HOW LONG WILL FOMOCO BE ABLE TO REMAIN INDEPENDENT?

The auto world is being rocked today (30 Jun 06) by Tracinda Corporation's filing with the United States Securities and Exchange Commission of documents relating to a proposed "Partnership-alliance" between General Motors (GM), Renault S.A. (“Renault”) and Nissan Motor Co., Ltd. (“Nissan”) based on Nissan and Renault buying a significant minority interest in GM.

Apparently Ford Motor Company (tm) isn't the only one with a "BOLD MOVE" or two left . . . .

Tracinda argues in its filings that "The Renault-Nissan partnership-alliance has created tremendous engineering, manufacturing and marketing synergies, resulting in substantial benefits and cost savings to both Renault and Nissan."

"We believe that participating in a global partnership-alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings and thereby greatly benefit the Company and enhance shareholder value."

"As we recently discussed with Mr. Ghosn, Tracinda believes that General Motors, Renault and Nissan should explore a three-company, partnership-based alliance. Tracinda believes that such a global alliance has the potential to materially strengthen the competitive positions of all three companies in the increasingly challenging worldwide automotive industry, with the attendant benefits accruing to each company and its respective employees and shareholders."

Tracinda, the investment company of billionare Kirk Kerkorian, reportedly owns almost 10% of GM's stock and holds a seat on GM's board. Thus, the "partnership-alliance" proposal cannot be summarily discounted.

Once upon a time, the US had the "Big 3" (GM, Ford and Chrysler) and a host of "independents." During the post WWII shakeout, the independents either merged into American Motors or left the automobile business. American Motors subsequently fell under Renault's control before being snapped up by Chrysler. About a decade later, Chrysler "merged" with Daimler-Benz, leading some to suggest that the "Big 3" was now just the "Detroit 2."

Thus, much like with major oil companies, the historic trends have favor increased consolidation and internationalization.The Kerkorian proposal may mean Ford Motor Company will become the sole surviving "Detroit 1."

The new "Alliance" (not to be confused with the "Renault Alliance" built and sold by AMC years ago") would be a powerful colossus. For all its cash flow issues, number 1 GM still accounts for about 8 million units world-wide. Number 7 Nissan builds and sells about 3.5 million. Number 10 Renault builds and sells approximately 2.5 million. Thus, the alliance would have immediate control of over 14 million units in world-wide sales, and would dwarf Number 2 Toyota (8.2 million) and Number 3 Ford (approximately 6.5 million, excluding Mazda's 1.1 million).

The synergies of the proposed GM-Renault-Nissan link-up (not to mention what Carlos Ghosn could extract from them) boggles the mind. And it ought to send shockwaves through the "Glass House" in Dearborn . . . .

One wonders, considering the bargain-basement price of Ford's stock, how long Ford can remain out of the hands of a foreign suitor.

Ford Motor Company FLIP-FLOP on Hybrids?

FoMoCo honcho William Clay Ford, Jr. ("'lil Billy") e-mailed the Glass House gang and other FoMoCo execs Wednesday, drastically revising Ford's fuel economy strategy. FoMoCo released the e-mail to the press on Thursday (29 Jun 06). According to the Automotive News, Lil Billy decreed: "Our strategy going forward is not to wed ourselves to a single technology . . . The strategy doesn't focus on one catch-all solution but offers a flexible array of options, including hybrids, clean diesels, bio-diesels, advanced engine technologies and E85 ethanol"

Automotive News further reports "Ford backed away from a commitment made last fall to build production capacity for 250,000 hybrid vehicles by the end of the decade, calling that goal "too narrow." . . . Ford, which has faced criticism for lacking a consistent vision for its product development strategy, had heavily promoted its commitment to hybrid technology."

Undoubtedly, Ford's latest course correction will remind some of FoMoCo's brash "commitment" to increase SUV fuel economy by 25% no later than 2005. Reality, of course, set in on that idea, perhaps just as it has on Ford's hybrid boast.

Although Ford's flip-flop will be viewed negatively by some of the "true believers" in the international environmental movement, it in fact suggests refreshing maturity and sober judgment. Thus far, gasoline-electric hybrid technology has amounted to little more than a public relations gimmick. Even at today's high fuel prices, the economic break-even point for the expensive, complex hybrids is more than five years. Lifetime cost-per-mile still lags their gasoline counterparts. See http://www.thecarconnection.com/Auto_News/Daily_Edition/Daily_Edition_Apr_3_2006.S173.A10227.html Moreover, some argue that hybrids have a NET NEGATIVE impact on the environment as compared to more conventional alternative because of the increased impacts of creating and disposing of TWO drive systems.

Clearly, the diverse American market cannot be satisfied by forcing everyone into a tiny hybrid electric microcar. Regardless of what the radical environmentalists dream of, millions of Americans will continue to need large vehicles to haul big groups, pull large boats, horse trailers, RV trailers, construction equipment . . . and even racing cars! Despite all the doomsday handwringing, millions of Americans will continue to seek high performance sporting machines as personal transportation. Notwithstanding all of the guiltmongering, nothing will change the fact that America is a huge place with vast expanses which won't be served by any reliable public transit system in the foreseeable future.

Lil Billy's e-mail seems to acknowledge this obvious reality.

The open question, however, is in FoMoCo's execution of this more reasonable strategy.

Susan Cischke, Ford vice president of environmental and safety engineering, testified at a Senate Energy Committee hearing on U.S. energy security that "we need a strong, long-term focus on policies that increase U.S. ethanol production and accelerate E85 infrastructure development."

She also testified that "U.S. automakers have produced almost 6 million flexible-fuel vehicles. If they all ran on E85 fuel, over 2.5 billion gallons of traditional gasoline could be saved."

BUT THE BIG PROBLEM CISCHKE MISSES IS THAT FORD AND OTHER "DETROIT 3" BUILDERS HAVEN'T PRODUCED E85 VEHICLES WHICH INHERENTLY GENERATE DEMAND FOR THE HIGH OCTANE FUEL!

The current flexi-fuel fleet is generally comprised of forgettable, fleet-type vehicles which run about the same on E10 (or E-ZERO!) as E85. So, excluding a few environmentalists, farmers and trendy politicos, nobody really demands more E85.

However, if Ford were to exploit the high performance characteristics of E85 (such as was once-upon-a-time hinted in SVT's "Superstallion" flexi-fueled concept car. See http://www.supercars.net/cars/717.html ) then market forces would undoubtedly demand increases in E85 retail infrastructure. Just as GM led and stoked market demand with higher performance Kettering V8s after WWII, Ford should sell its customers "hot" cars that run quicker and faster on E85.

Simply put, Ford should push the E85 market with high performance flexi-fueled products. SVT's GT500 should be a flexifueled vehicle with a more agressive E85 tune. The flaccid, boring Five Hundred should be pumped up with a flexi-fuel blown V8. The '03-'04 SVT Cobra 4.6 should be retooled for flexi-fuel use in PIs (to fend off the Police Charger's huge performance advantage in the Michigan cop car tests) and for other "premium" applications. Marketing a powerful, forced-induction flexi-fueled Duratec should be a top prioity for all of Ford's volume subcompact and compact lines.

If buyers see a serious performance advantage with E85, they will demand oil companies start carrying it (and even at a higher price point than current E10 premium!).

Energy security and environmental handwringing won't get E85 to the mass market anywhere near as fast as creating real demand with a real market feature such as higher performance on E85.

While Susan Cischke might ought to focus more on salvaging the imploding safety reputation of the Fusion (apparently you'll possibly become a candidate for FUSION if you get into a side or offset frontal impact in one), perhaps she's got a little spare time to hook up Lil Billy with the few engineers left who understand what a real performance car should be (not the wimp-city heaps like Five Hundred, Fusion, Thunderbird (RIP), Escape Hybrid . . . .)--then maybe we'll FINALLY see E85 applied to its highest and best use in something Ford buyers actually might care about!


"But wouldn't it be better to just build cars that you didn't have to pay someone to be excited about?" -- John Colletti, Chief Engineer, SVT (retired)
http://www.edmunds.com/insideline/do/Columns/articleId=109512

FoMoCo Execs reject bankruptcy (again) and shift the blame for poor June sales

Although William Clay Ford, Jr. ("'lil Billy") hasn't taken center stage at www.fordboldmoves.com, he's not been silent. The June 28, 2006, edition of the Wall Street Journal reports lil Billy's denied (again) speculation that Ford will file bankruptcy. Such talk increases each time FoMoCo's bond ratings are cut futher into junk status--as Standards and Poors did earlier this week.*

Months ago, Automotive News columnist Edward Lapham identified the obvious reason why 'lil Billy won't lead FoMoCo into reorganization anytime soon: The Ford family--as controlling shareholders--would stand last in line behind all of Ford's creditors, meaning financial disaster for the Ford family's equity interest.

Of course bankruptcy talk is premature for other reasons. While FoMoCo has huge debts, it still can borrow money and is sitting on billions in liquid assets.

More interesting was 'lil Billy's denial of rumors that FoMoCo's bargain-basement share price might prompt a move to take the company private. FoMoCo was private for three and a half decades, ending in the mid-1950s, so such speculation isn't unprecidented. However, given the Ford family's control and the probability that such control reduces FoMoCo's attractiveness for a domestic or international takeover attempt, one wonders how the "go private" rumors had any viability in the first place.

Automotive News reported on June 29, 2006, that Cisco Codina, Ford group vice president of North America marketing, sales and service, is complaining Chrysler's suggestion of an employee discount plan in July has weakened sales during the last couple of weeks in June. Codina said "It's unbelievable that someone would begin talking about next month's incentives in the middle of the month. Go figure."

Cisco, of course, protests a little too much.

Obviously, the U.S. consumer is conditioned to summer-time "fire sales" from the Detroit 3. Moreover, given the dramatic declines in truck and SUV sales as well as increasing general economic impact of sustained higher fuel prices and FoMoCo's relatively weak position in high m.p.g. vehicles (No tiny "B car" in the U.S. market, the aging Focus and Ranger forced to carry Ford against newer competition, no light diesels, no economy engine option for Mustang, limited hybrid capacity, Ford's failure to use currently-available technology to increase V8 fuel efficiency, etc.), consumers fully and reasonably expect escalation in the incentive wars this year.

Add into the mix Toyota's aggressive expansion ideas, including the new Texas Tundra plant and Nissan's recent sales softness, and the conditions are becoming ripe for yet another firestorm of customer incentives, such as "employee pricing."

Cisco saves special hostility for treating ordinary customers as well as the ever-shrinking group of Ford employees: "I don't think employee discounts are good . . . Last time we were dragged into it. Right now, at this point in time, we have no intention of doing employee pricing. It’s very disruptive."

Sorry Cisco, but it looks like a good time to stay on the sidelines until the "real" deals begin later this summer . . . .


*Reuters reported Wednesday: "S&P cut its corporate credit ratings on Ford and Ford Motor Credit Co. to "B-plus, ' four steps below investment grade, from "BB-minus.' Ford's 7.45 percent bonds due in 2031 fell to 70.375 cents on the dollar, down from 70.438 cents on Tuesday, according to MarketAxess."

Fordboldmoves.com DAY 2 (Part 2)

The delay in screening comments noted below has abated somewhat.

The comments that made it through the screen do seem to balance praise and criticism of Ford.

For example, in response to a Peter Frey article rejecting the continued viability of the "American Car," one reader posted the following:

Peter Frey you are exactly 100% bang on with this. American car ideals are dead.
"World market" cars that can be sold anywhere are the present and future.
Whether or not the US auto-manufacturing sector survives depends on their
ability to lose this old outmoded thinking and over-focus on American
consumers, and get in-step with the rest of the worlds [sic] manufacturers. Stop
listening to US baby boomers who still say they want Mustangs
and Camaros. Nobody anywhere in the world wants one. Don't waste
the time, the brainpower, the money. Build world cars, export them, and sell
them here too. We'll buy. Just make them interesting, worth owning for a few
years, and good.
By:Thomas - 6/28/2006 1:27:14 PM

Such analysis is, of course, terminally shortsighted.

First, huge regulatory barriers make true "world cars" impractical. Vehicles which comply with US regs aren't also fully compliant with EU or Japanese requirements. And as GM learned with the Pontiac GTO, it can be expensive to convert a "world car" to US specifications.

Second, unique market tastes and conditions demand "localized" products. Virtually all manufacturers tailor designs for specific markets. For example, the major Japanese manufacturers have indigenous design and engineering operations in virtually all of their major markets. Why? Unique demands from local market conditions. Moreover, Toyota's, Mazda's and Mitsubishi's Japan-only model line-ups dwarf their respective US offerings. Why? Local market conditions.

Third, American market conditions still favor certain "traditional" American cars. While it's true that American pony cars have not been huge export success stories, it's also true that the American car culture will support and sustain larger, more powerful performance cars and sedans. Fuel prices, road conditions and urbanization have not foreclosed the attractiveness among many for uniquely American forms, such as larger sedans, V8 sports coupes and even SUVs. While fuel prices may affect the sales mix, vehicles sized and adapted to unique American lifestyles will remain a viable niche for the foreseeable future.

Fourth, the West wasn't won with a "world car." Attend virtually any car show or celebration, other than some import "tuner" events that virtually prohibit "American cars," and you will see the celebration and veneration of RWD, mostly V8-powered American cars. High performance and high style models are the "milestone" models which survive scrappage and which capture our imaginations. After all, how many rap videos or popular movies feature some tiny "world" hybrid as "star cars?' For Ford to turn its back on RWD and V8 power to "get in step" with foreign markets would be turning its back on the very characteristics motivating a vast army of loyal customers and enthusiasts. Both Plymouth and Oldsmobile abandoned RWD and traditional performance in favor of more "worldly" designs and look where it got them . . .

And Ford spent over FIVE BILLION DOLLARS on the Mondeo as a "World Car." How many of those have you seen in the USA lately? Simplistic "world car" mantras are no substitute for identifying viable market niches and developing exciting, best-in-class products to meet them.

That being said, Ford ought to benchmark the best possible performance sedans and sports coupes in developing "world class quality" in distinctly American forms. German cars tend to dominate among enthusiast drivers because they were engineered for the stresses of sustained, unlimited speeds on the Autobahn. Cadillac reinvigorated its reputation when it began infusing its flabby line with German-tested designs. Building flabby boulevard cruisers, such as the last generation Thunderbird, won't spark a comeback. Instead, Ford must satisfy American expectations for performance, style, size, utility, driving dynamics, quality and economy while advancing the art and science of the automobile through applying the best lessons the world's automakers have to offer.

That's a tall order. But it's not filled by abandoning uniquely "American-DNA" cars for "world cars."

When Ford kills or neuters Mustang, the end will truly be near indeed.

Fordboldmoves.com: Day 2

Ford posts several stories for "comment" at www.fordboldmoves.com. Ford suggests its new openness and interactivity is a bold move aimed at honest conversation and unvarnished truth. Yet the number of comments and the dates and times of the comments indicate that Ford is highly moderating the content.

Obviously, Ford wants to avoid a web fiasco such as the one GM created with the infamous "make your own commercial" mess. Thus, everyone expects Ford to screen out the spammers, the one-issue activists, the profane and the obscene, and perhaps some disgruntled "lemon" owners. But the slow and restrictive nature of the "allowed" comments (not to mention that most are just paeans to Ford's inherent greatness that resonate almost like advertising copy) undercuts Ford's messages of candor and transparency.

Surely all of Ford's "Way Forward" "DNA experts" understand that metamessages are important. It sends the WRONG message to solicit candor on the one hand while squelching it with the other.

Hopefully FoMoCo will get this glitch fixed . . . otherwise www.fordboldmoves.com will go down as just another over-managed publicity stunt.

Ford's Bold Move?

If you haven't noticed "lately," Ford Motor Company (tm) is in a virtual free-fall. After heady days of huge profits (beginning anew during the Post-Iacocca years, when Ronald Reagan & Co. temporarily froze the regulatory jihad against the Detroit 3, and the world was awash in cheap oil, and international handwringing over "global warming" hadn't captured the imagination of world "movers and shakers") . . .

. . . and even before the vainglorious triumphalism of FoMoCo's flashy Centennial celebration in 2003 . . .

. . . a comedy of Galaxie-sized errors, "better ideas" that weren't and legal/public relations fiascos inadvertantly popped Ford's market share and profitability trajectory into REVERSE.

Now, the percentage of Americans who have a "Ford in their future" is almost TEN market-share-points lower than at FoMoCo's modern heyday. Automotive News projects that by 2010, Ford's share of the North American market will be nearly 600,000 units LESS than in 2002, even as overall sales in the market increase by 1.1 million!

Some even suggest Ford is skidding ever closer to BANKRUPTCY! (often assuming a doomday scenario triggered by a UAW strike of bankrupt Delphi this summer and a resulting GM bankruptcy reorganization forcing Ford's hand).

Now Ford is reeling under the crushing weight of collapsing market share, junk bond interest rates, torrid global competition, labor dissatisfaction, massive products liablity verdicts, aging and often uncompetitive products, weaker demand for trucks and some controversial new products, and a nagging boycott by several conservative Christian groups ( see www.boycottford.com). 30,000 Ford employees are scheduled to lose their jobs as part of the "Way Forward."

Some media reports assert that even Ford scion William Clay Ford, Jr. ("'lil Billy") often retreats to his enclave with the Detroit Lions to get away from the ballooning crisis in the "family business."

Enter Billy Ford's hired hand . . . Mark Fields.

Fields and a new Ford Management Committee (and likely a "Glass House" full of unnamed marketing/advertising bureaucrats) have generated a new attention-getter: the "Bold Moves" campaign.

Part of the show involves allegedly "candid" behind-the-scenes glimpses at the "turnaround." The first installment can be seen here:

http://www.fordboldmoves.com/about.aspx?episode=1

Initially, one wonders "Where's 'lil Billy?"

Moreover, some passionately argue that any "Way Forward" or "Bold Move" will include avoiding any reprises of the following historic blunders:


1. Denied the modular DOHC from the Crown Victoria, Town Car and Grand Marquis;
2. Thought the Tempo/Topaz and the 2.3 HSC were good ideas;
3. Prevented the Aussie Falcons from coming to the U.S. market;
4. Designed the 2-seat "new" Thunderbird as a weak boulevard poser instead of a world-class Corvette beater;
5. Failed to make the DOHC 4.6 and the '03 Cobra 4.6 options for the Lincoln LS;
6. Permitted the SN-95 Mustang GT to be sold for years with only 215 horsepower (while the competition had at least 60 more);
7. Killed the SVT Focus instead of turbocharging it;
8. Killed the SVT Lightning;
9. Failed to redesign the Ranger and add V8, crew cab, and reliable turbodiesel options;
10. Allowed the 6.0 PowerStroke to market before it was ready;
11. Didn't see the potential for an SVT F-250 PowerStroke, or for SVT versions of the Explorer, Escape and Expedition, or a Shelby G.T. 350, or for a turbodiesel F-150;
12. Decided there was no need for a DOHC V8 with 4"+ bore potential, a modern 5.0/5.8, or a DOHC Modular V10;
13. Decided that cylinder deactivation, variable length intake runners, and variable cam timing were too expensive when these features are many of their competitors' vehicles;
14. Thought the Marauder would sell for over $32,000 with only 300 horsepower, fewer than a handfull of colors, insane dealer markups, and less performance than a $20,000 Camry;
15. Decided fragile hypereutectic pistons, two valves per cylinder, weak plastic manifolds, cast cranks and spindly cracked cap rods were sufficient for high performance duty (and preventing Ford from at least making the H.D. stuff optional);
16. Sent the boring Five Hundred/Montego out without a V8 or forced induction option to do battle with a score of stylish 260+ horsepower sedans (not to mention the DCX Hemis);
17. Hoarded cash during the "good times" in the 1980s and 1990s instead of developing import killers, competitive small cars and segment busters;
18. Can't see Ford's failure to build cheap, tunable, stylish and insurable REAR WHEEL DRIVE subcompact performance cars prevents them from being a "playa" in the youth market;
19. Thinks a "Ford Racing" crate engine will sell in sufficient numbers with hypereutectic pistons, cast cranks and two bolt mains (failing to understand the psychology of racers and "Super Rodders");
20. Didn't fix the "second generation" Taurus when it was obvious that Accord and Camry were killing it.
21. Spec'd the MN-12 with the odd-ball 5x4.25 wheel bolt pattern instead of the "standard" 5 x 4.5;
22. Killed the Mustang SVO instead of fixing it (ISN'T THIS A FAMILIAR PATTERN NOW);
23. Changed the bellhousing bolt pattern on the Modular V8s from the "standard" 5.0/Windsor bolt pattern;
24. Keeps approving development of wholly incompatible four cylinder engines on a regular basis (Kent, EAO, Lima OHC, CVH, HSC, Zetec, Duratec) instead of picking a "universal" set of design parameters (e.g. bore spacing, bolt patterns) and continuously improving it with new technologies;
25. Couldn't figure out how to put intercooled turbos and Eaton superchargers in vehicles with real back seats and more than two doors.
26. Let the profitable, Panther-based Lincoln Town Car rot and (probably) die before its time.