Wake Up, Folks, We’re Going to Have an Auto Industry


My compadre tgriffith got all steamed last week about the chintzy buyouts GM and Chrysler have offered their workers. For $20,000, much less than one year’s pay, and $25,000 toward an already-depreciated, devalued car, GM workers sign over their rights to receive all retirement and health care benefits.

The company wants to shrink the number of its long-term employees, since it pays far less for new ones. Well, would you take that offer if you knew there might be a bailout coming? And why would you take it anyway?

One year ago, GM was offering its entire hourly workforce buyouts of $140,000 for those with 10 years of service or more, $70,000 for those with less. Buyout offers have been a fact of life in the car industry for years.

A Little History, Please Those who commented on tgriffith’s post, with the exception of Randy, have no idea how the auto industry works, much less the UAW. They don’t know that both company and union are carrying $47 billion in retiree health care costs, and that is the biggest obstacle to an agreement right now, the union having given way on most issues since 2007. New workers at the Big Three and the transplants are paid roughly the same.

Detroit has a 70-year history with its workers, whereas the transplants in this country virtually just arrived. In better times, the UAW and the Detroit companies made expensive and expansive deals each is having trouble living up to now.

The larger point is that everyone knows President Obama is committed to having a viable auto industry, and he has created a task force of his top economic advisors to bring that about. Messrs. Geithner, Summers, Bloom & company will have their hands full, but they aren’t stupid people.

Through bankruptcy, formal or informal, the companies will get remade and restarted. Wagoner, Nardelli, and their top brass will go, many jobs will be lost, and you and I will pay for it. Why? Because the alternative is much worse.

Four Big Potholes Ahead I see four very big economic problems that will have to be solved. If not, you’ll see the much worse alternative. I’m not even looking at the energy side, which may or may not give us the new cars we all like to write about.

U.S. automakers and their dealers are swimming in inventory, and the problem will get worse. With sales tanking and factories still producing, though at a lower rate, inventories will grow this year. Nobody sees demand increasing enough to catch up for a long time. Prices will continue to drop, including those for hybrids.

Health care costs are at the root of much of the cost problem for the industry and the nation. With retiree benefits cut, unions have assumed more and more of the health care burden. With fewer employees, they will have less clout and may even cease to exist. We desperately need a national health care policy that will spread the risk, cut the costs, and reduce the advantage the imports have.

Finally, there are two other predicaments we have often written about here: one, the expensive and inefficient dealer network and other structural problems in the industry, like its enormous fixed costs; and, two, the supplier network which serves all car manufacturers. A cascading failure of suppliers could well bring down all the companies, foreign and domestic. And another million jobs would be lost.

So, we’re looking to the feds and Mr. Obama’s people to come up with brilliant (or at least workable) solutions. To solve these massive problems, there will have to be fundamental reform in the industry, and that means a kind of bankruptcy or “reorganization.” The costs may not all be borne by taxpayers. There has been recent talk about other financing options, maybe the banks, maybe foreign companies. One China firm was reportedly talking to Chrysler, though the firm denies it.

Bottom line: Let’s start thinking about how to help the industry survive. Worker buyouts aren’t the answer. (If they were, why didn’t more folks take them?) Besides, we may all be getting a very nice discount voucher on a new car soon.

Would a $10,000 discount on a $30,000 U.S.-made car or truck tempt you?



We just got word that Ford signed a deal with the UAW permitting the company to substitute its stock for up to half the payments owing into the health retiree fund (VEBA), subject to member and court ratification. For Ford, that comes to $13.2 billion.

This effectively means that GM and Chrysler will follow suit—something they had been hoping to achieve in their talks. I think Ford beat them to the punch simply because they are in better financial shape. The union would be crazy to offer this deal to their competitors, who are edging ever closer to bankruptcy. It’s like buying health insurance from a firm that’s sure to go under.

But they will probably make this final concession in order to get a deal from the Feds.

What should happen, as I said above, is universal health care, but that’s impossible in the urgency that faces the industry now. Maybe the government will backstop the union, as it seems to be doing for the banks, so as to take the health care burden off their back when and if times improve.

As some wag said in a comment on the NY Times story, “I wonder if the Ford stockholders, management and board would ever accept a deal similar to this for their families’ future?”

GM shares rose from their lowest since the Great Depression to $1.84 today.

The American (sort of) car company you’ve never heard of


Which car would you rather buy:

A $27,000 made-in-America commuter that gets 60 miles per gallon, or A $14,000 car that’s identical, but made in China

That’s a question the founders of ECO Motor Company had to address as they discussed bringing their three-wheeled commuter car to production.

ECO Motor Company began as a summer project between CEO David Joner and his son. Eventually design engineers from around the world were brought in and the innovative EMC3 Commuter was born.

Rated at 54 horsepower from its 1.0-liter, three-cylinder engine, the rag-top convertible is officially classified as a motorcycle. In truth, though, it’s a car and built to automobile safety standards that include front airbags, dynamic side impact beams, and reinforced A and B pillars. ECO Motor Company is having crash testing performed on the EMC3 by the same laboratory used by big automakers and the NHTSA.

A base price of $13,995 will get you a manual transmission, convertible top, power windows and locks, air-conditioning, an AM/FM/MP3 player, and those precious front airbags.

I believe the EMC3 represents the kind of innovative thinking required for the auto industry to succeed. It is very basic transportation with a smart design that uses a regular gas engine and should deliver phenomenal mileage numbers while not compromising safety.

Quality is a natural concern, though… as ECO Motor Company has elected to have their car built in China by Geely, China’s largest privately held automaker. Even so, I think they made the right choice, as the pricetag is affordable, and the warranty is the same as if the car had been built in America: a three-year/36,000-mile bumper-to-bumper warranty and a 100,000-mile powertrain warranty.

Production on the EMC3 has already started, with the first deliveries expected by May of this year.

So what do you think: Are you more apt to buy a $27,000 car made in America or an identical car made in China costing about half that?


Maxximus G-Force—World’s Fastest Car—for Sale: $3 Million


The story goes that David B. McMahan, a wealthy philanthropist from Indianapolis with an interesting past, was being chauffeured by a car freak named Marlon Kirby and they got to talking.

McMahan and Kirby (right)

“Building a record-breaking performance car is something I always dreamed of as a kid,” says David. Marlon: “Hey, I’m your guy. I’ve got a car tuning shop, and I used to wrestle competitively.”

Speed nuts have their own affinity. Anyhow, the Maxximus they created together is a glorified kit car that, thanks to Marlon’s ingenuity and David’s money, has claimed the title of world’s fastest street-legal car.

It is indeed an accomplishment, though you can question whether a one-off car that could in no way meet DOT crash tests or emissions standards is “street legal.”

Over the course of four years, Marlon was able to stuff a 1,600-bhp Chevy small-block V8 with twin turbos into the British Ultima, whose low volume and kit-car status enable it to be registered for street use. Add a three-speed sequential paddle-shift gearbox, six-piston calipers surrounding 14.2-inch discs, and a 2,700-pound frame, and you get 0-60 mph in 2.1 seconds (the Bugatti Veyron does it in 2.8), 0-100 in 4.5 seconds, and 0-100-0 in 8.9 seconds. The latter figure is particularly amazing.

Even though lots of bloggers are calling it ugly (one said it looks like a Porsche 911 with Down’s Syndrome), the G-Force is getting great PR, it’s all over the Web (photos and website here), and you can have it for your very own if you quickly call David and fork over $3 million for the only copy. Rumor is, though, that you’ll be competing with some Middle Eastern buyers – or at least that’s what he’s telling the press.

On the other hand, consider this: Tthe Ultima GTR, on which the Maxximus is based, goes almost as fast and is a veritable bargain compared. Again with the small-block V8, the factory GTR ran 0-60 in 2.6 seconds, 0-100 in 5.3 seconds, and 0-100-0 in 9.4. The Maxximus took more than twice the horsepower to do not that much better.

The complete GTR kit is around $89,000, plus drivetrain, so you could put one together for around $200,000. I don’t know if the factory is still offering pre-builts.

Have you ever built a kit car? How fast did it go?


Get laid off, get a new car!

These guys could lose their jobs - and get rewarded with a new car

These guys could lose their jobs - and get rewarded with a new car

I’ve been laid off before, and no one ever gave me a car as a parting gift.

Heck, I’ve had to SELL my car after a layoff so I could balance my budget.

That’s why my reaction bordered on fury when I read this article, stating that most of GM’s hourly workers are being asked to leave the company in return for lucrative incentives. Ready for your blood to boil? Ready for fits of jealousy to take over your body? Ready to realize why GM is bankrupt?

The automaker will give most of its 62,000 U.S. hourly workers $20,000 to leave the company, as well as a voucher good toward the purchase of a GM car worth $25,000.

I’ll give you a second to read that again.

Yes, friends, that’s $2.8 billion GM is offering to employees who won’t even work there anymore. And they have the gall to ask the government, to ask U.S. taxpayers, to fund that? I can understand a company wanting to express gratutude to employees for a job well done, but seriously, hand out Starbucks cards and call it good. 

I don’t know about you, but I don’t want to buy $25,000 cars for former GM employees. I’d love to buy MYSELF a $25,000 car, but that’s not a wise financial choice for me right now. I suppose that’s why I’m not bankrupt, though, and GM is.

Chrysler’s offer is even more astounding: $50,000 to virtually all of its 27,000 U.S. hourly workers, along with a voucher good for up to $25,000 on the purchase of a vehicle. Some employees could receive payments of up to $115,000 in addition to the voucher.

To tell you the truth, I’ve supported limited government funds to help the struggling automakers recover and rebuild. This news is changing my mind. If this is how they’re spending money, I’m out. Let them fend for themselves.

Do any of you readers know anyone receiving these lavish buyouts? If so, please send them my way; I want to keep an open mind and hope they can justify this, because right now I’m feeling like I don’t care if another new car ever rolls out of Detroit.

Do you support the autoworker buyouts, or do they outrage you? 


Scanning the Auto Blogosphere

Stingray Concept

Stingray Concept

This week I had a lot of fun looking for great stuff to highlight on other auto blogs, in part because some of what I found clearly pointed out a variety of blogging strategies, some of which we’ve tried here.

One strategy some use to provoke comments is to adopt a stance that’s so outrageous, readers will wonder whether you’re crazy, but (you hope) feel compelled to tell you why and how you’re totally wrong. Robert Farago at The Truth About Cars might really believe the Corvette must die, but building an auto-blog story saying so around a photo of the brand-new Stingray concept (above), which is neither a Corvette nor a production car, and closing it with a hypothetical farewell letter from Rick Wagoner probably won’t win him too many fans next time he visits a bar to watch NASCAR.

Another popular blogging strategy is to take full advantage of a web browser’s multimedia capabilities. Kevin Gordon at Autosavant put three videos into his piece on GM’s viability-plan press conference on Tuesday, the first of which is almost an hour of Wagoner and a couple of other execs speaking and answering questions at a podium. Did he really think that video would bring his story to life? Happily, he also included a two-and-a-half-minute video summary from the Associated Press. My favorite of his videos is the last, though – eight minutes of SNL spoofing the bailout hearings.

The New York Times, which earned its “grey lady” nickname by placing more emphasis on words than pictures, also works to take advantage of the web’s more interactive capabilities and recently posted a slide show of hybrid and electric vehicles. Most aren’t available yet, of course, including the Aptera, which we’ve mentioned in the past.

Another recent slide show should appeal to anyone who enjoys contemplating an $8,200 oil change and tune-up (those were Canadian dollars, though). Jalopnik’s photos of a Lamborghini Diablo’s V12 getting ripped apart, cleaned up, and re-assembled left me impressed, but also very glad I’ll never have to deal with that sort of engine.

Bloggers often like to play keyword games, trying to figure out what combination of words will bring the most visitors to their site via search engines. But of course the Internet offers an unending selection of stories featuring incredibly unlikely combinations of keywords. Tony O’Kane at the Motor Report managed to work all of these words into a recent story headline: McDonald’s, fries, EV charging stations.

And as any blogger knows, once you publish an email link, all bets are off as to what sort of stuff you’ll find in your inbox every day. Just this morning I received an email asking if CarGurus would support a new online photography gallery, which is hosting a show of car photography until the end of February. I’ll confess to finding this particular gallery much smaller than I expected, but it does contain a few great images, particularly for fans of pre-gas-crisis American cars. Take a look.

Anything you’d like to see get more – or less – coverage here on the CarGurus Blog? Let me know.

-Steve Halloran

Keep Your Car Happy . . . and Save Money

Aaron Murphy, Chief of Surgery (note gloved hand on tire)

Aaron Murphy, Chief of Surgery (note gloved hand on tire)

Loyal readers will remember Amy, the proprietor of European Auto Surgeons in Gardiner, ME, a great car repair center. Her partner in crime, Aaron Murphy, is a master technician who knows cars inside and out. At our request, he put together a list of recommendations for people looking to get the most out of their vehicles while saving money and making them last.

But before we give you the list, here’s a good maintenance story that Amy sent along from a BMW technician in a different state:

So I’m sitting in my office and a 90 year old man walks through the door, smoking a cigarette (ever since he was a teenager, he tells me later) and requests I top off his oil on a 1991 3 series, because the oil level light has come on. “They told me it only needs changed every 15000 miles at the dealer”, he says. Well, I say, I recommend 5000 mile intervals. When was your last oil change?

NOT a 1991, but we liked the photo

His reply, “It only has 9100 miles on it! Never changed it!” It was a quart and a half low, and he said he would leave it for all the fluid changes and a service “when he had the time.” I begged him to leave it with me—but off he drove, full speed ahead.

Now, the list:

1)  Don’t drive your car. This may seem flip—but try to combine trips and walk or use public transportation when you can. The fewer miles you put on your car, the longer it will last.

2)  Change the oil regularly. Every 3,000-4,000 miles for regular oil, every 5,000-7,000 miles with synthetic. DO NOT go 10,000 or 15,000 miles between oil changes as some car manufacturers claim you can do. It’s bad for your engine and will wear it out prematurely. See above story.

3)  Keep your tires properly inflated. This improves gas mileage and tire wear life. Tires are expensive—make ‘em last.

4)  Keep it clean: inside and out. Washing your car regularly to keep salt and road dirt to a minimum will help keep the body from rusting out. Keeping the interior cleaned out (don’t drive around with your golf clubs in the trunk all winter) reduces weight, so you get better gas mileage and a little less wear and tear on the vehicle too.

5)  Skip the heated garage. If your car has salt on it in the winter, keeping it below freezing actually minimizes the rusting. When you park in a heated garage, the salt “wakes up” and starts eating away at the frame and body panels, exhaust system and brake lines.

6)  Attend to noises, dash warning lights and leaks right away. If you see a leak or a check engine light, get to your mechanic right away. If you don’t, you could end up spending thousands on a new engine or new transmission instead of a few hundred to fix a problem while it’s small. Worse yet, it could cause a dangerous situation (like no brakes).

7)  Follow the factory recommended maintenance schedule for your vehicle. Preventive maintenance saves money on repairs in the long run.

8)  Don’t beat on it. Drive your car with some respect, and it will return the favor by lasting longer.

9)  Use good quality (OEM) parts when repairing your vehicle. They may cost more, but generally they last much longer and will save you money in the long run.

What are the best tips here you hadn’t thought of? Any of your own you’d like to share?


The Hurricane That’ll Bring Down the Auto Industry (But We WILL Rebuild)

It's hurricane season for the auto industry

It's hurricane season for the auto industry

I’ve had enough. I’ve decided that it’s time to let nature take its course with the auto industry.

As jgoods posted earlier, one way or another the car companies are going to go through a bankruptcy. It’s just a matter of what form it takes.

When a hurricane is approaching the Gulf Coast, there’s nothing our government can do but sit back, evacuate people, and hope that rebuilding doesn’t take too long. The collapse of the U.S. automakers is a similar storm, and there’s no stopping it.

Instead of spending money on saving the companies, let’s start thinking about how we can help rebuild them after they shatter. GM is on the right track by eliminating brands and focusing on becoming a leaner company. Doing so is like boarding up their windows to help weather the storm.

American automakers have lived in excess and luxury for years, and the reality of it all is coming crashing down. In this storm, people will lose their jobs. Car brands will disappear. How much is the government willing to spend to prevent this? I think taxpayers have spent enough money on prevention, and now we need to focus on response – getting those who lose their jobs back to work, either in the auto industry or rebuilding the highways our cars drive.

The government is shouldering all the financial responsibility to save an industry that employs a lot of its citizens. That’s noble, but misguided. If a private organization (Big Oil, anyone?) wants to invest in saving the car companies, by all means, let them. Government involvement, though, should be limited to overseeing the bankruptcies and subsequent rebuilding.

I agree the U.S. can’t stand by and let the domestic auto manufacturers disappear forever. I’d just feel better if we invested in the rebuilding of leaner companies, rather than supporting the modern ways that have become so archaic and wasteful. Bring on the storm.

Do you care what happens to the U.S. automakers? Would their collapse affect you? 


The Future Looks Clearer . . . and Dimmer

Chrysler plant, Belvedere, IL

Chrysler Assembly Plant, Belvedere, IL

Yesterday we explored some headlines about the auto industry bailout.

Today we create three more, based on what Chrysler and GM revealed in their submissions to the feds yesterday:

We Need $21.6 Billion More Now, $39 Billion by 2012

GM Says Bankruptcy Would Cost the Government up to $100 Billion

Nobody Is Going to Be Willing to Foot This Bill

GM Assembly Plant, Janesville, WI

Ford Assembly Plant, Atlanta, GA

Both Chrysler and GM offered the by now familiar cost-cutting measures—and the projections of people out of work, cities in decline, factory closings, parts and feeder industries affected all make your stomach turn. See details of the companies’ proposals here. But there has to be a lot more bullet-biting. For Chrysler, the Fiat alliance won’t be enough.

And, as we all know, there are too many brands. Brands require vehicle development, production, marketing, dealers, and more. So the companies are being given old business advice: Focus on your core business. The Saturn story is a particularly sad example of how GM lost its way. That brand was left to languish for too long, and now that they have good cars that aren’t selling, they’re being put on the block. Hummer and Saab also reflect bad business decisions.

The problem goes well beyond cutting costs, however. It’s really about boosting sales, and how is that going to happen in this economy? Getting people to buy cars still comes down to the same old value proposition: Building sufficient value into the product so that “buyers” will part with their coin. Today it’s impossible to make people overcome their economic fears and forego savings to buy outmoded vehicles.

At the same time, we believe the auto industry has got to survive, and most authorities reflect that if that is to happen, there will be a whole lot more pain.

“I don’t know what you’re going to call it, but they’re going to go through bankruptcy, whether outside the bankruptcy system or with the benefit of the courts,” said Maryann Keller, who has written about the U.S. auto industry for three decades. “At the end of the day, the United Auto Workers are going to have to take a haircut, creditors are going to take a huge haircut, and equity is gone. What will effectively happen is exactly the same as bankruptcy.”

The companies’ decline (and we include Ford) didn’t happen overnight, and reconstructing the auto companies (all of them) into viable, lean competitors will take years.

Anybody reading this who has bought a Saturn? How do you feel about GM’s abandoning the brand? —jgoods

A Kia that’s better than a Honda?

Kia Forte

Having just introduced the buzz-worthy Soul, Kia is showing off their all-new compact sedan: the Forte. Designed to compete with the likes of the Honda Civic, Mazda3 and Toyota Corolla, the Forte appears to offer a slew of advantages.

Kia says, “The Kia-engineered body achieves high torsional stiffness, giving Forte better handling, smoother ride quality and greater refinement than its competitors.”

While I’ve yet to drive a Kia that is more refined than a Honda, I reserve judgment until I can tell for myself. Maybe the Forte is the one. Hey, stop laughing.

According to Kia:

Forte LX and EX are powered by a 2.0-liter DOHC four-cylinder engine, producing 156 horsepower and 144 pound-feet of torque, that features Continuously Variable Valve Timing (CVVT) and multi-port electronic fuel injection, both of which provide for greater performance and fuel economy. The SX features an upgraded 2.4-liter inline four-cylinder engine, also with CVVT, which delivers 173 horsepower – more than the most powerful versions of the Toyota Corolla or even the 2010 Mazda3.  

Also on the Forte is an optional Fuel Economy Package, available with the 2.0-liter powerplant that will include the five-speed automatic transmission, Motor Drive Power Steering and low-rolling resistance tires with aero enhancements. These improvements result in class-leading fuel economy of 36 mpg on the highway.

Rumor has it that the Forte will begin around $11K, though the outgoing Spectra that it’s replacing starts at about $13K. Whatever the final numbers are, we’re sure the Forte will be a screaming value; assuming you don’t mind staring at that Kia logo on your steering wheel for the next 5 years.

Would you rather buy an American-made small car like the Chevy Aveo, a foreign car like the Forte, or keep the car you have?


Once More, This Time with Feeling


Let’s dig into some of the headlines we saw this morning:

GM, Chrysler Push for More U.S. Aid After Legacy of Mistakes (Bloomberg)

Auto Maker Bankruptcy Looms (Wall Street Journal)

“YOUR TIME IS UP” (Steve Parker, the Car Nut)

The Tres Amigos are not showing up in person this time; two of them (Chrysler and GM) will be filing their reconstruction plans electronically late today. That is a good thing, as we don’t need another circus. They are probably having their own private circus with the UAW as the bargaining continues in Detroit over the $47 billion GM obligation for retiree health care. Yikes.

The money involved in all this is truly mind-boggling. It’s not just the industry’s tremendous fixed and legacy costs, its expensive and inefficient dealer network, its total fall-off in sales. As Bloomberg reminds us, it’s the cost of rebuilding that also must be built into any plan.

GM and Chrysler must show progress in getting creditors and the UAW to accept equity in place of billions of dollars in scheduled cash payments. The automakers must also ensure that future models will meet environmental rules that may require $100 billion in new technology.

The real deadline for the GM and Chrysler plans is March 31, when President Obama’s car task force (the car czar idea is out) will determine whether and how the industry goes forward. Heavy hitters Tim Geithner, Treasury Secretary, and Lawrence Summers, National Economic Council chairman, will have help from others.

One of these is Ron Bloom, an expert in restructuring whose advice, we can predict, nobody will like. Says the Journal,

Mr. Bloom, a Harvard Business School graduate who spent 10 years at investment banks before joining a team advising the steelworkers union, is seen as one of the chief architects of a consolidation of the steel industry that has involved about 35 bankruptcies over several decades. He’s known as a blunt communicator. . . .

In a 2006 speech at a corporate turnaround conference in Scottsdale, Ariz., he described his approach to restructuring as “dentist-chair bargaining,” in which the patient “grabs the dentist by the b — and says, ‘Now let’s not hurt each other.'”

Under Mr. Bloom’s guidance, the United Steelworkers gave up pay, job security and benefits in a bid to help the industry recover. In some cases, thousands of steelworker jobs were lost when union leadership agreed to large-scale reductions in restructured companies. Mr. Bloom also negotiated benefits for union members and retirees that kicked in once reconfigured steel companies became profitable. Such solutions could also come into play at the automakers.

Finally, Steve Parker. After showing us a picture of dictator Benito Mussolini in his Alfa Romeo and reminding us how the crowd pulled him out and hanged him, Steve offers this tidbit about the impending Fiat-Chrysler deal:

Last week, a right-wing legislator in Italy called for public protests if any Italian money is used to pay Chrysler’s debt to taxpayers. Their government essentially owns Fiat and all its ancillary companies, and it’s the country’s largest manufacturer of any kind. Even a loan—or money used by Fiat to purchase Chrysler—may well be seen by Italians as their taxes going to the U.S. government, which is probably one reason Chrysler is willing to cede control of the company to Fiat for not one penny—or lira.

You and Ron Bloom both realize that there are 3 million jobs tied to the U.S. auto industry. How are you going to save them?