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GM announced today that it will utilize its Orion Township, MI plant to produce its new small car.  Orion had been considered along with the Janesville, WI and Spring Hill, TN plants for the project.  Along with the Orion Plant, GM’s Pontiac stamping plant will be saved to provide stamped metal parts for the new small car.

GM projects this decision will restore approximately 1,400 jobs in total — 1,200 at Orion Assembly and 200 at Pontiac Metal Center, Building # 14 — in Michigan, which presently has the highest unemployment rate in the country.  As announced on June 1, Orion Assembly will be placed into standby capacity status in Sept. 2009. Pontiac Metal Center ’s Building #14 will be placed into standby capacity status in Dec. 2010. Pontiac Metal’s buildings #15 and #25 will close by Dec. 2010, or sooner depending on market demand. Timing for the retooling of the small car assembly and stamping plants is still under study, but GM anticipates this prep work would begin in late 2010 in anticipation of the start of production in 2011.

Chevy Spark

Chevy Spark

GM keeps using the term “small car” to describe the vehicle that will go into production in Orion, but what is it really?  The scuttlebutt is that it is the next-generation Chevrolet Aveo.  It is designed and engineered in Korea by GM Daewoo, along with the upcoming Chevrolet Spark.  The current Aveo is imported from Korea as will the Spark, and it looks like the new Aveo will be made in Orion Twp, MI.

The very idea that GM would have chosen to make a small car in the US would have seemed laughable recently.  However, GM’s new ownership structure virtually guaranteed that they would do something like this.  They say that they will be able to produce the car here profitably, but you have to wonder what changed so drastically to allow this.  Is it the new UAW contract? Is it tax abatements, which are still to be worked out?  Or is it clever accounting, meant to look like a good decision, when it is not?  As a shareholder, we should all be concerned whether this is a sound business decision or a move to suck up to the new owners (taxpayers and the UAW).  As a resident of Michigan, I am happy that the work is coming here, we can certainly use the jobs – and it’s a pretty cool looking car.


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Today, another new American car company, V-Vehicle Company (VVC), headquartered in San Diego, announced that it has selected Monroe, Louisiana to be the sight of its new manufacturing location.  VVC said that its initial product will be “a high quality, environmentally friendly and fuel-efficient car for the U.S. market. The goal of the company is to provide the American car buyer greater product value and a superior automotive experience.”

The project will create over 1,400 direct jobs at an average annual salary of nearly $40,000, plus benefits, as well as a capital investment of at least $248 million.

The project is funded by Silicon Valley venture capital firm KPCB (which has also made significant investments in Fisker Automotive, Th!nk and Segway) and T. Boone Pickens, author and chief promoter of a plan to turn most of the midwest into a giant wind farm.  Ray Lane, KPCB partner, said, “The thing that excites me the most about V-Vehicle Company is that it is a holistic change.  We’re thinking about, from beginning to end, how to reconstruct a car company. The V-Vehicle Company has the opportunity to change the automotive business in the United States.”

While no photos were released of the vehicle, the lead designer is Tom Matano, formerly of Mazda, so it is likely to be a good-looking car.

Matano, whose Mazda Miata design was recently recognized by BusinessWeek as the most iconic car of the last 25 years said that “this car will be another icon of American industry. Miata was recognized as the iconic car of the last 25 years; this will be the iconic car of the next 25. Not many designers have the opportunity to work on such a project, so I’m really excited that I have an opportunity to do another one.”

VVC will assemble the cars at the former Guide Corp. plant in Ouachita Parish, which has been closed for years. The 425,000-square-foot plant currently occupies 189 acres of land; this project will increase the size of the facility to approximately 750,000 square feet.

Is the influx of new car companies recently related to the troubles plaguing the incumbent US car companies, or is this timing coincidental?  It takes years to design, develop and produce a new vehicle for sale, and you can add a LOT more time if the company is a start-up.  VVC plans to begin manufacturing next year, so this has been in the works for some time.  Of course, we’ve only seen the drawings below of the proposed vehicle, so the proof, as they say, will be in the pudding.  Or the transmission.  Whichever.



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Coda Electric Car

Coda Electric Car

 

A new electric car startup, based in Southern California (where else?), announced plans this week to bring a small, affordable all-electric car to the market in 2010. Coda Automotive’s focus will be on branding, designing and manufacturing fully safety compliant, all-electric cars capable of mainstream performance and highway use.  Scheduled for delivery in the fall of 2010 in California, the four-door, five-passenger, fully-equipped mid-size Coda sedan will be available for $45,000 (mid-$30,000s after including a $7,500 Federal tax credit and additional state incentives). Powered by a 333V lithium-ion battery with a real-world range of 90 to 120 miles depending on individual driving habits, the Coda sedan travels far enough between charges to satisfy 94% of daily driving routines. The onboard charger plugs into any 110 or 220V standard outlet and completes a full charge in less than six hours at a 220V service. Charging the battery for a 40-mile commute can be completed in two hours. 

“The Coda sedan is an all-electric vehicle for everyone,” said Kevin Czinger, President and CEO, Coda Automotive. “It’s a practical revolution for real drivers who need reliable transportation.”

Coda has a long-term agreement with Lishen – one of the world’s largest manufacturers of lithium-ion cells and a key supplier to Apple, Motorola, Samsung and Vodafone, among others.  The joint venture’s manufacturing facility is located within Lishen’s existing manufacturing complex in Tianjin, China, thus accelerating the company’s ability to commercialize the battery system and bring an all-electric car to the mass market.  Plans have been made to establish capacity in the U.S. in partnership with a U.S. battery company.

“The uncertainty of battery supply is an issue that plagues many electric vehicle manufacturers today,” explains Czinger. “This long-term agreement has enabled us to design an integrated battery system with an existing world-class partner with mass manufacturing capacity.  That enables us to rapidly industrialize Coda’s power system for commercial volume production and to scale the business. Eventually, we expect to manufacture batteries in the U.S.”

Though Coda is an American company, Coda will manufacture their cars in China.  Coda’s manufacturing partner, Hafei, is an established state-owned Chinese manufacturer of automobiles and airplanes and has delivered more than one-million vehicles and currently produces two-hundred thousand vehicles per year.

Standard equipment includes a telematics package, navigation with turn-by-turn directions, a “green screen” that monitors driving efficiency, roadside assistance with an emergency button, Bluetooth, XM-Sirius satellite radio, iPod dock, MP3/USB connectivity, security system, aluminum wheels, and power windows, doors and mirrors. Safety equipment includes anti-lock brakes with electronic stability control and advanced airbags with an occupant detection system. The vehicle is backed by a three-year/36,000 mile warranty.

Coda Automotive will employ a direct distribution model, and will sell the vehicle only in the state of California initially. Coda will also perform the vehicle’s maintenance and service through an outsourced network comprised of brand name car service partners. 

Given that the company launched just last week and will deliver its first vehicles in “fall 2010”, uses a Chinese battery supplier, and frankly, looks like a Chinese car, I believe the Coda is not a unique, new product. It is a Chinese car that has an American company fronting its entry into the American market.  The company’s website even says it “…brands, designs, markets and distributes electric vehicles utilizing a manufacturing partnership strategy which allows Coda Automotive to develop vehicles rapidly in a flexible manner avoiding the traditionally capital-intensive nature of the automobile business. This is PR-speak for “We are selling an existing Chinese car under our name…shhhh – don’t tell anybody.”  It will be interesting to see if/when they begin sales how is the quality, comfort, etc.  There is a reason that Chinese vehicles are not sold here (yet) – they’re not good enough (yet).


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Penske to Buy Saturn

5th June 2009

General Motors Corp. and Penske Automotive Group today confirmed details of a proposed transaction under which Penske would acquire the Saturn brand. If completed, the deal would save more than 350 dealerships and 13,000 jobs at Saturn and its retailers in the United States, and would preserve the customer-focused Saturn brand.

The proposed transaction is part of GM’s rebuilding efforts outlined in the viability plan that was submitted to the U.S. government earlier this year. Under the terms in the memorandum of understanding, Penske would obtain the rights to the brand as well as certain other Saturn assets, including the Saturn parts inventory. GM would continue production, on a contract basis, of the Saturn Aura, Vue and Outlook for an interim period.

“This is the combination of two iconic teams: Saturn and Penske,” said Saturn general manager Jill Lajdziak. “GM had the vision to create Saturn and has the desire to see it succeed in the future.”

“Saturn has a passionate customer base and outstanding dealer network,” said Roger Penske, chairman of Penske Automotive Group. “For nearly 20 years Saturn has focused on treating the customer right. We share that philosophy, and we want to build on those strengths.”

Saturn began selling cars in 1990 and has sold more than 4 million vehicles. More than 80 percent of those vehicles are still in operation, according to data from R.L. Polk. Saturn has regularly scored among the industry leaders for non-luxury brands in customer satisfaction surveys.

The transaction is expected to close in the third quarter of this year and is subject to customary closing conditions and regulatory approvals. Financial terms of the agreement will not be disclosed at this time.

This is the first arrangement of this kind in the auto industry, where there is a separate distribution company with its own brand, free to contract with any manufacturer to sell their product.  This is true retailing in the Sears or Best Buy model, as opposed to the traditional franchise arrangement in the industry.  Will it work?  My guess is yes, due in no small part to the well-deserved reputation of the Saturn retail network.  The Saturn brand can stand on its own, and it may be better off without being associated with General Motors. Because Saturn was launched as “A Different Kind of Car Company” back in 1990, and was never really included in General Motors from a customer standpoint, it should be easy to separate it from the negative baggage that goes with GM these days.

The other factor that will help Saturn succeed in this new frontier is Roger Penske, who has a track record of business and other successes, including Hertz Truck rental, Detroit Diesel and United Auto Group (now Penske Auto Group, the second largest auto dealer in the US) and Super Bowl XL, whose host committee Penske chaired.

Who knows – this may turn out to be the start of a new era of automotive retailing, where retail networks are free to sell whichever cars and trucks they choose. It would certainly make the manufacturers a little more eager to keep their retailers happy.  Under the present model, they are both captives to the other, and the only way to break that relationship is in court.


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GM Declares Bankruptcy

1st June 2009

In a move unexpected only by some members of the Taliban, GM formally declared bankruptcy this morning in NY. Under its plan, GM will sell substantially all of its global assets to “New” GM. Because GM’s sale of assets to the New GM already has the support of the U.S. Treasury, the UAW and a substantial portion of GM’s unsecured bondholders, GM expects the sale to be approved and consummated quickly.

CEO Fritz Henderson made the following statement:

Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more cost-competitive company that, above all, can quickly generate winning bottom line results. The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once and do it right. The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business. We are focused on the job at hand, for the benefit of our customers, employees, dealers, suppliers, retirees, taxpayers, investors and other stakeholders.

We recognize the sacrifices that so many have been asked to make as we have worked to reinvent GM and the automobile. GM deeply appreciates the support and the demonstration of confidence in our future by President Obama, the Presidential Task Force on Autos, the Canadian and Ontario governments, American and Canadian taxpayers, the unsecured bondholders who are supporting the proposed sale transaction, the UAW and CAW and their leadership, and the men and women of GM, including our retirees. You have enabled us to carry out this vital transformation for the good of GM, our customers and the economy, and we are working to validate your trust each day.

From day one, the New GM will be well-positioned to capitalize on the award-winning vehicles we have developed and launched during the past few years, and on our investments in exciting new technologies like the Chevy Volt, so that we can build and return value to our customers and to the millions who will have a stake in our success. The New GM will play a critical role in the future of the automobile, and assure that the U.S. has a strong stake in this rapidly changing global manufacturing industry.

The US taxpayers will now own 60% of GM and the UAW will own 17.5%. This creates many potential conflicts of interest, and it will be difficult or impossible for the government to do what it has said it will do: keep a hands-off approach to the running of General Motors.

  1. How will the government balance its desire for higher fuel efficiency with GM’s (and therefore, its biggest shareholder’s) need to turn a profit? President Obama has said he intends to be out of the auto business as soon as possible. That will require GM to make a profit so the Treasury can sell its shares to pay off the $50 billion it has invested in GM. It’s a fact of the auto industry – at least in the US – that the larger, less efficient vehicles make more profit. See the problem? For the US to break even on its “investment”, GM will need to have a market capitalization of at least $80 billion, but the recent high point was $56 billion in 2000.
  2. Will the government be able to resist giving GM (and Chrysler as well) preferential treatment in regulations, tax breaks, government contracts, etc? After all, won’t they have a fiduciary responsibility to the taxpayers to ensure the investment in GM is paid off as quickly as possible?
  3. How will the UAW balance the needs of its members (high pay and benefits, job security) with its need for GM to make a profit so the UAW can sell its shares to pay for the long-term needs of its members (retiree health care, etc.)?
  4. All of this applies to Chrysler as well, but to a lesser extent. That leaves one other big question: where does all this leave Ford? Ford, which is not exactly healthy, has been able to keep the Feds out of its boardroom. Will not Ford be in an unfavorable position with respect to the points above? If so, what does that say about our society, that we will put a company at a competitive disadvantage which has fought hard to keep itself solvent?

These are difficult questions to an unprecedented situation. I’m not smart enough to know the answers, but I sure hope the gods of the Potomac are.


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