Toyota Problems Compounded By Politics

Let me be perfectly clear. Toyota’s product issues with unintended acceleration are serious safety issues and I’m not downplaying their significance.

However, it is obvious that there is a political undercurrent to the whole debacle that is being amplified by the media that is clouding the true extent of the problems and resulting in even more irrational behavior than normal (panic).

People are losing thousands of dollars trading in their Toyotas. It reminds me of the results of the spike in fuels in 2008, which drove prices of fuel efficient small cars up (e.g. $8k for a mid-90’s Geo Metro).

Here are a few key points to think about.

• Toyota overtook GM in 2008 to become the sales leader in the US market.
• Toyota does not have a union workforce in its North American plants.
• GM is mostly unionized.
• The Democratic party has the support of the UAW (United Auto Workers).
• The US Federal government is now the largest shareholder of General Motors (the UAW also holds a significant stake).
• The US government is controlled by a Democratic administration.

I’m not going to mince words. Every major automaker has recalls, some more serious than others. But the propaganda machine has blown Toyota’s issues all out of proportion.

42 MPG, Not That Hard

Been on vacation for a while. Drove my Mom to upstate New York to visit family friends. We took her '04 Corolla. My Mom has driven Corollas for a long time. She buys one new, drives it into the ground and then repeats the process. It takes a long time.

I drove the whole way and averaged 42.4 mpg, using 18.3 gallons of 87 octane gas over 776 miles. Much of the time the air conditioning was on and the weather was great. Tire pressures were 32 psi, ambient temperature about 75-80 degrees F, humidity fairly low (probably about 30% to 40% max), and cruising speeds in the 60 to 65 mph range.

The car is pretty good for the money. It's a real car that can be found anywhere - not experimental or far fetched in any way. Amazingly, it only cost $1,000 more than the same model my Mom bought 10 years before. Much of this cost containment was achieved by using lower grade materials (interior trim, upholstery, etc). The older model had 4 wheel independent suspension, this one has a rear beam axle. You notice these things.

The ergonomics border on terrible, and the Corolla chief engineer alluded to this when the 2009 model debuted. The steering wheel is too far forward and does not telescope. It does now on the new model. The seat also left my backside numb after an hour or two. There's also a lot of buffeting when behind large vehicles at speed.

It's hard to believe that Toyota could nail it for so many years and then not do such a good job on this one. But overall it is still a good value. The car has been bulletproof as far as reliability.

A Prius is easily $7k more. Unless you drive a lot and fuel prices rise astronomically (to about $9/gallon, assuming 50 mpg for a Prius, 40 mpg for the Corolla, 15k miles/year, and you keep each for 10 years) you will never actually save money.

Automakers could probably gain another 10% in mpg for $1,000 or less. Here's what I would consider:

1. Lower seats and roof to reduce frontal area and aero drag. Everything else constant, a 2 inch height reduction would cut drag about 3% to 4% (likely about 1.5% to 2% mpg improvement).

2. Cooler glass and less of it. AC could then be downsized, and it wouldn't have to work as hard to cool the cabin.

3. More gears. Everyone's already doing this. Four speeds is not sufficient for keeping the engine in its sweet spot over rolling terrain at speed.

4. Predictive cruise control. Cruise control is pretty efficient compared to humans. It would be even more effective if the driver could set a speed band (maybe 5-7 mph) and GPS could let it figure out how to anticipate road grades.

A 10% improvement in fuel economy and $1,000 price premium would result in break-even on savings when fuel is at $2.94/gallon or higher, given the above example with the Prius. It almost makes financial sense at this mpg strata. It would definitely be positive for vehicles in the 25 mpg range.

By the way, this reminds me of my '89 Civic hatchback in college, one of the best handling cars I ever drove. It had a 5 speed manual, enormous trunk space, and it rarely returned LESS than 40 mpg.

Out-of-the-Box Aston-Martin

AM has explored a number of distinctive avenues since Dave Richards and Prodrive have taken over the reins. First there was the Rapide, the first A-M 4 door. Then the London bus project, the Lagonda SUV, and now a city car.

The city car is based on the Toyota iQ's underpinnings. Automotive News reports A-M will not actually make any changes other than interior trim and a new fascia; no mechanical changes. The company plans to build 2,000 units a year and sell first
only to existing clients.

The article alludes to this being a means by which A-M can raise its average unit fuel economy. Talk about unintended regulatory consequences. If that's true it will also raise the total A-M footprint.

In light of the macro picture, the goal should be to reduce the carbon footprint of real A-M cars, even if only a modest amount. That would produce a better environmental outcome by far.

Source: Automotive New (subscription required)

100 Years of Automobile Manufacturing

Below is a neat video (5:16) about production of the Model T Ford. It suggests that the assembly line was one of the biggest breakthroughs to occur, and it was.

However, one facet that is overlooked is the fact that before the assembly line could come into play, all parts of the automobile had to be manufactured to standard tolerances so that all the pieces could fit together with minimal or no 'tweaking'.

Then the labor could be divided into very basic tasks which in turn made workers interchangeable as well. Prior to that craftsmen gathered the parts they needed and fit everything together as needed. Things just didn't bolt together.

At Ford however, someone who didn't speak English or had any formal education could be taught to do most jobs in a very short amount of time.

At the beginnning (circa 1908) of Model T production workers still went from station to station to do their tasks. It was only after a few years that the assembly line was created and the vehicles moved between stations. This reduced assembly time by more than 80%. It was an amazing feat of organization.

This is detailed in the groundbreaking 1990 book entitled "The Machine that Changed the World" which explores how societies make things, and studies the transition of automobile manufacturing from craft-based methods to mass production by Ford to lean production, as pioneered by Toyota.

Auto Leasing Losses

A number of auto manufacturers are cutting back on leasing. The reason is because they are losing money, in some cases a lot of money on previous lease deals that were, at the very least, optimistic in the projected resale or residual values of the leased vehicles. Chrysler has left the leasing business entirely. GM, Ford, and Toyota are scaling back somewhat. All took big hits.

The Wall Street Journal reported that Ford lost $2.1 billion in the second quarter of 2008 on leasing, GM lost $2 billion, while Toyota has set aside reserves for a “large” write down for leasing.

At the heart of the issue is excess capacity. The manufacturers used leasing as a way to keep the factories running. It is often less costly to keep making the vehicles and selling them at break even or at a small loss than to idle a factory and still pay the overhead. Thus they had to find customers for all these extra cars.

What do you do to find customers (notice I didn't say "buyers") for extra cars without lowering retail prices? You lease them at very attractive rates, in some cases at ridiculously low rates. That preserves the retail price of the new car for the time being.

The problem with that, aside from attracting customers who often could not afford to buy the product and thus not enhancing the value of the brand by creating future buyers, is the manufacturers took on a lot more risk.

When a company sells a product it eliminates price risk. The item sold for X dollars and it's a done deal. When a company leases it is projecting what the car will be worth used when the lease runs out. It is also projecting the customer will not default.

Any time projections are made there is risk. The bottom line is the manufacturers bet wrong. The auto market has tanked and now those cars coming off lease, especially the less fuel efficient ones, are worth a lot less than projected. On top of that they have suffered higher default rates due, in part, to the collapse of the credit/mortgage markets.

Leasing, on the scale that it was done, was a bad idea. Not only did it artificially inflate the market size, the additional units "moved" were the riskiest transactions for the manufacturers. In summary, the manufacturers sold off tomorrow for reprieve today. Except that was a couple of years ago. Tomorrow has arrived and it's time to pay. Hence the losses.

Mass Production of Carbon Fiber?

In an effort to lower vehicle weight Honda and Toyota will work together with Toray and Mitsubishi Rayon on developing carbon fiber for mass production and recyclability. The Japanese government will provide some funding. The partnership is expected to bear fruit around the middle of the next decade by enabling a 40% reduction in vehicle weight.

Vehicle Trend: Adventure Vehicles

Pick up trucks and SUVs are going to get smaller. Between the energy and environmental issues, vehicles will get lighter (not necessarily light but lighter), and have smaller footprints.

Granted, full size pick ups aren’t going to go away, especially if they’re used as work vehicles. But the ones used as personal vehicles that occasionally are used for hauling stuff around will transition the way that truck-based SUVs shifted to car-based crossovers.

Of course, the original adventure vehicle is the Jeep Wrangler which now enjoys stronger sales than ever. More recent examples that made it to production are the Honda Ridgeline and Toyota FJ Cruiser.

At this year’s Detroit show several concepts were unveiled that further explored this idea in varying shades such as the Toyota A-BAT, Hummer HX, Suzuki X-Head, and Jeep Renegade.

Much like the Mini, Audi A3, and Volvo C30 making the case for premium small cars, we’ll likely see the same with trucks as they morph into adventure vehicles with nicer interiors, innovative packaging, and multi-functional dimensions. Think of the new breed as Swiss Army Knives on wheels.

Links to pics:

Hummer HX
Jeep Renegade
Suzuki X-Head
Toyota A-BAT

1/31/08 Update: Chrysler's Jim Press seems to agree

2/5/08 Update: Automotive News is reporting a rumor that Lexus is considering a "compact SUV for urban buyers".

2/14/08 Update: Toyota seriously considering A-BAT? And I neglected to add this a few days ago about the GMC Denali XT concept.