Big Three Have Five Years of Prosperity Until Party Ends

You are here:?Auto News?>?Big Three Have Five Years of Prosperity Until Party Ends

Signs To Watch For As The Cycle Repeats

Detroit's automakers are starting to beat their chests in exultation, and who can blame them? The last 16 months have been nothing short of a miracle. Who would have believed they could recover so quickly?

Dial back the clock to last summer, June of 2009. Chrysler had just clawed its way out of bankruptcy, GM was still bankrupt. And Ford just barely avoided filing, saved only by borrowing heavily before the credit market collapsed.

The good times are just getting going. The next five years could be phenomenal.If someone had come up to you then and said that in less than a year Ford would be earning over $7 billion and that it would surpass Toyota and Honda in quality, you would have said it was not going to happen.

If they had told you that General Motors would be earning over $6 billion in profits, you would have called them crazy.

If they had told you Chrysler would report an operating profit and come within a whisker of catching Honda in market share, you would have said they're mad.

And if they had told you that Toyota would be battered by criticism for all its defects and quality problems, you would have said that's impossible.

But here we are a year and a half later and the American auto industry has been completely transformed. The Big Three are more competitive than they've been in nearly four decades. Even more amazing, the good times are just getting going. The next five years could be phenomenal.

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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as a Detroit insider to Autoblog readers.

Think about it. If Ford and GM can rake in boatloads of money when the U.S. market is running at dismally low sales levels, imagine how much money they can make as the market recovers. If Chrysler can gain market share on Honda with a crappy line-up, imagine what it can do as it places competitive products in its showrooms. Equally significant: As the Big Three recover, they're pulling their suppliers up with them. A rising tide raises all boats. The Motor City is going to rock and roll like no one would have believed possible.

How will we know if the Big Three are losing their way again?It's not because, as some environmentalists argue, the Obama Administration is finally forcing the Big Three build the small cars that America wants. Don't you believe that fairy tale. Last month truck sales hit 53% market share, the same as in their heyday. And that's not just contractors buying more pick-ups. It's the entire truck market. Even Mercedes and BMW are bragging about how hot their SUVs are selling.

Even so, be careful. This has always been a cyclical business, and there's no reason to believe the cycle has been broken. So how will we know if the Big Three are losing their way again? Here are some pointers.

If the UAW forces a strike at Ford to get back many of the concessions that made Ford competitive, you'll know they're re-sowing the seeds of destruction. By the way, it's easy to predict Ford will be the strike target. As part of the bankruptcy deal, the UAW is legally prohibited from striking GM and Chrysler until 2014.

Keep a close eye on day's supply. If the Big Three let their inventory drift above 60 days' for extended periods of time, you'll know they're losing their cost discipline. Management likes to increase production to boost revenue, even if it penalizes them down the road. It's a sign of short-term thinking, and a move that could force them back into costly sales incentives.

Sometime around 2015 this party will come to an end.
Watch the ratio of cost-of-sales to revenue. If the Big Three let their costs rise as a percent of revenue, that means their break-even point is going up, and that the profitability of their core operations is on the decline.

Beware of their debt levels, and make sure they have a solid balance sheet with short term assets exceeding short term liabilities. You never want to invest in an automaker that owes more than it owns.

Run for the hills if you hear top management bragging about how good a job they're doing. That's the first step in self-delusion. The second step is justifying cost-cutting measures to cheapen the product. That's when you'll know they're back to their former destructive ways.

But at this snapshot in time, the planets are in perfect alignment. The Big Three are going to make more money than they ever have in their history. And yet, I figure that sometime around 2015 this party will come to an end, as supply and demand come into equilibrium.

Five years, that's all we got. Let's just hope that this time Detroit maintains a healthy war chest, because that's when I figure the Chinese will decide it's time to get seriously involved in the American market.

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Opinion: Time to raise the speed limit, how does 150 MPH sound?

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Ever since automobiles first appeared over 100 years ago, every automaker has tried to make them go faster. And they succeeded. Nearly every year, cars became more powerful with higher top-end speeds. But then, in the mid-1950s, we hit a plateau. The national speed limit was set at 70 miles per hour, and we've been stuck at that rate ever since. As a result, the automobile has made absolutely no progress as a transportation device in over half a century.

Speed itself is not a safety hazard. It's the difference in speeds between cars that lead to accidents.Actually, in 1974, it got worse. The national speed limit was lowered to 55 mph, ostensibly to save fuel and lives (it did neither). Such an agonizingly slow rate of travel proved too much to take for most Americans. We demanded that the limit be raised, and we got it back to 70 mph. Now it's time to demand another raise.

I'm not talking about some sort of modest increase to, say, 85 mph. We need to put a comprehensive plan in place to gradually move the limit up, over the next couple of decades, to 150 miles an hour. And we need to do that with no sacrifice in fuel economy or safety.

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[Image: Getty] We're literally on the verge of making it almost impossible for cars to crash into one another.People tell me it's impossible or crazy to design passenger cars to go 150 mph. But do you want to know why German luxury cars are so good? Because they're designed to go 150. In fact, most of them have speed limiters on them. Otherwise, they'd go faster.

Speed itself is not a safety hazard. It's the difference in speeds between cars that lead to accidents. Somebody driving 50 mph while all the cars around them are flashing past at 70 mph or greater is creating a hazard. But if everyone is going the same speed, the situation is a lot safer – even at much higher speeds.

Just like today's Autobahn, some sections of highway would have lower limits, while others would be set at the maximum. The speed limit could also vary depending on the time of day and traffic load.

Before this decade is out we're going to see big strides in vehicle-to-vehicle communication, using radio frequencies and GPS. We've already got adaptive cruise control and radar-controlled braking. Put it all together and we're literally on the verge of making it almost impossible for cars to crash into one another, even if the driver fails to act. In the next decade, we're going to see the first commercialization of autonomous technology, where cars can literally drive themselves. That opens up the door to a 150-mph speed limit on national highways.

A 150-mph speed limit would transform automotive transportation. I daresay no one would ever again take an airplane ride of 500 miles or less.This technology also creates the opportunity to use what the transportation experts call "platooning." Cars could travel in packs, or platoons, in a nose-to-tail file not unlike the NASCAR guys drafting each other. But in this case the cars would be electronically linked together. And that kind of drafting would produce significant gains in fuel economy.

A 150-mph speed limit would transform automotive transportation. I daresay no one would ever again take an airplane ride of 500 miles or less. It would be so much faster and convenient to drive – no more pat downs from the friendly TSA agents!

Setting this kind of stretch goal would unleash a frenzy of R&D activity, create new companies, grow new jobs, and produce an economic boom much like building the Intestate Highway System did. It's just a matter of getting our heads around the idea.

Back in the 19th Century, Queen Victoria stipulated that any time she travel by train it was prohibited from going more than 40 miles an hour. The thinking was that going any faster than that was harmful to one's health. We laugh at that concept today, just as, later in this century, they'll laugh at us for thinking that driving 150 mph was dangerous.

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What if it turns out there's plenty of oil? [w/video]

You are here:?Auto News?>?Opinion?>? What if it turns out there's plenty of oil? [w/video]

As the relative price of gasoline drops, people are not motivated to buy small, fuel efficient cars.All the top executives in the auto industry tell me that oil supplies will only get tighter this decade. They predict that fuel prices will do nothing but go up. And they say customers will be clamoring for small, fuel-efficient cars. Or electric ones. But what if it turns out they're wrong?

After all, over the last century the price of a gallon of gasoline in the United States, on an inflation-adjusted basis, has always come down. Always. Data from the Energy Information Administration shows that since 1919 the price of gasoline has spiked during war time or global turmoil, but it has always come down after that. This is a key reason why Corporate Average Fuel Economy regulations have not worked. As the relative price of gasoline drops over time, people are not motivated to buy small, fuel efficient cars.

A decade ago, the Peak Oil theory attracted a lot of adherents. It postulated that global oil production would peak in 2006, and that the following shortage would send oil prices skyrocketing. Sure enough, in 2008 a barrel of oil shot to $150. It looked like the Peak Oil theory was coming true. But less than 12 months later it dropped to under $40 a barrel. And though the price is now closer to $100 you don't hear as much talk about Peak Oil anymore. Here's why.

John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as a Detroit insider to Autoblog readers.

Just a few years ago, Brazil discovered massive reserves of oil off its coast, reserves that match or beat Saudi Arabia's. Brazil will start tapping those reserves before this decade is out. In Iraq, the infrastructure is being put in place to increase oil production to six or seven times greater than it is today. Right now, Iraq is producing 2.5 million barrels a day. By 2020, it could be close to 15 million. In the United States, the U.S. Geological Survey says there are at least 18 billion barrels of untapped oil, others say it could be much greater than that.

But most importantly, a new drilling technique called hydraulic fracturing is turning out to be a game-changer. It's opening up vast shale deposits throughout the country. Texas wildcatters figured out a way to pump water mixed with sand at high pressures into a well, fracturing the shale and releasing natural gas. The sand keeps the cracks open, preventing the shale from collapsing and sealing itself. As a result of this process, in just the last two years, the United States added 100 years of natural gas use and the price has plummeted nearly in half from its peak in 2008.

While much has been written about the natural gas bonanza, there hasn't been much coverage of using hydraulic fracturing to extract oil. The U.S. Department of Energy now predicts that oil production in the United States will go up this year for the first time in 40 years. Before the decade is out, the DOE forecasts that oil production in the United States will increase by two million barrels a day.

Hydraulic fracturing, or fracking as it's also called, is controversial. Some environmentalists claim it will destroy water tables across the country. There's even a documentary making the rounds called Gasland that is rallying opponents to the cause. Of course, Gasland approaches this issue with all the impartiality and evenhandedness of pseudo-documentaries like Roger and Me and Who Killed The Electric Car? But they didn't stand up to the test of time either, did they?

If it turns out there's plenty of oil to go around, we're going to use it.There are legitimate concerns over fracking, because, for some odd reason, it's completely unregulated. Some unscrupulous frackers are injecting diesel fuel and chemicals into their wells, not just water and sand. Some of them are not properly treating their waste water, and others are duping investors with exaggerated production numbers. But the solution is simple: regulate them! That's exactly what states like New York are doing. Up until this month, fracking was illegal in New York. Now, within guidelines, it's legal.

Besides, the EPA is all over this issue. It's investigated all kinds of complaints about fracking, and tellingly, it has not shut down a single fracking site. Not one. A more complete report will come out next year.

So far, fracking has pretty much only been used in the United States. Undoubtedly it will soon spread to the rest of the world. That means before this decade is out, we are going to see vast increases in the amount of oil and natural gas available, and this will have enormous implications for automakers and governments.

Despite CO2 concerns and the big push for electric cars, my bet is that, if it turns out there's plenty of oil to go around, we're going to use it.

Steel nanotechnology can reduce the weight of our cars

You are here:?Auto News?>?Steel nanotechnology can reduce the weight of our cars

Making Stronger Steel As Light As Aluminum

The world's largest steel maker, ArcelorMital, says it has come up with a new kind of steel that the world has never seen before. Thanks to nanotechnology, the company says automakers can now match the weight of aluminum cars, but do it in steel at far lower cost.

It can take 188 pounds out of the body-in-white of a car... but total weight savings could be even bigger.Specifically, ArcelorMital says it can take 188 pounds out of the body-in-white of a car. The body-in-white, or BIW, refers to the basic structure of a car, including the doors, hood and deck lid. That's a big number. By taking so much weight out of the structure, other components such as the powertrain, drivetrain, brakes, etc. can be downsized as well. In other words, the total weight savings could be even bigger.

ArcelorMital is already showing this new kind of steel to automakers. It isn't yet ready to publicly divulge any of the technical aspects of the steel or how it's using nanotechnology to make it. The company says we're still two to three years away before we get those kinds of details. And that's about the time we'll see this steel show up in production. No word yet on which car company may be the first to use it, but the rumor on the street is that Ford is all over this technology.

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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as a Detroit insider to Autoblog readers.

The nano steel itself is not inherently lighter, but it's so strong that automakers can use thinner gauges and that's where part of the weight savings comes from. Another part of the weight savings comes from not having to use additional brackets, gussets or panels to strengthen the structure.

For example, A-pillars are becoming so big these days due to roof crush standards that they are actually becoming a safety hazard. The fat A-pillars can partially block your view to side traffic or pedestrians. But with this nano steel, A-pillars could be made much thinner with no sacrifice to structure or safety.

The nano steel does require a newer manufacturing technique called hot stamping.Nor is this steel cheaper than other grades of steel. In fact, it's probably a little bit more expensive. But by eliminating all those brackets and extra panels, the total tooling cost of a car goes down, and that's where the costs savings comes from.

To get the maximum 188-pound reduction in the BIW, an automaker would have to design-in the nano steel's capabilities using a clean sheet approach. But ArcelorMittal says that some applications, especially cross-members, lend themselves to running changes on existing designs.

The nano steel does require a newer manufacturing technique called hot stamping. That's where automakers heat up the steel blanks that go into a stamping press to the point where they're literally glowing red. Then they feed the red hot blanks into a press and stamp them into body panels. Heating up the steel makes it much more pliable and enables it to be formed into more complex shapes. Actually, this is a fairly common process already in use today, used to form the high-strength steels that have been available for the last decade and a half. So, while the nano steel requires hot stamping, it's not as if automakers need to make a big investment in manufacturing technology.

Covitic aluminum somehow impregnates aluminum with carbon fiber.It's very impressive to see the steel industry delve into new technology to keep its product relevant. Aluminum, magnesium and composites definitely pose a competitive threat to steel. But they're also considerably more expensive, are not as easily repaired in most body shops, and require considerably more energy to recycle. That's why they've not found widespread use in cars, or at least not as widespread as steel.

And yet, I've heard tantalizing whispers of the new breakthrough coming in aluminum. It's called covitic aluminum, where somehow they impregnate aluminum with carbon fiber. There, now you know about as much of it as I do.

I'm pretty sure we'll get some sort of announcement later this year about covitic aluminum. But for right now at least, this nano steel seems to be the latest word in materials technology.

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Opinion: Five Questions For Ray LaHood

You are here:?Auto News?>?Opinion: Five Questions For Ray LaHood

It took ten months. It involved the best brains in the nation. They conducted exhaustive tests. And Lord knows what it all cost. But when it was over, the results were totally predictable. The U.S. Department of Transportation could find nothing wrong with Toyota vehicles that would cause them to suddenly accelerate out of control.

The results were predictable because the country went through the same thing nearly a quarter of a century ago. Only then, it involved Audi. And in both of these cases, each car company was accused of having some sort of mysterious gremlin that would cause its cars to suddenly accelerate out of control.

But there is a significant difference between both investigations. Back then the Department of Transportation blamed it on driver error. Officially, they called it "pedal misapplication." But this time around, the Secretary of Transportation, Ray LaHood, wouldn't do that. He said it was caused by mechanical problems, i.e., sticky pedals and piled up floormats.

Too bad the Secretary didn't have the courage to call it like it is. By failing to identify the root cause of the problem, more people are going to lose their lives.

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[Image: Chip Somodevilla/Getty]

In the Audi case, when DOT investigators finally concluded that driver error was the root cause of the problem, they were able to identify a fix. They mandated installation of the shift-lock mechanism that is installed on all vehicles today. It forced drivers to put their foot on the brake before they could shift an automatic transmission into Drive. That eliminated almost every case of sudden unintended acceleration, but not all of them.

That's one of the dirty little secrets of this sudden unintended acceleration problem. It's been around for decades and it involves every single one of the major car companies. While Toyota is being vilified today, Ford is actually number two on the list of reported incidents.

There are several simple fixes that could greatly mitigate the problem.It's unfortunate that the Secretary is unwilling to blame driver error and do something about it. There are several simple fixes that could greatly mitigate the problem. First off, many cars today have the brake pedal too close to the gas pedal. It's easy to hit both pedals, especially if you have wide feet or are wearing boots. Also, many older people, especially those with diabetes, have largely lost the feeling in their feet. They literally can't feel which pedal their foot is on. By providing greater separation in the plane between the pedals, that would give them better feedback. In other words, if the brake pedal is on a higher plane and they have to bend their knee to put their foot on it, then they know their foot is on the brake.

Of course, so-called "safety advocates" say that the National Academy of Sciences and the scientists from NASA simply missed the electronic gremlins that are causing the problem. They accuse them of not doing a thorough enough investigation and refuse to accept that this could be caused by driver error. And they promise they are going to sue the living daylights out of Toyota. Maybe the Secretary is afraid to take on the safety advocates and the plaintiff attorneys who largely support their cause.

That's why I have five questions I would love to see the Secretary answer.
Why are there no reports of Toyotas with manual transmissions involved in sudden unintended acceleration?Why is this a problem only found in North America? Why are there no reports of electronic gremlins causing Toyotas to run out of control elsewhere in the world?Why, if this affects all major automakers, is Toyota being singled out for investigation?Why does this problem mostly involve older drivers, especially older women?Why won't the Secretary even consider driver error in cases where sticky pedals and piled up floormats were not the cause?Ray LaHood would clearly like to leave a legacy as a Secretary of Transportation who truly improved public safety. Here's an opportunity for him to tackle a problem that could show very quick results.
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Autoline is live from Detroit

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The crew from Autoline are broadcasting live from the Detroit Auto Show today and tomorrow. The stream kicks off at noon EST and runs through 2:30 PM each day, with interviews, discussions and impressions from the show floor. Hit the jump for the live stream and keep your eyes peeled for an Autoblog staffer running by in the background.

How Bob Lutz made four auto journalists his "Secret Weapons" at GM

You are here:?Auto News?>?How Bob Lutz made four auto journalists his "Secret Weapons" at GM

Can His Arsenal Survive New Management?

When Bob Lutz ran General Motors' product development efforts, he did something that no other car company has done in the history of making cars. He hired four automotive journalists to assess all of GM's new vehicles before they were OK'd for production. And their word was law. Everything had to be developed to their satisfaction.

That didn't go down well with GM's traditional engineering staff, at least not at first. They didn't like the fact that four outsiders, four media critics with no product development experience, could force them to make changes on a new-car program. But because the journos reported to Lutz, they had all the protection they needed.

[Lutz] personally asked me not to write anything about them. That's how much of a competitive advantage he felt they brought to GM.Lutz hired them as full-time employees because he wanted an independent, third party voice to evaluate GM's cars as they went through their development stages. "These are four guys who made a living out of critiquing cars," Lutz says, "and they made a pretty good living at it." Since the four didn't hold any allegiance to the design, engineering or manufacturing staffs at GM, they could feel free to critique any car just as they would when they were full-time journalists.

Lutz tells me they were his secret weapons. He credits them with the reason why GM's cars are now tuned to world-class standards. These guys didn't design, engineer or develop any vehicles. That was done by GM's long-standing employees. But the journos brought an enthusiast magazine mind-set to the evaluation process to make sure there would be very little for the press to pick apart.

I've known about Lutz's secret weapons for several years. But he personally asked me not to write anything about them. That's how much of a competitive advantage he felt they brought to GM. He didn't want to see any other car company copying this approach. Since these guys are friends and colleagues whom I've known for years, I also didn't want to jeopardize their jobs. So I didn't write about them. Until now. And now I think it's important that I do.

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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as a Detroit insider to Autoblog readers.

The four journalists I'm talking about are Jack Keebler, Rich Ceppos, Ron Sessions and Nick Twork. Before joining GM Keebler was Senior Editor at Motor Trend. He has an excellent sense about cars and can feel powertrain and suspension subtleties that escape most reviewers – and engineers.

Rich Ceppos spent most of his career at Car and Driver, with stints at Automobile and Autoweek, where he became publisher. He is a wickedly fast driver who probably could have raced professionally had he chosen to.

Ron Sessions has a superb technical background. He knows cars inside and out, having written a number of books on car repair and restoration. He also worked at Road & Track and Motor Trend.

Can Lutz's secret weapons survive GM's latest management changes?Nick Twork contributed to Popular Mechanics and Autoweek early in his career. He later became an automotive analyst and also worked in public relations at Ford, all of which has given him an excellent sense of the automotive business. Though he joined GM as one of Lutz's secret weapons, he didn't remain one for very long. Currently, he's the director of public relations for Cadillac, which I would classify as a very astute career move.

Bob Lutz is gone from GM now. Tom Stephens, who took Lutz's place, is no longer in charge of product development. Today Mary Barra is running PD. She's tasked with developing new cars faster and at lower cost. That's got me wondering if Lutz's secret weapons can survive GM's latest management changes.

GM's new CEO Dan Akerson openly admits he's not a car guy and is clearly impatient with GM's product cadence. He wants things to move a lot faster, and he wants to take out a lot of cost. That's why he put Barra in charge. But the former journalists are known to force the development people to take their time to get things right. That approach could quickly get the heave-ho, especially if Barra doesn't protect them like Lutz did.

Product development requires a gut feel. It requires a passion for excellence.One of the areas where the journos played a critical role was in the development of the Chevrolet Volt. As you know, the gasoline engine in that car comes on when the batteries run below a given level. But in early engineering versions of Volt, depending on the driving cycle, especially climbing grades or at highway speeds, the engine would come on with a roar at red line. The "secret weapons" kept pushing the engineers for a more subtle engagement. And they kept pushing until they got what they wanted. Today, that's one of the more impressive aspects of the car – just how unobtrusively the engine comes on.

The product development process is more than just a process. But in the pre-Lutz years, that's often how GM approached it. All it did was check off the checklist. It collected its benchmarking targets. It ran up millions of miles on its proving grounds. It did its shake-down tests. And it came out with a bunch of soul-less cars that hit the market with a thud.

Product development requires a gut feel. It requires a passion for excellence. Above all it requires an in-depth knowledge of product, and what will convert customers into true believers. Lutz's secret weapons gave that to GM. Let's hope it keeps them.

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