General Motors CEO Asked to Step Down

General Motors CEO Rick Wagoner has been asked to step down by President Obama.  Wagoner has been the CEO of GM for nearly 8 years now.  However, he has come under close scrutiny recently due to the fact that GM is surviving solely on $13 billion in US aid, and is asking for nearly $16 billion more.

While I find it a bit unorthodox to have the President ask a CEO to step down, this was a needed step towards fixing GM.  The believed next in the line is GM's COO Fritz Henderson, although the position may be filled by someone from outside the company.

I believe that the best bet would be to hire from outside the company.  Usually, I am not a big fan of hiring from outside a company, as I am a strong believer that the people who work their way up through a company deserve the first look when a promotion becomes available.  However, in this instance, GM has made too many mistakes to rely on someone within.  The risk is that the new CEO would possibly continue the previous policies or have loyalties to parties that may not result in the best interest of the company.

According to the Bloomberg story, the government will be responsible for determining a replacement.  They also report that Obama plans to give a speech tomorrow about the future of the automotive industry.  Check in tomorrow for my take on Obama's plan.

Toyota Share Now Dropping

Toyota, one of the strongest automakers in the world, is now feeling the impact of the recession.  On March 23, Bloomberg reported that the Toyoda family, who owns the majority of Toyota stock, is going to lose $429 million because of stock instability.  Stock price has dropped, and Toyota is expected to lessen the dividends paid to their investors.  This is going to hurt many of the US investors in Toyota, but even the founding family is being hit.

Obviously, no car company is immune to the recession.  When the economy suffers, people become more careful with their money.  This results in fewer new car purchases.  As consumers shy away from the new car lots, investors move their money into different areas.  Unfortunately, this makes the problem worse.  

Since Toyota is not a US based company, the government has not offered any aid.  However, until this report, Toyota was viewed as the strongest car company and was believed to emerge the strongest.  While this still may be the case, we can see that even the mighty Toyota Motor Corp. is being hurt.  

If we are to learn anything from this story, we must realize that no matter how strong a company may look on the outside, there is still the possibility of weakness.  We see this everywhere from AIG, Lehman Brothers, and the major automakers.  And while the automakers are merely victims of the recession and are not in this situation due to unethical practices like AIG or Lehman, they are still being hit hard economically.

Ford Motor Company Avoiding US Help

Over the past months, Ford has taken steps to avoid taking money from the Government, which its rivals GM and Chrysler chose to do.  Ford has committed itself to buying back its debt and has put forth plans to further reduce or eliminate its debt.  

I have always been a fan of Ford (my dad owned a Mustang when I was younger, so I formed a loyalty), and they are supporting that belief now.  Seeing a company work to survive on its own, without relying on the government to save it, makes me happy.  GM jumped at government intervention very quickly, which caused me to lose confidence in their company and their management.  

Some may view Ford's moves as stubborn, but I think they are a model by which the other companies should act.  GM and Chrysler got themselves into their current situations, and should have to face the consequences of those actions.  Instead, they were rewarded for their reliance on debt by getting billions in tax dollars.  

After seeing how AIG handled their bailout funds, I am skeptical of GM and how they are using our money.  Ford, by avoiding involvement in the government bailouts, you have gained my respect and my trust.  Thank you for showing the world that a company can take responsibility for its actions.  I wish you the best.

To read the full description of Ford's plan, visit Bloomberg.com.

Hyundai Assurance... A Scam?

I was watching TV recently and saw a very interesting commercial.  It turns out, that Hyundai has implemented a new program they call "Assurance Plus".  Basically, they are offering ways to help their customers deal with the tough economic times.  Here is one of the many commercial spots they have made for it:

Hyundai has offered to pay three of your payments if you lose your job, and even take the car back from you so as not to hurt your credit.  The idea is that if you need a few months to get your affairs in order, you'll be able to keep your car.  And if you end up not being able to afford it at all, they won't ruin your chances of getting other loans for things you might need.

  

This all sounds great when first hearing it.  A car company that wants to help and seems to understand what you are going through? Great, right?  If you look a little deeper you'll find some less obvious conditions to the program.  First, in order to be eligible for this program, you have to lose your job.  So if you are just having trouble making ends meet, but have a job, you are on your own.  Also, each dealership is allowed to tailor the conditions a bit more (the website tells you to check with your local dealer for full conditions).  Finally, this program only applies on new cars.  So if you've already bought your Hyundai (before they created this program) and start having troubles, you won't be protected either.

This is essentially a sales scam hidden under the idea that they are going to help you.  You first have to buy the car.  Obviously sales are down during this recession, and Hyundai is attempting to make car buying seem safer and more attainable to those hit hardest.  But if you do decide to buy the car and have to take it back, you no longer have a car.  How is this helping?  Sure your credit won't be hurt, but if you are in such an unstable position that you may not be able to handle taking on a car payment, you don't need to be buying a car, despite what the company is willing to do for you.

I am all for companies trying to help the little guy, but I don't like seeing it turn into a marketing ploy.  Hyundai is making much better cars than they have in the past.  They provide a great deal for the money, and their cars last quite a long time.  Had they extended this offer to their current loyal customers, this would be a commendable action.  Instead, they turned it into fake concern.  "We are all in this together" Hyundai says.  I think it will take more than "Assurance Plus" to prove it.

The World's Cheapest Car

Cars haven't been $2,000 dollars for many years, but that is about to change.  Tata Motors, one of the largest companies in India, is now offering a car called the Nano for $100,000 rupees.  This converts to about $2,000 US dollars.  In addition to the world's cheapest car, Tata recently purchased Land Rover and Jaguar from Ford Motor Company last year.  Unfortunately, there have been many setbacks that are making Tata's survival very difficult.

Tata recently built a new manufacturing plant for their Nano model, but it was delayed and caused too few cars to be built.  This resulted in a loss for the company, since it needs to build nearly 350,000 vehicles to make a profit on the Nano.  By not being able to sell enough cars, they have run into problems paying off their loans for the purchase of Land Rover and Jaguar.

Once they fix these problems though, the company should be all set in India.  Car sales have not been a large portion of spending in India, but that is looking to change.  In fact, many other car companies are looking to build models aimed at the middle class in the country.  While much of the developed and powerful nations are suffering, emerging markets show great potential for sales.

We may not see Tata bring its models to our shores any time soon, but their use of smaller and cheaper cars sets a precedent for our automakers that may help our country recover.

To read more about Tata and its recent economic troubles, CLICK HERE.

New Hybrid Planned for Market

Though Nissan has been very limited with the details, Business Week reports that a new hybrid is in the works for 2010.  This would be a major step for Nissan, especially considering Toyota and Honda have already produced successful hybrids in the market. 

Currently, Nissan has the hybrid Altima, which still uses hybrid components from Toyota.  However, for this planned hybrid, Nissan is working to develop their own hybrid system that they expect to provide better power and response than their opponents.  The system will then be used in all of their hybrid applications, but the primary recipient will be a luxury model in 2010.  Nissan's luxury division, Infiniti, is expected to bring the car to American markets.  

This new hybrid engine will most likely be used in other applications for Nissan.  These applications include luxury cars, standard models, sports cars, and even their SUVs.  With the growing demand for hybrids and fuel efficiency, this is likely a wise decision for Nissan.

To read the full Business Week article, CLICK HERE.

Re-inventing the Car

There is a change coming in how we will soon see our cars.  While most companies are working to provide a more fuel efficient version of the standard car we have come accustomed to, one unique company is attempting to completely reinvent the way we see the car.

The Times Online, a british publication, recently published an article depicting a flying car.  You read that correctly, a flying car.  A Massachusetts based company called Terrafugia is currently designing a flying car, called the Transition, and recently conducted a test flight to see how the design was working out.  Though promoted as a "roadable aircraft", the Transition may very well be the first major step towards a true flying car.

The goal for the vehicle is to be able to transform between car and plane settings, and be capable of traveling at 115 mph for short flights.  Essentially, you would be able to fly between New York and Washington, D.C. and then drive your vehicle to your home or office once you arrived.

While still in somewhat of a prototype stage, the Terrefugia Transition has already received around 40 pre-orders and may potentially be ready for sale next year, setting you back about $150,000.  

The Economic Downturn: A Look on the Bright Side

In a recent article published on CNN, a possible silver lining has emerged from our national economic crisis.  With citizens losing money and faith in their economy, they have become much more frugal with their money.  Customers are less willing to pay large amounts of money for a new car, opting instead to keep their old ones.  This means that the large automakers have had major drops in sales that they are trying to remedy with new models.  And because most people have stopped going to the dealer to keep their cars running longer, automotive repair shops have seen their business increase since the downturn.

According to the Automotive Service Association, "their members' sales were up 16 percent over the last year" (CNN, "US Car Repair Shops Getting Milage out of Thriftier Times").  This means that more people are looking to mechanics and auto-parts stores for their repairs, rather than relying on the dealership.

Prices at the dealer are often higher than most outside sources, because they charge for conveniences, for reliability and for a guarantee of their service.  However, other mechanics are able to offer many of those same perks, at a much lower price.  Also, the parts are typically purchased for a lower price, resulting in a lesser cost overall for the customer.

Just as people like to bargain shop for groceries and other necessities, they are bargain shopping for their auto repairs.  This may not be the desired outcome for the automakers or dealers, but the small businesses that have seen their business grow are loving the shift in trend.  Most people are worried about the security of small businesses in a downturn, but as this instance shows, businesses in the right industry can prosper.

Suppliers Getting Help

Yesterday, I discussed the potential problems that would arise if the government failed to assist the auto-parts suppliers.  Well, today on Bloomberg, I found a newly published article that says the government has promised nearly $5 billion in support for the auto-parts suppliers, as well as GM, Chrysler and Ford.

This drastically needed step will ensure that the smaller suppliers will be paid for their services, even if their customers suffer losses.  Without this assistance, "as many as one third of the more than 4,000 US auto suppliers face 'imminent financial distress'" (Bloomberg, "Auto Suppliers Getting $5 Billion in US Assistance").  Luckily the government has stepped in to protect these smaller companies.  

So far, GM and Chrysler have also accepted the terms of this new package, while Ford Motor Co. has not yet commented on whether it will participate.  However, despite the help this will provide for the industry, many jobs will still be lost and many companies may still fail.

I believe that this will prevent the chain reaction of failures that I expected prior to the government's announcement, but the auto industry will most likely be thinned out and still lose many of the smaller upstarts.  We won't be able to completely erase the damage, but we can try to lessen the impact.

Automakers Not the Only Ones At Risk

With all of the focus on General Motors, Ford and Chrysler, we have failed to see another sector of the automotive industry that is at risk of failing as well.  We have failed to see how the economic crisis is effecting the auto-parts suppliers and makers.

In an article from Business Week published last week, a top consultancy firm used by President Obama, Grant Thornton International, has concluded that nearly 500 auto-parts firms are at risk of bankruptcy and failure.  Though they have declined to reveal which firms are most at risk, the recommendation given by Grant Thornton is to also provide stimulus money for these firms.  The fear is that if we let these companies fail, it will start a chain of events that can potentially ruin the major automakers as well.

The fact that we are only now realizing this potential catastrophe shocks me.  It simply shows that we don't know as much about this economic downturn as we previously believed.  If a business fails, whether in the automotive industry or not, there will no doubt be a chain reaction that causes others to fail.  If we have failed to account for this possibility in the previous stimulus plans, we may be stuck in this crisis for quite some time.

A "Better Place" in the Near Future?

Imagine standing on street corner in New York City.  Cars whiz by, only you can't hear them.  Why?  The cars whizzing by you are electric.  This may become reality if Shai Agassi has his way.  

Recently, CBS Sunday Morning  ran an article about Shai Agassi and his company, Better Place.  The company has three main goals that they have set out to accomplish:

1.  Get car companies to make cars that can use swappable electric batteries

2.  Convince governments to place charging stations throughout the country

3.  Build swapping stations for longer drives (basically an electric "gas-station")

These goals are extremely ambitious, but Agassi has managed to find investors willing to support his company and 25 countries willing to make the change.  Nearly $300 million has been invested in his company and Nissan and Renault are among the first car companies willing to produce the swappable electric cars.  

So far, this idea has come under major scrutiny.  The infrastructure overhaul that would be needed, is too much for many countries to handle.  For example, in the United States, there are millions of gasoline powered vehicles on the road.  It is going to take a very long time to switch and transition to the new electric cars.  Agassi's plans would also require most parking lots to add charging stations.  With the economy in its weakened state and government spending under scrutiny, attempting to invest large amounts into a new infrastructure may appear frivolous. 

One must be very optimistic in order to make such a plan succeed.  It seems as if all the forces of the world are going against this plan.  The oil companies are reluctant, the car companies are reluctant, and worst of all, the citizens will be reluctant.  There are some select supporters, but if Agassi plans to succeed, I believe he will need to spend more money educating the world.  "About nine out of ten people say it's crazy!" says Agassi.  When we finally realize the necessity of these actions, we may finally support this ambitious entrepreneur. 

By 2011, Israel, Denmark and Hawaii plan to have charging stations ready to try out with Nissan's prototype cars.  Only time will tell if this plan will be successful, but it is obviously a much needed step in the right direction.

The Muscle Car Revival

Since 1972, there has not been a true "muscle-car" available from the US automakers.  When the oil embargo hit the United States, gas prices went up, and the muscle-car era of the 60s and early 70s died.  However, car companies today are struggling to find something to rejuvenate their markets.  So, despite high gas prices, the weak economy and new emissions standards, the nameplates of the classic muscle-car era are making a return.

The Ford Mustang never left the market, but with its recent styling update, has found new popularity once again.  GM also hopped on board with its revival of the GTO a few years ago.  Unfortunately, this was not a successful venture and the vehicle was put on hold.   Not to be outdone however, GM quickly began work on their famed Camaro.  Expected to hit markets by the end of this year, the car takes styling cues from the 60s, but includes the modern comforts to which we have become accustomed.

The Dodge Challenger has also returned to the market with styling derived from the original car of the 60s as well.

I find it quite odd that our automakers are attempting to revive the muscle-car era at a time when things are so unstable and uncertain.  Perhaps this move will prove to be useful, and may eventually pull these companies out of the debt and possible bankruptcy they face.  However, as much as I admit these cars are amazingly beautiful and fun to drive, I believe it is irresponsible for these companies to be focusing on sports cars.  

These cars will have much better gas milage (the basic Camaro is expected to get 29 mpg highway) than they did in the 60s, but are still no where near what many European vehicles have been able to accomplish for years (BMW has produced a diesel engine capable of 40+ mpg).  If the Big Three want to impress me, they will need to mature as companies and realize that in today's economic climate, we need fuel economy and efficiency.  Times have changed, and while there will always be a demand for fun, fast cars, the primary focus must be sustainability.

To learn more about the muscle-car era and today's revival, CLICK HERE.

BMW Leading the Way towards the Electric Car

As the world economy suffers and our national automakers stumble, foreign companies like BMW are looking to take advantage.  For years, the electric/hybrid car has been a goal of many automakers.  In the movie, "Who Killed the Electric Car?" we see that GM had developed an electric car a few years ago, that they eventually pulled from market.  Since that time, the focus shifted from electric vehicles to hybrid vehicles.  This means the car would be able to run on both gasoline and electricity.  

Gas prices are unstable, as is the US economy.  World markets have also felt the pinch, but many were regulated better than our stock market.  As a result, BMW has chosen to take the lead in electric vehicles.  BMW has already perfected its diesel engine, making it extremely efficient, and has also developed an engine that runs on Hydrogen and emits only water (they have tested this engine in the 7-series).  And, according to an article from Business Week, they are trying a test run of 500 Mini Coopers that are made to be purely electric.

Available in New York and Los Angeles, the cars have been in high demand.  In fact, BMW states they have had no problem finding people to lease the vehicles at $850 a month.  For comparison, this amount is higher than it would cost to lease a gasoline-powered BMW 5-series.  

Many fear that the technology is not going to be cheap enough to put into mass produced vehicles.  However, these steps show that the recent problems with the world economy have caused a possible shift in business-as-usual.  For years, the oil companies had control over automakers, but it appears as if they are finally ready to break free.

General Motors: Do they Deserve Help?

In a recent article from Bloomberg.com, published on March 8th, there was a discussion as to whether or not General Motors deserved any more bailout money.  For those that don't know, last year GM asked for $10 to $12 billion from Congress.  Congress decided to give that money to GM, and yet GM is still asking for more.  But not just more, $16 billion more.  

Many Republicans are now beginning to believe that perhaps Chapter 11 bankruptcy would be the best idea for General Motors.  By filing for bankruptcy, they believe GM would be able to reorganize their company and reduce debts.  In fact, Arizona Senator John McCain believes that bankruptcy would allow General Motors to emerge, "stronger, better, leaner".

Perhaps I don't know enough about the economy, but I don't see this as a positive step.  Even though GM has been fighting bankruptcy speculation since 2004, I believe this would be a major step back for our economy.  Nearly 47,000 jobs have been cut by GM this year alone, as a result of their major losses.

If GM files for bankruptcy, the country's confidence in our automakers will plummet.  The stock market will take a major hit, and our economy will tank yet again.  Just as the government is working to keep AIG afloat, they must attempt to keep General Motors afloat.  If we can't keep the people confident in our industries, we will have a very difficult time overcoming this recession.  

To view the article, CLICK HERE

Introduction

The purpose of “The Engine Block” is to provide a new outlook on the issues plaguing the automotive and transportation industries.  

With the current economic downturn, automakers are struggling to stay afloat.  In fact, a government bailout was needed to temporarily save our failing auto giants.  General Motors, the world’s second largest automaker, is suffering major losses despite the bailout and government assistance. 

Rumors abound regarding General Motors’ possible need to file for bankruptcy.  This comes as shocking news, considering GM is such a large and seemingly powerful corporation.

See Article: http://usnews.rankingsandreviews.com/cars-trucks/Auto-Bailout/

 These issues and others will be discussed on “The Engine Block”.  This blog aims to inform the consumer of problems within the industry and the plausibility of the solutions given.  Check in for new posts regarding gas prices, automaker problems, airline issues, and transportation alternatives.  The youth voice needs to be heard regarding these issues, and “The Engine Block” will provide that voice. 

“The Engine Block” will strive to provide the most up-to-date and comprehensive stories and opinions on the transportation industry from the perspective of a young consumer.  We hope our readers will become more knowledgeable in the process.

 The primary audience of “The Engine Block” is the general consumer, but will be appreciated by car enthusiasts everywhere.  We are all affected by the economic downturn, and we are all affected by the transportation industry.  Knowledge of these issues makes for a more powerful consumer.  So make regular pit stops at “The Engine Block” and stay ahead of the pack.

 

THE ENGINE BLOCK:  Your Stop for Transportation News