAR. While I can get into watching everything from Rugby Union and the NFL to golf and women’s tennis, I just can’t get into NASCAR. (As an aside, I can get into Le Mans series races) But as motor sports go, NASCAR races are the snooziest. The cars are slow and bumbling. The circuit strictly legislates body dimensions, chassis engineering and engine size so you don’t get new technology on the track. The cars still have carburetors and only recently got rid of leaded fuel! It’s yesteryear’s race cars running around in circles. A Luddite’s paradise. For more on the limits of NASCAR as a marketing tool, go to www.autoextremist.com and read Peter DeLorenzo’s Fumes column.
But my sports preferences aren’t the ones that matter here. For the Big Three, NASCAR speaks to the working class white guys who already love their trucks and suvs. It preaches to the choir. To the people on the coasts who drive Japanese and European cars, it affirms the red neck, Midwestern and unsophisticated image that most American brands carry. This will enrage some people. But it’s a commonly-held view among the cadre of consumers that don't like American cars. I get their email and letters all the time. Foreign car owners trick out their Civics, fawn over cars like the BMW M3 and Audi S4 and watch Formula 1 and Le Mans series races. They think NASCAR is about as hip as Conway Twitty’s Greatest Hits.
Add in the fact that the coolest cars Detroit can come up with (save the new Cadillac CTS) are a retro-styled Mustang, a Dodge Challenger that’s a dead knock off of the car from the ‘60s and a Chevy Camaro that again reaches back to its muscle car roots, and the old school image is complete. To the sophisticated, technology-savvy buyer who left American brands years ago, NASCAR sponsorships and nouveau muscle cars affirm what they have long thought. These companies are stuck in the past.
GM is making the right move to pull back on NASCAR. The problem is that they’re doing it too late. GM needs to save money. It would have been better if they scaled back their stock car efforts year ago and put the money toward something that reached a different kind of buyer. Now it’s just a survival move.
Posted by: David Kiley on July 16
I did not attend the GM press conference as my colleague David Welch did. But I was sruck by two soundbites I heard from CEO G. Richard Wagoner Jr.
In one, he said, the cost cutting and borrowing moves were about "winning, not surviving." In another soundbite, I heard him say the company was undertaking these moves--white collar cuts, suspension of medical benefits for white-collar retirees beyond age 65, suspension of dividend, asset sales--"to insure our survival."
He sounds like a Presidential candidate today trying to comment on an event; like when Barack Obama said he supported the Washington DC handgun restriction, as well as the Supreme Court ruling that deemed it illegal. Or when John McCain said he was against the Bush tax cuts, until the GOP political base (re: Grover Norquist) told him he might want to rethink that position if he wanted their money and support. Now, he's in favor of the cuts.
GM is walking a tricky line. Words like "insure our survival" can put customers off, not to mention investors. Just when GM needs consumers to notice its better-than-ever designs and quality, it has to follow the sales message with..."if we are still around." I wonder if a PR person got into Wagoner's ear to tell him to rephrase.
Posted by: David Welch on July 14
The U.S. auto industry is deep in the throes of a massive restructuring. General Motors Chairman and CEO Rick Wagoner will tell the next chapter this morning. GM won’t divulge details, but several company sources say that Wagoner will announce several cost-cutting moves as well as a few ways GM can conserve or raise more cash. One big theme: Wagoner will make the case that GM has enough cash to stave off bankruptcy even under pretty dire circumstances. GM needs to stay flush until around 2010, when a recently-inked union contract will save the company billions in cash a year. By then, a deal to set up a union-led healthcare fund would save GM more than $4 billion a year. Lower wages will also save billions.
GM insiders say that, as of Monday evening, the company had not finalized the details of the announcement. But GM’s cash position will be a key component. GM had $24 billion at the end of March, down $6 billion since last fall. Since March, truck and suv sales have cratered, burning even more cash. Management has discussed selling off some assets and perhaps even cutting its dividend, which costs $570 million a year, to conserve cash. GM has already sold off many assets, but the company has been trying to sell its shuttered Oklahoma City and Doraville, Ga., plants. There are a few other assets that could bring some cash. The company could also issue more equity or convertible debt.
White-collar staff cuts are the next shoe to drop. GM already bought out 34,500 union factory workers since 2005 and announced another 19,000 blue-collar buyouts this year. Now, say inside sources, Wagoner will take an ax to the salaried staff. The company may announce targets for salaried staff reductions. There will be buyout packages and perhaps even some layoffs. Cutting benefits and executive pay has also been discussed.
One source said that GM will assure the media and investment community that the cuts will be made in areas like truck engineering where the business is in decline. But advanced-technology development and car engineering still need plenty of people. So the company will try to keep manpower in those offices.
It makes sense. Over the past few years, GM has gone through its global engineering ranks and slashed redundant car-development operations. Instead of having teams in, say, Europe, the U.S. and Asia all developing different small cars, one team develops one globally. GM’s German-based Opel unit develops compact cars, GM-Daewoo heads up engineering for subcompacts, the Australian Holden business takes point on developing rear-wheel drive cars like the future Chevy Camaro and the Warren, Michigan engineering center takes lead on trucks and large suvs. Since expensive gasoline has trucks and big rear-drive sedans on the wane, American and Australian engineers may be nervous. GM may just be realigning its business to pay fewer American engineers to do work on its cars. One bright spot: Advanced technologies like hybrids, electric drive and vehicles like the Chevy Volt will be done in the U.S. So those people will have some job security.
There may also be a hint of future production cuts. GM has already announced plans to close plants or cut shifts at several truck plants. But more may eventually be on the way. The bottom line is that Wagoner is trying to show Wall Street that he has a plan to get through a couple of thorny years until his deals with the union bear fruit. We’ll see what details he has.
Posted by: David Kiley on July 14
I don't want to say Ford is turning over the couch cushions looking for cash to see it through the Recession that former Senator Phil Gramm says in out heads...But the automaker is suing the IRS to try and get $445 million for interest on overpayment of income taxes.
How far back has Ford been looking for loose change? The overpayments occurred in 1983-1989, 1992 and 1994, according to the lawsuit. Ford filed in Detroit’s U.S. District Court last week. Companies pay the IRS taxes ahead of earnings, with overpayments returned. Ford says the dispute centers on when its tax deposits began to accrue interest all those years ago.
Ford has been losing money for several years, and now says it won't turn a profit until 2010 at the earliest. Meantime, the U.S. government is in deep deficit and debt, as well. Perhaps both Ford and Uncle Sam could ask Toyota for a loan.
