Grant's Auto Rants

The 7 Deadly Automotive Sins of 2005

As 2005 draws to a close, what better time to address the happenings in the automotive industry that made this such a memorable year. If you think the manufacturers are getting off easy, however, think again. A trend emerged this year that may just change the way you look at industry news from now on.

Envy – the desire for others' traits, status, abilities, or situation.

Whether it's trying to go up-market, down market, or even grow laterally, this trend hasn't ended well for anyone involved, making Envy the most common of all sins. The C-class and Chrysler absolutely punted Mercedes-Benz a record-breaking number of JD Power rankings (down market), the Cayenne and up-coming Panamera have diluted Porsche's reputation farther than Refco shares (sideways), and Volkswagen's Phaeton went over like a turd in the punchbowl (up market). Why is it that everyone wants to be another car company?  Can't they  just do what they do best?

Greed – the desire for material wealth or gain.

Charles Ghosn is a man who has done the impossible by turning $20 billion of Nissan debt into $2 billion in profit. Not only is the feat a small miracle in and of itself, but that Charlie did it in such short order makes one wonder to whom he sold his soul. Unfortunately, so much success has clouded his vision and Mr. Ghosn has decided that not only does he no longer need the help of his North America employees, but that he can also take on all of Renault's problems by himself. Don't get greedy, Charlie. Lightning doesn't strike twice in French, English, or Portuguese.

Gluttony and Wrath – an inordinate desire to consume more than that which one requires, and the manifestation of one who spurns love and opts for fury.

The issues at GM are so vast and crippling that the company has had to commit more than one sin. GM is a case study in a company becoming too big for its laurels and resting on its britches. The gluttony part comes in the form of so many redundant brands and models. On top of that, Rick Wagoner is very P.O.'ed (Wrath) and blames not only Washington, but the Central bank of Japan as well. Ouch.

Vanity – excessive belief in one's own ability.

It is one thing to acknowledge a victory. But what Toyota has done to GM over the last couple of months makes a Terrell Owens end zone dance look modest. What with the temporary price increase to "let GM catch their breath," the utopian commercials and California billboard touting the number of gallons saved by Toyota hybrid vehicles, and the recent announcement that the company is actually raising 2006 output by 10% amid GM's announcements to close plants and layoff workers, Toyota is taking brow-beating and vanity to a new and aggressive level.

Lust – an inordinate craving for the pleasures of the body.

 Well, I guess like GM, VW has committed not one, but at least two of the seven deadly sins this year. In no area of the industry news does "an inordinate craving for the pleasures of the body" feel more appropriate than when coupled with allegations that Volkswagen allowed union leaders to take luxury trips and use corporate money for prostitutes. Pretty much a no-brainer.

Sloth – the avoidance of physical work.

Sloth is probably right behind Envy as the second most common sin for 2005. Think of every re-badge, facelift, and "update" the car companies have tried to pawn off as a new car this year. Unfortunately, it's really just part of the business and a simple question of economies of scale. But some do it better than others by offering at least something new.

Even with all of GM's crossover brands and models, if I had to pick one, it would be Ford. Sorry guys, but not only did you layoff workers and close physical plants ending (i.e. less physical work) but you also waited for GM to make the tough decisions and just followed it. You get the 10-toed Sloth award of the year. 

Of course, it's very easy to point out all of the mistakes, blunders, and mis-steps of the year, especially when you consider the state of the industry in Detroit. I would like to finish the year off,  however, by saying that a lot of good things have come out of 2005. Enough so even to offset the above and come out with a net gain overall.

For example, some of the re-badges did, in fact, offer some benefits to drivers. If not in the form of some new crazy technological gadget, then in some fundamental driving or safety feature. Also, this may go down as the breakout year for Hybrid and other fuel-saving technologies, which may harbor some controversy as to which is the best or most effective system/company, but all in all represents a positive step forward in addressing the state of worldwide petroleum affairs.

Even where GM and Detroit are concerned, the fact that we are starting to receive some better press and people outside the industry are taking notice is certainly progress. While GM may still go down as a bit of a martyr, some very large political and social issues (pensions, healthcare, North American manufacturing, trade policies, etc.) are also being brought to light. Whether this or the next administration can actually do anything about them is another matter.

One way or another, people will look back at 2005 as a tumultuous year in the car business -- even with their egregious sins. After all, 2 + 0 + 0 + 5 does equal seven.

Yorkville, no more…

And just like that, Kirk Kerkorian's happy sidekick is back at the "kiddy table." No sooner was it reported that Tracinda Corp. hatchetman Jerry York was offered a seat with the big boys, Automotive News has now reported that GM has not, in fact, simply rolled over and handed over the keys to the shop.

And they shouldn't have.

This is much more likely a case of misinformation (regarding the board seat offer) than a change of heart by GM, though it doesn't really matter. It is not as if Jerry York stumbled into the Renaissance Center wearing a half-tucked in, mustard-stained Detroit Lions Jersey with a cup Java Joint coffee in one hand and a half eaten Dearborn frankfurter in the other, mumbling something about "that damn Ron."

No, they didn't take one look and think differently. Mr. Wagoner and the rest are well aware that GM's problems are dire and some corporate raider is not going to be able to snap their eager fingers and make things go away, freeing the share price to rise from the ashes. Sure, Mr. York might be useful as a scapegoat to Mr. Wagoner in the short-term, but at this point there really is no "short term" for this company. We are coming down to all or nothing.

As the last post mentioned, this doesn't mean that Rick has something up his sleeve, but more likely (with retirement package recently secured) slipped a dose of pride in his eggnog and like a true captain has decided to go down with the ship. Well,  something like that.   

Circling: Wagon(er)s and Vultures

In what seems to be a bit of an "about face," it has been reported that GM has actually asked Kirk Kerkorian's Tracinda Corp. rep. Jerry York to join the GM board. This comes as a bit of a shock to many while as recently as Tuesday General Motors still wasn't publicly acknowledging the proverbial "900 lbs. gorilla in the room."

With Kirk's Tracinda now calling roughly 56 million shares (9.9%) their own, and both Kerkorian and York very visibly interested in all GM developments, UAW, stock price-related or otherwise, it was simply a grace period to let Rick Wagoner circle the wagons.

So what exactly does the public announcement mean?

The timing is certainly interesting. GM has just also just announced the poaching from GM Europe, Fritz Henderson to act as new North American CFO, which in itself came on the heels of some fairly specific strategy plans (additional layoffs – plant closures) by Wagoner himself.  All told, there is a lot going on down at Renaissance Center.

One has to question however, if the activity more resembles simple desperation and chaos or if it just might possess the underpinnings of a calculated (if unwritten) strategy.    

Two things are immediately clear both at GM and Ford coincidentally. With a more united front in Washington, and the adoption of the most qualified people from around the globe, there are even more people interested in the domestic auto industry.

The possible problem here is that we have a couple of potentially opposing motivations. Everyone wants to see GM succeed, which 9 out of 10 times will equate directly with an increase in shareholder value through stock prices. Tracinda has already lost hundreds of millions through the subsequent decline of GM stock since the beginning of their stock piling in April and with 4% of Kerkorian's profits on the line, it is very clear where Jerry York will be coming from once he warms up his seat on the board.

Taking on York with little or no fight does signal a couple of other things. GM doesn't know how to "stop the bleeding" on their own. Even if GMAC could buy them some additional time, they may finally be resolved to the fact that listening to Bob Lutz (and his hope for lower gas prices), additional layoffs and closings, a small win against the UAW, on top of a couple of ok cars won't do it this time. It is going to take all of this and more, which may include much larger systemic political items such as Japan's currency policy and pensions/healthcare in US manufacturing.

The plot thickens, but be sure that by the time we have this little chat the same time in 2006, the fate of much more than a CEO will have been decided.