Archive for February, 2012

Wise Audi: The New A8 Seeks Prestige, Not Big Volume

I sat down with Audi of America President Johan de Nysschen last week to chat about the brand’s plans for the U.S. market. As de Nysschen prepares to launch the new A8 sedan later this year, he had a few refreshing things to say. The first was that he thinks Audi should cap its growth in the U.S. He thinks that the sporty luxury brand should max out its U.S. sales volume somewhere between 150,000 and 200,000 cars – almost twice what the brand sells in a typical year but still less than its chief rivals have sold in the market. His thinking is that luxury brands can become ubiquitous and lose their cachet; the next thing that goes is pricing power. Cadillac and Lincoln both lost their luster in the ’80s and ’90s in part because they were in a mad race to sell more cars than the other. By the end of the ’90s, both brands had cars everywhere. Having fleets of Town Cars and Devilles lined up with the taxis at airports probably didn’t help. His other push is to keep moving Audi upscale.

Make no mistake, Audi wants growth. It is the top seller in Europe and China these days. In the U.S. this year, sales have surged 25%. Only Cadillac has outpaced its growth among luxury brands. But the brand would rather have prestige than gaudy sales numbers. Audi’s U.S. sales of 86,000 cars is less than half Lexus’s total. Take the new A8 that hits showrooms in November. Its starting price of $78,050 is about $2,000 more than the current car. Audi is loading up the car with a slew of new technology, like an 8-speed transmission that boosts fuel economy. The car will get 27 mpg on the highway, 4 mpg better than rival BMW’s ActiveHybrid 7i. It will also have a night vision system, a Bang and Olufsen sound system and, starting next year, a WiFi hot spot in the car. Later next year, the company will start selling the A7, a prestige coupe to compete with BMW’s 6-series.

Bottom line, the brand is moving into more expensive models, not big sellers. That’s the kind of thinking that has pushed Audi into the top tier of luxury brands along with BMW, Mercedes, and Lexus.

Toyota Recalls Another 2 Million Cars. Apology Needed.

When NASA released the results of a 10-month study on Toyota vehicles on Feb. 8 concluding that the automaker’s cars did not have an electronics problem that caused unintended acceleration, one of Bloomberg BusinessWeek’s columnists said the media owed the company an apology. There is no ghost in the machine and the intense media coverage caused a frenzy, Bloomberg BusinessWeek columnist Ed Wallace wrote. I know Ed personally and have tremendous respect for him. But I must part ways on this issue.

Toyota may not have had electronic throttle issues. But certainly the company had plenty of other problems. Just today, Toyota announced its biggest recall in a year. The Japanese auto giant recalled 2.17 million vehicles because of carpet and floor mat flaws that could jam gas pedals. Toyota has recalled more than 12 million vehicles globally since November 2009, many of them related to unintended acceleration claims. Of those actions, 5.3 million vehicles were recalled to fix floor mat problems. Some of the cars were recalled because of a sticking accelerator pedal. It may not have been electronics, but there were problems.

Toyota has had other investigations and recalls not related to unintended acceleration. Last week, the National Highway Traffic and Safety Administration opened an investigation into the 2006 Highlander hybrid amid claims that the SUV stalls frequently. In January, Toyota voluntarily recalled 1.7 million vehicles for potential defects in fuel pipes and pumps, Bloomberg reported. On Jan. 10, Toyota CEO Akio Toyoda told reporters that the recalls have inflicted “big damage” on the company, but he maintained that its cars are safe, Bloomberg reported at the time.

Back to the apology. While it’s clear that there is no mystery magnetic glitch in Toyota’s cars and that they are as safe as anyone else’s vehicles, forget the apology. First of all, investigations are news. So long as the media reports the conclusion, it’s in the public’s interest to know what’s happening. Second, Toyota’s lost its once-astute focus on quality. Rapid expansion of its model lines and sprawling archipelago of factories has made it difficult to mind every detail, which was a principal tenet of the company.

Consumer Reports has found a decline in the quality of interior finishes in Toyotas for the past three or four years, David Champion, the magazine’s director of automotive testing, told Bloomberg for a Jan. 12 story. The company whose customers once relied on Toyota for bullet-proof quality and reliability suddenly suffered a rash of problems. In fairness to my old pal Ed, some media reports accepted the unintended acceleration claims as gospel. But that alone does not exonerate Toyota. Sorry Ed, but it’s the customers – not Toyota – who deserve the apology. Toyota’s executives have apologized, and justifiably so.

With Little Fanfare Comes the Transit Connect EV from Ford

With all the hype surrounding the pending launch of the Chevrolet Volt and Nissan Leaf electric cars, Ford’s Transit Connect EV has gone almost unnoticed. It’s easy to see why. When the van goes on sale later this year, it will sell primarily to commercial fleets. In the car business, there are few things less sexy than commercial vans.

Still, Ford and Azure Dynamics, the company that engineered the electric drive system for the car, may be onto something. Companies like AT&T, which has agreed to buy a few Transit Connect EVs, have drivers motoring around all day in stop-and-go traffic. They burn a lot of fuel even though they travel fewer than 50 miles in a day, says Curt Huston, Chief Operating Officer of Azure. Since the Transit Connect EV can go about 80 miles on a charge, their needs are mostly met. The van has a 28 kilowatt-hour battery that takes six to eight hours to charge and has a top speed of 75 mph. The Leaf can go 100 miles on a charge, but it’s a compact car. This is a small deliver van. For range, the Volt beats both since it can go 40 miles on electric drive and another 300 miles once the gasoline engine kicks in and starts charging the battery. Again, it’s a small car. The Transit Connect will appeal to business owners.

Commercial fleet owners can install a charging station in the garage and get the vans juiced up overnight before heading out the next day. It’s actually a great application. Huston says the fuel savings should return the added cost of an EV in four or five years. Unlike some of the startup EV companies, Azure partnered with Ford. That means vehicle owners can take them to a Ford dealer for service. The company will have 75 dealers to start and may add more later on.

If it takes off, building sales volume through fleet sales can help drive down the cost of the technology and make electric cars more affordable in the future. There is one catch to the whole plan. The price has to be right. Ford and Azure have not set a price yet. Commercial buyers will look at the car purely on a fuel cost savings basis. It’s dollars and cents. If the car costs too much, they won’t see the savings at the pump that they want as quickly as they want it, says Jim Hall, principal of consulting firm 2953 Analytics in Birmingham, Mich. The car also won’t appeal to environmentalists and technology buffs the way a Volt or Leaf will. But for what its target buyer wants, Azure’s Transit Connect may be the right idea.

Notes From the Detroit Auto Show

By David Welch

The mood in Detroit is considerably better at this year’s North American International Auto Show than it was a year ago when General Motors was hunting momentum and Chrysler’s very survival was in question. I’ll get into the new models and concept cars as they roll out. In the meantime, here are a few notable comments from the auto executives I tracked down at the show.

Chrysler going public
Fiat-Chrysler CEO Sergio Marchionne said he wants to take Chrysler public in the second half of this year. Fiat won’t sell any of its Chrysler stock. The sellers will be the United Auto Workers retiree healthcare trust, and possibly the U.S. Treasury Department and Canadian government.

The Italian automaker owns 25% of Chrysler. The UAW owns 63.5% of Chrysler. The U.S. Treasury holds 9.2%, while Canadian municipalities have a 2.3% stake. Marchionne told reporters that he wants to pay back $7.5 billion in debt to the U.S. and Canadian governments in 2011 and then go public. Following GM’s successful IPO, Marchionne says Chrysler can launch its IPO following a couple quarters of profitability. “I’d love to do it in the second half of this year.”

IPO yes, but electric cars… maybe not
Marchionne bucked the trend among auto executives by casting some doubt on the potential of electric cars. Fiat plans to sell an electric version of its tiny 500 hatchback, he said. But that’s not where the market will be. If carmakers want to meet fuel economy regulations and boost efficiency, they’re better off just wringing more mileage out of gasoline engines, he said. “I’m reluctant to embrace full electrics as a solution,” Marchionne said. “The dollars spent for reduction in fuel use is not there. We have to be careful not to chase a rainbow.”

BMW’s U.S. boss throws down the gauntlet
BMW and Audi have gone toe to toe with their advertising efforts, taking shots at each other in the past. Audi had a billboard featuring the A4 that read, “Your move, BMW.” In response, BMW put up its own billboard for the 3-series saying, “Checkmate.” Audi has been gunning for its German rivals with its own brand of German engineering and sporty luxury cars. Jim O’Donnell, CEO of BMW US, took a shot at his rivals. With 220,000 cars sold in the U.S., BMW more than doubled Audi’s take in the market. Audi is “too worried about having a go at Mercedes and BMW,” O’Donnell said. “They have to learn to swing first. I think their whole communications strategy is wrong.”

GM tries to make money on small cars
For Detroit’s carmakers, small-car profits have been almost as elusive as a playoff appearance by the Detroit Lions. GM-North America President Mark Reuss said in an interview that GM should be able to make money on cars like the Chevy Cruze compact and Sonic subcompact, which are built in the U.S. with union labor. The company’s break-even point has fallen drastically since bankruptcy wiped away billions in debt and healthcare obligations. GM is wagering that cars like the Cruze and Sonic will offer a sportier ride and more creature comforts, so they should get a better price. The Buick Verano, which also had its debut at the show, will be built with many of the same parts as the Cruze. Its higher price should help the entire small-car program make money, he said.

The gamble is that cars like the Sonic—which have traditionally been cheap, entry-level transportation—can fetch a higher price by offering more horsepower, better ride and handling and features like MyChevrolet, a phone app that allows drivers to unlock doors, start the engine and check the vehicle’s diagnostics remotely. Ford is making the same bet with its Fiesta, which can sell for more than $20,000. Chevy has not priced the Sonic, but GM won’t set a ridiculously low price on the model, Reuss said. “If we’re going to make the cheapest, silliest car in the U.S. and try to make money on it, that isn’t going to work,” he says.

Advance Auto Parts Earnings Preview

Advance Auto Parts (NYS: AAP) beat estimates by $0.22 last quarter and investors are hoping it can beat them again. The company will unveil its latest earnings on Thursday, Feb. 16. Advance Auto Parts is a specialty retailer of automotive aftermarket parts, accessories, batteries, and maintenance items, mainly operating within the United States.

What analysts say:
Buy, sell, or hold?: Analysts think investors should stand pat on Advance Auto Parts, with 11 of 18 analysts rating it hold. Analysts like Advance Auto Parts better than competitor Pep Boys overall. One out of five analysts rate Pep Boys a buy compared to seven of 18 for Advance Auto Parts. Analysts still rate the stock a hold, but they are a bit more wary about it compared to three months ago.
Revenue Forecasts: On average, analysts predict $1.32 billion in revenue this quarter. That would represent a rise of 3.9% from the year-ago quarter.
Wall Street Earnings Expectations: The average analyst estimate is earnings of $0.74 per share. Estimates range from $0.69 to $0.80.
What our community says:
CAPS All-Stars are solidly behind the stock, with 94.2% granting it an “outperform” rating. The community at large is in line with the All-Stars, with 90.9% giving it a rating of “outperform.” Fools are keen on Advance Auto Parts, though the message boards have been quiet lately with only 82 posts in the past 30 days. Despite the majority sentiment in favor of Advance Auto Parts, the stock has a middling CAPS rating of three out of five stars.
Management:
Advance Auto Parts’ profit has risen year-over-year by an average of 18.1% over the past five quarters. Revenue has now gone up for three straight quarters.
Now, a look at how efficient management has been at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. Advance Auto Parts’ net margins are up for the last two quarters year-over-year. Net margins reflect what percentage of each dollar earned by the company becomes profit. Here are Advance Auto Parts’ reported margins for the last four quarters:

Quarter

Q3

Q2

Q1

Q4

Gross Margin

49.5%

49.7%

50.5%

49.4%

Operating Margin

12.1%

12.8%

9.8%

6.6%

Net Margin

7.2%

7.6%

5.8%

3.8%

Ford showcases wide-opening Easy Access doors on new B-Max

Ford showcases wide-opening Easy Access doors on new B-Max

Every year the auto show circuit is packed with concept cars (usually crossovers and minivans) that do away with the B-pillar to tease us with easy access and a wide aperture to the cabin. It’s what Ford’s European exterior design director Stefan Lamm calls “a designer’s dream”. But none of them ever make it into production. That is, until now.

Ford first showed off a compact MPV concept called the B-Max at the Geneva Motor Show last year that, like many others, did without a B-pillar altogether. Earlier this month, the Blue Oval automaker announced it was putting the Fiesta-based minivan into production – and that the pillar would stay out. But this is the first image we’ve received of the production B-Max with its wide-opening doors actually, you know…open.

The combined aperture of the conventional front-hinged doors and sliding rear doors, unencumbered by the pillar you’d usually expect to find there, comes in at a whopping 1.5 meters (nearly five feet) wide – nearly twice that of the Opel Meriva with its innovative rear “suicide” doors – and is made possible by strategic use of high-strength steel incorporated into the doors.

Follow the jump for the full press release and stay tuned for the vehicle’s debut at the upcoming Geneva show. While we might hope for the Easy Door Access System to find its way into Ford’s American offerings in the near future, we wouldn’t expect to find the B-Max you see here in U.S. showrooms any time soon.