The CarGurus Blog

2010 Opel Astra

GM has reneged on a deal that was almost closed, choosing not to sell Opel/Vauxhall and leaving the Germans angry. The latest chapter in this complicated story came after a Tuesday GM board meeting in Detroit that put forward the new corporate strategy. The company has pledged to pay back about €1.1 billion in bridge loans from German sources.

GM’s move is a setback for Magna, the prospective buyer, and the German government, which reacted predictably, and the German unions, which have offered to strike. As we last reported, the decision comes on the heels of European Union officials questioning the deal and workers in Opel factories in other countries protesting possible job cuts.

The decision came about because the company’s fortunes have been recently improving. European sales across the board are better, and GM’s U.S. sales were up 4 percent last month—no great shakes but the first increase in 21 months. (Ford saw a 3 percent increase; Chrysler a 30 percent decline.) Also, as one commentator said,

GM decided they just couldn’t envision a future without their German subsidiary, which provides most of their presence in Europe and is the main source of their fuel-efficient global vehicle platforms.

The company desperately needs these platforms and needs to be part of the global playing field. Restructuring Opel will cost some $4.4 billion—less, the board figured, than they would have had to pay out under the Magna deal, even with help from Germany.

The case for the renege also rested on keeping the company’s Insignia and Astra cars away from the competition in Russia (Magna’s interest was financed by a Russian bank). But GM is in no way out of the woods. Paul Horrell of Top Gear put it this way:

GM needs to have a solidly profitable European arm. So difficult days await the 55,000 workers in Britain and the rest of Europe, because factories will have to be shut to make sure that Opel and Vauxhall have a cost base that’s realistic for the number of cars they can sell. And more political battles will affect the result.

Despite the furor the decision has caused and will cause, I think it makes sense for GM to keep Opel. What do you think?

—jgoods

Car Industry News, Car Minded, Car Politics, Foreign Cars, General Chat

We learned today that GMAC has been looking for a third round of bailout money from the Treasury—and they may have gotten it. The latest news is that the company has just put $2.9 billion of junk bonds (rated by Moody’s “two notches above default”) on the market. However, these bonds are backed by the Federal Deposit Insurance Corporation, thus giving them a triple-A rating. And because of the FDIC backup, these bonds will sell!

This is but the latest in a series of sand-bagging moves on the part of the Feds to make the levee hold. GMAC Financial Services, the lending arm for both GM and Chrysler dealers and customers, is really the lifeline for these companies. The government has already put $12.5 billion (35 percent ownership) into GMAC, which may have become a bottomless pit. Here are the problems, as I interpret them out of one messy situation:

1. The company was made a bank earlier this year so that it could gain access to the FDIC’s loan guarantee program, the one being used for the new bonds issued today. As a bank, it failed the government’s stress test and couldn’t raise investor capital, posting a $3.9 billion second-quarter loss. Treasury concluded “it needed to raise $11.5 billion more in capital by mid-November.”

2. GMAC also operates a mortgage lending business, Residential Capital, which has experienced enormous losses in the housing market. Its commercial successor, Capmark Financial, just filed for bankruptcy. Most of the second-quarter losses came from real estate. GMAC also has an online banking company, Ally Banking (formerly GMAC Bank), which has come under fire for offering very high rates for deposits, since they’re guaranteed by the Feds!

3. These financial tie-ins to the struggling car business and the disastrous real-estate loans are bound to result in collapse—unless Treasury keeps pouring money in. Since GMAC is now the primary financing source for both GM and Chrysler, dealers for Chrysler are in particularly big trouble, according to Freep.

Chrysler Financial, which Treasury has demanded go out of business by the end of 2011, is asserting its first-lien rights on loans to Chrysler dealers. At the same time GMAC, due to its capital shortfall, has asked those same dealers to pay additional collateral on the vehicles they order from Chrysler Group. Many of those dealers borrowed $10 million or more to expand their showrooms, and can’t sell the property for anywhere near what they owe Chrysler Financial.

The true reason for this revolving bailout is that, in a credit economy, somebody has to front the money to buy cars. The banks aren’t doing it, consumers aren’t doing it, so you the taxpayer will have to do it. The craziness is that taxpayers are lending money to themselves in hopes that the industry will finally earn a profit to pay them back.

Is the spiral endless? Are we in a financial Catch-22? Lay your thoughts on us in a comment.

—jgoods

Car Industry News, Car Minded, Car Politics, Domestic Cars, General Chat

Call it a triple play for Ford.

The Wall Street Journal reports that Ford is on the cusp of turning a profit while market share is rising and resale values improve.

Doesn’t get much better than that in the car world, does it?

The WSJ says,

Another positive sign could come in a report expected to be released soon by auto guide Kelly Blue Book. Two Ford vehicles will appear on the list of 2010 model-year vehicles projected to retain the greatest amount of their original retail price after five years of ownership, said a person familiar with the matter. Last year, no Ford car or truck held a spot on the 2009 model-year list.

Naturally this has PR flacks at Ford in the mood to pat themselves on the back and promote the WSJ article on the company’s Facebook page. But Ford’s work is only just beginning. In fact, this article on BNET says it’s too early to jump on the Ford bandwagon:

So far so good in my opinion, but where I continue to be skeptical is whether Ford can keep it up, unless overall demand recovers more than it has.

Plus, I’m skeptical because I keep reading that consumers are supposedly rewarding Ford for not going bankrupt and taking a government bailout, or conversely that consumers are avoiding Chrysler and GM for the opposite reason.

Whatever the reasons for Ford’s success, consumers are flocking to the company’s vehicles while GM and Chrysler seriously struggle. But good things are on the horizon for both those companies, too. Fiat’s influence will bring a European flair to Chrysler, while GM continues to promise its vehicles are as good as or better than anything else on the market.

The bankruptcy memories will fade into the distant past, and then we’ll have a clearer image of which company’s vehicles are the bigger hit with consumers.

This news, though, from Automobile Magazine, could keep GM’s bankruptcy memories fresh a while longer:

Consulting firm AP Services charged the old General Motors, otherwise known as Motors Liquidation Co., $23 million for three months of work as the company prepared and filed for bankruptcy. The article says,

To finish such a large restructuring in only three months, AP Services had a team of 153 people working on GM’s bankruptcy case. Some team members charged up to $835 an hour in June when the whole company was in bankruptcy. In July, however, the team’s hourly rates dropped as creditors and government officials complained there would not be enough money to cover all the claims. Al Koch, head of AP Services and was GM’s chief restructuring officer [sic], alone made over $455,000 in the three-month period.

One guy made almost a half-million bucks from GM in three months because of the bankruptcy? Wow. Maybe there is a clear reason why folks are flocking to Ford.

Is Ford succeeding because of its vehicle quality, or because GM and Chrysler went bankrupt? Which company would you rather buy from?

-tgriffith

Car Industry News, Car Magazines, Car Minded, Car Politics, Domestic Cars, General Chat

Carmakers sold nearly 17 million cars and light trucks in the U.S. in 2005. As of September 2009, reported figures are 9.2 million.

If you think sales are ever going to come back to that earlier level, I’ve got a used Pontiac Aztek I’d like to sell you. Americans are buying fewer cars for a number of potent reasons, and the NY Times recently traced some of these: Younger buyers have less cash, older buyers are moving back to the city; all groups seem to be downsizing (in both vehicle size and number of cars per family); environmental concerns are growing; and, not insignificantly, the emotional charge of buying/owning/driving a car seems definitely on the wane. These trends, I think, are only going to continue.

For manufacturers, it’s the most difficult of times. How are they going to anticipate demand in such a fluid environment? Figure out what kind of vehicles to build? Determine whether, as the Times said, they are in the car business or the transportation business—and not end up like the cigarette companies?

Comes the government into the picture, and many are still trying to figure out whether it is savior to the auto industry or inoculator of a new form of social disease. For many Americans, the man of the hour is Kenneth R. Feinberg, the Treasury’s pay czar. He told reporters Wednesday that there would be big, big cuts in cash and stock compensation for execs at the seven companies—including AIG, Citigroup, Bank of America, GM and Chrysler—that have together received a total of $300 billion in taxpayer (TARP) funds. Details, particularly concerning the auto firms, are here, and a lot of people are cheering, even though it is still generally business as usual on Wall Street.

To get some handle on where things are headed, it’s necessary to know how we as a nation got here. Steven Rattner, who headed the Obama auto task force, has written for Fortune a short history of how his team came to terms with the crisis that unfolded last winter in the industry. It is fascinating reading and offers a few unforgettable insights into the key players, like Rick Wagoner and the President himself, as they reacted to the course of events.

Both GM and Chrysler, says Rattner, were in a state of denial.

At GM’s Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).

This isn’t Michael Moore-type commentary, since most of it has to do with the financial rescue and the decisions that led to it. For car gurus, this should be required reading.

If GM, Chrysler and Ford (not to mention the transplants) are facing much-lowered expectations, how will they execute in the coming years? Do you see major successes or failures ahead?

—jgoods

Car Industry News, Car Minded, Car Politics, Domestic Cars, General Chat

Volvo S60 Concept

Both Ford and GM are experiencing problems selling off their foreign carmakers—Volvo and Opel, respectively. One of the reasons is concern about intellectual property.

For 10 months, Bloomberg reports, Ford and Geely (China’s largest car company) have been trying to finalize the transfer of Volvo, but they’re stuck over whether and how Geely will assure Ford that its technology and new-model blueprints will be kept secret. As we all know, some in China have little regard for patents and intellectual property rights.

Fueling this fire is the October 14 arrest of former Ford engineer Xiang Dong Yu, accused of stealing over 4,000 Ford documents in order to get himself a job with a Shanghai auto firm.

Because Volvo is “completely integrated into Ford’s product development,” said one analyst that Bloomberg quoted, selling it is “like selling a room on your house. You can’t separate it easily.” Back in July, General Motors rejected an offer to buy Opel because a Chinese company couldn’t provide design and technology safeguards to its liking.

Opel Astra, Frankfurt 2009

And there are still snags to the Opel-Magna deal being worked on in Germany. Last week it looked like the European Union and its Competition Commissioner were pressuring GM to reconsider its sale to Magna. The €4.5 billion in state aid offered by Germany to promote the sale appeared to them to be, well, a bribe—or maybe we should say “an improper inducement.” But today, the Commission backed down, saying they would not oppose a sale. They just want to be sure all the rules are followed. Mmm, right.

GM’s troubles aren’t over yet. Spanish Opel workers have just turned down Magna’s latest offer and scheduled a four-day strike. It’s about job cuts, of course.

If Hummer finally went out the front door to China, Opel is having a very tough time making it through the various political minefields set up by the Europeans.

Is it right for the EU to insert itself in a deal between a U.S. corporation and a Canadian-Russian combine for a German car company? Let us have your opinion, please.

—jgoods

Car Industry News, Car Minded, Car Politics, Foreign Cars, General Chat

For the auto industry, the economics of going green will be very costly indeed, and the costs will come in areas that have hardly been looked at so far. The obvious big-bucks expenses will be in retooling, converting production, developing new-fuels infrastructure, and reinventing dealerships—not to mention the marketing-education efforts required to convert buyers to efficient cars.

I haven’t found much worthwhile analysis of any of these things. We seem to be too busy promoting newer, bigger, more powerful cars. In other words, conducting business as usual.

But as government intervenes (properly or not) to create standards and promote greenness, other even less-noticed costs—sometimes hidden, sometimes not—will be added. The Detroit News has written recently about how newly evolving state and federal standards will change vehicle design and add cost—lots of cost—in order to achieve worthwhile environmental goals.

The paper came down hard on the California Air Resources Board for its “cool cars” rules that require new windows for cars by 2014 to keep out 45 percent of the sun’s energy, thus requiring less air conditioning and less fuel. One problem is that the proposed metal oxide coating interferes with cell phone and GPS use, along with “ankle bracelets for parolees,” of which there are plenty in California.

The initial standard will cost $111 over the life of a vehicle; the 2016 standard will add $250 to the cost of each vehicle. California says it will take five to 12 years for consumers to recoup the costs from reduced gasoline use.

The good part is that by 2020, the Board predicts 700,000 metric tons of CO2 will not be put in the air. That’s the equivalent of taking 140,000 cars off the road for a year. Regarding the communications problem, the Board says let ‘em use antennas.

The new federal fuel standard is going to cause even more problems but, again, with big benefits down the road. Expect lots of opposition from the auto industry. The detnews.com’s first paragraph makes it pretty clear where they stand:

The Obama administration’s proposed standards for fuel efficiency and tailpipe emissions will raise vehicle price tags by more than $1,000, depress sales by 58,000 and cost more than 5,000 auto industry jobs in 2012, a government analysis said Tuesday.

However, the EPA tells us that fleet standards of 34.1 mpg will be required by 2016, tailpipe emission standards will be fixed for the first time, 950 million fewer metric tons of greenhouse crap will not go into our air, and car owners will save some $3,000 in fuel per vehicle. The big number: $60 billion over five years for the industry to implement these regs.

EPA thinks that the plan

will eventually boost auto sales by 65,480 vehicles through 2016 and add 5,795 auto jobs because [of] stronger consumer demand for fuel-efficient models—especially if fuel prices rise. The agency acknowledged, however, that “the possibility exists that there may be permanent sales losses” because consumers may keep vehicles longer as a result of higher prices.

The jury, of course, is still out, and the industry will have its chance to comment (and soften) the proposals. But you can bet they will be enacted in something like their present form. The problem is, as with the healthcare legislation being proposed, nobody can offer a clear, convincing analysis of the cost/benefit equation. We just don’t know enough.

So it seems to be a question of which side has the more compelling case: controlling big costs in the short run or gambling that the long-run benefits have to be worth it. Where do you come down?

—jgoods

Car Industry News, Car Minded, Car Politics, Domestic Cars, Gas for your car..., General Chat, Green Updates

Hummer is now an import brand

During GM’s bankruptcy hearings, the company estimated it’s iconic Hummer brand to be worth somewhere in the ballpark of $500 million.

According to the latest estimates, China’s Sichuan Tengzhong Heavy Industrial Machinery Co. will acquire the brand for about $150 million, though official financial terms have not been released.

GM’s press release says the Chinese company gets “ownership of the Hummer brand, trademark and tradenames, as well as specific intellectual property license rights necessary for the manufacture of Hummer vehicles.” The buyer also gets access to the existing dealer network.

Considering all that, the price is a relative bargain; even when Hummer’s free-falling sales numbers are taken into account.

The press release goes on to say,

Under the agreement, HUMMER would contract vehicle manufacturing, key components and business services from GM during a defined transitional time period. For example, GM’s Shreveport assembly plant would continue to contract assemble the H3 and H3T and AM General’s Mishawaka assembly plant will continue to assemble the H2. Both facilities will produce the specified vehicles until June 2011, with an optional one year extension until June 2012. The deal is expected to secure more than 3,000 jobs in the U.S. related to the sale and manufacturing of HUMMER vehicles.

So far, the sale looks like good news for fans of the Hummer brand and for the Americans who build and sell them. (Though I’m sure Saturn and Pontiac people are shaking their collective heads in disbelief.)

Yang Yi, Chief Executive Officer of Tengzhong, said this about his company’s acquisition:

We are excited about some of the initiatives already underway at HUMMER that we believe our investment will be able to accelerate, particularly related to the creation of the next generation of more fuel-efficient vehicles to meet not only future regulations but also customer expectations.

While I would have rather seen the Pontiac brand saved, it looks like the Hummer brand has a real chance at surviving well into the future; if it isn’t driven directly off a cliff by its new owners.

Can Hummer succeed in America under foreign ownership? Is the sale smart or should the brand have been left to die?

-tgriffith

Car Industry News, Car Minded, Car Politics, Domestic Cars, Foreign Cars, General Chat, Trucks & SUVs

The Cars

We talked about “Volt Contenders” back in March; one of these was the Think City, a less than Volt-sized EV that may be coming to production in the US in 2011. The Detroit News reviewed a pre-production version (around $30K in Europe, not cheap!) and found the car “almost adequate” for driving around the city: good interior space, OK acceleration, easy and quick recharging. The top speed was only 63 mph, however, and so accelerating onto a freeway was something akin to exercising a death wish. Passing? Passing what? But the car is good for the city and for short hops. Still not the “electric car for the masses… [which] no one has offered yet.” Figure another two years at least for that.

Myers Motors has been around for a while. They are trying to make a splash with another pint-sized machine, this one a glorified motorcycle really, again for in-town use. The three-wheeled, two-passenger NMG2 will go on sale late in 2010, and the company is running a contest for a name (no maligna gasolina?). The car has a 60-mile range, will do 75 mph and costs less than $30K. I like it. The letter from Myers’ president (on the website) makes the point that some 70 million people commute alone and drive less than 40 miles to work. That sounds like a reasonable niche market—if they can be convinced to ride in an enclosed three-wheeler.

E-Wolf E2 Concept, Electric Ferrari-killer

E-Wolf E1 Electric Roadster, for 150-lb driver

At the other end of the madness scale is a concept from German firm E-Wolf called the E2, supposedly to evolve as a supercar in two years (544 hp, 2000 lbs, “to compete with the likes of Ferrari in the performance arena”). Well, guys, judging from the E1 which was shown at Frankfurt (150 hp, 1100 lbs, “can only accommodate drivers weighing up to 150-pounds”), you’ve got a ways to go.

More practical, maybe, is Volvo’s move to put more plug-in hybrids on the streets and a fleet of test cars. The firm announced it would start selling plug-ins by 2012 and showed a V70 with two charging ports—one in front for home charging, the other at the rear for fast-charge (1.5-2.5 hours) stations.

The Power

In order to get electric cars to a sizable market, you must have power companies that not only feed the grid but use the product. Otherwise, it’s a Catch-22. The New York Times reports that

FPL Group, the company that includes Florida Power and Light, and Duke Energy, which serves 11 million people in the South and Midwest, together operate about 10,000 vehicles. And they said this week that by 2020 all new purchases of fleet vehicles will be plug-in hybrid or all-electric.

Clearly, that is putting one’s money where one’s mouth is. The ridiculous situation with ethanol is just the opposite: Farm-state senators (Ben Nelson, D-Neb., among them) are pushing to increase the amount of blended ethanol in gasoline to 15 percent, while the automakers are fighting it, citing the many cases where too much ethanol damages or disables engines.

It isn’t bad enough that we use corn almost entirely for ethanol, which is terrible for all kinds of environmental, agricultural and economic reasons. The industry has been totally unwilling to commit to biofuels or cellulosic ethanol, and is now getting set to inhale some $787 million in federal money for biofuel research, which it would not do on its own. Instead of priming the biofuel pump, federal money is serving as a substitute for private capital and encouraging the farm states to continue their misguided policies. End of rant, for now.

Applause, however, for GM which announced last week that it was partnering with the Reva Electric Car Company of India to develop the market for electric vehicles in India. Well, why shouldn’t they, you ask, with over a billion people as a market? RECC, we understand, has done work on infrastructure, biofuels and has test marketed electrics in many countries as well as India. Working on alternative propulsion strategies and fuels, GM has also reached out to world markets. It could be an ideal combination: Volts in Mumbai!

How soon can we expect EVs to penetrate the market for short-commute cars in our cities? We know you have an opinion.

—jgoods

Car Industry News, Car Minded, Car Politics, Domestic Cars, Exotic Cars, Foreign Cars, Gas for your car..., General Chat, Green Updates

Responsible texting can be safe

I live in Washington state, which is one of many states to ban making phone calls on handheld devices while driving. No one actually pays attention to the ban, as evidenced by my recent count of six cars in a row with drivers chatting it up with phones glued to their ears.

An easy way around that ban is to send a quick text rather than having an entire conversation. Texting is faster and can be done at a red light in the time it takes for it to turn green, leaving time to devote the required attention to driving while still meeting my communication needs.

Now though, a group of 11 automakers has formed the Alliance of Automobile Manufacturers (AMM) to push for an all-out ban on texting while behind the wheel.

I’m not going to say that I think texting while driving is completely safe… it’s far from safe when the car is moving. But I do believe there’s a time and a place where it’s OK, such as while stopped at a red light. In those few moments when I have nothing else to do, I don’t want anyone telling me I can’t send a note to my wife telling her I’m x-ited 2 C her 2 nite.

Then there’s this little contradictory gem: Some states offer a service sending text message updates on traffic and weather conditions. Will that be outlawed too? Reading a text message is probably more dangerous than sending one, as seasoned text pros can compose messages without even looking at their phones.

Texting while driving is often compared to drinking and driving, which I think is absurd since texting can done responsibly. (I’ve never known anyone who could be drunk only at red lights.) Drunk driving is a serious and dangerous offense… texting doesn’t have to be any more involved than changing the radio station or adjusting the iPod (uh-oh… watch iPod bans come next).

If I want to send and read texts when I feel it is safe to do so, I want that right. The biggest consequence I see is getting honked at for being a moment late in realizing the light turned green, and that’s a risk I’m willing to take.

What are your views on texting while driving? Should it be outlawed to text while behind the wheel?

-tgriffith

Car Industry News, Car Minded, Car Politics, Car Safety, General Chat

Clunker?

The official Cash for Clunkers website has released a list of cars that were traded in on the program, and some the vehicles on the list are downright shocking.

Most are not… there are at least 60,000 Ford Explorers on the list, most of them from the early to mid-90s, though a couple of 2008 models were turned in.

But check out these cars that were on the list, and keep in mind that the law requires the engines of these vehicles to be permanently disabled. Try not to weep:

• 1997 Aston Martin DB7 Volante (I found one for sale here for just $69,500. )
• 2006 Audi A4 Cabriolet Quattro (OK, so it’s not a supercar, but still…)
• 1992 BMW 850i (For sale here for $24K.)
• 1987 Buick GNX (Only 547 were ever built.)
• 2007-2008 Chrysler 300 AWD (There were 3 of these.)
• 1987 Excalibur Autos Phaeton (No joke, but still hard to believe.)
• 2000 Jaguar XK8 convertible (I would’ve gladly paid that guy 5 grand for his car rather than see it killed just to get $4,500 off a Hyundai.)
• 1985 Maserati Quattroporte (You just don’t junk a Maserati.)
• 2005 Mazda RX8 (Still worth about $15K)
• 1997 Rolls-Royce Continental R (Ever heard the words “Rolls-Royce” and “clunker” in the same sentence?)
• 2008 Scion xD (Wait a minute. This thing is rated at 29 mpg, for one thing. Secondly, it’s still worth about $16K. How’d this one slip through?)

You can see the full list here, but I’m warning you, it’s got everything. Corvette and Camaro fans may want to stay away.

Would you have taken any of these cars off owners’ hands before they were sent to the crusher?

-tgriffith

Car Industry News, Car Minded, Car Politics, Classic & Vintage Cars, Domestic Cars, Exotic Cars, Foreign Cars, General Chat, Trucks & SUVs