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Job Cuts All Around…

Force Reductions Slated at GM and Nissan

By Kevin Miller

07.31.2008

GM will eliminate approximately 5000 white-collar jobs, which equates to about fifteen percent of its workforce. This is yet another aspect of the automaker’s by cutting around ten billion dollars in costs, which was slated to include reduction of costs by twenty percent through headcount reduction, benefit changes, and related savings. Additionally, salaries will be frozen this year and next, and bonuses for senior level managers have been suspended. GM’s headcount reductions will be achieved through normal attrition, early retirements, mutual separation programs and other separation tools.

Meanwhile, Nissan announced that they will be offering voluntary buyouts to Tennessee workers in their assembly plant in Smyrna and their powertrain plant in Decherd in an attempt to cut around 1200 positions. Technicians and salaried employees in those locations will be offered an opportunity to receive a lump sum of $100,000 or $125,000, depending on tenure, medical and car purchase benefits. Nissan employs about 5,500 hourly and salaried employees at its vehicle assembly plant in Smyrna, and about 1,100 hourly and salaried employees at its powertrain assembly plant in Decherd.

“We feel this program is a good opportunity for employees wanting to transition to another phase in life,” said Nissan’s Bill Krueger, Senior Vice President, Manufacturing, Purchasing, Supply Chain Management and Total Customer Satisfaction. “This will provide many with the financial means to take a step they otherwise might not have been able to take.”

Nissan cited rising fuel prices and economic downturn, which reduced demand for full-sized trucks and SUVs, and ever-increasing productivity at its plants, as the rationale for reducing its workforce. Cuts will not occur at Nissan’s manufacturing plant in Canton, MS.

Nissan’s cuts will span three years. Employees can elect now if they would like to participate in fiscal year 2008, 2009 or 2010. The election period for 2008 ends September 12. Employees also will have an opportunity to sign up again for the program in 2009 or 2010, although benefits will be reduced compared with levels available in 2008.

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And Suddenly, No More Leases on SUVs and Pickups

Lessors bail out on the thirsty trucks

By Brendan Moore

07.30.2008

Chrysler has already stopped leasing any vehicles through Chrysler Credit, GMAC LLC, GM’s leasing arm, has halted leasing in Canada and is scaling back leasing in the U.S. and Ford has announced that they intend to make the lease terms on trucks and SUVs so onerous that no one will want to lease one.

Chase Auto Finance told Chrysler dealers that Chase will not be leasing any Chrysler vehicles in the near future, and Wells Fargo said they’re out of the vehicle leasing business as of July 9.

The culprit here is the fact that the value of used SUVs and pickup trucks has plummeted as gasoline has gotten more expensive.

This isn’t a problem for a lender but it is a HUGE problem for a lessor, the company that does the leasing. It’s a problem because the lessors get a large percentage of those SUVs and pickups back when the lease is up, and instead of, say, the 45% residual they calculated at the beginning of the lease, now the vehicle in question might be worth only 25%. They take it to auction, it goes across the block for the 25%, which is perhaps a few thousand dollars less than they expected when they wrote the lease, and now they’ve lost a lot money on the lease. Multiply that by a million vehicles and you see how you would have some problems.

Let me explain it just a little bit more.

Everyone started to figure out pretty quick in the last few months that the residuals on SUVs were way too high. Unfortunately, for the lessors, this was two years into a lease they already written for a term of 3 or 4 or 5 years. Consumers that had the leases have figured out the same thing about the residual values, and are not exercising the option to purchase their leased vehicle at the end of the lease term, and instead, are just giving back the car to the lessor when their lease is up. Suddenly the lessors are getting swamped with end-of-lease vehicles, which all have to be sold by them somehow. Since the banks and finance companies don’t have huge used-car lots (and the requisite dealer’s license) scattered all of the United States, those returned cars, which by this time are mostly SUVs and pickups, have to go to auction. So many of the same thing showing up at the wholesale auto auctions just depresses the values of those used vehicles even further, and causes huge shortfalls from the original stated residuals on these vehicles, which in turn, wiped out any profit the lessors had made on the front end. Lessors, whether they are banks or finance companies, are sustaining massive losses, and they are now getting out of the leasing business as quickly as possible.

This problem was further compounded by the prevalence of subsidized leasing, which is called subvented leasing in the retail auto finance business.

What is subvention, you might ask quizzically? When lessors subvent a lease, they typically artificially bump up the residual value of the vehicle leased, or, lower the lease finance rates, or, lower the FICO credit scores needed by the lessee in order to be approved for the lease. There was a lot of this activity going on in the past few years, and none of this subvention activity is helpful when the secondary market has already collapsed for the vehicle in question. But this is the situation that the lessors find themselves in; not only has the used car market collapsed for SUVs and pickups, the heavy subvention of these leases in the past is making things even worse for the lessors from a financial perspective.

Paradoxically, the same market factors that have made lessors of SUVs and pickups trucks very unhappy have made the lessors that have leased small, fuel-efficient cars to consumers the last few years deliriously happy. A car they might have calculated to be worth 45% after three years when they leased is now worth 60%. Of course, that’s if the lessee doesn’t exercise the purchase option at the end of the lease and the lessor gets it back. But if the lessor does get it back, they will have made much more money than they originally projected on the lease because the car is worth so much more money than originally forecasted.

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Techshake was also interviewed on NPR’s Marketplace on this same subject – the interview was fairly substantial but the audio clips they used are brief. Nonetheless, if you want to hear those clips, go and then .

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Premium Pricing Coming to California HOV Lane for Non-Carpoolers
Jul30

Premium Pricing Coming to California HOV Lane for Non-Carpoolers

By Dennis Haak

07.30.2008

San Francisco Bay Area transportation officials have approved a plan to allow solo drivers in regular (non-hybrid) vehicles to use high-occupancy vehicle (HOV) lanes on 12 highways by paying a per-mile premium via an electronic in-car transponder.

The project would cost about $3.7 billion to implement and take decades to implement. Eventually, it would cover about two-thirds of the Bay Area’s 1,200 miles of freeway lanes. Officials expect that the project will eventually generate $6 billion in revenue by 2035, which would of course pay for itself as well as other transit initiatives. Of course, the backers of this plan are forgetting about the time value of money – investing $3.7 billion in 2010 at a modest 3.5% interest rate would be worth $8.8 billion in 2035. Increase the interest rate assumption to 4.0%, and the future value is $10.0 billion.

So, the economics of the plan may not be sound at face value, but of course it could have other benefits. Transportation officials feel that the carpool lanes are underutilized currently, and that people who were truly in a hurry to get to their destination once in a while would be willing to pay a premium of a few cents per mile to travel about 15 miles per hour faster (officials estimate that the carpool lanes will average 54 miles per hour and the non-carpool lanes will average 39 miles per hour by 2035). The plan is to introduce the pay-per-use tolls on the carpool lanes starting in the 2010-2011 timeframe with an initial cost of 20 to 60 cents per mile. By 2030, officials expect the per-mile charge to increase to $1 or more. Because the tolls would be collected electronically via an in-car transponder, it will be possible to charge different prices at different times of day. Charges would be higher, of course, during peak periods, but could theoretically be reset each minute depending on the road’s current conditions.

We’ve learned as a nation that building more highways, and even more lanes, rarely fixes traffic congestion. As soon as more capacity is added to popular routes, drivers who had been avoiding those routes to avoid congestion flock back to them, quickly clogging them up again.

Critics of this plan have called the carpool lanes “Lexus Lanes,” as they fear that the only people who will use them will be the rich (the folks driving Lexuses, although car-savvy readers of this site know that most Lexus models are not necessarily the vehicle that the filthy rich aspire to own). However, proponents of the plan point to studies that state that in toll lanes in Southern California, people of all income levels used the lanes, generally when they needed to get somewhere quickly. ( for a link to a PowerPoint summary of one study’s findings).

To me, the concept behind HOV/carpool lanes is a sound one; you’re rewarding people for sharing their car with another commuter with a faster commute. Many local and state governments also decided a few years ago to reward buyers of hybrid cars with access to the HOV lanes; encouraging hybrid sales is also an admirable goal in terms of environmental friendliness and reducing fuel consumption. Now, Northern California bureaucrats and politicians have decided to encourage further utilization of the unused capacity in the HOV lanes – to raise revenue (a favorite pasttime of many politicians) and to theoretically lower traffic volume on the non-“premium” section of the highway, and reducing wasted fuel from idling in traffic.

To give some perspective on how the proposed per-mile tolls stack up, the Pennsylvania Turnpike charges about 6.4 cents per mile, and the New Jersey Turnpike charges about 5.7 cents per mile during peak periods, and 4.3 cents per mile during off-peak periods. When we travel to visit family about once a month, we could take “free” roads that are a bit more direct to our destination, but include traffic lights and slower speed limits, or we could take the Pennsylvania Turnpike, and we often choose the turnpike, particularly if our young children are napping in the car, as the smooth, steady drive keeps them sleeping for longer periods of time, so the concept of paying a premium for a better experience isn’t foreign to those of us in the Northeast US accustomed to toll roads. However, the proposed rates for the Bay Area HOV lane access start between 5 and 12 times more than I’m paying for access to the Turnpike, and eventually will be 20 times more expensive. Even if I “drove a Lexus,” I’d be hesitant to pay, say, $25 each way on a 25-mile trip into the city for work, all of the other expenses associated with car ownership such as insurance, registration, maintenance, city parking, gasoline, repairs, etc.

It will be interesting to see studies over the next several years on the reasons that certain solo motorists chose to pay a fairly hefty premium per mile for the privilege of driving past congestion.

For more information about this initiative, to visit the Metropolitan Transportation Commission (MTC) website’s page on it.

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GM Confirms Saab Warranty Coverage Reduction
Jul29

GM Confirms Saab Warranty Coverage Reduction

By Kevin Miller

07.29.2008

For several years, Saab has offered a 4 year/ 50,000 mile bumper-to-bumper warranty on its vehicles sold in the US, as well as free scheduled maintenance for 3 years/ 36,000 miles. These warranty and maintenance programs are fairly standard for premium vehicle lines sold in the US.

In early 2007, GM rolled out their 5 year, 100,000 mile extended powertrain warranty across all model lines sold in the US, including Saab. This extended powertrain warranty picked up where the 4/50 bumper-to-bumper warranty left off, and provided roadside assistance and courtesy transportation for the entire 5/100 term of the warranty. This warranty exceeded that offered by Saab’s competition.

For 2009, GM will not be providing the 5/100 extended powertrain warranty on Saab vehicles, which will instead revert to the prior 4/50 warranty. Saab dealers were informed of the change last week on Friday, and GM confirmed this change to the media yesterday. GM’s other premium US brands, including Cadillac and Hummer, are still slated to have the 5/100 extended powertrain warranty.

This announcement closely followed GM’s announcement earlier in the month declaring their intention to cut $10 billion in costs. With margins already thin on Swedish-built Saab vehicles, the generous warranty which is not matched by Saab’s competitors is a relatively transparent way to cut costs on those vehicles. A GM spokesperson indicated that buyers of premium import vehicles look for the basic warranty and free scheduled maintenance in that class of vehicle, leaving unsaid the fact that most buyers in that segment are not expecting a longer-term powertrain warranty.

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2008 Kia Sportage 4×4 EX Review
Jul29

2008 Kia Sportage 4×4 EX Review

By Chris Haak

07.29.2008

Kia is in the news lately because it is introducing its new large midsize, three-row, V8-powered SUV, the Borrego, this summer. Meanwhile, seemingly out of nowhere, Kia has a fairly broad selection of SUVs and crossovers, especially considering the size of its lineup. While we at Techshake patiently await our chance to put a 2009 Borrego through its paces, Kia provided us with a loaded Sportage 4×4 as temporary consolation.

Kia’s smallest CUV, or “cute ute,” the Sportage, is on its second generation. The original off-road capable (yet poorly designed and built) model was sold from 1995 until 2002, then the Sportage went on a hiatus for a few years, and was reborn in 2005 as a crossover, with – by all accounts – a better interior, more power, and more modern engineering than its predecessor.

The Sportage is available in either all wheel drive or front wheel drive, and with (depending upon trim level) a 2.0 liter four cylinder or a 2.7 liter V6. Four cylinder models can be had with a five-speed manual transmission, while the V6s only come with four-speed automatics. The model lineup consists of LX, LX V6, and EX V6. Standard features in all models include 16 inch alloy wheels, dual power mirrors, integrated roof rails, rear privacy glass, six-speaker AM/FM/CD stereo, air conditioning, power windows, power locks, cruise control, cloth seats, six airbags, four wheel disc brakes with ABS, and a tire pressure monitoring system. The EX model that I tested adds a power tilt/slide moonroof, V6 engine, four-speed automatic transmission, body color mirrors, fog lights, AM/FM/CD/MP3/cassette six-speaker stereo, remote keyless entry, trip computer, rear cargo cover/cover net, and leather wrapped steering wheel/shift knob. Finally, to top off my EX test model, it had four wheel drive and the Luxury Package, which includes color-keyed bumpers, leather seats and door panels, automatic headlamps, auto-dimming inside mirror with Homelink, and a CD changer with subwoofer.

Since their introduction, I’ve never been a fan of either the styling of the Sportage, or of its Hyundai Tucson cousin. It’s hard to pin down exactly what the problem is, but as I looked through some photos to begin writing this review, I had a “eureka” moment: most of the problem centers around the wheels and fenders; the body of the Sportage is too large for its meager 16-inch wheels, which makes a relatively compact vehicle look somewhat top-heavy. Also, the “muscular” fender flares (which are really just tacked on plastic cladding) don’t surround the entire wheel opening; instead, they stop when they reach the rear or front bumper (depending which wheel you’re looking at). The visual effect is that the fenders don’t surround the entire wheel opening, when in reality, the issue is just the appearance that the fender flares go straight front or back instead of around the wheels, and the bumpers fill in as fenders around almost half of each wheel opening. The dual exhaust outlets at the back of the Sportage are a somewhat attractive visual touch, as are the beefy integrated roof rails, and my test vehicle is far more attractive to my eyes than models that have different-colored bumpers or mirrors, but the overall look still does almost nothing for me.

Inside, the interior doesn’t scream “this is a value-oriented vehicle” at first glance, but it sort of does at first touch. The material covering the seating surfaces is allegedly leather (perforated, no less), but felt more like vinyl on the driver’s seat. I suspect that it was really some sort of leather, but certainly not of the “glove-soft” variety you’ll see other vehicles’ seats occasionally referred to. The front passenger seat ironically had smoother leather, so perhaps the cow who gave its life for the driver’s seat had a skin condition. There were a few nice touches, such as an auto dimming rearview mirror, reasonably convincing faux stainless steel surrounding the HVAC and audio controls on the center stack, a power tilt/slide moonroof, and a leather wrapped steering wheel. The lack of a center console was a big issue; it requires the driver to – gasp – keep both hands on the wheel, or to rest his right hand on the passenger seat (assuming that seat is empty, or the person sitting there doesn’t mind the intrusion).

Some details in the interior were ignored by Kia’s engineers; I’m not a nit-picker, but the huge, uncovered gap beneath the steering column (see the full photo gallery in the link at the bottom of this review) was wide enough for me to put a finger into the opening. Also, some of the junctions between different interior trim pieces could have been designed with better transitions, such as less-obvious seams and more consistent textures.

The top-end Sportage has a decent stereo; although I did not test its MP3 capability (or CD, or cassette tape capability), it tuned AM and FM radio stations well and was intuitive to operate. It also was equipped with a subwoofer that added some decent heft to the music I was listening to.

I’d be remiss if I didn’t mention the unique smell of the interior plastics. I’m quite certain that my test vehicle was quite clean and well-detailed by the fleet company when it was delivered to me, but the “new car smell” in the Sportage was somewhat more chemical-smelling and less pleasant than any other new car I’ve spent time with. Usually, you can smell the leather seats in a new car equipped with them, but all I was able to detect was the odor of plastic and/or chemicals. It wasn’t overpowering and only readily apparent when getting into the vehicle for the first time each day. Assuming you are in the market for such a vehicle, it’s safe to say that you will quickly realize whether the odor is something you can live with during your test drive or not, so don’t let my sensitive nose stand between you and a new Kia.

The 173-horsepower 2.7 liter V6 starts easily and is fairly smooth and quiet, at least at more pedestrian speeds. It’s really bringing a knife to a gunfight, though, as its 2.7 liters is smaller than its V6-powered competitors such as the Toyota RAV4 (which has a 3.5 liter V6 that pumps out nearly 100 more horsepower), and the four speed automatic that it’s coupled to doesn’t help matters. Sometimes, vehicles such as the Chevy Equinox with the 3.4 liter V6 or the Dodge Grand Caravan with the 3.8 liter V6, can overcome a less-powerful engine with an extra gear ratio or two, but the Sportage doesn’t have that benefit. The V6 doesn’t have a flat torque curve – it has a flat horsepower curve, and it seemingly reaches its peak around 2,000 RPMs, and just goes through the motions beyond that. Flooring the accelerator from a stop will give a brisk jump for the first few feet, followed by the “oh, crap, this thing is really underpowered” sensation for the next 11 seconds until it hits 60. Leaving the automatic in “drive” results in a smooth 1-2 shift, but one of the slowest ones I’ve experienced. It’s as if the transmission stops for a full second, thinks about what gear should be next, puts it in that gear, and resumes acceleration. The far-apart ratios also do their best to keep the engine out of its powerband with each shift. Fortunately, the Sportage has a standard manumatic feature that allows the driver to tap the gear selection up or down, which actually seems to shift more quickly than the transmission on its own is able to. The Sportage will upshift as it approaches the redline even in manual mode, and will not allow itself to bump against the rev limited, but we’re not talking about a sports car after all.

The power rack and pinion steering had decent feel for a sorta-truck, and the brakes seemed to grab well enough. The Sportage’s narrow track and tall-ish profile did make me tread very carefully on curvy roads. I never felt unsafe or unstable with it, but I also didn’t want to tempt fate either. At least I’d be pretty safe had I rolled it over, since it has six airbags and a five-star safety rating all around. (The government actually gives the Sportage four stars for a rollover rating, which is great for an SUV/CUV).

Fuel economy in mixed driving was 18.6 miles per gallon. That figure actually included very few highway miles, and was mostly done on back roads. According to the EPA, the Sportage should get 17 mpg in the city and 21 on the highway; in fact, the first day I had it, I had 20.1 miles per gallon appearing after a 27-mile trip. Still, for the relatively small size and uncompetitive engine power, mileage could be far better – for example, the much-larger, much more powerful 2009 Chevrolet Traverse is rated at 16/23 in AWD guise. By the way, the four cylinder Honda CR-V AWD is rated at 20/26 and the Toyota RAV4 AWD is rated at 20/25 with the four cylinder and 19/26 with the V6. The CR-V’s four cylinder produces 166 horsepower to the Sportage V6’s 173, so there’s not much benefit to buying the Kia just to get a V6.

In spite of losing some paper battles with its competitors such as the CR-V, the Sportage is significantly less expensive (over $3,500 cheaper than a CR-V and almost $5,000 cheaper than a four cylinder RAV4 according to TrueDelta, when factoring in rebates on the Kia), and includes a 10 year/100,000 mile limited powertrain warranty. I’d probably look pretty closely at a CR-V and RAV4 before committing to buy a Sportage, but from a pricing standpoint, it’s almost competitive with USED CR-Vs and RAV4s instead of new ones.

Not having a lot of familiarity with the suddenly-popular compact SUV/crossover segment, I wasn’t sure what to expect from the Sportage. What I found was a versatile vehicle that had enough space for my tall wife and me, enough room behind us for two car seats, in a package that offers a lot on paper, but needs some work in the powertrain and refinement departments. I’d probably buy a different vehicle if I was shopping in this segment, or wait for the next generation, as Kia has been improving its vehicles by leaps and bounds from generation to generation. I’d wager that the Borrego, in spite of competing in a completely different size and price class, improves greatly on many of the criticisms that I had of the Sportage’s attention to detail and powertrain.

For more images of the Kia Sportage 4×4 EX, .

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