Competitive Connection

November 5, 2007

A look at the competition
Chrysler’s challenges

Question to David Cole, who is the expert's expert; He's the chairman of the Center for Automotive Research: Does this new agreement give Chrysler what it needs to compete in today's world?

"I don't think so," he said. Not that it wasn't absolutely essential, he added. "They had to have this agreement — they had to get their labor costs under control. They face roughly a $25- to $30-an-hour cost disadvantage with their foreign competitors who are building cars in the United States."

But this deal isn't enough by itself to make Chrysler competitive, he said; they need a merger with a foreign partner. "They are now almost exclusively a North American company," — only 4 to 5 percent of their business is elsewhere.--Source: Metro Times, October 31, 2007

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What others are saying . . .
Protecting brand value

The tight supply of Enclaves is no accident. GM is keeping a tight rein on production of the Enclave in an effort to avoid past mistakes that forced it to offer discounts and cheapened the image of the company's brands.

"We want to keep [the Enclave] hot," says GM Vice Chairman Robert Lutz. "Nothing destroys the value of a new product faster than over producing."

In the past, when GM had hot models, it usually built as many as it could, and almost always ended up with lots filled with unsold vehicles. For example, the Chevy HHR sold briskly at first, often at full sticker price. But after cranking up production and offering discounts to boost sales, GM had a glut. Fifteen months after the HHR was introduced, Chevy dealers had enough in stock to last almost five months. Since then, GM has had to continue discounting and dump thousands of HHRs into rental fleets, which eroded the margin on the car, and badly watered down its cachet.

But GM's handling of the boldly styled Enclave is one of the first signs any of the Big Three is truly changing its ways.

Meticulously controlling supply takes a page out of the playbook used by many of GM's more profitable foreign rivals, said Earl Hesterberg, chief executive of Group 1 Automotive Inc. a dealership chain based in Houston. Both Toyota and Honda ratchet production levels up or down to stay in line with demand and minimize the need for discounting.—Source: The Wall Street Journal, October 31, 2007

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What others are saying . . .
Who's No. 1? Who cares.

GM's 10,000-vehicle lead over Toyota is paper thin, and focusing on sales leadership could distract it from what really matters: getting back to making the best vehicles, not the most.

Either company could be No. 1 at the end of the year, and who's on top is immaterial compared with who's best, and who's getting better.

If GM hangs onto No. 1 this year, it will be thanks to impressive growth in new markets like China and India, its decision to launch the Chevrolet brand in Europe and a number of other strategic moves it laid the groundwork for years ago.

GM is up against a throng of strong competitors in North America, and it earned buyers' skepticism with the cars it built in the '80s and '90s.

But the vehicles it has introduced lately – the Saturn Aura and Outlook, Buick Enclave and Cadillac CTS, for instance – are good enough to earn a test drive from anyone. They came from a new mind-set at GM: that each new vehicle the company introduces should be the best in its class when it goes on sale.

That's the key to making money on the vehicles you sell, rather than simply selling more than the next guy.—Source: Detroit Free Press, October 28, 2007

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Then and Now
A look at the Honda Accord

It's taken 32 years, but the rest of the auto industry has caught up with -- and in some respects, passed -- the Honda Accord.

The Accord has been the benchmark midsize sedan since it debuted as a 1976 model. It was a stylish, sporty and reliable midsize sedan in a sea of boring Dad-mobiles. It was fuel efficient and sensible, more fun and better-looking than a Camry and light-years ahead of anything from Ford or GM.

The all-new 2008 Accord isn't a bad car, but it's no longer the one car you should consider before buying anything else in its class. It's fallen back to the pack. And not the front of the pack, for a number of reasons that include some surprising and troubling interior fit and quality flaws.

Part of the Accord's recipe for success is in its status as a thoroughly mainstream car that nonetheless felt a little daring. But the mainstream has gotten more interesting, as staid models like the Camry and Malibu have added visual va va voom, and the Accord has lost its sporty edge.—Source: Detroit Free Press, October 25, 2007

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A look at the competition
Ford’s tentative agreement

The tentative agreement between Ford and the United Auto Workers departs in significant ways from the union's deals with General Motors and Chrysler, positioning Ford to close the cost gap with foreign rivals and make the Blue Oval competitive again.

In exchange for increased investment in new cars, trucks and Ford's manufacturing operations, Ford would fund an independent trust for retiree health care with $6.9 billion in cash, a smaller percentage of cash than GM or Chrysler are putting into similar trusts.

Ford will invest the cash it would have paid into the trust, known as a voluntary employees' beneficiary association, or VEBA, in its U.S. assembly plants. Factories that do not already have flexible body shops will get them, making Ford a far more nimble manufacturer than it is today. The cash also will be used to upgrade equipment in older facilities.

Ford and the UAW agreed that 20 percent of the automaker's hourly work force would be second-tier workers -- meaning, effectively, that virtually all new hires, no matter what their job, would be paid the lower wage-and-benefit package until the 20 percent cap is reached.

In another departure from the GM pattern, bargainers also agreed to stiffer rules for the UAW-Ford "jobs bank," called "GEN," which essentially pays idled workers not to work. Should the contract be ratified, workers would be limited to one year in the jobs bank and be given one opportunity to take a new job.

"This is exactly what Ford needed," Wall Street analyst Bradley Rubin of BNP Paribas said Sunday of the deal. "This will allow them to focus on product. Ford is now much more competitive than GM or Chrysler."—Source: The Detroit News, November 5, 2007

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A look at the competition
Auto analysts say more job reductions are likely

With Chrysler's announcement last week of an additional 12,000 job cuts, the number of jobs to be eliminated from U.S. and Canadian automakers and their former parts arms in the second half of this decade has grown to 150,000 -- and counting.

With buyouts or early retirement offers expected at all three Detroit automakers in the wake of new UAW contracts that allow new hires to get less in pay or benefits, the number is sure to grow soon.

And in the future, as the American automakers face competition from more and more rivals from low-cost countries, analysts say, more painful cuts will almost certainly follow.

"It's hard to say the worst is over for the industry because we're looking at a moving target and it's moving down, not up," said George Magliano, president of consultancy Global Insight.

Erich Merkle, analyst and chief forecaster at IRN Inc., a Grand Rapids-based automotive consulting firm, agreed the domestic auto industry hasn't reached the bottom yet.

"In terms of pain, I don't have a solid number," Merkle said, "but in my opinion, they're still working around the edges."—Source: The Detroit Free Press, November 5, 2007
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