Racing Recession

Porsche, Honda, Subaru and Suzuki have all pulled out of various racing series due largely to the recession. It appears that economic conditions just further emphasized how pointless much of the spending in racing is. Nascar is hurting, as are every series. Teams are finding it harder than usual to find sponsorship.

The underlying issue isn’t the recession. Even in good times it’s hard to justify the sums spent on racing by the manufacturers. In Formula One it’s in the neighborhood of hundreds of millions of dollars per year for many of the teams.

The complexity of minutia drives the cost up exponentially compared to lesser, though no less exciting, series. The solution, which the FIA have continually attempted to implement, is to reduce cost. But the reason they have failed to do is because their rule changes tend to INCREASE complexity and further increase cost.

Further, the idea of a budget cap as once proposed is preposterous. It is unenforceable and resources will just be diverted elsewhere because the governing body does not have control of the teams. The teams will spend whatever they can, cap or no cap. The organizers have not been able to eliminate the incentive for the teams to participate in an “arms race”.

It appears now that there will be some reduction with the introduction of “customer” engines, though that is also partly offset by the added expense of KERS.

For auto racing to survive it has to improve the quality of racing while keeping budgets reasonable and stable.

Sold It Yesterday?

With plummeting sales in cars this year it would seem that perhaps the excess capacity which caused some manufacturers to pile on the incentives in order to move the metal was hurting sales now because buyers who would’ve waited bought earlier due to the incentives.

But the R.L. Polk study mentioned in this article would seem to indicate otherwise. People are keeping their cars longer and not needing new ones as much as before.

That’s one more reason why the Detroit 3 and many other companies need to reduce capacity to get things back in line, balance supply and demand. Because as we’ve seen with the current situation it couldn’t last and now there’s going to be a lot of pain all around.

Toilet Paper & Efficiency

Thumbing through the December 2008 issue of Automobile magazine I stumbled upon the best analogy of efficiency ever. It was in the context of automobile design but it is just as applicable in many other fields. Here’s the quote from Freeman Thomas:

We are getting away from things that are big and learning how to create things that are efficient. It’s like when you get down to that last piece of toilet paper. You really start to think about how you’re going to use it. We’re now at that last piece of TP.

For those who don’t know, he designed the original Audi TT and the VW Concept 1 which became the New Beetle.

EV Flashback

Speaking of General Motors, a quick glance down memory lane to the February 1994 issue of Automobile Magazine reveals a test of a prototype of the GM Impact electric car. One reason it was developed was because of California’s optimistic requirement from the early 1990’s that 2% of each major manufacturers’ vehicle sales in the state would be made up of Zero Emissions Vehicles (ZEVs) by 1998.

Looking back the Impact had amazing specifications for its time: Drag coefficient of 0.19, a 70 gasoline mpg equivalent range on the EPA cycle, regenerative braking, a top speed of 80 mph, 0-60 mph in 8.5 seconds, and a curb weight of 2,910 lbs. That’s including 1,100 lbs of lead acid batteries, and functional air conditioning, anti-lock brakes, and airbags.

The magazine praised the car’s handling, developed with the help of former Lotus engineers, despite the low-rolling resistance tires that were inflated to 50 psi. GM estimated that with volume production the price would be $24k, though more like $17.5k with tax incentives.

Granted the batteries were hoped to last 1,000 charge cycles and last four years, about 20k to 30k miles, but the idea was brilliant. If they had the will to stick with it, GM would be leading the electric car segment today, and it would probably be a lot bigger than it is.

Saturn Scenario

Automotive News reports this week that GM cannot close down unprofitable Saturn without spending a lot to buyout the 400+ dealers. Figures north of a billion dollars have been bandied about.

What does Saturn stand for, what does it represent? From the beginning it’s been a no-haggle, “friendlier” kind of company. That implies trust and honesty, which doesn’t seem like much of a stretch to position it as socially responsible and thus environmentally sensitive.

Perhaps it would be in everyone’s best interest if another manufacturer (or even a well funded upstart), especially one without a U.S. presence, took the brand off of the General’s hands to produce and sell a new line of vehicles that would resonate with the market, and help distance the brand from GM’s troubles. In one move such a company would obtain nationwide distribution.

Who could use one? Renault, Peugeot, or a Fiat brand (Alfa Romeo, Lancia, etc)? Maybe even an importer.

GM would get out of the deal without having to pay big bucks, the dealers would have another shot at staying in business, and maybe the market will have more and better choices.

What Happened to Detroit?

After decades of mismanagement and mediocrity, we’ve all seen many of the overarching issues laid-bare in the past several weeks. In a nutshell here are the Detroit 3's problems:

1. Poor Management, Perpetual Reorganization, No Solid Long-Term Strategy

Actually their long term strategy essentially amounted to lobbying to keep the status quo in terms of fuel economy and regulatory standards. Cheap gas spurred big profits in SUVs and other vehicles that were not necessary in the numbers in which they were produced, and also put the manufacturers at the mercy of fluctuations in fuel prices.

All the while they went from one failed plan to another with no consistency in long term outlook. Every couple of years each manufacturer would roll out a new initiative but the outcome was usually more of the same: Shrinking market share and decreasing profitability, while spreading their marketing too thin on far too many brands.

2. Producing Vehicles the Market Doesn't Want

The domestic manufacturers produce 8 of the 11 worst cars of 2008 according to Consumer Reports. That becomes even more of a problem when demand is constantly shifting and their plants are geared to only producing a few models, with little flexibility.

Because of continued production of less desirable vehicles they’ve hurt the value of their brands. Sure, by many objective measures the domestic manufacturers have made great strides in productivity, cost, and quality.

But they missed the boat on building exciting, interesting, and desirable vehicles. The reason for this simply is that the executives do not understand cars. They may understand some of the numbers, but until the cars are what people want to buy, they’ll never make the numbers.

3. Excessive overhead (labor cost, healthcare, etc)

Not much of the fault is with the labor unions. They negotiated what they could. Sure it was shortsighted and the results helped dull America’s competitive edge and drove jobs to Mexico and overseas. But the real fault lies with management that would be so inept as to ALLOW the unions to push them into the agreements that they did.

The reason they're in crisis now is because they have been losing so much money, and then the credit crunch sharply reduced sales (many buyer's can't qualify for loans) AND reduced the credit available to the companies, especially since their existing debts (bonds) have continued to be downgraded. It's a vicious cycle resulting from the 3 points above.

By the time they realized this it was all too late. We’re now at a stage where it looks unlikely that GM and Chrysler will be able to stave off bankruptcy without government support (and even then it’s not looking too bright). The reason is because their businesses are not strong enough to survive in good conditions, much less to weather the storm.