Honda announces plans to cut 800 jobs

originally appeared in The Associated Press:

Japanese automaker Honda says it will cut about one in four jobs at its UK factory as it struggles with low demand in Europe.

Honda Motor Europe says poor sales across Europe due to the region's economic crisis are behind the loss of 800 positions among its 3,500 member workforce in Swindon. The plant makes the Civic, Jazz and CR-V models.

Honda has been making cars in Britain since 1992. About 165,000 cars were built in Swindon last year - though it has the capacity to build 250,000.

The decision comes despite some bright spots in the industry. The Society of Motor Manufacturers and Traders reported this week that new car sales in the UK topped 2 million last year, the best since 2008.

Google Googles for Yield, Finds Auto Bonds

Story first reported from WSJ.com

Feeling lucky, Google Inc.  has found a new place to park some of its $40 billion cash hoard: bonds backed by car loans.

The Mountain View, Calif., company has plowed hundreds of millions of dollars in recent months into asset-backed securities, tied largely to automobile loans and consumer credit-card payments. Among Google's recent purchases: triple-A-rated debt from car makers Honda Motor Co.  and Hyundai Corp.  Google had previously restricted itself to U.S. Treasurys, high-quality corporate bonds and other low-risk securities.

Google's foray into auto lending is the latest sign that ultralow rates on the longtime standby of corporate treasurers, highly liquid Treasury securities, are pushing cash-rich U.S. companies to find new places to put their money. That shift has been a boon for bond issuers, even if buyers are only trying to squeeze a bit more juice out of their portfolios.

"We are not trying to hit a home run here," said Google's treasurer, Brent Callinicos.

The shift has benefited issuers of bonds backed by credit cards and auto loans. Through Aug. 2, $60.68 billion of bonds tied to car loans had been sold in the U.S., according to Thomson Reuters. That is up 50% from a year earlier and the highest figure at this point of the year since 2005.

Market participants say the ABS offerings have grown to meet demand, enabling companies to borrow in larger chunks—in some cases at rates unseen since before the crisis. Late last month, a unit of Nissan Motor Co. priced $1.4 billion of bonds—increased from a planned $1 billion—at an average rate of 0.48%, a record low.

Google, the fourth-most cash-rich company in the S&P 100 after General Electric Co., Goldman Sachs Group Inc. and Microsoft Corp., according to FactSet, isn't alone in piling into these offerings. The search firm joins diversified manufacturer 3M Co.  and payroll-services company Automatic Data Processing Inc., which also have purchased asset-backed securities this year, the companies said.

About 80 firms, including asset managers and a handful of corporations, look into buying bonds in the typical auto ABS deal, said Brian Wiele, head of the Americas securitization syndicate at Barclays. That is double the typical figure of a year ago, he said, and deals are being sold in about a day and a half—roughly half of the average time last year.


"We have seen very good participation from corporates," said Amanda Magliaro, head of the asset-backed syndicate at Citigroup, which led the Nissan offering. "Investors have confirmed their own belief that the asset-backed market is safe and very liquid."

The auto portion of an ABS index compiled by Barclays has returned 2.34% this year on deals with an average maturity of just over two years. That compares with 0.30% for comparable Treasurys this year.

Some recent asset-backed securities have been priced to yield as little as 0.5%, but even that is enough of a premium to two-year Treasurys yielding 0.2% for company treasurers as they weigh acquisitions and other longer-term options for deploying cash.

"Auto and credit-card ABS performed well during the crisis," said Scott Krohn, vice president and treasurer in the financing arm of 3M, based in St. Paul, Minn.

So far, asset-backed securities represent less than 1% of Google's cash.

The company says it buys short-term, high-quality debt and participates in deals that are usually overcollateralized. That means for every $100 of loans in the pool there may be only $85 of bonds, for example—lowering the risk that purchasers of the debt will have their payments squeezed by defaults.

An ADP spokesman said the company's ABS holdings account for a number in the low-single-digit percentage of its investment portfolio.

John Bella, managing director in ABS at Fitch Ratings, said net losses on auto asset-backed securities have fallen steadily since the crisis four years ago, and the deals are now backed by stronger collateral, or loans made to so-called prime borrowers.

Their high credit scores and the strength of the loans' performance during the most recent downturn may have helped investors gain more confidence in the debt as an alternative haven.

Only about 1% of the loans originated in 2011 and packaged into auto asset-backed securities are expected by Fitch to default, compared with 2.6% of the loans in auto deals originated in 2007, Mr. Bella said.

Still, there are risks to the bonds in an economic slowdown, should consumers fall behind on their loan repayments.

For more national and worldwide Business News, visit the Peak News Room blog.

For more local and state of Michigan Business News, visit the Michigan Business News  blog.

For more Health News, visit the Healthcare and Medical News blog.

For more Electronics News, visit the Electronics America blog.

For more Real Estate News, visit the Commercial and Residential Real Estate blog.

For more Law News, visit the Nation of Law blog.

For more Advertising News, visit the Advertising, Marketing and Media blog.

For more Environmental News, visit the Environmental Responsibility News blog.

Federal-Mogul Corp Looking To Spend $1.6 Billion On Purchases

Story first appeared in Bloomberg News.
Federal-Mogul Corp., the auto-parts supplier controlled by billionaire Carl Icahn, said it’s focused on growth and is evaluating acquisitions four months after considering putting itself up for sale.

Federal-Mogul is looking at purchases and is able to spend as much as
$1.6 billion, which would include the company’s $1 billion in cash and its $600 million credit line, Chief Executive Officer Jose Maria Alapont said today.

Alapont said that despite the recovery of the global economy, which now is challenged again, there are companies and businesses that are available for the people who have liquidity. The parts maker is looking at two companies, he said, declining to identify them.

Federal-Mogul’s second-quarter net income rose 31 percent to $64 million, or 64 cents a share, from $49 million, or 49 cents, a year earlier, the Southfield, Michigan-based company said today in a statement.

Federal-Mogul rose 18 cents to $19.81 at 4 p.m. in Nasdaq Stock Market composite trading. The shares have fallen 4.1 percent this year.

Revenue rose 13 percent to $1.8 billion, helped by a gain of about 23 percent in sales to vehicle makers, Alapont said. Sales of Federal- Mogul’s after-market unit, which sells replacement parts under brand names such as Champion, fell 3 percent.

The company’s U.S. sales to automakers rose 13 percent while U.S.
after-market sales slid 12 percent, Alapont said.

The portion of sales spent on selling, general and administrative expenses fell 1 percentage point to 9.6 percent, the company said.

The company said it is mostly focused on growth and won’t rule out strategic opportunities that may present themselves. Federal- Mogul said in March it hired Lazard Ltd. to evaluate strategic alternatives.

Icahn controlled 76 percent of Federal-Mogul’s shares as of April 1.

For Automakers, Strong Sales in October

NY Times

DETROIT — October was the best month for new-vehicle sales in more than two years, outside of the government rebate program in mid-2009, and General Motors surpassed expectations, but still lost market share in the United States ahead of its public stock offering.

G.M. said Wednesday that its sales rose 3.5 percent last month from a year ago, compared with a gain of about 13.4 percent for the industry over all. G.M.’s market share fell to 19.3 percent from 21 percent a year ago.

The Ford Motor Company said its sales were up 19.2 percent, and Chrysler reported a 37 percent increase from a mediocre October 2009. Several smaller companies, including Hyundai, Kia and Subaru, set new October records, with increases of at least 25 percent.

Toyota was the only major automaker to report a decline. Its sales fell 4.4 percent. The industry’s seasonally adjusted annualized selling rate was projected to hit at least 12 million for the first time since September 2008, when auto sales began to collapse. Sales bottomed out in early 2009, but automakers have struggled to gain much traction since then.

“Signs are there that the recovery continues and that it will be sustained,” Don Johnson, G.M.’s vice president for United States sales operations, said. “We don’t see a big risk at all of a double dip.”

For all of 2010 so far, G.M.’s sales are 5.7 percent higher than in the first 10 months of 2009, when the company shed four brands after a brief trip through bankruptcy protection. Excluding those brands — Pontiac, Saturn, Hummer and Saab — G.M.’s sales are up 22.1 percent this year.

G.M. executives will highlight the company’s rising sales as they begin a traveling “road show” to court investors starting this week. The company is expected to initiate its initial public offering in mid-November, allowing the federal government to begin selling its 61 percent stake.

Ford, which avoided bankruptcy, said sales were up 25 percent for its trucks and 23 percent for its passenger cars, but only 10 percent for its utility vehicles. The company sold 3,846 of its new subcompact car, the Fiesta, with 62 percent of buyers replacing a non-Ford vehicle.

“The consumer is crawling back, particularly in the more affluent and higher-quality credit segments, which could provide upside to our 2011 outlook,” Brian A. Johnson, an analyst with Barclays Capital, wrote in a recent note to clients.

Jesse Toprak, vice president for industry trends and insight at TrueCar.com, which tracks vehicle sales and pricing, said the improving performance of automakers showed that “a recovery is under way,” even though the growth had been slower than anticipated.

“If the trajectory continues in the same path, we could have a strong finish to the year,” Mr. Toprak said.

Volkswagen Wants Bigger Share of U.S. Market

The Wall Street Journal

Volkswagen AG has one of the brashest goals in the auto industry—to dethrone Toyota Motor Corp. as the world's largest auto maker. There's a hitch: In the all-important U.S., the VW brand clings to just 2.2% of the market, trailing even Korean upstart Kia.

Now, VW is gunning to reconquer lost ground here with a strategy it resisted for decades: tailoring its cars to mainstream American driving tastes. The first real test of that plan begins this week, as VW rolls out a comprehensive marketing campaign for a bigger and cheaper version of the Jetta, its top U.S. seller, which has just hit dealership floors.

"A lot of people worry that we are going to start making VWs for the masses," says Mark Barnes, VW's U.S. chief operating officer. "I like to say we're going to bring the masses to VW."

The retooled compact sedan marks the first time VW engineers have designed a model specifically for the U.S.

Next year, a new family-size sedan is scheduled to roll off the assembly lines at a newly built $1 billion plant in Chattanooga, Tenn. It is VW's first U.S.-made car since the 1980s. On its heels comes a revamped New Beetle.

"I am fully aware that Volkswagen was too cautious for too long in North America," Volkswagen Chief Executive Martin Winterkorn said at a test-driving event for the new Jetta in San Francisco this summer. His remark was a nod to the car maker's decades-long penchant for deploying cars designed for European tastes across the Atlantic. That left its U.S. operations with models too small and expensive to go head-to-head with Asian and American rivals. Now, he vowed, "we have turned that upside down."

Much is riding on the strategy. To become the world's largest car maker by 2018, Mr. Winterkorn and his management team have set themselves a lofty goal of selling 800,000 VWs a year in the U.S. by then, and another 200,000 cars from its luxury moniker Audi. VW executives have said they aim to become profitable in the U.S. by 2012 or 2013, selling 400,000 VW-brand cars annually by then, after racking up losses in the U.S. of close to $1 billion in some recent years.

It's an audacious—and some analysts say, impossible—target.

The company sold 213,454 VWs and 82,716 Audis in the U.S. last year. That's down from 577,000 VWs at its peak in 1970, when it was the emblematic vehicle of the counterculture and America's top-selling import. It doesn't help that the overall U.S. auto market shrank by one-third, or 5.7 million annual car sales, between 2007 and 2009, and isn't expected to return for years to its pre-crisis level of 16 million annual sales.

To get there, VW has to prove that it is capable of producing cars with mass-market appeal, something no European auto brand has achieved in the U.S. in recent decades. It is seeking a tricky balance: preserving the whimsical aesthetic and German engineering expertise that has won it a core base of Volkswagen loyalists, while broadening its appeal to mainstream drivers of more generic but trusted rides from the likes of Toyota and Honda Motor Co.

"I don't need VW to make another Toyota Camry clone," says Matthew Kleczewski, a 33-year-old information-technology specialist in Pewaukee, Wis. He says he bought his 2008 VW Rabbit hatchback for its taut handling and attention to small engineering details, such as rear windshield wipers that automatically start if he reverses while the front wipers are on. If VW wants to tout its German engineering, it should bring to America more of what it sells to European drivers, not less, he says.

Adding to the challenge is an unanticipated switch at the helm of VW's U.S. operations.

In June, Stefan Jacoby, a blunt-spoken German who took to wearing cowboy boots to dealer meetings and car shows, left his post as U.S. chief to become Volvo Cars' new chief executive. His departure came just a week after he presented the new Jetta at a splashy launch party in Manhattan's Times Square featuring pop singer Katy Perry. VW bosses scrambled much of the summer to fill the void left by a key architect of its American comeback strategy.

Mr. Jacoby's replacement, former General Motors executive Jonathan Browning, is new to the U.S. market, having spent most of his career at GM's European operations and managing Jaguar under Ford Motor Co.

Some U.S. dealers complain that the revolving door of U.S. chiefs—Mr. Jacoby was the third to go in five years—reflects a culture at VW's headquarters in Wolfsburg, Germany, that views the U.S. as a career way station, or worse, graveyard.

"The job of CEO of VW of America should be a career-crowning job, not a way point," says Dan Gardner, general manager of two San Diego-area VW dealerships

Three years ago, when Mr. Jacoby took the post and asked VW's U.S. dealers to an introductory meeting in Orlando, Mr. Gardner wrote an angry letter to decline, complaining about the constantly changing U.S. chiefs.

But recently, he attended a national dealers meeting in Atlanta and met Mr. Browning. He says he's heartened by VW's strategy and big investments in the U.S. though hopes for more continuity in its management this time. The U.S. business "suffers from the constant change in leadership," he says.

A company spokesman said that despite the recent management shuffle, the company has not wavered from its current U.S strategy since embarking on the plan three years ago.

The original Beetle, first imported to the U.S. in 1949, achieved cult status with its simple underpinnings and mechanics, durability and cheap sticker price. Though low on creature comforts and rarely updated over the next two decades, the easy-to-maintain simplicity and quirky design of the Beetle, and its sister models the Microbus, Squareback wagon and Karmann Ghia, allowed VW to capture 7% of the U.S. market by 1970.

But cheaper and more varied Japanese rivals nudged aside the Bug just a few years later, and its boxier replacement, the Rabbit (later the Golf), never caught on as well with Americans as it did elsewhere. VW executives remain scarred by an attempt in the 1980s to Americanize Rabbits produced at a VW plant in Westmoreland County, Pa., with cheaper interiors and a softer suspension. That misstep precipitated a further decline in sales and, by the late 1980s, the factory's closure. By 1992, U.S. annual sales had hit a low of 49,000 cars, and VW contemplated pulling out of the U.S. altogether.

The New Beetle's debut six years later helped revive the brand, propelling VW sales to as high as 356,000 in 2001. But quality problems—particularly with window controls and other electrical parts—a weakening dollar and too few follow-up models extinguished the comeback.

The company's approach to the Jetta underscored its penchant for treating the U.S. as an afterthought to Europe.

Though it is VW's most popular model in the U.S., in Europe the Jetta has the stodgy image of an elderly person's car and is an also-ran to the better-selling Golf hatchback. VW engineers in Germany would base new Jetta models on the more-popular Golf platform, so the Jetta's look and size tended to mimic that of the hatchback instead of larger, better-selling rivals in the compact sedan segment.

Three years ago, VW CEO Winterkorn signed off on plans to tailor a revamped Jetta more to U.S. tastes. It would be built on an extended platform to add leg and trunk room. To help lop nearly $1,800 off its base price and put it in the same $16,000 range as its main rivals, VW's engineering and design teams switched to a harder and less expensive plastic dashboard and a simpler rear suspension system.

A vigorous debate broke out on VW's management board when Jetta project managers presented plans for larger cup holders for the U.S. market, engineers say. Some worried that putting the cup holders near the parking brake would crowd the driver or require a costly new gearshift bracket.

Driving with big drinks is "not something they have experience with in their daily lives," said Michael Hinz, technical project manager on the Jetta. After Jetta project managers showed them consumer research data, the board ultimately approved shifting the brake two inches toward the driver to accommodate the holders.

At a marketing meeting this summer in Herndon, VW executives strategized over how to reach more U.S. consumers beyond the auto maker's core base of enthusiasts for German cars. One market segment the company is aggressively pursuing is Hispanics, and VW bought ad space for every World Cup match on the Univision Spanish language TV network. VW has a strong presence in Brazil and other parts of Latin America, "and we can leverage that deep loyalty to the brand," says Tim Ellis, VW's U.S. marketing chief.

VW's recent ads reflect the effort to broaden appeal. In place of quirky spots in recent years that featured Max, the German-accented Beetle, or a Teutonic dominatrix-type blonde named Helga, the car maker's ad campaign for the new Jetta plays up its lower price tag with the slogan: "Great for the price of good."

So far, VW has made some inroads. Through September, its U.S. car sales are up 20.6%, a growth rate outpaced only by Subaru and Ford Motor Co. among mass-market manufacturers. Market share for the VW brand has ticked up to 2.2% so far in 2010, up from 2% a year ago. (Counting in Audi sales, VW's U.S. share is 3.1%.)

Its biggest test comes next year with the launch of a larger sedan intended to replace the Passat. The new Chattanooga plant will have the capacity to build 150,000 of them, 11 times the Passat's current sales, and they'll compete in the auto market's toughest segment—against the Toyota Camry and Honda Accord.

"Hyundai is extremely aggressive, and Toyota and Honda are going to spend lots of money to hold onto everything they've got," Mr. Ellis says.

VW's struggle with its Routan minivan, introduced two years ago, underscores the challenges the car maker has had in selling cars with more conventional American appeal under a brand that takes pride in German engineering.

After dropping plans for a modern version of its Microbus for fear it would be too niche and costly, it signed a deal with Chrysler to modify and rebrand the U.S. car maker's Town & Country minivan under the VW Routan name. VW tightened the minivan's suspension, gave it a sleeker front end and kept it in the same price range as the Chrysler. With an ad blitz featuring Brooke Shields, it aimed to capture 5%, or 45,000, of the 700,000 annual minivan market.

But the Routan's launch coincided with the auto industry's nose dive in late 2008. So many of them sat unsold on VW dealer lots last year that the auto maker asked Chrysler, which builds them at its Windsor, Ontario, plant, to temporarily halt production. While much of the rest of the minivan market has rebounded, Routan sales have slipped 0.8% to 12,539 vans so far this year, one-seventh of the number of Town & Country sales in the same period.

VW officials argue that the Routan has enabled them to sell to a key new customer segment. The company still expects the Routan's market share to grow as more consumers become aware of it as a minivan option.

But Casey Gunther, VW's top-selling U.S. dealer, says the Routan isn't what people expect from VW.

"It's like someone trying to sell you a piece of chicken and claiming it was a steak," Mr. Gunther says.

VW, he argues, could achieve its 800,000 sales target, "but we need to elevate the brand with products that play up our heritage," such as the Microbus concept or VW's sporty Scirocco, which it sells only in Europe. "There are so many people out there who love the lifestyle VW represents," Mr. Gunther says. "I'm worried we've turned into a follower and not the leader."

Business Highlights

Trade deficit shrinks as auto and oil imports drop

WASHINGTON (AP) - The U.S. trade deficit unexpectedly shrank in January, reflecting a big drop in imports of oil and foreign cars. American exports also fell, a potential blow to hopes that the economic recovery will be aided this year by U.S. sales abroad.

The Commerce Department said that the trade deficit declined to $37.3 billion in January, a drop of 6.6 percent from a revised December deficit of $39.9 billion. Economists had been expected the deficit to widen to $41 billion.

U.S. exports dipped 0.3 percent, reflecting weaker sales of a wide variety of products from civilian aircraft and machinery to agricultural products. But imports dropped by a larger 1.7 percent as both oil and foreign cars saw big declines.

___

Stocks climb for 3rd day as financial shares rise

NEW YORK (AP) - A rally in financial stocks Thursday helped the market extend its grind higher to a third day.

The Standard & Poor's 500 index cleared an important hurdle watched by traders when it closed just above its January peak to set a new 17-month high. That could bring some hesitant buyers into the market.

The Dow Jones industrial average rose 44.51, or 0.4 percent, to 10,611.84.

Stocks have traded in a narrow range since the Labor Department said on Friday that employers cut fewer jobs in February than analysts expected. The market is looking for more signs of progress. The week's quiet trading comes as investors look for more signs about the direction of the economy.

___

Greece hit by strikes, clashes over austerity plan

ATHENS, Greece (AP) - Clashes between riot police and rock-throwing, masked youths broke out during a demonstration Thursday in central Athens by tens of thousands of striking workers protesting austerity measures that the Greek government has said it has no choice but to implement.

The debt-ridden country is under intense pressure from both markets and the European Union to reduce its deficit from 12.7 percent of economic output in 2009 to 8.7 percent this year. Last week, Greece introduced a harsh $6.5 billion austerity package that cut civil servants' wages, froze pensions and raised consumer taxes.

___

Slowly, Americans are regaining their lost wealth

WASHINGTON (AP) - Americans are recovering their shrunken wealth - gradually. Household net worth rose last quarter, mainly because the healing economy boosted stock portfolios. But the gain was slight. And it was less than in the previous two quarters.

The Federal Reserve said Thursday that net worth rose 1.3 percent in the fourth quarter to $54.2 trillion. It marked the third straight quarter of gains. But economists say consumers would need a stronger and more prolonged increase in their wealth to persuade them to ratchet up spending.

___

Gov't may seek more authority on vehicle safety

WASHINGTON (AP) - Government vehicle safety regulators may seek greater authority to investigate defects in cars and trucks and are weighing a range of new safety requirements in response to Toyota's recall of more than 8 million vehicles over brake and acceleration problems.

David Strickland, head of the National Highway Traffic Safety Administration, said Thursday his agency will take a "hard look" at the power it has to set safety standards for automakers.

But one lawmaker at a House hearing said the agency's problems seem to have more to do with "ineptitude" and lack of money than with insufficient powers.

___

Citigroup CEO says bank on path to profitability

NEW YORK (AP) - Citigroup Inc. is poised to return to "sustained profitability" as it sheds risky assets and focuses on emerging markets, CEO Vikram Pandit said Thursday.

Investors embraced his bullish view, sending Citigroup shares up 5.6 percent to $4.18.

Pandit didn't give a timetable for returning to profitability. But he said Citigroup, the hardest hit U.S. bank during the financial crisis, sees big opportunities in emerging markets including Latin America and Asia, which generated about half of Citigroup's 2009 revenue.

In 2009, Citigroup lost $1.61 billion, or 80 cents per share. It lost $27.68 billion, or $5.61 per share in 2008.

___

BP to pay $7 billion for Devon exploration rights

LONDON (AP) - BP is expanding its dominant oil and gas operations in the Gulf Mexico and dropping anchor off Brazil with a $7 billion deal to buy exploration rights from Devon Energy.

BP will get the rights for 10 exploration blocks in Brazil and others in the Gulf of Mexico and in the Caspian Sea near Azerbaijan. BP also is selling a 50 percent stake in its Kirby oil sands interests in Canada to Devon for $500 million. The companies will form a joint venture as Devon beefs up its North American onshore portfolio.

BP PLC already is the largest leaseholder in the Gulf of Mexico with more than 650 blocks producing over 400,000 barrels of oil equivalent daily.

___

Senator to offer his US financial regulation bill

WASHINGTON AP) - Unable to muster bipartisan agreement on key banking provisions, the chairman of the Senate Banking Committee said Thursday he will offer his own version of a sweeping overhaul of financial regulations without Republican support. "Clearly, we need to move along," Sen. Christopher Dodd, a Democrat, said.

A month of talks between Dodd and Republican Sen. Bob Corker had found common ground, but details on key provisions, including consumer protections and other sticking points, remained unsettled.

Dodd said he hoped the Senate could act on a bill sometime in the next three months.

___

Smithfield Foods sees profit in 3Q, tops forecasts

PORTLAND, Ore. (AP) - Smithfield Foods Inc., the nation's largest hog producer and pork processor, reported a profit on Thursday for its third quarter after more than a year of losses.

Meat companies have struggled for two years with a mix of high feed prices, low demand and industry consolidation battered their profitability but they are showing signs of recovery.

The company reported that it earned $37.3 million, or 22 cents per share, for the quarter, up from a loss of $105.7 million, or 74 cents per share, in the same quarter a year earlier, when Smithfield said the cycle reached its lowest point.

The Dow Jones industrial average rose 44.51, or 0.4 percent, to 10,611.84.

The S&P 500 index advanced 4.63, or 0.4 percent, to 1,150.24, above its Jan. 19 close of 1,150.23. The Nasdaq composite index rose 9.51, or 0.4 percent, to 2,368.46 for its sixth straight advance.

Benchmark crude for April delivery rose 2 cents to settle at $82.11 a barrel on the New York Mercantile Exchange.

In other Nymex trading, heating oil was virtually unchanged, settling at $2.115 a gallon, and gasoline dropped 1.31 cents to end the trading session at $2.272 a gallon.

In London, Brent crude lost 20 cents to settle at $80.28 on the ICE futures exchange.

Life After Death In Detroit Is No Heaven

The Wall Street Journal

Last year's North American International Auto Show in Detroit was something of a danse macabre. The specter of recession haunted the displays. General Motors and Chrysler were weeks away from bankruptcy.

This week's show promises a bit more cheer. U.S. vehicle sales, while back to 1982 levels, appear to be stabilizing. Yet jubilation should be tempered. The industry's near-death experience didn't lead to the profound changes needed.

For car companies, and the investors buying into their recovery, this lost opportunity will shape the next decade. As was demonstrated by the salvation of General Motors and Chrysler, and the tussle over Opel, politicians still love their cars and the job-providing factories that make them.

In North America, there has been some progress, with capacity down from 18.3 million units in 2006 to about 16 million, says IHS Global Insight. That still is 17% more than forecast 2010 sales. Meanwhile, in Europe, political unwillingness to close factories is "more entrenched than ever," says Tim Urquhart, senior analyst at IHS. Globally, capacity to make 90 million vehicles compares with expected sales of 62 million this year, estimates Goldman Sachs.

As in the airline industry, chronic overcapacity resulting from high barriers to exit has made for a dismal long-term investment. Shareholder returns for the global auto sector have lagged behind the market and have been on a downward trajectory for three decades. U.S. firms have struggled to adapt to deteriorating conditions in their home market, historically attractive because of a "unique" combination of size, wealth and low fuel prices, says John Casesa, managing partner at consultancy Casesa Shapiro Group.

One strategy has been to globalize. But few car companies are truly global. Ford Motor and GM have sizable positions in North America and Europe, but these are low-growth markets.

Emerging markets are the next big thing, with China alone expected to account for almost half of incremental vehicle sales by 2024, according to Casesa Shapiro. But turning a profit won't be easy, given China's fragmented industry and price-conscious consumers. Only the emerging Porsche-Volkswagen group enjoys a double-digit-percentage market share in China. Indeed, of the major global auto companies, it looks the best positioned in terms of geographic spread, particularly if it can win market share in North America.

As a whole, however, low returns mean the industry needs to take capital out of the production process. That should mean mergers, particularly cross-border ones. But few will want to risk repeating Daimler's disastrous experience with Chrysler. Technology-sharing joint ventures are more likely, with Toyota Motor and Hyundai Motor particularly attractive partners for others, according to Goldman.

Meanwhile, Ford, under Chief Executive Alan Mulally, has made a shift away from the old model of regional engineering fiefdoms to cost-saving, unified vehicle platforms sold around the world.

That sort of self-help will be critical to sorting winners from losers. Despite structural weaknesses, the industry will have to somehow accommodate the demands of climate-change legislation, changing vehicle tastes and new entrants, particularly exporters from China and India. Detroit 2020 promises to be a very different show, perhaps with fewer exhibitors. Hopefully for Detroit, that would result from consolidation, rather than merely the real action having moved elsewhere in the world.

What Does A New Kind Of Car Company Look Like?

Business Week

When John B. Rogers was a Marine deployed in Iraq in 2004, he brought a book called Winning the Oil Endgame with him to the Gulf. The book, by environmental activist Amory B. Lovins, discusses how people can end their dependence on fossil fuels. Rogers says reading the volume inspired him to create a new type of car company, one he believes offers a more efficient and effective way of designing, manufacturing, and selling autos.

John B. Rogers, founder of Local Motors

"I realized it was possible to run an environmentally focused car company in different ways," he says. Most of today's auto entrepreneurs, such as Tesla Motors and A Better Place, focus on alternative fuel sources. But Rogers looked at another way of building a sustainable car business. He imagined he could produce vehicles locally and on demand at "micro-factories," where buyers could watch and even participate in making the car. This would eliminate wasting resources on mass-producing and shipping cars that might sit unbought on a car dealer's lot. More than that, he wanted to source "dream car" concepts direct from potential buyers, rather than to dictate designs, as the major automakers do.

Having left active duty in the Marines in 2005, Rogers headed to Harvard Business School to study for an MBA and learn how to make his dream a reality. After raising $4 million from unnamed private investors, Local Motors made its official debut in March 2008, with a Web site that calls for designers to submit sketches of their dream cars. Contributors can also enter competitions to come up with ideas for a specific type of vehicle, such as an electric car for the eco-conscious San Francisco Bay Area. The site's online community votes on the designs, with winners chosen by the audience, not Local Motors' employees. Cash prizes range from $1,500 to $20,000, with over $30,000 awarded to date.
A Community of Designers

The Rally Fighter will be Local Motors' first vehicle. 

It goes into production in June 2010

 By March 2009 there were 2,400 active contributors to the site, uploading drawings, commenting on each others' work, and voting on designs. Today, Rogers says that number has climbed to 4,000. "And if you count our social media channels—our presence on YouTube, Facebook, and Twitter—there are 50 million more people in our community," he adds.

That might sound fanciful, but the company is now gearing up to produce its first vehicle: a rugged-looking, off-road vehicle called the Rally Fighter. The initial concept was posted online by community member Sangho Kim. On seeing the community's enthusiasm for the design, and recognizing that off-road vehicles present an underserved niche market, Local Motors decided to put the car into production. Interested buyers pay $99 for a place in line to purchase it. When production starts, in June 2010, buyers will be invited to the company's headquarters in Wareham, Mass., to help build the car. The eventual price tag? $50,000.

Rogers is confident that his company can eventually turn a profit. "A single Local Motors micro-factory has the capacity to sell 2,000 units a year at an average price of $40,000," he says. Currently, the Local Motors Web site indicates the tally for Rally Fighter orders is 23, a number that's not exactly likely to trouble any of the Big Three. But Rogers insists he is trying to rethink, rather than overtake, the traditional auto industry.
A Complicated Business

Still, success is far from certain. "Local Motors is an interesting idea in the context of the design of a vehicle. There are real benefits to drawing on a large community of designers; you can come up with truly unique designs and come up with interesting new niches," says Jeremy Anwyl, chief executive of car-buying guide Edmunds.com. "But it gets trickier when you take that notion and move into actually building a car—which is technically very complicated." Not to mention, highly regulated.

Rogers is unfazed. "Building a car is complex, but it is a well-understood science. This is not the challenge," he says. "The challenge is bringing cars to market in a sustainable manner—the cars people want, where they want, when they want. This is what Local Motors accomplishes."