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Car Dealers Are Hating Life Right Now

By Brendan Moore

11.28.2008

It’s difficult for a lot of people to work up much sympathy for someone that owns an auto dealership, or, for that matter, the people that work at an auto dealership. Just about everyone in the country has some bitter anecdote in their past about being wronged by a car dealer in some fashion; whether it was when they were trying to buy a vehicle, get a car serviced, get parts for one, etc.

But, man, these guys have it pretty tough at this moment.

New vehicle sales have collapsed, with the market down almost 32% so far, and after November sales results come out on Tuesday, that decline will almost certainly go to at least 36%. The new vehicle sales forecast for 2009, depending on which one you want to go with, could be even uglier. The previously unbreakable luxury car market has also tipped over in the last couple of months, with luxury vehicles mirroring the same declines as the mass-market segment. The steady drumbeat of bad news shows no signs of abating anytime soon.

Used vehicle sales, until recently a bright spot for dealers, have also plunged, with November sales results expected to show a decline of around 20%. Just as importantly, the average wholesale and retail price of used vehicles has fallen along with sales volume, thereby compressing profit margins considerably on the reduced amount of used vehicles an average dealer can sell. Wholesale prices are the lowest they’ve been in 14 years, according to Black Book, a pricing guide used by dealers. Lower wholesale prices also translate into lower trade-in values given to prospective new-car customers, which in turn short-circuits a lot of new-car deals.

Then there is the carnage in the consumer credit market. There’s the obvious effect; less consumers can get approved to buy a car with an installment loan because of an increase in the minimum credit score required as well an increase in average down payment required. And leasing, the preferred auto financing method for some consumers and businesses, has dried up, with some auto finance companies shutting down their leasing units, and the ones still offering leasing doing so only with much tougher credit requirements and lease contract terms.

But the commercial credit market is also just killing dealers. It’s killing them because they can’t get their inventory of new and used vehicles financed (called floorplan) anymore, and this is driving a lot of dealers out of business very quickly. It’s killing them because they cannot renegotiate terms on their real estate loans for the property their dealership sits on, whether that is because there is no credit available, or, because they now don’t sell enough cars to be considered a viable business, or some combination of both. Many dealerships could hold on until the economy picks back up if their commercial financing situation remained steady and reliable, but that isn’t the case, and so they have to close the doors.

And for many dealerships, that is the only option they have, since their franchise is now without value, and there is no willing buyer for the business at any price. Although this type of scenario is mostly confined to the domestic brands currently, the severe drops in valuation for dealerships overall is also complicating every dealer’s efforts to stay in business until things get better.

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GM Now Considering Dropping Saab, Pontiac, Saturn and Hummer Brands, Reports Say
Nov27

GM Now Considering Dropping Saab, Pontiac, Saturn and Hummer Brands, Reports Say

By Brendan Moore

11.27.2008

Bloomberg News is reporting that General Motors is now thinking about dropping several of its brands in order to increase its chances of getting government aid.

GM officials have not yet commented on the report.

GM was rebuffed by government officials last week in their attempts, along with Ford and Chrysler, to secure $25 billion USD in bridge loans for their businesses. GM’s portion of that $25 billion number is approximately $12 billion. Government representatives were not happy with any of the Detroit 3 in the meeting last week, stating that there didn’t seem to be any good plan to exit the hole the car companies are in, and basically told them to regroup and come back later.

The Bloomberg article stated that GM directors are scheduled to review a proposal to shed the brands next week – November 30 and December 1. Lawmakers have scheduled a meeting during the week of December 8 in order to again consider aid to the Detroit automakers, so the dates reported for the GM directors meeting would certainly dovetail with that timeline.

GM has repeatedly stated that it will probably run out of money in early 2009 at their current burn rate and is desperate for federal bailout money. If the discussions regarding the dropping of brands are occurring, it is yet another sign of GM’s growing desperation. Critics of GM have called for reducing brands for years, but with the exception of Oldsmobile earlier this decade, GM has resisted pruning brands. An announcement was made months ago that GM was trying to sell Hummer, but apparently, no buyers have yet raised their hand.

The Bloomberg article cited “people familiar with the plans” in reporting this development, and therefore this could be nothing but a rumor at this point, but the scenario reported could just as easily be accurate. The situation at GM is fluid on a week-to-week basis, depending on just how bad the numbers get.

COPYRIGHT Techshake – All Rights Reserved

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Detroit Auto Show Becomes Even More Subdued; However, Chinese Will Spice Things Up
Nov26

Detroit Auto Show Becomes Even More Subdued; However, Chinese Will Spice Things Up

By Chris Haak

11.26.2008

Since we last reported on automakers pulling out of the January 2009 North American International Auto Show in Detroit, there has been even more bad news for the show.  As of the earlier article – written Friday, November 21 – Mitsubishi, Land Rover, Suzuki, Ferrari, Porsche and Rolls-Royce had all pulled out of the show.  Porsche had not been at the show for several years, citing very low sales volumes in the Detroit metro area (as if the premier North American auto show was only important from a regional standpoint), but Rolls Royce, and especially Ferrari, always seemed to draw a crowd at their (well-enclosed stands).  Still, those other automakers are fairly small fish in the whole scheme of things, although Mitsubishi revealed two vehicles (the production Lancer Ralliart and the Concept RA), and Land Rover revealed its LR-X concept at the 2008 show.

Then on Monday, Nissan announced that it was pulling out of both the Detroit and Chicago auto shows due to the economic environment.  Nissan’s departure is a fairly big blow because it’s a full-line automaker unlike the other dropouts, and occupies a sizable chunk of floor space.  Then today, Honda announced that it wil not be having any staged press events at the show in January.  Honda is expected to still reveal the production version of its Insight hybrid vehicle, but will do so without the theatrics that accompany traditional press reveals.  The fact that Honda – probably the healthiest automaker in the US market – has taken this step shows that no manufacturer is immune from the challenges faced in this environment.

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Saab Confirms Continued US Market Presence
Nov25

Saab Confirms Continued US Market Presence

By Kevin Miller

11.25.2008

Aside from today’s announcement that all three vehicles in their 9-3 range have again been named a Top Safety Pick by the American Insurance Institute for Highway Safety, recent news at Saab has not been positive. Their all-new 9-4X crossover and the replacement for the eleven-year-old 9-5 have both been delayed by GM’s financial situation, and a shrinking dealer network in the US has left even major markets with few outlets for purchasing a new Saab. For example, Seattle (and the rest of Western Washington) now has just one, non-centrally-located dealership to handle new vehicle sales and warranty work.

The past month has seen several rumors that Saab would withdraw from US sales entirely, and those rumors were fueled by the fact that Saab USA had no MY2009 vehicles available at dealerships, and there was no online tool for building a 2009 Saab. As 2009 marks the availability of Saab’s XWD all-wheel-drive system in the 9-3 range, the online configuration tool was to provide a valuable insight into pricing of vehicles with the new drivetrain.

(subscription required) recently reported that Saab will continue sales operations in the US. In a conversation with Saab Managing Director Jan-Ake Jonsson, AN was told  that “The Saab brand is very attractive to U.S. consumers. There are no plans to pull out at all. The U.S. is a very important part of our strategy.” While that is a relief to Saab customers and dealers alike, Saab’s US sales are down thirty-one percent through October 2008.

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2009 Subaru Tribeca Limited Review
Nov25

2009 Subaru Tribeca Limited Review

By Chris Haak

11.25.2008

Subaru’s largest vehicle has something of an identity crisis, but not in the way that most cars have one.  The Tribeca clearly fits into the midsize crossover class, so it’s not confused about what segment it fits into.  It is, however, confused about its identity as a Subaru.

The Tribeca’s identity crisis began a few years ago when Subaru first introduced the B9 Tribeca.  It was the largest Subaru sold in the US, had optional seating for seven, and drove like anything but a WRX rally championship car.  It also required premium unleaded for H6 engine that had fairly pedestrian power numbers, and was priced fairly richly.  On top of all this, in a bid to strike a “unique” look with buyers, the B9 Tribeca had one of the most unusal noses of the 21st century auto industry, with a gaping opening in the center flanked by “wings” on either side.  The story was that the grille was a nod to Subaru’s prior aviation heritage, but the B9 Tribeca had a face only its mother could love.

Fast forward a few years, and Subaru dropped the ‘B9’ prefix from the name, leaving it the just the ‘Tribeca,’ and invested money into an expensive mid-cycle redesign of the front and back ends, recalibrated  the engine so it would make similar power on regular unleaded, and threw it back onto the market to see if it stuck.

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France and Germany Vow to Support Auto Industry

By Brendan Moore

11.24.2008

French President Nicolas Sarkozy said earlier today during a joint meeting with the German Chancellor that France and Germany, the two largest economies in Europe, would not let their auto manufacturers go down. Sarkozy stated that the French government would do everything it could to support the industry during their time of greatest need. The economic recession and credit meltdown has affected the auto industry in Europe, as it has in the US.

He said he and German Chancellor Angela Merkel were together as one in their wish to defend their respective auto industries, through innovation, research or technology — not protectionist measures.

Merkel stated “it would be disastrous” if there were not a European response to the crisis.

Merkel and Sarkozy said they were in agreement that a coordinated effort would be best, even if actions specific to each country were different.

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Start-Up Firms Jump into EV-Charging Business
Nov22

Start-Up Firms Jump into EV-Charging Business

By Brendan Moore

11.22.2008

Two firms in the San Francisco Bay Area are making plans to do well by doing good.

Both firms are planning to provide electric charging infrastructure for electric vehicles (EVs) through various methods in the Bay Area.

The company that that will be first out of the blocks is , who states that they will have 40 working charging stations available to the public in first-quarter 2009 along major state and interstate highways in the San Francisco Bay Area. The company also intends to have hundreds of additional charging stations at existing gasoline stations in the San Francisco Bay Area operational by the end of 2009.

Coulomb, a private start-up company, will sign resellers like distribution companies, gas stations, convenience stores, etc. who will then retail the product/service through subscription accounts to end-users (EV owners).

Coulomb has already scheduled a demo project that will start in San Jose next month, utilizing five charging stations downtown.

Coulomb is based in Campbell, Calif., is also planning to raise another $5 million to $8 million in funding to expand its manufacturing capability.

The second company, , has gotten a tremendous amount of publicity over the last few days concerning their plans to provide charging infrastructure. They have been mentioned in the New York Times, Fortune, Los Angeles Times, The San Francisco Chronicle, The Economist, and many other publications. One of the reasons is scope, since Better Place will spend about a billion dollars (USD) to launch their effort in the Bay Area, and the other is politics, since the mayors of San Francisco, Oakland and San Jose, along with Governor Arnold Schwarzenegger, held a huge press conference to laud the company’s efforts and to promise the cooperation of their respective municipal governments to make the initiative successful.

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Mitsubishi Opts Out of Detroit Auto Show
Nov21

Mitsubishi Opts Out of Detroit Auto Show

By Brendan Moore

11.21.2008

Mitsubishi says its going to take a pass on the Detroit Auto Show this year, joining Land Rover, Suzuki, Ferrari, Porsche and Rolls-Royce as auto manufacturers that won’t have a stand in Detroit this year. Mitsubishi cited the company’s push to save money wherever possible in the current economy. The Detroit Auto Show opens in early January.

Exhibition space is always at a premium in Detroit during the show, which is the largest in the world, and even with the aforementioned manufacturers absent, the show organizers expect that there won’t be enough space available to fill exhibitors’ requests.

Still, it is a troubling sign. The Los Angeles Auto Show, another one of the major shows in the world, and going on as I type this, was hit by several cancellations of new model launches and concept reveals by manufacturers this year. The culprit was the same; that is, the economy. Just as importantly, several senior auto executives canceled their travel plans for Los Angeles, which certainly didn’t help the show’s intent to maintain the perception that their event is an absolute requirement for any car company that wants to see and be seen in the automotive media.

The recent SEMA show also experienced some defections among previously reliable exhibitors, and again, financial concerns were the reason.

None of these shows are in danger of losing their positions on top of the international auto show circuit, but the current cutbacks are a sobering reminder of just how tight budgets are in the auto industry these days.

It should be noted that non-attendance at any show this year does not preclude attendance by a manufacturer next year, should they decide that it makes better economic sense 12 months from now. Of course, absence this year could translate into continued absences in subsequent years if the manufacturer decides that there just isn’t enough payoff for the money spent. This is exactly what has happened with Porsche. They stopped attending the Detroit Auto Show after 2006 (a boom year) and have not returned yet. It is precisely this type of scenario that worries auto show executives.

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