Payday Loans

GM announced today that their 2010 full-size pickups will achieve a higher EPA rating for 2010, giving the Chevrolet Silverado and GMC Sierra the highest fuel economy in the segment (previously, the highest economy versions tied with the best Ford F150).

Silverado and Sierra 5.3L V-8 engine EPA-estimated fuel economy improves for 2010 from 14 city / 20 highway to 15 city / 21 highway MPG, while Extra Fuel Economy (XFE) models move from 15 city / 21 highway to 15 city / 22 highway MPG. This development, combined with the fact that GM’s hybrid pickups achieve an EPA estimated 21 city / 22 highway, puts Silverado and Sierra at the top in fuel economy.  This fuel economy improvement comes with no compromise in capability. Horsepower, payload, and trailering specifications remain the same for Chevy and GMC full-size pickups.

For reference, the following information is the most recent available EPA-estimated comparable fuel economy data for GM’s main competitors in this segment.

  • Ford – 5.4L: 14 city / 20 hwy; 4.6L with 6-speed transmission: 15 city / 21 hwy
  • Dodge – 5.7L: 14 city / 20 hwy
  • Toyota – 5.7L: 14 city / 18 hwy; 4.6L: 15 city / 20 hwy
  • Nissan – 5.6L: 13 city / 18 hwy

To be fair, GM is comparing its 2010 models against 2009 models for all of the above except Toyota.  Ford, Dodge and Nissan may well have a fuel economy trick up their sleeves for 2010 also.  Nevertheless, GM is showing that it takes fuel economy seriously and will do what it can to make incremental improvements without resorting to smaller vehicles with less capability.  Nice work.

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2010 Chevy Equinox

21st July 2009

2010 Chevrolet Equinox LTZ

Chevrolet’s Equinox was launched for the 2005 model year in 2004. Like many of GM’s entries into new segments, this one was “a day late and a dollar short”. Designed to compete against more established small SUVs, like the Ford Escape, Toyota RAV4, and Honda CR-V, the 2005 Equinox was larger on the outside and smaller on the inside than its intended competitors. It also only offered a V6 engine, while all the others had a 4-cylinder engine available. This increased costs and provided worse fuel economy than the competitors’. Interior space was also sub-par, especially in the rear cargo area. A clever shelf could be added to give 2 stories of storage, but the mechanism intruded too much on the space, even when not in use.

For 2010, the Equinox is brand new, and I recently had the opportunity to drive one for several hundred miles. The new Equinox is better than its predecessor in every way, starting with its looks. The 2010 has a better all-around look, as opposed to the cobbled-together look of the previous version. The interior is equally handsome, especially on the LT2 version with leather seats that I drove. The LT2 package includes remote start, Bluetooth, 8-way power driver seat, automatic climate control, foglamps, USB – among other goodies. This one included the 3.0L V6 engine with direct injection, good for 264hp. The base I4 gets best-in-class economy of 22 city / 32 highway. The V6 is rated at 17/25. It drives very smoothly, thanks in part to the 6-speed tranny and the independent suspension at all 4 corners. The kids enjoyed the rear-seat DVD player, which includes dual screens on the backs of the front seats. Their mom and I enjoyed listening to the iPod or XM Radio while they were watching the movies. Our tester was also equipped with a DVD navigation system to help us find our way.

The fit and finish was very good, with no noticeable gaps or color mismatches. The interior was finished in very attractive beige leather, and the seats were very comfortable and supportive for the long drive.

Gripes? Sure, there were a few, notably the IBM Selectric-like array of buttons on the dash for controlling the radio, navigation and climate. While I complained a little about the buttons at first, I quickly became used to them and their layout. Call it a B.

Another issue was the software that controls the navigation system. Having used several systems in the past (both portable and built-in), this one has a “feature” that makes no sense. When a destination is programmed, the system constantly updates the miles and time to the destination, like most or all other systems. However, this system, remarkably, updates based on some running average of the speed you are traveling. For example, if we had 120 miles/2 hours to go and encountered bad traffic that brought us to a stop on the highway, the 2 hours would gradually creep up until we were able to resume highway speeds. Other systems assume that you will drive the speed limit the entire trip, so it is never possible for the remaining time to go up, as long as you stay on your route. This makes more sense unless the ETA is tied into live traffic conditions, which is not the case here. The system is linked to the XM traffic service and thoughtfully tried to re-route us around an accident, which we ignored to our dismay.

The cargo area handled all of our bags with ease (not that we had much for a long weekend).

Overall, we thought the 2010 Equinox is a very strong entry in the small-ish SUV/crossover segment. It’s attractive and comfortable with enough power from either engine and delivers best-in-class fuel economy with the base I4 engine. What more could you want?

Overall Rating: 8 out of 10


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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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The Obama administration today announced the biggest and most expensive increase in fuel economy ever. Flanked by 10 auto executives, UAW President Ron Gettlefinger and others, Obama announced the plan in the Rose Garden.

The new standards will commonize the various regulations governing the sale of vehicles in the US into 1.  In return for the stricter standards, the state of California agreed to drop its attempt to institute its own fuel economy standards and the automakers agreed to drop lawsuits aimed at forcing them to drop the attempt.  This is the only good part of today’s announcement.  The threatened patchwork of regulations would have made doing business extremely difficult and MUCH more expensive.

The plan:
• Requires yearly 5 percent increases in fuel efficiency from 2012 through 2016, resulting in an average fuel economy standard of 35.5 miles per gallon in 2016. The previous plan had the standard at 35 in 2020.
• Cuts oil consumption by an estimated 1.8 billion barrels over the life of the program.
• Cuts greenhouse gas emissions by a projected 900 million metric tons.
• Supported by 10 car companies and the UAW.
• Sets one clear, national policy for all automakers, instead of standards from the EPA, Transportation Department, and a California standard that would apply to 13 other states.
• Gives automakers clarity, predictability and certainty about the rules, as well as flexibility to meet the expected outcomes.

The oil savings and emissions cuts are spurious at best. CAFE has been on the books for about 30 years, and has not resulted in any fuel savings. Why? Because by forcing fuel economy gains without any increase in fuel price, CAFE encourages more driving. The increase in driving miles has more than offset the decrease in fuel consumption per mile. Also offsetting the increases in economy has been a shift towards pickups and SUVs, which has also been driven (pun intended) by CAFE & other government policies.

So why did 10 automakers, including the 2 divisions of Government Motors, say they are in favor of this? 2 reasons: the political winds are blowing in such a way that they risk significant negative PR if they are seen to be unsupportive and 2. the commonization of the standards is a real benefit of the plan, as discussed above. You can bet, though, that GM and Chrysler were told that they will be there and they will look happy.

Obama at least did one thing that has been noticeably absent in previous discussions on fuel economy: he admitted that this will increase the price of cars and trucks in the US.  He also stated that the price increase will be made up in 3 years of fuel savings.  The government numbers assume that gas prices will be $3.50/gallon for the life of the program (2012 – 2016). One thing about cost increases in a competitive market is that there is no certainty that the OEMs will be able to increase their prices to make it up. And with the current state of the economy, raising prices is anything but certain. The cost increase, however, is very certain.

With every major automaker losing money, now is about the worst time possible to be adding at least several hundred dollars to the cost of the average vehicle. This is where I would normally say, “I hope the government knows what it’s doing.” But clearly, they do not.

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Cash for clunkers…the phrase is gaining prominence by the day. There are several proposals that fall under this heading, and while they differ in some significant ways, they all have the same goal and premise.  Trade in your old, gas-guzzler for a voucher or tax credit towards the purchase of a new, more fuel-efficient model. There are THREE basic points that differ between the proposals: amount of the voucher/tax credit, how old/guzzling the old car must be and where/by which company the new car was built.

Rep. Betty Sutton (D-OH) has drafted legislation that would give buyers vouchers of $3000 to $5000 if they turn in cars that are eight years old or older and buy new cars that get at least 24 miles per gallon on the highway or trucks that get 27 mpg. The money could also be used for mass transit. Sen. Dianne Feinstein’s (D-CA) bill, which provides incentives of $2500 to $4500, the “clunker” could get no more than 18 miles per gallon. The new car would have to exceed fuel-efficiency standards for its class by at least 25%. Feinstein’s places a price ceiling of the new vehicle at $45,000, while Sutton’s has a cap of $35,000.

Some argue over the amount of the voucher/credit. I have no opinion here. I would leave that up to some economist with elbow patches on their tweed jacket.  It just needs to be enough to have its intended effect – getting enough clunkers off the road to make a difference in emissions and spur the economy.

I think that specific numbers for the fuel economy part don’t make sense.  The new vehicle simply needs to be much more fuel-efficient than the clunker.  What if your present vehicle is a 1978 Chevy pickup that gets 11 MPG and you need to have a pickup for whatever reason. Wouldn’t a Chevy Silverado hybrid that gets 20 MPG in the city and 20 on the highway be a great choice and one that is worthy of the subsidy? I think Feinstein’s bill comes closer to my point here, but wouldn’t trading a 20 MPG car for a 35 MPG car still be a great idea?

The last point is the one that really gets peoples’ blood boiling.  To exclude or not to exclude – that is the question. Some proposals only include US-made vehicles; others include all points of origin. Say you want to include only “American” products. OK, but what does that mean? These days, that is a pretty ambiguous term. Should a Toyota Camry, made in Kentucky, be included? What about a Honda Accord made in Ohio? On the other hand, how about a Chevrolet Aveo, made in Korea? I think that the reason for this proposed legislation is to help spur the US economy. Therefore, all US-made cars and trucks should be eligible for the incentive. Another wrench in the works are cars like the Ford Fusion and Chevrolet HHR, both made in Mexico. Should these qualify? I think so, because Mexico is only their final assembly point. The design, engineering and all other related activities are in the US. So my final answer is that all brands if US-made or US brand if made in North America should be eligible for the incentive. Foreign brands will not like this, but let’s be honest here. These bills propose to clean up the environment a little while spurring the US ECONOMY. Vehicles designed, engineered and manufactured elsewhere quite simply do not spur the US economy. We should not be subsidizing the sale of those vehicles.

That’s my story, and I’m sticking to it.  Comments? Feel free to leave them. I might even respond.

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GM Cancels Diesel Program

11th March 2009

Another shoe drops.  GM has announced that it cancelled the 4.5L Duramax Diesel engine program – indefinitely.  They released the following statement today (11 March 2009):

“Given the current economic climate, GM has reviewed and updated its U.S. product portfolio and has decided to place on indefinite hold its previously announced plan to add a Duramax 4.5L V-8 diesel engine in 2010 to its Chevrolet Silverado and GMC Sierra light-duty trucks.

Chevrolet and GMC will continue to offer a heavy duty Duramax 6.6L V-8 diesel, which is class-leading in both horsepower and torque. Light-duty truck customers can also choose from several fuel-efficient gasoline engines with GM’s Active Fuel Management mated to a six-speed transmission or a new 2-Mode hybrid that provides up to 40 percent improved city fuel mileage and 25 percent improvement in overall fuel efficiency. In fact, no other full-size pickup has better fuel economy.

GM remains optimistic that the Duramax 4.5L V-8 diesel may be a viable option in its future portfolio.”

This is truly a sad day for many reasons.  GM stood to gain revenue and share with this engine.  Diesels command a healthy premium over gas-powered vehicles and they would have been first to market in the light-duty full-size pickup segment.  Pickup buyers tend to be very loyal, but the Diesel could have tempted some Dodge or Ford buyers into a GM showroom.  So GM, its dealers and shareholders all lose money with this decision.  GM’s reputation would have gained as well.  Being first with a feature like this carries may benefits that no amount of advertising or PR money can buy.  This engine was going to be very innovative, with cylinder heads that eliminated the need for intake and exhaust manifolds.  In addition, Diesels get better fuel economy, more torque and last longer than their gasoline friends – all of which would contribute to the reputation gain mentioned above.

So why is GM pulling the plug?  There are probably several reasons.  The most obvious is an effort to save money, which is in precious short supply over at the General.  However, if this engine was scheduled to begin production this fall, the facilities and tooling have to be substantially complete, as does the engineering.  Can you say, “Sunk costs?”  Another reason is gas prices have fallen significantly in the last 6-8 months.  Lower gas prices make the advantage of Diesel’s fuel economy less compelling for customers, resulting in lower sales.  Another possible reason is posturing for the administration task force.  Maybe they think if they are shown cancelling high-profile projects, that will demonstrate the severity of the situation.  If so, they are playing a very risky game of chicken.  Cancelling a program whose investments have largely already been paid and that will make you money and improve your market share and reputation to make a point could VERY easily backfire.

I think GM is simply trying to conserve funds.  This might seem short-sighted, due to the benefits outlined above, but GM’s situation is dire, to say the least.  While certainly not the optimal solution, they are finding themselves in the position of making decisions now which will hurt them in the long-term to save them from collapse in the short-term.  The long-term only matters if it exists.


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Amid all the doom and gloom in Detroit, and all of the hoopla surrounding Toyota’s hybrid program (you would think that “Toyota” is Japanese for “hybrid”), Ford quietly announced that it has produced its 100,000th hybrid SUV.  Ford launched the Ford Escape and Mercury Mariner hybrids five years ago and the vehicles remain the most fuel-efficient SUVs on the market.  Today, the Ford Escape Hybrid SUV and Mercury Mariner Hybrid SUV deliver 34 mpg city driving, 31 mpg highway.  This makes them the most fuel-efficient hybrid SUVs available, beating the Toyota Highlander (27 city / 25 highway) by several miles per gallon on the EPA list.

In 2004, Ford introduced the world to the first hybrid SUV – the Ford Escape Hybrid – by taking a record-breaking trek through the congested streets of Manhattan, where the vehicle exceeded all expectations, driving 37 straight hours and 576 miles on a single tank of gas.  In 2005, it became the first hybrid vehicle to be used as a taxi in the U.S. The Escape Hybrid taxis were first introduced in San Francisco, and soon after, in New York City. There are now 250 Escape Hybrids providing taxi service in San Francisco and 1,400 in New York City.

This month, a San Francisco Escape Hybrid cab fleet accumulated 300,000 miles with no major mechanical problems. It is a true demonstration of the durability and reliability of the vehicles. Compared with conventional cabs, those 300,000 miles translate into a savings of approximately 5,000 gallons of gas or 100,000 pounds of carbon emissions.

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Every year for 15 years, Ward’s Auto has published its 10 Best Engines list.  Considered the most prestigious award for powertrain excellence, the 10 Best Engines award is highly coveted by automakers.  The criteria include many objective and subjective factors.  They all must be available in a regular production model priced no higher than $54,000 by early 2009.  There were 32 nominees this year.  2008 winners and any all-new or significantly changed engines are eligible.  Lest you think Ward’s only includes high-powered, sports car engines, this year’s list is highly diversified, with engines of every major type and geography represented.

The list includes engines from German (4), US (3), Japanese (2) and Korean (1) automakers.  The engines have 4-cylinders (3), 6-cylinders (5) and 8-cylinders (2) and are powered by gas (7), Diesel (2) and hybrid (1) power.  They use natural aspiration (6) and turbo (4), but no supercharging.  All of the gas engines, regardless of size, have highway MPG of 25-28 – the Diesels and hybrid are higher.  5 winners are repeats from last year and 5 are new on this year’s list.

The engines have a huge range of horsepower (140 – 376) and an even larger torque range of 136 – 425 lb.-ft.  Specific output, or horsepower per liter, is considered a measure of how well the engineers have wrung power out of the engine.  A few years ago, 60-70 hp/L was considered excellent.  The lowest figure on this year’s list (61) is the one hybrid, whose horsepower figure does not include the extra power provided by the battery.  The highest non-turbo is 87.  The turbos range from 70 – 106.

Enough of the stats!  Here are the winners this year:


Vehicle Tested

Size & Type






A4 Avant

2.0L Turbo I-4







3.0L Turbo I-6







3.0L Turbodiesel I-6






Dodge Challenger

5.7L Hemi V-8






Escape Hybrid

2.5L I-4 Hybrid






Cadillac CTS

3.6L Direct Injection V-6






Accord Coupe

3.5L V-6







4.6L V-8






Lexus IS350

3.5L V-6






Jetta TDI

2.0L Turbodiesel I-4





If you’re lucky enough to drive one of these cars, make sure you appreciate the hard work and skill of the engineers who designed and built your engine.  After all, the engine is the heart and soul of any good car or truck.

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Well, it looks like the D3 will get their bail…er, loan after all.  As of this writing, reports out of Washington say that GM and Chrysler may get up to $15 billion in short-term loans to carry them over until approximately March.  The lame duck Congress and administration are punting this issue to their successors next year.

Congress has been throwing around many ideas to “help” make the D3 more efficient and more profitable, all under the guise of protecting the taxpayers’ money.  Among the ideas:

  • a shotgun wedding of GM and Chrysler
  • limits on the companies’ lobbying – specifically against states’ efforts to regulate greenhouse gas emissions (Democrats want this)
  • appointment of a “car czar” to oversee the restructuring of the industry, including the power to rewrite contracts with lenders, suppliers, dealers and unions
  • force bankruptcy if certain conditions and deadlines are not met
  • cut the union wages and eliminate the so-called “jobs bank” (Republicans)
  • compel bondholders to accept a debt for equity swap
  • forcing the ouster of 1 or more of the CEOs of the D3 and limitations of executive pay and/or bonuses

Depending on the exact final wording of the bill, this could be a disaster for the D3.  Many cliches come to mind, specifically that the “medicine might be worse than the disease.”

I have addressed the GM-Chrysler merger in a previous article, so you can read my thoughts there.

The separate greenhouse emissions regulations by state is beyond ridiculous.  Briefly, you have a group of companies that might not make the payroll this month, and DC wants to saddle them (as well as their competitors) with a ragtag set of regulations that will drive up the complexity of their products many times.  This will further undermine their ability to recover from their current situation.  For those that don’t understand this issue, California and 15 other states have already passed regulations that limit greenhouse gas (carbon dioxide) emissions from tailpipes.  Present federal law prohibits states from setting fuel economy standards.  There is one set of standards and the feds have that right exclusively.  So what’s the problem – fuel economy standards aren’t the same as emissions, right?  Wrong.  Gasoline (as well as Diesel fuel) is a hydrocarbon, meaning that it is made up of hydrogen and carbon.  When a hydrocarbon fuel burns completely, the oxygen in the air combines with the hydrogen to form water (H2O) and with the carbon to form carbon dioxide (CO2).  If the burning is not complete, then some of the carbon atoms only combine with one oxygen atom rather than two, to form carbon monoxide (CO), a highly poisonous gas.  Phrased differently, carbon dioxide is formed from burning gasoline or Diesel.  It’s the chemistry that determines that, so the 16 (and counting) states saying that they are only trying to clean up their air is just a smokescreen (pun intended) for going around federal law to set fuel economy standards.  Why is this bad?  Because all of the automakers spend many millions of dollars every year to navigate the extremely complex fuel economy rules.  Believe me, it is way more complex than anybody who has never worked in government could ever imagine.  Now multiply that by perhaps 50.

I want to know the criteria for the selection of the car czar.  Since many in Congress admitted in the hearings that they know nothing about running a car company, what makes them think they know how to pick somebody to oversee the auto industry?  What are the qualifications?  I think they would want somebody with non-automotive manufacturing experience, perhaps a turn-around specialist.  I’ve heard the name Jack Welch thrown around.  Jack would likely be a good choice, but DC doesn’t work that way.  Likely, it will be a politician owed a favor or perhaps a politician out of favor, considering how DC views Detroit.  Detroit is the USA’s Siberia, after all.  But can Sarah Palin see Detroit from her house?  Personally, I’d like to nominate John Engler, former Michigan governor, for the post.  Engler is the President & CEO of the National Association of Manufacturers, so he knows all about the issues facing the manufacturers in this country.  He is also a politician, so he knows how get things done in the political world.  He has all of the skills and experience that will be needed in this job, assuming it will exist in the final version of the loan legislation.

If the feds force bankruptcy, they better understand that Chapter 11 (reorganization with court supervision) really means Chapter 7 (liquidation) in this case.  Consumer research has already shown that D3 sales have been hurt by the mere talk of bankruptcy.  Bankruptcy generally works to help a company restructure in a safe environment.  Cars are different.  Besides your home, you will likely never make a bigger purchase than a car.  People keep cars for at least 2 years, sometime much longer.  Be honest – would you make that kind of financial commitment to a company that you’re not sure will be around to honor the warranty?  Make no mistake about this – bankruptcy in this case means the companies go out of business.  What would be better is for Congress to allow all of the bankruptcy rules and protections to apply without a formal declaration and filing of bankruptcy.

The UAW last year negotiated lower wages for all new employees (½ of the prevailing rate), and agreed to buyouts of many existing, higher wage employees.  They also agreed to help take many of the obligations for benefits off the D3 books, and last week agreed to a longer time frame to fund those obligations, saving the D3 precious cash.  Experts agree that when those changes are fully implemented, D3 wages & benefits will be roughly the same as the transplants.  The UAW has also agreed to suspend the jobs bank immediately.  The UAW has come to the table and has given much more than most people realize.  The only part left is in the area of work rules.  The UAW contract contains many different job classifications that are simply out of date.  Supervisors need to have the flexibility to assign workers wherever they are needed, but they don’t presently have that ability.  So while the cost of the workers is now competitive, the D3 are forced to have too many workers.  This should be addressed and fixed.

I have also addressed the situation of the CEOs of the D3 previously, and you can read my thoughts on that as well.  I think that limitations on pay and bonuses are perfectly fair, if the taxpayers’ money goes to help these companies.

The D3 need the taxpayers’ help, and they are going to have to live with whatever restrictions Congress dreams up if they want to survive.  Congress needs to be careful and understand what they’re doing, because they are hardly the example of fiscal expertise.  The D3 might be guilty of mismanagement, but DC certainly is.

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There have been many in the last few weeks who have openly cheered the impending collapse of the Detroit 3 (D3) and have stated that we would all be better off if they simply went away and left us all alone.  One of the more prominent has been an opinion piece in Saturday’s Wall Street Journal, written by David Yermack, a finance professor at New York University.  Among other points, he states, “Today, our government is being asked to put tens of billions of dollars in GM, Ford and Chrysler, but we would be much better off if Washington allowed these companies to go bankrupt and disappear.”  Mr. Yermack’s piece is so full of inaccuracies that it would be difficult to list them all.  But I think it would be helpful to discuss with real facts, what’s going on here.

How did the D3 get into this situation?  The reasons are long and varied, but the talking heads will tell you that bad products and resistance to fuel economy standards.  Let’s talk about each of these.

Products While I will never say that the D3 haven’t made more than their share of bonehead decisions and bad cars, most of that is in the past.  Today, although Chrysler lags, GM’s and Ford’s quality is every bit as good as anybody else’s.  While measuring vehicle quality is much more complicated than it may seem, J.D. Power publishes a report called the “Initial Quality Study” (IQS) each year.  It is widely regarded as the most definitive study of vehicle quality.  So what does JDP say?  While the top 5 spots are indeed occupied by foreign brands, most of the remaining spots rated better than average are American brands.  J.D. Power rates 16 brands better than average – 7 American, 4 European, 4 Japanese and 1 Korean.  But there are so many more American brands, you say, so that means nothing.  OK, what about those worse than average?  There are 20 worse than average – 6 American, 6 European, 7 Japanese and 1 Korean.  54% of the American brands are better than average, compared to 50% of Korean, 40% of European and 36% of Japanese.  Even if you include GM’s and Ford’s foreign brands in their totals, 47% of the American brands are better than average – still better than the Japanese manufacturers.  The same details by manufacturer are in the table below.  As for individual nameplates, Power rated the Chevrolet Malibu the highest-quality midsize sedan.  Both the Malibu and Ford Fusion scored better than the Honda Accord and Toyota Camry.  In the compact car segment, the top 2 cars are Japanese, but so are the bottom 2.  In large pickups, Power rated the Chevy Silverado the highest quality, ahead of the Toyota Tundra.  The Nissan Titan was last.  While there are nuances to all of this, and you can make statistics say whatever you want, this shows that it is absolutely incorrect to say that “foreign” cars are any better than American.

Maybe you don’t know about JD Power, and don’t care what they say.  OK, how about Consumer Reports?  Consumer Reports recently found that “Ford’s reliability is now on par with good Japanese automakers.”  Notice they said “good Japanese automakers.”  That means that it is just as wrong to say that all Japanese cars are good as it is to say that all American cars are bad.  You can get a bad Japanese car or a good one – the same as American cars.

The D3 are also no less efficient in their operations than the foreign makers.  According to the 2008 Harbour Report (again, the most respected study of manufacturing efficiency), the D3 “nearly erased the productivity deficit against their Japan-based competitors, despite declining production and shrinking market share.”  Chrysler’s labor hours per vehicle are equal to Toyota, GM recorded its 15th consecutive improvement, and Ford reduced its labor content per vehicle by 3.7%, despite producing 6% fewer vehicles than in 2006.  Ron Harbour stated, “Improving productivity in the face of lower production is a huge accomplishment, especially with the pressures created by rising gas prices.”  So, apparently, manufacturing efficiency isn’t the issue, either.

OK, but they build only gas-guzzling behemoths, right?  Wrong.  This one will surely surprise you (it surprised me when I looked up the figures).  In nearly every vehicle category, a D3 product has the best fuel economy.  Without boring you with lots of numbers and details, just look at this table:

Source: 2009 Fuel Economy Guide (

Source: 2009 Fuel Economy Guide (

Fuel Economy Standards This topic is tied up with overall government regulation and policy, so I will include those in this discussion.  The Corporate Average Fuel Economy (CAFE) legislation was enacted in the aftermath of the first energy crisis as a way to reduce our dependence on foreign oil.  We imported 35% of our oil in 1974, and this has increased to over 65% today.  The problems with CAFE are numerous, but for purposes of this discussion, I will focus on one.  CAFE takes a laudable goal – reducing our use and import of oil – and places its burden upon the manufacturers, not the consumers.  Auto manufacturers are forced to sell the more economical vehicles in sufficient numbers to offset the sale of the less economical vehicles.  But what if consumers don’t want the more economical vehicles?  Tough.  CAFE says you have to average a certain level of fuel economy regardless of what the consumers want.  Until this past summer, almost nobody wanted the vehicles with higher MPG, because gas has been so cheap – the cheapest in the industrial world.  The home markets of the foreign automakers place heavy taxes on gas to encourage the purchase of fuel-efficient vehicles.  Our government tells the producers what to sell.  Because of this difference, the foreign automakers have a built-in advantage.  They make smaller, more efficient vehicles for their home markets, because that’s what the consumers want there.  They have developed the expertise in small vehicles for many years.  Consumers also want smaller cars there because their home markets have less parking and have tighter roads.  US consumers want a vehicle that is comfortable to drive several hundred miles or more on vacation.  Our society is simply different that those others, and so therefore are our automakers.  Back to gas prices, though.  Do you think it’s a coincidence that sales of small cars went from 16.6% of the US market in 2007 to 23.9% this past spring (May – July)?  Hardly.  Consumers bought the more fuel-efficient vehicles because it made sense for them.  CAFE, by keeping fuel prices low, actually encourages more consumption and therefore defeats the purpose.  If we as a society want to use less fuel, CAFE is the exact opposite way to accomplish it.  The summer of 2008 saw a major and sudden shift to more fuel-efficient vehicles for those needing to buy a new vehicle and a marked reduction in driving for everybody.  This proves that they way to reduce consumption is to raise the price.  This is classic (and simple) supply and demand.  Our government needs to scrap CAFE because it simply doesn’t work.  Such disparate sources as the National Center for Policy Analysis and Popular Mechanics agree. The better and more effective solution is a higher gas tax, either a $/gallon or a floor on prices (which is used in Europe).

The other part of the government’s role in this mess is in trade policy.  The home markets of the foreign makers, especially Japan and Korea, actively support their industries, especially the auto industry.  They do this through trade barriers and the funding of collaborative research.  The trade barriers have a two-pronged effect.  First, there is no real opportunity for foreign makers to penetrate these markets in any significant numbers, regardless of how good the products are.  This results in the second issue.  Their closed home market provides unreasonable profits that they plow back into new and better products, processes and factories.  While I am a strong proponent of free trade, the rest of the world is using us (and our free-market nature) to take advantage of us.  Fair trade is a better policy unless and until the rest of the world joins us on the free trade side.  The US government should immediately change our policy to be reciprocal with all of our trading partners.  We should exactly match any and all trade barriers placed upon our products overseas.  If they relax their barriers, so would we.  It’s time we stopped being the world’s punching bag and started supporting our home industries – of all varieties.

Tax policy is also part of the equation here.  The Tax Code allows a write-off for SUVs that weigh over 6000 lbs.  This is a provision that was intended to allow farmers and other businesses to afford to buy new trucks for their businesses.  Including the 6000-lb. floor was intended to make sure people weren’t buying the vehicles for personal use.  then came the monster luxury SUVs.  People (and their accountants) quickly figured out that they could buy an Excursion or a Hummer and write off the whole thing in the year of purchase, saving them thousands.  Like CAFE, Congress made a law that had good intentions, but had bad side effects.

OK, now what?

So given all that, what should we do now?  Are the talking heads right, would we be better off without the D3?  It depends upon your definition of “better”.  The Center for Automotive Research (CAR) in Ann Arbor, Michigan published a study earlier this month that examines the doomsday scenario that so many would be happy to see.  I wrote about that study a week ago, but here is the summary in a nutshell.  If the D3 were to shut their doors tomorrow, the US economy would lose 3 MILLION jobs in the first year – “only” 240,000 of which are direct employees of the D3.  Why?  The auto industry has one of the largest economic multipliers in the US economy (this means that each automotive job supports more spin-off jobs than those in other industries).  Some of those 3 million lost jobs would be offset eventually by other automakers and some employees finding new work, but it would still be 1.8 million after 3 years.  The total loss of tax revenue for the government would be $156 billion over 3 years.  Doesn’t that sound a little better than the $25 loan that the D3 are requesting?  The auto industry is somewhat a victim of over-regulation and misconception and supports 3 million jobs.  The loan would include significant oversight.  This sounds better than a $700+ billion blank check for a financial services sector that is largely a victim of its own greed?

Lastly, we cannot forget national security in these dangerous times.  Our manufacturing base will be vital in the case of a future war.  Should we depend on foreign companies to supply us with tanks, planes and other needs in the event of war?  Or should we do all we can to keep that kind of expertise here at home?  The Detroit automakers converted their factories to producing war materials in World War II.  Without them, the outcome may have been very different.

The Detroit 3 have made their share of mistakes, but the present situation is not completely of their own doing.  The government should place whatever reasonable restrictions are necessary, but we cannot let our auto industry die.  They’ll take our way of life and our standard of living with them.

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