Tata, EV's, China and More In C.A.R.S Management Briefing Seminar Day 2

CENTER FOR AUTOMOTIVE RESEARCH
MANAGEMENT BRIEFING SEMINARS 2010
Traverse City – Day 2
By Steve Purdy
The Auto Channel
Detroit Bureau

While attendance here at Management Briefing Seminars seemed weak yesterday, it’s usually less attended the first day of the conference. I understand that the official numbers are not bad. From a usual attendance of well over 1,000 it slumped to barely more than 600 last year during the depths of the auto crisis. This year it’s around 800. But the participation of vendors, promoters and hangers on is way down. There was a time when the top brass from all the major OEMs and suppliers wouldn’t miss this event. That’s not the case anymore.

We spent most of the morning today hearing about doing business in China. What a big topic that is. That would be a good topic for a full week conference in itself. The consistent message seemed to be China represents huge opportunities for the auto and other businesses, but with huge risks.

China is essentially an “authoritarian capitalist” system where the government owns at least half of all businesses. They’ve been trying to decentralize some of the decision making from the central government to the provincial governments but that just may increase the unpredictability. One of our speakers insisted that the people in Beijing who are orchestrating the economy are first-rate, high-quality thinkers who would like to promote some consolidation of the huge numbers of fledgling businesses, but know that they must be careful not to stifle either local initiative or foreign interest.

So how does that relate to the automobiles we love?

Think about a couple of deals we’ve been watching – the Volvo and Hummer sales.

The Volvo sale to the Chinese company Geeley was just consummated this week after more than a year of scrutiny and exploration of the details by the government. The demand for luxury cars, particularly in China’s largest cities, is growing rapidly and the acquisition of Volvo will give them the platforms and the technology to begin filling that demand internally. Geeley, as importantly, is an established business entity with a good track record and solid relationships throughout government and the business community. In fact, Geeley was the first Chinese automaker to present cars at the North American International Auto Show just about four years ago.

The Hummer sale to little-known Sichuan Tengzhon Heavy Industrial Machinery, on the other hand, was seen as a deal without merit because of the impracticality of the vehicle and the lack of credibility of the company. So, it wasn’t up to the two companies to make the deal. It was the government’s decision entirely.

It was the consensus of the panel that China will become a world-class player more quickly than anyone could have expected a few years ago. While the quality of their automotive products has a considerable way to go right now, according to the experts at J. D. Power, they are getting better faster than the Japanese and Koreans did on their ascension to becoming top players.

After lunch we spent some time exploring the US Department of Transportation’s involvement in the auto business. Billions of dollars are being spent by the Federal government trying to leverage advancements in battery technology, alternative fuels, emissions controls, electric grid improvement, biofuel infrastructure and just about anything you can think of. One of our wise colleagues speculated that the greatest amount of research and development money is coming from the government. He’s probably right. So, if you have a project try to sell it to the government because they are the only ones with money.

The Obama administration has set some scattered goals for transportation system advances but still has no comprehensive energy or transportation policy. For example, they want to see 1-million hybrid and electric vehicles on America’s roads by 2015 – a rather ambitious goal that is not backed up by anything but seed money. Allow me to predict here that they’ll not meet that goal.

Much has changed since GM’s ill-fated EV1 project of the 1990s. We now have lots of new battery technologies, electronic controls, and fully developed electric cars. But on the other hand, much has not changed. It is still not an economically viable technology that can stand on its own. Huge subsidies are required to get anyone to produce or buy them. I guess that just means the government has lots of excuses to spend money on them. And, we know that we still need more stimulus. Don’t we?

The afternoon panelists agreed that the Federal government ought to develop a long-term transportation and energy policy that is technology-neutral and performance-based. Certainly, government has not had a good track record of choosing winners in any policy area and subsidizing one technology at the expense of another is a formula for failure.

The highlight of my day was a ride in the Tata Nano, the cheapest car made in the world. This is a little five-passenger, two-cylinder, no-nonsense car made in India for their domestic market. It sells for $2,500 brand new and, of course, does not have to meet any but Indian emissions, safety or other standards. And those are pretty limited. Out test Nano was the deluxe version with power windows and AC that sells for about $3,500. My friend, John McElroy of Autoline Detroit, was at the wheel with the guy from Tata in the back seat narrating. John is left-handed so he was comfortable with the right-hand drive formula.

John as the driver and I as the passenger were impressed with how much car can be had for so little money, at least in India. Mr. Tata’s stated goal was to get people off the dangerous motorcycles that tend to haul too many people around the dangerous roads of India. So he and his team created this most-basic car.

Tata has announced plans to develop the Nano for Europe which means considerable upgrade to meet those more civilized standards. By the time they’re done – predicted to be about 18 months from now – it will cost 6,500 to 8,000 Euros. That will still make it the cheapest car in the market, since the Trabant is long gone.

Tomorrow we look forward to hearing the big hitters. Michigan’s enthusiastic governor usually pops in and since she’s not in a reelection campaign, being term-limited out this year, she should be in an even livelier mood. Mark Fields, Ford’s handsome executive vice president of the Americas, John Krafcik president and CEO of Hyundai and Jim O’Donnell, BMW of North America’s president will talk about their respective views of the industry.

And, Ed Whitacre, GM’s chairman and CEO, will be here for a Thursday speech. So stay tuned.