Friday, April 29, 2005

Mercedes, the GM of Germany

Outside of GM's meltdown, the other big story in the auto biz is Mercedes bringing down DCX, and an otherwise profitable Chrysler. Most of the pundits are just shocked that the wondrous Mercedes marque isn't being dragged down by the plebian Chrysler, and that the exact opposite is occuring.

Besides my ranting that aesthetics are incredibly important to a car manufacturer, another theme I'm trying to get people to listen to is the theme of organization. If you're a car company, for every price range you should sell ONE car. Not two, or three, but one. Maybe a station wagon version, and possibly an SUV in that price range, but essentially only one platform. It's one of GM's biggest problems. With so many divisions, you get overlap, and that means you are competing against yourself. It also means less money, and a poorer set of products competing against one unified product by your competitor. Toyota has the Camry, GM has the G6, Malibu, Impala, LaCrosse, etc. Mercedes does something similar. Look at this schematic from the Mercedes website. In the 50-60 thousand dollar range, Mercedes sells a C-class, and an E-class sedan. There's further overlap in 90-100k range, and the worst overlap is in the 120-140k range, where the high end S-Class compete with the Maybach. Remember, every 10 grand you rise in price, the market shrinks immensely. Are there really that many people who can afford these cars? Where BMW would offer the 5 series as competition, Mercedes gives two or three different cars. BMW also would never make a high end 7-series to compete with its Rolls-Royce brand. But Mercedes does.

The international luxury market used to be dominated by Mercedes. Now there is Cadillac in America, Lincoln with its SUVs, BMW, and Audi. Even the ultra luxury market is crowded, with a resurgent Bentley and Rolls Royce competing with Mercedes late comer Maybach. The numbers of buyers are so small, and will shrink further with rising gas prices, to try and compete with several offerings overlapping is just crazy.

Mercedes needs to step back and condense. Customers are complaining about reliability, well then instead of making several different models, just concentrate on making one model really well. The more effort and money you put into one model, the more reliable it becomes. Diversification of product always leads to less reliability. With cars ever-increasing in technology and complexity, especially in the luxury market, it just doesn't make sense to have so many offerings.

Mercedes and GM both have many of the same problems. It will be interesting to see what methods they use to get out of them, and if either will be successful. Hopefully both will.

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Thursday, April 28, 2005


When I put up a picture on my blog, I find it by typing in the name of what I want into Yahoo or Google, and have the search engine do an image search. I typed in the word "heritage" into yahoo, and in the first twenty pictures, a Harley-Davidson motorcycle came up twice. So did old American houses. But no American cars.

I think all American cars should be retro. Every time a brand is destroyed by the American auto industry, that's an enormous amount of design heritage lost. It's an enormous amount of successful ideas to draw from lost. That's why I don't think brands should be destroyed. Maybe models should be combined or condensed, but never destroy the brand.

Buick sales are doing terribly. The new LaCrosse, barely out 6 months, its output is being slowed already. Not good. I've seen on GM message boards the word Renaissance being bandied about. Immediately I put the image in my head of something grandiose, basically because renaissance is a big word, not because the idea of a "re-birth" means grandiose. Buick, Cadillac, Oldsmobile, all these brands would use absurd European-esque names like Toronado, LeSabre, etc. to illustrate further what began in the design of the car.

This blog entry is sort of rambling, and I'll continue with news analysis in a couple of days, but my point is with the incredible wealth of designs and names to draw upon in the American automotive pantheon, it just seems silly to waste billions of dollars largely guessing as to what will work, when you already know what will work! Just look at past models that sold well, and sell them again! If you look at Audis of the last 25 years, or Volvos, you see basically the exact same design. Mercedes as well. If the Europeans can get away with it, we should to.

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The Immediate Future of Energy

What is our Glorious Leader doing about current energy issues? He's offering tax breaks for hybrids, clean diesels, and more oil refineries built on military bases. The latter is somewhat clever considering the obstacles states put to making refineries since they are filthy, loud, and enormous and no one wants them in their backyard. By putting them on federal land, the federal government can do what it wants no matter what the complaints are by the state government surrounding the military base. Military bases tend to be utterly polluted pieces of land anyway, mostly unfit for human life, so putting something just as filthy atop it wouldn't be much of a difference.

It's true that our refinery capacity slows down how much fuel can be processed, and raises the price of oil for our pumps. But the fact remains, if you have all the refineries in the world, you still need oil for them to refine! All these solutions being implemented will help, but they are all gasoline based. And that makes sense since many members of the Bush cabinet are ex-oil company employees. Condoleeza Rice has an oil tanker named after her, Cheney worked for Halliburton, a company whose speciality is drilling for oil, and Bush owned an oil company called Arbusto. So by telling the public to use alternative cars that still use oil, albeit less, but giving handouts to those uses of fuel instead of electric cars or hydrogen cars, we still have an oil dependent society. And the President looks like he still wants oil conservation. Clever.

What does this mean for the car industry? The auto industry needs to realize that it will be around long after the world runs out of oil. The need for independent transportation will always be very important. They need to demand more from the government, more money for hydrogen technology, natural gas technology, cleaner diesel technology, and perhaps alcohol technology. Any major technological shift will require massive amounts of government aid. It cannot be done by companies on their own. Our system of rail, our highways, all these things were constructed with tax payer dollars. And the future of the automobile will be as well. Car companies stand to make billions by implementing a new fuel system with government help, and selling that new fuel out of their dealerships, rather than through fillup stations. Honda is already doing it. They are selling natural gas Civics, and they can fill up at the owner's home, as well as Honda dealerships. Honda now controls the entire means of production for their cars, as opposed to losing money to Exxon for their regular Civics. I don't think natural gas cars are the final solution for the fuel crisis, but when and if hydrogen cars come on-line, car dealerships could potentially replace fillup stations. In short, car companies' future profit lay in a new fuel system, not an old one. Challenge this current government to help make that dream a reality, and the profit potential is endless.

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Tuesday, April 26, 2005

The Rise of the Hybrid

It's beginning. Hybrid sales have risen 81 percent last year to a total of around 83 thousand. There's probably 200 thousand or so hybrids on the road. The article linked to above tells us that within this burgeoning market, Ford, the only American manufacturer with a true hybrid commands only 3 percent of the market. 3 percent! That's miniscule especially considering that they are currently the ONLY manufacturer to offer a hybrid SUV. I have yet to see an ad for the Escape hybrid, and that's disappointing. They should be everywhere.

The limits of hybrids are that they only really work well with small vehicles, but if over 80 thousand a year can be sold with the price of fuel LESS than it is now, imagine how many will sell as more choices appear on the market, AND the price of fuel inexorably rises. With production at all time highs, no new large oil fields being discovered, and consumption at all time highs, it doesn't take a math genius to realize that every ounce being drilled is being swallowed at a fast rate. That means higher prices if Venezuela has a revolution, Iraq falls apart, Iran decides to stop exporting, revolution in Saudi Arabia, revolution in Nigeria, etc. A lot of possibilities for things to go wrong. Hybrids are going to be HUGE.

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