A Tale of Two Turbos: Cruze vs. Jetta

Reuters has a good piece on turbochargers that ran yesterday that nicely sums up a good deal of the good on turbos, especially for the U.S. market.  Ten years ago, U.S. motorists enjoyed VW products that could get an honest 50 mpg highway (EPA said 49 mpg I seem to remember) from their stellar little 1.9l turbodiesel that went into the Golf and Jetta.  Decent U.S. compacts were seeing mid- to high-30 mpg highway.  Fast forward to today, and that gap between turbo gas and turbodiesel is quickly closing.  The ever-scrappy Scott Burgess of The Detroit News wrote a piece today on the new uber-fail Volkswagen Jetta (google the reviews, no one really likes it), which points out that the turbodiesel only manages 42 mpg, even though the engine has only gained 100 cc of displacement. 

 In Detroit's corner, the new Chevrolet Cruze will go up against the Jetta (and forthcoming, sure to be pretty competitive Ford Focus), and the Cruze Eco will get 40 mpg highway using regular grade pump gasoline and a very underspecified 1.4l gas turbo.  Pricing for the Jetta diesel was unvailable for the new model, but we know the Eco model of the Cruze will start at $18,175.   There's no way you'll be able to touch a new Jetta diesel for under $20K; even though they've made the car cheaper, the diesel adds a variable geometry turbo (as opposed to a simpler, waste-gate, non- variable geometry turbo), pricey high-pressure fuel injection (Cruze to use cheaper, less efficient port-fuel injection) and not-cheap exhaust aftertreatment that is far more costly than the conventional 3-way catalytic converter in the gas powered Cruze (oxides of nitrogen, and to a lesser degree, particulates--otherwise known to we wood-burners as "soot"--are still the bane of diesel exhaust).  Let's guess that the cost difference is $4,000.  Is $4,000 worth it for a 5% improvement on something that already gets 40 mpg?

Don't get me wrong, I love turbodiesels.  Diesel proponents would rightly point out that the Jetta would likely have 100 additional lb.-ft. of torque that would make the Jetta likely feel much more stout in daily driving.  But most consumers are not cross shopping torque ratings like this author.

My point: gas turbos, as pointed out in the Reuters piece, are likely to skyrocket in coming years.  Ford already said they'll offer gas turbos on 90 percent of their vehicles in coming years.  Full disclosure, GM and Honeywell are clients of my firm; I own neither GM nor HON stock.  That said, would I really like to own a Cruze turbodiesel, especially if they made a hatchback or wagon?  Hell yeah.

December 2008: GM Beats Toyota

And now for some more (marginally) good news: yes, the Big Three got hammered in December for reasons everyone knows, but the big Japanese players fared even worse. GM was down 31%, Ford was down 32%, but Toyota was down 37%.

In these parts, we’ll take any sign that could be contrued as positive and breathe deeply. Not sure on the exact timing, but Toyota and GM might have both had zero percent financing deals running concurrently. Normally, if GM does much better than others—in this case, Toyota, but not Ford—it’s because GM had a massive incentive/giveaway that others did not, so this is interesting as Toyota had to pony up to the zero percent financing bar still fewer were ordering their vehicles relative to Toyota.

What’s interesting to watch closely are the subtle, if anecdotal, signs that the pervailing coastal sentiment of “domestics = bad; foreign makes = good” may be beginning to change. Read the comments sections of Dave Kiley's post on the Ford Fusion smoking the Camry Hybrid. The contrarians are starting to root for Detroit, and this is a trend that I suspect may continue as Ford and GM especially continue to make extremely competitive product.

Michael Moore weighs in on the Senate's failure to pass the auto loan

For once, I agree with Michael Moore. His take on the auto industry loan is worth reading, only if to the see the truth through one of America’s great storytellers.

Question for Richard Shelby: Can we call you Dick?

Richard Shelby: Can we call you Dick? If we may, then why, Dick, on Fox News recently, why would you lie—and then let people know you just lied—about your interest in helping foreign companies at the expense (via neglect) of the U.S. automanufacturers?

Wallace: Do you have as Sen Levin has said an agenda to help your local foreign auto makers?

Shelby: I don't have an agenda, but I'll tell you this, in the South, from South Carolina to Kentucky, Georgia, Tennessee, Mississippi, Texas, we have about 124,000 people employed in the automobile industry. They are competing. They are competing. GM, Ford, Chrysler can compete, but not under the model that they have now [Ed: that part is true]

124,000 is very specific number. Where did you get it if you don't have an agenda?

You know, Dick, the Hyundais and Toyotas and Hondas and Mercedes of the world come from countries where their Federal governments pay for workers healthcare. For better or worse, the U.S. largely does not. So when the Big Three could, they paid for their workers healthcare.

Wasn’t that terrible? U.S. citizens . . .or let me put this another way . . . voters, had their healthcare provide for if they got a job working for the Big Three.
And these same companies paid into large pension funds to help fund their retirements. I know Alabama workers would have like that, wouldn’t they?

Two points: one, the playing field isn’t level and GM, Ford and Chyrsler are very much trying to shed these legacy costs (lower standards of living for American blue collar guys, isn’t that awesome? I frankly do not want the guy next to me at the gas pump to make Chinese or Mexican wages; yes, the entitlement mentality must go, but I wish poverty on no one).

But you can’t just turn the spigot off, Dick; two mega forces (the formerly Big Three and the UAW) regrettably have to work at at rate I’ll call “hastened incrementalism.”

As Wagoner testified, the margin of labor costs between Toyota and GM will be essentially nothing come 2010. It’s happening. We all wish (except those UAW families) that it had happened sooner.

Point two: even though you’ve got some 100K plus employed by foreign interests in the South, the vast majority of the vehicles goes back to Korea, Japan and Deutschland AG. Dick, they’re foreign. That means the money, too, is mostly shipped back to foreign interests--that is non-American interests, Dick.

Yet you sit wobbly on your throne of sorgum on C-SPAN talking about the purity of capitalism, and how the beauty of it is that some companies rise and succeed and others fail.

But you didn’t point out that you interferred with the market by supporting millions in subsidies to these foreign interests by way of tax abatements(remember, if you believe the UAW, labor is only 10% of the cost of a new car, which means most of the money flows out of the U.S.).

To better understand the gross hypocrisy of Dick Shelby, undoubtedly ghost written for Compuware Chief Peter Karmanos by my former boss, read on. Jason knows how to make a point (and if you somehow see this Pella, Iowa, let me know what you're up to these days).

Today's Hero on Capital Hill: Jeffrey Sachs

Today’s superhero in the bridge loan debate on Capital Hill is Jeffrey Sachs of Columbia’s Earth Institute. This guy laid down such incredible smack not only some of the idiocy and hypocrisy on the Hill on the current crisis, but put the perspective on Citi Group and other financial giveaways that ballooned into the hundreds of billions of dollars with no strings attached with no calls for bankruptcy. I’m going to find his opening statement when it’s up and post it, it’s phenomenal.

Sachs pointed out something not yet heard that deserves attention: the auto industry is the largest industry in the U.S., and that governments globally are injecting billions into their own country’s auto industry. This guy just kicked ass (sorry Mom). Lucid, forceful, zero pretense . . . Professor Sachs, you Sir, were a surprise and delight of the first order. This guy salutes you.

Mark Zandi: New Detroit Superhero

This guy should be on everyone’s radar in Detroit, the Midwest and taxpayers in general.

Dr. Zandi broke it down in simplist terms: the bailout loan will be pricey, and could be even as much as $75M to $125M . . . but letting GM, Ford and Chysler slide into oblivion will cost taxpayers much, much more.

It’s that simple.

Detroit Goes to Washington, Take Two

This is how they should have gone to DC. Why didn't I/we think of this.

Mr. Scott has a bright career in automotive PR should he ever want to leave The Detroit News. I don’t think this would have changed the outcome ulimately, but if would have changed the tenor and welcome from Congress.

Panic in Detroit: Not Just a Bowie Tune

There’s no way around it. At this point, I’m pretty worried about our future.

As a PR guy who’s been try to help engineer consensus on different companies in the automotive industry for 12 years, it’s been amazing to watch the trajectory of the car companies and suppliers during this time. The last three years have been water dropping on a rock, slowly eroding my confidence in this town’s ability to compete. Circumstances, as they say, allayed their forces against us. But lest we not forget decades of horrible judgment, both of which got us here today.

And then über-industry watcher D. Howes drops this bomb in today's Detroit News.

That Detroit is going down is done; the question is what will it look like on the other side? Will Southeast Michigan look like one enormous sprawl of Canton/Akron, Ohio . . . a broad swath of decrepitude with homes priced as they were in the early 1970s with wages and salaries that match?

Even as GM and Ford continue to grow overseas—in many cases profitably—there’s only so many jobs in Detroit to be had going forward for essentially holding stewardship of the brands, sales/marketing and finances. GM has said that different regions will take ownership of developing global platforms, and North America/Detroit will retain fewer of those (B-cars will come from Korea; large rear drive cars from Australia, et al.). Design jobs, too, will be (are) widely dispersed as GM rightfully has said that designers in local markets should skin these platforms to tailor shapes to local tastes. Most people don't know that the auto industry until very recently was in great shape . . . just not in North America.

Detroit will be still smaller (remember, fifty years ago Detroit proper was 2 million people; today it’s less than half that size). Many of its best and brightest leave to escape the crime and “schools” the city has to offer (don’t believe a white guy from Lake Orion now living in Livonia, read this from my colleague Jacqueline Harrington on what it’s really like to live in Detroit . . . less than hopeful. Yes, she's African-American.)

We can keep working hard, and hope. On our hopes, here are a few of mine:

· The Joseph Goebbels-lookalike/rodent-faced/car industry-hating Henry Waxman goes three rounds of bare-knuckle boxing with local champion John Dingell. Waxman gets waxed by the senior Dingell on C-SPAN. It makes Sports Center. A sweet bronze statue goes up in Palace to honor the event.

· Detroit becomes the lithium-ion capital of the world.

· Gas prices stay under $2/gallon for five more years (I’m betting this won’t happen, get in now, buy me a beer in five years).

· The Japanese continue to mostly build excellent cars with forgettable or downright weird styling that turn people off; as cars become more commoditized and uniformly reliable, styling is what sells and Detroit gets its mojo back.

· The Germans continue to build overpriced cars that aren’t very reliable (I’ve had several; great to drive, terrible to own).

· Detroit comes back . . . property taxes drop . . . businesses move back in to the city . . . suburban people begin buying up the big mansions and turning many of the great downtown neighborhoods back into highly desirable places to live. There remains pockets of slums, but they grow smaller.

Feel free to add yours. If Obama showed us anything, it’s that sometimes big hopes can become bigger realities. While the lights are still on, keep hope alive.

So Why Is Chyrsler in Trouble?

So why is Chrysler really in trouble? Gas prices, credit crunches and the lack of cash to buy their cars outright (some people still do this; I for one have never had a car payment aside from the $2,900 Tom Terry loaned me in February 1989 for my ’68 Camaro) have hurt plenty.

The bigger reason, aside from Jeep and the (mini)vans: their cars are just not good. How are they not good? In the 1990s, at least they looked good, even if they weren’t terribly reliable and depreciated faster than the stick of gum you put in your mouth. Ok, the 300 was a hit. But if ever a car was a total ripoff of another design, the 300C is it (of a Bentley).

I don’t feel good saying so. I grew up near Auburn Hills, and I want no harm to come to even more people of Southeastern Michigan. But the subject that just gets danced around here in Motown, but is taken for granted essentially everywhere in the country, is that Chrysler doesn’t make great product. Sorry.

Take a look at this article and accompanying list. I show it to illustrate not any particular model of the “Ten Cars Nobody Would Miss if they Vanished”, but the number of Chrysler products on it (interestingly, the Lucerne which is mentioned as a car that should go away was purchased recently by my parents who drive back and forth from Boyne country to Sun City and back every year—they love it. Yeah, they’re in their mid 60s, but guess what, so are tens of millions of other Americans too, and if you look at the list, you’ll see Lucerne isn’t down that much this year).

Among the domestics, Ford and Chevy have developed some extremely competitive products lately. You can shop a Fusion, a Camry, an Accord and a Malibu and personal preference and aesthetics will inform your decision as much as presumed reliability, etc.

But can you really put the Avenger in that category? It’s like looking a three-legged dog: you could love it and give it a home, but you’d always be feel sad for it. And for the owner.

So here's one way out: the Michigan Ecomomic Development Corporation works with State funds to turn Auburn Hills into the lithium-ion Capitol of the world.
How? No clue, but there's a lot of smart guys up there, we have a ton of research universities within one hundred miles that could join forces to supply brain power, and unlike products like the Avenger, the entire world will be clamouring for high-energy, high-power batteries in huge numbers within a decade. Jennifer Granholm, how about you do that with my tax increase?

A Tale of Two Launches

My colleagues and I at work have been arguing for a few years that the days of the big, splashy, event-driven new car launches should probably be relegated to the dustbin of auto PR practice.

For decades, automakers have flown cadres of journalists to expensive locales replete with ribbons of billard-ball smooth road surfaces (southern Spain seems to destination favorite). The reason we think this model is dying is fairly simple: the number of impressions (# of stories written x the number of times those stories are read/seen) doesn’t justify the huge cost, nor is there any tremendous body of evidence that proves that the kind of coverage you earn is much better.
What matters most these days, not shockingly, is the product.

There was a time when marketers could hope to wine and dine journalists into good reviews by appealing to their wanderlust/go-somewhere-warm self-interest , but with the internet trading on its ability to speak truth to power, journalists have an even greater incentive to be very forthcoming and candid about their impressions on new cars. For the most part, they are pretty fair.

In other support for our thesis, Dave Kiley at BusinessWeek weighs in on two recent launches, and gives another reason to keep it local:

"When Ford introduces an all-new F-Series pickup truck to media this month, it is holding the event at a local hotel and its own Romeo, MI proving ground. That may not sound like a big deal. But when Ford launched the Edge SUV in 2007, it flew reporters from all over the country to San Francisco. Mind you…I like this idea, as I often find it a pain in the neck to arrange to go to the West coast just to hear speeches and drive cars that I could drive just as well in Michigan."

His entire post can be read here.

Kill CAFE Rules and Save Taxpayers $25 billlion

In a thought-provoking opinion piece yesterday, this Wall Street Journal article by Holman Jenkins offers a novel—and to my mind theoretically (but not politically) practical way of saving taxpayers $25 billion+ dollars in Federal loan guarantees:

"For a sum small compared to their revenues but large in relation to their market caps, the Detroit auto makers were all over the two conventions. Their lobbyists had something to sell -- a plea for $50 billion in federal loans. Congress practically owes us this money, Ford, GM and Chrysler argue -- because Congress slammed us with new fuel mileage mandates that will cost us $100 billion to meet.

John McCain caved. The White House is in the process of caving. Barack Obama didn't need to cave. But before rushing to pass the legislation, there's an easy way to save $50 billion or whatever part of these loans wouldn't be paid back: Just repeal the fuel economy rules."

To note: I say in my title here that it's $25 billion, the Journal quotes $50 billion. Smart $ is on the former.

The corollary, according to this classic by my favorite contemporary economist, Greg Mankiw from Harvard, is that rather than burden the OEMs and consumers with CAFE rules that just don’t work, is to permenently raise fuel taxes above where they are now. The following from Mankiw is a must read:

Raise the Gas Tax

Autoextremist: PR Won't Work for Detroit?

http://www.autoextremist.com/current/

The ever delicate and nuanced Peter DeLorenzo essentially says to Detroit OEMs: Give up on your PR efforts . . . you lost the image war. As usual, his reasoning is on very solid ground, the idea being that amazing products will help cure what ails GM, Ford and Chrysler. That's right. But he's wrong (sorry Peter).

But to say that communications and marketing just don't/won't work is folly. I offer as Exhibit A a brand that makes high-quality, reliable, intrinsically good products, but doesn't communicate its value very effectively as measured by sales . . . Acura.

Mercedes-Benz, on the other hand, outsold Acura in August, as they do most months/years, but hasn't remotely approached Acura's reliability in recent years. I'm aware the reliability is but one reason people buy cars (especially luxury cars that no one needs); design, performance, resale, et al. all count too. But when you ask most real people what is meant by a "good" car, they'll say "high quality" or "reliable."

Sorry to say this Peter, but the brand still counts for something, and Mercedes proves the point. And brand is another word for the intangibles. Some of those intangibles are not consciously communicated, and not all can be helped by PR and marketing, no argument.

But I fully appreciate and mostly agree with the spirit and direction of Delorenzo's rant. Autoextremist has always been a provocative, thoughtful read and product, product, product is still the automotive equavalent of location, location, location.