2010 C.A.R.S. Management Briefing Seminar - Day 3

CENTER FOR AUTOMOTIVE RESEARCH
MANAGEMENT BRIEFING SEMINARS 2010
Traverse City – Day 3
By Steve Purdy
TheAutoChannel.com
Detroit Bureau

We’re anticipating another day of oppressive heat and humidity here in the beautiful North Country. Traverse city is the southern boundary of what some refer to as Michigan’s Gold Coast – lots of people with lots of money enjoying one of the most beautiful coastlines in the world. An air of frugality, though, pervades the discussions all around us here at this premier auto industry conference.

A story in USA Today this morning revealed a good increase in overall auto sales last month, which goes along with the cautious optimism we’re seeing among our speakers and colleagues at the conference.

Some big hitters are addressing us today. We started with Michigan’s term-limited governor, Jennifer Granholm, whose efforts on behalf of the industry were touted at length, and whose enthusiasm for her work is legendary. With the personality of a cheerleader she has addressed this group each year with rah-rah messages and promises to make things better. As we all know, a governor has little power to do that unilaterally and her adversaries in the legislature have not made anything easy.

The governor’s economic development teams have been a part of this conference in the past but are not as much in evidence this year. I think they’re busy elsewhere.

After touting some positive Michigan numbers resulting from business-government partnerships Granholm offered her thoughts on the role of government in the auto business. “It takes a village to raise an auto industry,” she said. I found her message today heavy on praise for Federal programs that saved two of the three Detroit automakers from a certain death, supported R&D in the auto business and are beginning to cooperate with manufacturers at many levels. Since she’ll be out of a job soon I suppose she’s buttering up her potential next employers.

Mark Fields, Ford’s polished president of the Americas, spoke next quoting the original Henry Ford who said, “a company that makes nothing but money is a poor business.” Fields went on to say that an economy without manufacturing will not thrive, using the UK as an example. Fields has much to brag about with Ford leading the way in a variety of technologies, quality numbers, and new products. The new EcoBoost 4-cylinder engine, for example, and a new driver-vehicle interface called MyFord Touch. The increasingly popular Sync voice-activated infotainment system is old news now but still a big feather if the Ford cap. Other big news at Ford is that they are bringing jobs back from Mexico and hiring new workers for the first time since 2000.

BMW’s president of North America, Jim O’Donnell, talked next about the future of premium brands, particularly his. While the deep recession hurt all luxury car sales he believes that the market is coming back. Many of the affluent folks that buy those high-line cars will return to their old habits of spending while others will forever after be more frugal. Only time will tell. He also predicts that the premium car market in the US will see double-digit increases in the upcoming few years with BMW best positioned to take advantage.

Fresh news at BMW is about an electric, urban market vehicle for introduction in 2013. We’ll look into that for you, our dedicated readers, as soon as possible.

We had great fun listening to John Krafcik, president and CEO of Hyundai Motor America, talking about that company’s rise from obscurity to being a contender in just a few years. With the amazing new, state-of-the-art Sonata main-stream sedan Hyundai is cementing their position among the big dogs of the industry. Quality, style and content are as good or better than competitors with plenty more fresh products to come, including new or significantly redesigned Elantra and Accent plus a new econo-sport coupe called Velostar (silly name, don’t you think?) and, of course, Equus. The latter is new to the US market but has been sold in Korea for more than a year. It is a big, luxury car to challenge the A8, 7-Series and S-Class but without the scary price tag. Marketing of the Equus will be unusual with the dealers bringing the cars to a potential buyer’s home or business to make the pitch.

Big news! Krafcik finished by announcing that Hyundai has committed to a goal of achieving a CAFE of 50 mpg by 2025 – an ambitious goal, to be sure. He calls this another of their “stretch targets,” that is, one that they don’t know yet how they will reach, but one that they fully intend to meet. They expect to reach that goal, he revealed, by still having about 75% or more internal combustion engines.

The token supplier on the program was, Tim Manganello, chairman and CEO of Borg Warner, maker of mostly powertrain components like transmissions, drive systems and engine parts. With $4-billion in sales and 16,000 employees around the world they are certainly a major player. He talked about suppliers doing about 40% of R&D and he talked with optimism about the strong upward trend in the auto making business. He expects huge opportunities in China for his business and others as well.

One of the issues that continued to come up during the panel discussion featuring the above guys was that of the government’s role in the new auto industry. There seemed to be a consensus that it is a good thing to have the government involved. A few years ago that would have been heresy. Now, after saving two iconic players in the business, establishing fair CAFE standards and resisting the temptation to meddle, the government is seen as a benevolent, but not overbearing, essential partner. They also agreed government needs to get out of the business of supporting particular technologies on the assumption that picking winners among all the contenders is a bad thing. And they agreed that a comprehensive energy policy is badly needed so that the industry can plan more effectively.

“Government [involvement in the auto business] is a fact of life,” said Fields. When consulting on rule making and dealing with other regulatory issues the other panelists agreed that the bureaucrats were mostly astute, well informed and well intentioned – politicians, not so much.

An amazing amount of agreement pervaded the dais. When asked about whether R&D and innovation should, or would, come from within or without the OEMs all agreed that they didn’t care where it came from. Fields quipped that Ford used to think they had “a better idea,” (their old tag line) but they no longer think that way.

The surprise of the day jumped out at me from the afternoon session. Lynn Tilton is the CEO and sole principal (I think that means she’s the sole owner) of a $7 billion private equity firm dedicated to rescuing small and medium sized companies teetering on the brink of oblivion. I don’t recall ever seeing such a visual anomaly here – short, tight skirt, garish shoes with stiletto heels, sparkles and spangles everywhere and an obviously huge ego. She is also smart, articulate, intense, astute and master of her business. She obviously runs her show confidently – so confidently, she’d be scary to work for, I think.

Her pervasive dedication is to the ambitious goal of getting this country to become a “maker of things” again, an industrial society, one that can fully employ its people. She believes we’ve lost our way in chasing after the cheapest solution, cheapest labor, and cheapest everything – mostly offshore - in the search for profits. Her principals are contained in a “proprietary patented financial model” she’s been using since 2000. Tilton is a no-nonsense kind of gal that seems to make a lot of sense. But, of course, I’m no economist or business guy – just a humble (well, fairly humble) journalist.

Tomorrow, GM boss Ed Whitaker will be here to regale us with that company’s news. Stay tuned.