Posted by KIM KORTH
on
9/2/2010 3:19 PM
Keeping with the relentless negative economic mood of the last few weeks, most OEM sales numbers for August were released yesterday and the headlines trumpeted how far off their sales were from a year ago. This should not come as a surprise as the sales rate in August of 2009 was over 14 million units due to the Cash for Clunkers program. General Motors was down 25%, Ford was off 11%, but Chrysler managed a year over year gain of 7%. (Chrysler did not do very well during the Cash for Clunkers program last year.) The annualized sales rate for 2010, however, improved modestly to 11.6 million units which is in line to support IRN’s current 2010 production forecast. So is this just typical negative media hype or should industry participants be worried about a downturn in sales and production? The answer lies somewhere in between.
It is clear that dealer traffic slowed down in August. There could be a myriad of reasons for this but consumers’ continued concern about the economy has to be at the top of the list. Retail sales also slowed down, the housing market tanked, and unemployment numbers remain astronomically high. Until there is some degree of stabilization and hopefully improvement in these indicators, auto sales are going to remain modest. On the positive side of the equation, the OEMs appear to have gotten religion in terms of incentives and they seem unwilling to sacrifice profitability for volume. We anticipate the use of incentives will increase if sales remain stalled but we believe they will not be so high as to significantly damage the ultimate profitability of the sale.
While it was viewed as a negative in many media reports, we were encouraged to see fleet sales return to more normal levels in August. Sales to fleets were estimated at 20% of volume vs. 15% in July. While these sales are obviously not as profitable as retail sales, they are an important part of sales stability and a 20% level going forward would be a healthy sign. Many fleets dramatically cut back on purchases in 2009, exacerbating the negative sales levels. They have a bit of “pipeline fill” that should help bolster sales over the next six months.
So what is a prudent planning approach for the remainder of this year and the outlook for 2011? We see no reason to hit the panic button yet. Worst case, sales levels should stay near the 11.5 to 11.8 level, something that will allow production to remain at current levels. With very rare exception, vehicle inventories are not out of line so production needs to continue to support this level of sales. What may be at risk is a steady increase in sales and production. It is possible that will be delayed by a quarter or two as people wait to see if economic trends begin to improve. Our guess is that won’t happen until the dust settles after the November election. So assuming a “steady state” for the next 3-6 months is a realistic and conservative outlook.
Posted by JULIE CRIDLER
on
9/1/2010 4:59 PM
There is no doubt that alternative powertrain vehicles are changing the landscape of the auto industry as we once knew it. The window sticker, one of the industry “staples” that has gone largely unchanged for some 30 years, has recently garnered new attention. The Environmental Protection Agency in conjunction with the National Highway Traffic Safety Administration is proposing a new format for window stickers to more adequately portray the capabilities of electric and hybrid vehicles. The old miles-per-gallon metric is beginning to lose its meaning as vehicles with alternative powertrains become more common.
There are two proposed formats – one which is an evolution of the current window sticker and another that gives vehicles a letter grade. The latter is causing some uproar in the industry. The automakers are opposed to the proposed letter grading system, as it would apply to the full range of models for comparison purposes, rather than looking at small car vs. small car, for example. In this scenario it is easy to see how larger vehicles have a disadvantage in the grading curve. In fact, the proposed rulemaking includes some hypothetical ratings for 2010 models, and many do not fare well. The Tesla Roadster, given its zero emissions status, would rate in the A category, while many current top-selling vehicles would only rate in the C/C- range. Originally, the sticker for electric vehicles was to contain information on upstream emissions (electricity produced by power plants to charge the vehicle) but that will instead be tracked on a separate EPA website.
The new stickers will not be in place until the 2012 model year, but the battle begins now, with a 60-day window where the agencies will take comments on the proposals. One thing is for sure, this should end up being a pretty heated discussion.
Posted by MELISSA ANDERSON
on
8/31/2010 10:51 AM
The Wall Street Journal had an interesting article last week on the ways Ford is using wireless technology on the assembly line to customize vehicles (“Ford Uses Wi-Fi to Customize Cars,” WSJ, 8/26/10 [sub]). The wi-fi technology is available because Ford’s SYNC system enables passengers to use laptop computers in the car, but it was realized that the technology could serve an ancillary purpose of allowing the company to efficiently program radio and phone systems appropriately for the end destination (e.g. US vs. Canada). Looking ahead, Ford and its dealers could use wi-fi to customize certain vehicle characteristics for individual buyers. This would serve both the growing consumer trend of personalization and the automakers’ drive toward reducing product line complexity. It’s very brave of Ford to be going down that road at a time when wariness of electronics in auto applications is high. Is the skepticism and concern at its peak?...
I hope so. There is no question that the transportation field has to continue to embrace electronics and computing technology. The safety stakes are higher than with your iPhone or Android, but consumers need to be realistic about the level of individual danger. Our expectation is that Ford will test the approach thoroughly in the low-risk infotainment applications and develop appropriate fail-safe mechanisms before using wireless technology to adjust powertrain characteristics, etc. Americans need to get a grip and accept the fact that there is a trade-off between cost and safety, and most of us are not willing to pay what it would take to make every vehicle truly fool-proof. I hope that electronics continue to advance in industry; the benefits vastly outweigh the risks, in my view
Posted by MELISSA ANDERSON
on
8/27/2010 4:59 PM
Former US Senator Bob Dole took some ribbing (mostly good-natured) for a tendency to refer to himself in the third person, and appeared on Saturday Night Live after his loss in the presidential election in 1996 to comfort the actor who had parodied him, Norm MacDonald. "Bob Dole knows how much it meant for you to play me on the show the next four years. And Bob Dole feels your pain," he said in the opening skit of Episode 6, Season 22. For some reason, this popped into my mind when I set out to make today's blog post a compendium of links to recent news articles quoting IRN.  On the assumption that this is not far too self-referential but rather an additional way for you to keep posted on what we are thinking, here is a round-up of recent IRN news bytes in the automotive and business press. 
“Suppliers rewrite contracts to protect against raw material price surges,” Automotive News, August 26, 2010
“Economy will improve, one day,” Detroit Free Press, August 26, 2010
“Why Opel matters,” Automotive News, August 25, 2010
“Lear to produce chargers, parts for Chevy Volt,” Detroit Free Press, August 17, 2010
“GM’s ‘steely’ Dan booted Rumsfeld,” New York Post, August 13, 2010
Posted by KIM KORTH
on
8/26/2010 8:18 AM
With a 27% drop in housing sales this week and lower than expected durable goods purchases in July, suddenly everyone is talking about the infamous "double dip" recession. The stock market has been schizophrenic the last two months but the trend has definitely been steadily downward. And retail sales have been lower than expected the last two months. So how likely are we to fall back into recession? The odds are a lot higher than just a month ago.
The problem is, the economy seems to be caught in a loop of negative self fulfillment. Companies are hesitant to start hiring again until they see consumers spending more consistently. Consumers are reluctant to spend because they either don't have jobs or are worried about unemployment. So we continue to cycle through the same pattern and the economic recovery remains incredibly slow.
In the near term, the media is back on a relentless focus on the negative side of any new numbers so everyone begins to believe that things are worse than they probably really are. The problem is, perception is more important than reality and if people think things are still negative, they are likely to remain extremely cautious in their spending and hiring practices, thus significantly slowing what should be a much stronger recovery.
IRN still believes that a double dip recession is still unlikely, but the next few quarters of automotive sales are likely to remain relatively flat and relatively lumpy.
Posted by JULIE CRIDLER
on
8/24/2010 6:34 PM
The Consumer Electronics Association recently completed a study called Electric Vehicles: The Future of Driving. The study yields some interesting, and somewhat promising, conclusions relative to consumer acceptance of electric vehicles.
The online survey was conducted over a brief period between May and June of this year, and according to the results, 40% of Americans are likely to test drive an electric vehicle. Also, 42% said they would be likely to follow news reports about EVs. A bit surprising, however, was the fact that only 25% of the survey population said they were familiar with EVs. With all of the media focus on hybrids and plug-in cars these days, it is difficult to believe that one.
Some of the concerns expressed by the survey population mirror what we’ve been talking about all along in terms of the obstacles that the electric vehicle segment must overcome. From the perspective of the survey population, the disadvantages of EVs include: running out of battery power on the road (71%); not being able to recharge when needed (66%); and limited driving range (59%).
For the first time ever, the International Consumer Electronics Show, to be held in January 2011, will feature an extensive lineup of electric vehicles – both low-speed and highway-speed models – displayed by a range of car manufacturers. That is definitely a sign of the electric vehicle times.
Posted by TRACY SCHNEITER
on
8/23/2010 4:49 PM
Nissan recently announced very modest price increases for some of its models. One in particular caught my attention – the Maxima. Nice enough vehicle but perhaps its usefulness in the ever-changing automotive marketplace is close to end. Face it, the Maxima is pretty much viewed as either an upscale, decked-out Nissan Altima or a budget-minded person’s Infiniti. After all, Maxima’s SV trim level starts at $33,530 while the Infiniti G37 sedan starts at a similar $33,250. From both a marketing and manufacturing standpoint, it seems that Nissan would greatly benefit by “retiring” the Maxima nameplate. Here's why...
Loyal buyers should be willing to move in one of two directions. For those happy with the Nissan brand, they should be more than satisfied with all the options available on a fully loaded Altima 3.5 SR model which prices out around $31,000. Maxima buyers wanting to shift to the luxury market could be happy with the G37. This would also allow Nissan to maximize manufacturing resources and flexibility by reaching a better economy of scale (not to mention the savings in future development costs that could be targeted to more critical vehicle segments). What do you think?
Posted by MELISSA ANDERSON
on
8/20/2010 10:58 AM
If you missed the OESA Breakfast Briefing last December, here is an opportunity to fill a gap in your knowledge of the industry context. Attend the SAA Networking Breakfast on Wednesday, August 25th - "State of Raw Material Costs and Strategies on How to Manage." Kim will re-cap the findings of the 2010 IRN Material Pricing Survey and discuss supplier negotiation strategies, and then a panel featuring a Tier 1 supplier and two of the largest global material providers, ArcelorMittal and PolyOne, will continue the discussion. The event will be held at the AIAG offices in Southfield from 7:30 to 10:30 am. To register...
To register, go to www.SAAautoleaders.org or call 248-804-6433. The cost is $49 for SAA members and $89 for non-members. The event is a cooperative activity of the Society of Automotive Analysts and the Automotive Industry Action Group. Panel speakers scheduled to participate are: John Erwin, Vice President of Purchasing, SRG Global Inc.; Gregg McDonald, Global Automotive Marketing Director, PolyOne Corp.; and P.K. Rastogi, Manager, Global Automotive Group, ArcelorMittal.
Posted by JULIE CRIDLER
on
8/18/2010 2:42 PM
For some time there has been a fair degree of doubt over whether the Aptera 2e will ever make it into production. For some, the doubt began with an initial glance at the vehicle, which is so far afield of a traditional automobile that it could be daunting for many buyers. Nonetheless, Aptera has managed to stick around for nearly four years thus far. But, are their days numbered?
Aptera originally planned to use the XPrize Automotive competition as a forum for validating the concept and design of the Aptera 2e. That, however, did not go so well. For example, one test required competitors to change lanes at a minimum speed of 45 mph (on a straight pass) with no throttle or brakes to control the vehicle. For Aptera, it took 40 tries to complete the test satisfactorily – and on one attempt, a door even popped open. In some of the other tests, the 2e squeaked by at best.
Despite lackluster performance in the trials, Aptera remained a contender in the competition, and put on a smile about the vehicle's launch prospects. There is evidence, however, that their prospects appear to be dimming. The company is still searching for additional funding in order to be able to bring the car to production. Any money from XPrize will not even be a drop in the bucket, and there is uncertainty about the likelihood of the DOE financing that Aptera is hoping for. There are rumblings in the blogs and media that the launch date, which went from 2010 to 2011, will very likely be pushed to 2012. The reservations section of Aptera’s website asks for deposits, but promises only that the company is working hard to make the vehicle available as soon as possible. This series of unfortunate missteps and happenings will no doubt be very damaging to the sales prospects of a vehicle that was already going to require a leap of faith for buyers to accept. Stay tuned.
Posted by KIM KORTH
on
8/17/2010 4:20 PM
In the August 16th 2010 Wall Street Journal, there was an opinion piece titled "The End of American Optimism" by Mortimer Zuckerman, chairman and editor of U.S. News & World Report. The gist of the article was that the United States has entered a period of much slower growth than we have experienced since WWII and that, for the first time, Americans are beginning to question whether their children will be better off than their parents. While I fully agree that the current downturn is more severe than many people initially thought and that we are still several years away from a return to "normal" employment levels, to suggest that the US is now headed to a European form of cynicism and a belief that the United States' best years are behind them demonstrates a fundamental misunderstanding of the core American psyche.
Mr. Zuckerman filled his article with various statistics that, at face value, seem to confirm that the US is screwed. But if you look closer, the validity of the statistics is in the eye of the beholder. Yes, for example, personal debt reached unacceptably high levels in the last decade and we are still suffering some degree of overhang from those excesses. But to state that it will take 5 years to see real improvement and, by implication, forever to get back to "pre bubble" levels, is more an indication of Mr. Zuckerman's negative world view than it is a data-based projection. Given the fact that he is responsible for a continuously struggling magazine, I guess I can't blame him for being depressed.
So what is a fair depiction of the current state of the economy and the United States’ likely fortunes over the next 10-20 years?
• People ridiculously overspent during the 2000-2008 period and we are highly unlikely to ever go back to that craziness again. But we will return to normal levels of spending, something we are already beginning to see.
• Americans by nature are an optimistic people (thank God) and that optimism will eventually return. As John Kenneth Galbraith put it when talking about the impact of the Great Depression, "Whenever Americans get hit by an economic cataclysm, they vow they have learned their lesson and frugality will rule in the future. It normally takes a generation for them to get stupid again."
• The high end of the economy probably has been moderated for the foreseeable future. That is why IRN believes NA production north of 15 million units is unlikely.
• The Baby Boomer generation (of which Mr. Zuckerman is a card-carrying member) is the most self absorbed and narcissistic in history. It is all about them and if their personal future is diminished, so must be the entire country's.
Don't get me wrong, the current environment is extremely challenging and many people negatively impacted may never recover. But Americans are a phenomenally creative and resilient people and I am not yet ready to bet against their positive future.
Posted by MELISSA ANDERSON
on
8/16/2010 4:06 PM
A recent poll on our site asked about a report from Neil Barofsky, special inspector general for the Troubled Assets Relief Program. The question read: “The TARP auditor says that the accelerated dealer closings by GM and Chrysler may not have been necessary and were not worth the additional unemployment. Agree?” The poll results showed an interesting spread: 41% said yes, 31% said no, and 28% opted for the Facebook generation’s choice, “It’s complicated.” The article covering this story in the “local” paper, the Washington Post, spawned a similar diversity of viewpoints (“TARP auditor criticizes Obama Administration’s push to close auto dealerships,” 7/19/10) and many, many opinions.
Call me too wedded to shades of gray, but my instinct is usually on the side of, “It’s complicated, but give me some hours to analyze the data and I might share my opinion with you afterwards.” I think it would be interesting to read the full SIGTARP report for starters (that’s Special Inspector General – Troubled Assets Relief Program, www.sigtarp.gov, to you), and at 45 pages in length, that is relatively doable. So I have saved it onto my hard drive for later perusal, although, truth be told, that is a graveyard of good intentions where many other lengthy PDFs have been laid to rest and never seen again. In the meantime, chalk me up in the ‘complicated’ column.
Posted by MELISSA ANDERSON
on
8/13/2010 4:16 PM
Our colleague in Stuttgart, Andy Fein, has completed another survey on the price reduction requests of the German and French automakers. One of the areas that he likes to ask about is how the supplier respondents would characterize the atmosphere of the negotiations. He then groups the words that they use by level of intensity or negativity and arrays them in a pie chart. While this is not a scientific model, it yields a picture that is both familiar and striking to the North American counterparts who have even more years of experience with this dynamic.
The pie segments describing a negative atmosphere total 57%, while those that occur in a more reasonable framework total 36%. In looking at the detail by OEM customer, though, it is not unusual to see both extremes represented. For example, different BMW suppliers describe their interaction as ‘demanding, very hard, unpleasant’ and ‘open, constructive, and solutions-oriented.’ Daimler suppliers range from terms like ‘arrogant’ and ‘brutal’ to ‘Very good atmosphere!’ This suggests that: a) there is still variation by individual and the style in which he/she decides to behave, and b) treatment of suppliers varies based on what you make and how much they need you. You may not have an infinite capacity to influence these dynamics. There’s an element of luck to getting the right personality on the other side of the bargaining table, for example. But it is clear, once again, that anything you can do to differentiate your company and increase the customer’s level of need, reliance, and preference for working with you, is bound to help.
The German-language study is now available. Visit Andy’s website to learn more about Hans-Andreas Fein & Associates, and order a copy of the report.
Posted by KIM KORTH
on
8/12/2010 5:55 PM
While the jury is not completely in yet, it is looking increasingly likely that Toyota will be cleared of any technical problems regarding their infamous accelerator pedal. While tests are still being conducted on the software/electrical infrastructure of their systems to make sure something has not been missed, it appears that all documented cases of “unintended vehicle acceleration” were either a jammed floor mat (as Toyota claimed from the beginning) or driver error. Do you think Toyota can expect an apology anytime soon from Transportation Secretary Ray LaHood, who said at one point that his advice was “if anybody owns one of these vehicles, stop driving it”?
So, after Toyota’s bulletproof reputation for quality was completely trashed and their Chairman was raked over the coals in front of a Congressional committee, it appears it was a huge media feeding frenzy over nothing. Toyota became another poster child for the irresponsible and heartless corporation that cared more about profits than customer safety. This debacle has cost them billions of dollars and deeply tarnished their brand, and at its core, they appear to be primarily innocent of the charges.
What does this say about our current 24 hour media coverage and our propensity to jump to conclusions before all the facts are in (think Department of Agriculture)? Are there any lessons to be learned from this to help future corporations that will inevitably be caught in the media spotlight? The primary answer is the way Toyota handled this crisis turned out to be more important than the actual facts behind the story. If Toyota had gotten ahead of the story from the beginning as opposed to trying to hide the anecdotal evidence of a problem or demonstrating a media tone deafness that was truly astonishing for a company of its size, this would have been a blip in their corporate history vs. an atomic bomb. While it may be unfair given that the facts now support Toyota’s initial claims of innocence of wrongdoing, Toyota is primarily responsible for this becoming such a huge and damaging event. The primary lesson to be learned from this is that in the current world we live in, perception is more important than reality.
Posted by TRACY SCHNEITER
on
8/11/2010 5:54 PM
The last time the US automotive industry enjoyed regular sales of one million units or more per month was way back in 2007. Remember, that was the year we all prospered with 16+ million sales (or at least we should have!). Even in 2008 the monthly sales average was 1.1 million new vehicles sold – and this was despite the bottom dropping out of the market in the third quarter. Of the seven months thus far in 2010, we’ve had just three months of million-plus vehicle sales, but two of the other months were only about 17,000 units shy of making the mark. Not too bad, all things considered. The million unit level is significant because many suppliers have adjusted their cost structures over the past 12-24 months to be profitable when sales are clicking along at a 12-million annualized pace. But it is important to remember that suppliers do not live by sales alone, either.
Suppliers need to constantly monitor OEMs’ sales performance for indicators of future OEM production plans, import strategies, product funding availability, and more. A great example of this link between sales and supply chain implications is Toyota’s recent decision to speed up the opening of their Mississippi facility. What’s the connection? The Corolla has been doing very well, but Toyota has been meeting demand for the popular model entirely from Japan and Canada since shutting down NUMMI in California this spring. The bad news for Toyota is the foreign exchange impact on profitability, so in order to reduce the number of expensive imports from Japan, it has decided to accelerate the planned return of the Corolla to a US plant by resuming the delayed construction project. For suppliers, the Corolla development could be good or bad, depending on the components you make and your global footprint – did you lose business when the Corolla left? Can you gain business when it comes back? The complexity of the industry means that all kinds of considerations and calculations are occurring. But with sales of at least 12 million cars and trucks this year, it should be easier to figure out how to be a winner.
Posted by JULIE CRIDLER
on
8/10/2010 4:18 PM
I’ve been thinking a lot lately about the new directions the auto industry is taking through the green / alternative movement and how it presents opportunities for unlikely players. Then I heard about the Bio-Bug from GENeco and realized exactly how true that is.
GENeco, a UK company owned by Wessex Water, recently developed a converted Volkswagen Beetle that runs on…are you ready for this? Human waste - more specifically, methane gas that is generated during the sewage treatment process. A process called biogas upgrading separates the carbon dioxide molecules, enabling the biogas to be used as vehicle fuel without affecting the vehicle’s performance. The general manager of GENeco believes the same thing can eventually be done with food waste, thereby utilizing more waste in a sustainable way and reducing the amount that finds its way to landfills.
While the Bio-Bug does sound slightly repulsive, reports say that if you didn’t know the vehicle was powered by human waste, you wouldn’t know it because it performs like any other conventional vehicle. The Bio-Bug is just a concept at the moment, and there are no immediate plans to produce the biogas on a commercial scale. But, what if?
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HOT TOPICS: SUPPLIER STRESS
Posted by MELISSA ANDERSON
on
6/19/2010 8:25:08 AM
The results of IRN's 2010 materials pricing survey show how the environment has changed since our first survey on this subject in 2008. Suppliers have done a great deal to protect themselves in this area, and with good reason. The report covers what suppliers are expecting in pricing trends; whether they are pursuing cost recovery and in what form; how customers are responding; and other topics. It includes many nuances that will help companies evaluate their own activities and provide insight to interested observers on the dynamics of raw material supply. Order your copy of the report for US$99 by sending an email to survey@think-irn.com.
AUTOMOTIVE INTELLIGENCE: SNAPSHOTS
AUTOFUTURES® SUBSCRIBER ALERTS:
Posted by THE AIP TEAM
on
8/26/2010
IRN's North American Industry Results for July 2010 are now available (Aug. 23).
IRN's Q3 July 2010 Product Lifecycle Report (Aug. 5)
IRN has updated its product lifecycle report that is published with each monthly forecast update. You can access this by logging into your AF LIVE account and visiting the WELCOME page. This document titled, Q3 July 2010 Product Launches, shows up under the section titled OTHER DOCUMENTS for your reference.
IRN's Q3 July 2010 Forecast Report (Aug. 4)
The North American monthly forecast report is now available. In addition to the normal SUMMARY Of Changes (shows only the significant adjustments we made), we are also including a COMPLETE List Of Changes (shows every change "by vehicle").
IRN's OEM Assembly Operations Tracking Report (released on Aug. 4, 2010)
IRN has updated its tracking report that lists all North American OEM assembly plants and any scheduled or anticipated plans for downtime or closing. We are always looking for feedback or any plant shutdown updates that you can forward on to us. Please feel free to send either to auto-intelligence@think-irn.com.
The Autofutures® Q3 Forecast (July 2010) is now available. If you are using the web-based Autofutures Live, the data has already been updated. If you are using Autofutures Desktop, run the update to get the most current forecast data installed into your program.
As always, if you have any questions or concerns, feel free to give us a call at (616) 785-5175.
Sincerely,
IRN's Automotive Intelligence Products Team
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