Competitive Connection

May 21, 2007

A look at the competition
What Cerberus means to Chrysler
The New York investment firm Cerberus and DCX have set an ambitious goal: to work with the powerful United Auto Workers union to restructure the $18 billion that Detroit's No. 3 automaker estimates it will eventually owe for UAW retiree health-care benefits. Daimler, Chrysler's German parent, was unwilling to shoulder that burden. Many big airlines and steelmakers have chosen to file for Chapter 11 bankruptcy protection to reduce such liabilities.

For Cerberus, the key to making the deal work will be the UAW. Chrysler has estimated internally that Japanese automakers like Toyota Motor Corp. enjoy a labor-cost advantage of as much as $30 an hour, once all benefits and job-security provisions are taken into account. More than half of that gap is from benefits related to retirees, such as health care, pensions and group life insurance.

Chrysler estimates that without a fundamental change in its UAW contract, the gap will rise to $45 an hour by 2009 – an average labor cost of $94.77 an hour for Chrysler, including benefits, versus an estimated $50.50 an hour at Toyota, Nissan and Honda, which have far fewer U.S. retirees and don't pay pensions.--Source: The Wall Street Journal, May 15, 2007

A look at the competition
Toyota’s financial performance
Toyota’s modest earnings increase for the January-March quarter shows how the challenges inherent with rapid growth have begun to weigh on the automaker's bottom line.

Toyota said higher raw-material costs and sluggish demand in the U.S. were among factors that led to 8.9 percent growth in the fiscal fourth quarter. The car maker also had to invest heavily in quality control, as more manufacturing capacity led to more recalls in the U.S. Toyota net profit rose to $3.7 billion. Toyota sold 714,000 vehicles in North America in the fiscal fourth quarter, a 6.9 percent increase from a year earlier.

But not all models have been selling briskly. Sales of the redesigned Tundra pickup truck, an important model for Toyota as it provides higher margins than compacts such as the Corolla, have been slow despite large discounts.

Critics also say Toyota is sacrificing some of its vaunted quality in its rush to bring new products to market. In the past year, Toyota has recalled hundreds of thousands of vehicles. The company has also decided to delay introductions of some models in the U.S. by as many as six months so engineers can conduct more quality checks.

Toyota, the world's most profitable automaker, could also face bigger challenges as the demand for cars shifts away from the U.S. – where Toyota has about 17 percent of the market – to emerging markets such as China and India. Rivals such as GM and Volkswagen have already established themselves in these nations.—Source: The Wall Street Journal, May 10, 2007

Then and Now
GM works with Chrysler & BMW on hybrids
General Motors organized the first test-drive of its 2008 Chevrolet Tahoe and GMC Yukon two-mode hybrids. These GM SUVs, due to go on sale by year's end, are the fruit of an unprecedented venture also involving BMW and DaimlerChrysler to take hybrid technology to the next level. The three companies combined have invested $1 billion into the joint hybrid development.

Back in 2004, GM had already begun work on two-mode hybrid technology when it invited other automakers to collaborate. BMW and DaimlerChrysler signed up, recognizing the significance of developing hybrid technology that could attain good fuel economy both on highways and in city traffic.

Aside from Toyota, no single carmaker has the resources — both monetary and human brainpower — to go it alone.

It is this kind of venture that will find technological solutions to reduce or even eliminate environmentally destructive emissions and reduce or even eliminate the world's dependence on petroleum for fuel — ultimately saving the planet. It's been a great effort by all three companies to make this initiative work, and bravo to GM for taking the lead. The technology created here will be used to bring hybrids into the mainstream.—Source: Edmunds.com, May 14, 2007

A look at the competition
Toyota and Honda lag on E85
Despite their eco-friendly image, industry sales juggernauts such as Toyota and Honda are trailing the E85 trend, a leading ethanol advocate claims.

“They’re way behind the curve – way behind,” says Bob Dinneen, president of the Washington-based Renewable Fuels Assn., an ethanol industry trade association. “They have invested a lot in (hybrid-electric vehicle) technology and they’ve ignored the flex-fuel technology.”

Spokesmen for Honda and Toyota bristle at the suggestion of foot-dragging. Instead, they describe their approach to the E85 market as cautious.

“We know how to do flex-fuel vehicles and are prepared to do so when we have a higher level of confidence that E85 is going to be accepted by (U.S.) consumers,” says Edward B. Cohen, vice president-government and industry relations at Honda.

 “I give all the credit in the world to GM,” Dinneen adds, referring to the auto maker’s ongoing outreach program aimed at owners of flex-fuel vehicles.—Source: wardsauto.com, May 10, 2007