Even with their combined earnings down more than $1 billion in the third quarter of 1995, two of the Big Three domestic automakers appear to be on the right track while another is in for a fight.
Corp., still unable to build cars for a profit in the U.S., increases its third-quarter earnings to $642 million ($0.42 per share). That compares to $553 million ($0.40 per share) in the third quarter of 1994.
Corp.'s $354 million third-quarter earnings ($0.90 per share) are down 45.6% from last year's all-time record $951 million ($1.60 per share) same-period performance. July-September '95 still "ranks as the third-best third quarter in the company's history," says Chairman and CEO Robert J. Eaton.
Motor Co. earns $357 million ($0.28 per share) during the period, compared with record earnings of $1.12 billion ($1.04 per share) for the third three months of 1994.
Both North American and European automotive operations atshowed a loss.
Each automaker cites launch costs and lower volumes for the decrease in profits. But that could be the tip of the iceburg for Ford, which has major launch costs coming in the fourth quarter for the new Taurus/Sable and F-Series pickup and in the first quarter of 1996 for the new Escort, says Jack Kirnan, an industry analyst at Solomon Bros. Inc.
"It's shocking that Ford's margins are so weak," says Mr. Kirnan. "I don't think it's volume-driven. There are some major cost issues. It fits like a glove why they're hammering their suppliers."
Mr. Kirnan adds that the No. 2 automaker takes too long to bring a car to market, spends too much on development and asks too high a price for its new vehicles. "That's not going to change until project 2000 kicks in, and that's a ways off," he adds.
Ford's Financial Services Group helped buoy the automaker with record earnings in Ford Credit ($357 million), The Associates Corp. ($188 million) and USL Capital ($31 million). Hertz, a wholly owned subsidiary of Ford, also posted record ($65 million) profits in the third quarter.
If Ford's future is cloudy, then the outlook is sunny for bothand GM, which is the only domestic car company that has a chance to improve on last year's earnings.
Although it still lost money, GM's North American Operations lost $270 million less ($93 million in '95 vs. $363 million in '94) than it did in the third quarter of last year and should continue to improve. Mr. Kirnan credits GM's concerted effort to eliminate cost for the gains. "They are doing a good job getting costs out of the system," he says.
J. Michael Losh, GM's chief financial officer, agrees, noting that the corporation's improved performance comes in spite of only a slight increase in volume sales - about 50,000 units. But that volume increase is more than offset by the unfavorable product mix (buyers are buying less-expensive vehicles). That shows, Mr. Losh says, that the gains in North America are all a result of improved operating efficiencies.
GM's subsidiaries did their usual part to keep the corporation afloat. Hughes Electronics Corp. made a record $256 million, up from $244 million in the same period a year ago; Electronic Data Systems Corp., preparing for its departure from GM, made a record $246 million, up from $216 million; andAcceptance Corp. earned $354 million, up from $245 million.
Chrysler says its earnings dip is due mainly to costs ($400 million pre-tax) associated with the launch of its new minivan lineup, as well as lower production volumes of those vehicles. Other factors include launch costs of the full-size Dodge Ram pickup at the newly reopened St. Louis North facility, a leaner sales mix, higher incentives and unfavorable economic conditions in Mexico.
Mr. Kirnan estimates that the minivan launch cost Chrysler $2.50 per share in 1995, and adds that "the worst of the bad news is behind them."
Chrysler Financial Corp. reported record third-quarter net earnings of $87 million, up 74% from a year ago.
small world car project
Chrysler Corp. is working on a small "world car" targeted to sell for less than $6,000 in emerging markets, Chairman Robert J. Eaton confirms.
Though short on details, Mr. Eaton says it likely would be powered by a 40-hp engine. Separately, WAW learns that plastic body panels may be used to keep costs low.
To stake a toehold in still-small but promising markets, "You need the lowest-price product you can get because eventually they are going to need automobiles," Mr. Eaton tells reporters.
Chrysler's currently lowest priced car is Neon, which starts at just under $10,000. "You've got to look at the $3,500 to $6,000 range if you want big volume," says Mr. Eaton, citing the-based car built in India by Udyog Ltd. that sells for $3,800 and captures 78% of the market.
Production most likely would be established "somewhere in Asia," he says, adding that "It's almost inevitable to have a partner in that area of the world." India is a "possibility," says Mr. Eaton.
Audi gets its
Audi engineers are wearing a large, collective smile these days now that they have their own automotive sand it a 280-hectare proving ground located about 15 miles (24 km) east of Audi's Ingolstadt headquarters.
Until now Audi development engineers have been forced to test at parentAG's Ehra-Lessien track, almost 400 miles (640 km) away.
Ferdinand Porsche, now VW chairman, headed Audi during the '80s and realized it needed a proving ground of its own. The scion of the Porsche automotive dynasty helped persuade that company in the late '60s to establish the Weissach proving ground.
Audi bought the site in 1988 and has so far spent $100 million in establishing, among others, a 2.8-mile (3.48-km) banked (up to 47 degrees, making it impossible to climb on foot) track capable of speeds up to 155 mph (250 kmh); a special acoustics road to measure external noise, that's said to be the first in Europe, and has a surface that can be heated to keep it dry; a hill offering gradients between eight and 30 degrees; and two different handling tracks.
Audi is especially pround of a skid pan that's absolutely flat with no surface joints across a diameter of 240 yards (200m).
To effectively evaluate competitive tires, Audi asked the contractors to give them a considerable variance in surface friction on the handling courses. Ideally, they wanted a 0.95-1.0 coefficient of friction on a dry surface, down to 0.65 when wet. Instead, the bitumen surface came out at 0.80 when covered with a film of water.
Over three laps, this produces a difference in time of just two seconds when, with the less grippy surface, they'd hoped for a five-second variation to make it easier to differentiate between the various tires. No wonder they were happy to have groups of hacks thrash around the course, not so gradually covering the sticky surface with rubber.
Building a new proving ground in Germany is no easy matter. Mercedes-Benz AG leases a tiny site behind its Unterturkheim headquarters, uses the Nardo bowl, the Hockenheim race track and even VW's Ehra-Lessien. In the '80s, Mercedes attempted to build a purpose-designed proving, ground relatively close to Stuttgart but was foiled by the Greens. Finally, another location was found in Papenburg, more than 300 miles (480 km) north of Stuttgart, but it won't open until 1997.
Audi knows how to placate the Greens: A huge forest of 450,000 trees and bushes have been planted at Neustadt.
AG has a small, 67-hectare test track near Aschheim, just north of Munich. Porsche has Weissach, of course, and VW Ehra-Lessien, while Ford Motor Co. and General Motors Corp. - big players in Germany - have various proving grounds around the world.
GM picks new VLEs,
General Motors Corp. names the vicars of its car and truck lines and as it does, the lanes of authority begin to clear. Although trying to downplay the newly created fiefdoms, it's now clear who is in charge of GM's future vehicle development programs. It's the 12 men and one woman who have been promoted to vehicle line engineers (VLE).
These are key jobs, but there are a lot of other key jobs in GM," says G. Richard Wagoner, president of GM's North American Operations (NAO). "There are no more kingdoms. They'll be successful, if they get support from the rest of us."
VLEs represent an integrated approach to improve the product development process, while the 29 people who were also promoted to brand manager (BM) will focus on brands and customers via the division general managers.
Ronald Zarella, group vice president of NAO's sales, service and marketing, says GM will hire some outsiders later to become BMs: "We decided early on (that) we'd seed the BMs with outside people." He says GM is still headhunting; "searches at this level always take time."
All of the VLEs are insiders. Mr. Wagoner says GM looked at bringing in outsiders: "But we decided it would be difficult to bring them in because they wouldn't have the networking internally."
GM was looking for people with leadership skills - visionaries with people skills. The ages of the newly appointed VLEs range from mid-30s to early 50s. Their incentive compensation will be based on performance.
Although VLEs are supposed to have signed on for at least one full product cycle (8 years plus), Mr. Wagoner says they'll still have a chance to make the big bucks - and not all will remain; some likely will be promoted.
VLEs will report directly to group executives in charge who, in turn, are on the NAO strategy board. Donald E. Hackworth, group vice president and group executive of the Midsize and Luxury Car Group, says VLEs will get the resources they need from the central engineering groups to leverage corporate engineering and design center.
Mr. Zarella says BMs will report to marketing division general managers, "who continue to have responsibility to the brands and dealers. Theirs continue to be an enormous jobs." On the other hand, brand management teams "have full-time responsibility to represent (the divisions) on the VLEs' teams."
Mr. Wagoner bristles when it's suggested that BMs will be subservient to VLEs. "We're trying to lock in the decisions so we can make them faster," he says. "VLEs will have intense input from the marketing people."
Arvin F. Mueller, group vice president of NAO Vehicle Development and Technical Operations Groups, says engineering staffs will interact with VLEs "to bring common process to vehicle development."
He says GM has been working towards this for 12 years. "The whole attempt is to increase throughput, so you need efficiency. The idea is to take out (redundant jobs) and re-deploy to increase the number of new models each year by 30%."
Mr. Mueller, in August, said 5,000 jobs would be eliminated in the process, including many from independent outside engineering firms and suppliers. Last month, however, he said he'd rather not bring that up - he took some heat from Mr. Wagoner for publicizing the figure. The job elimination will occur during the next four to five years. "We're not focused on head count, says Mr. Mueller."
The VLEs won't have an impact on products already under development. Mr. Hackworth says there are a lot of launches set for `97 and the subsequent model years.
However, Mr. Hackworth promises that by Jan. 1, 1997, the VLEs will have bench-marked themselves and all GM products, setting the stage to move into high gear. That, of course, suggests their handiwork won't be felt until the next century's turn.
Mr. Zarella adds that BMs can start earlier: "They can go right to work targeting specific brands to specific customers with new cars already in the pipeline."
Mr. Wagoner says there won't be any job changes rippling from VLE and BM moves. Most folks will stay in current jobs, he says. But Mr. Hackworth allows that there will be "some re-deployment" with engineers from marketing divisions becoming brand engineers and working with VLE teams.
The transition shouldn't be tough, says the top brass, because many GM honchos and high-level executives already have been trained in so-called "immersion" sessions, with everyone else involved lined up for training.
"Most of the people won't arrive at their new jobs until February, and we are going to be teachers, coaches and counselors on this," says Mr. Hackworth.
Michael A. Grimaldi, heading up full-size trucks, was the only VLE who also was elected vice president. Mr. Wagoner says that's "because he has the biggest, most complex programs."
Vehicle Line Executives
VLEs reporting to Clifford J. Vaughan, vice president and group executive of the GM Truck Group, are:
* Michael A. Grimaldi - VLE of full-size trucks. He also was elected vice president by the GM Board of Directors, effective Nov. 1, 1995. Grimaldi was executive in charge, GM-NAO planning.
* Thomas F. Wallace - VLE of midsize trucks. Wallace was on special assignment on vehicle development process improvement.
* Marcus G. Tate - VLE of midsize vans. Tate was platform manager for the small pickups and sport utilities at the GM Truck Group.
Reporting to Skip LeFauve, vice president and group executive of the Small Car Group, are:
* John D. Cohoon - VLE of small cars. Cohoon was director of engineering of Lansing Automotive Division.
* Eugene W. Stefanyshyn - VLE of compact cars. Stefanyshyn was director of engineering integration for GM Europe in Russelsheim, Germany.
Reporting to Donald E. Hackworth, vice president and group executive of the Midsize and Luxury Car Group, are:
* James E. Taylor - VLE of rear-wheel-drive cars. Taylor was executive director of purchasing for the GM Truck Group.
* Anna S. Kretz - VLE of large cars. Kretz was director of process and product assurance at the Cadillac Luxury Car Division.
* Fred J. Schaafsma - VLE of passenger vans. Schaafsma was program manager for the APV at the Midsize Luxury Car Division.
* Thomas W. Evernham - VLE of prestige cars. Evernham was senior vice president of technology and marketing with Delco Electronics.
* James O. Westby - VLE of midsize cars. Westby was program manager for the Grand Prix at the Midsize Luxury Car Division.
* Gary A. White - VLE of high-mid cars. White was general engineering and planning manager for Oldsmobile.
* David R. Whittaker - VLE of luxury cars. Whittaker was chief engineer for design analysis and operations at Saturn.
* David C. Hill - VLE of performance cars. Hill was vehicle chief engineer for the Corvette at the Midsize Luxury Car Division.
Brand managers reporting to Buick General Manager Edward H. Mertz are:
* Joseph J. Fitzsimmons - Brand manager for LeSabre. Formerly director of market analysis for GM-NAO planning.
* Katherine J. Benoit - Brand manager for Park Avenue, Roadmaster. Formerly director of program management forInterior and Lighting.
* Anthony H. Derhake - Brand manager for Century. Formerly chief engineering and planning manager for Buick.
* Michael G. Wright - Brand manager for Riviera. Formerly director of strategic marketing for North American Export Sales.
* Edward A. Berger - Brand manager for Skylark. Formerly Memphis zone manager for Buick.
Brand managers reporting to Cadillac General Manager John O. Grettenberger are:
* Janet S. Eckhoff - Brand manager for Deville. Formerly assistant general sales manager for Cadillac.
* David G. Nottoli - Brand manager for Catera. Has been serving as Catera marketing manager.
Brand managers under the leadership of Chevrolet General Manager James C. Perkins are:
* Kurt L. Ritter - Brand manager for C/K Pickup. Formerly marketing manager for trucks at Chevrolet.
* Russell M. Clark - Brand manager for Blazer. Formerly director of marketing and product planning at Saturn.
* Donald H. Parkinson - Brand manager for Impala, Monte Carlo. Formerly marketing manager for Bonneville at Pontiac.
* Steven L. Ramsey - Brand manager for Tahoe, Suburban. Formerly regional manager, northeastern area for Chevrolet.
* Steven M. Wagg - Brand manager for Cavalier. Formerly Memphis zone manager for Chevrolet.
* Rosalind R. Ward-Nelson - Brand manager for Geo. Formerly manager for Geo at Chevrolet.
* James H. Heckert - Brand manager for Malibu. Formerly regional manager, southwestern area for Chevrolet.
* Richard Almond - Brand manager for Corvette, Camaro. Formerly regional manager, eastern area for Chevrolet.
* John P. Gaydash - Brand manager for Astro, Express. Formerly platform manager for mid-size vans at GM Truck Group.
* Ronald W. Stanley - Brand manager for S-Series Pickup. Formerly segment manager for small trucks at Chevrolet.
Brand managers reporting to GMC Truck General Manager Roy S. Roberts are:
* James Kornas - Brand manager for Sierra. Formerly manager of full-size platform at GMC Truck.
* Dennis J. O'Donnell - Brand manager for Yukon, Suburban. Formerly marketing manager for Grand Am/Sunfire at Pontiac.
* Cheryl L. Catton - Brand manager for safari, Savana. Formerly Midwest zone manager for GMC Truck.
* Lewis E. Elbert - Brand manager for Sonoma. Formerly director of brand image at Chevrolet.
* Richard A. Pennell - Brand manager for commercial trucks. Formerly manager of commercial platform at GMC Truck.
Brand managers reporting to Oldsmobile General Manager John D. Rock are:
* Robert A. Clark - Brand manager for Achieva. Formerly director of marketing and planning forLighting and Interior.
* John L. Gatt - Brand manager for 88, Aurora. Formerly on special assignment with Leo Burnett advertising agency for Oldsmobile.
* Kenneth C. Stewart - Brand manager for Cutlass. Formerly Minneapolis zone manager for Oldsmobile.
Brand managers reporting to Pontiac General Manager John Middlebrook are:
* William C. Heugh - Brand manager for Grand Prix. Formerly marketing manager for Grand Prix, Firebird and Transport at Pontiac.
* James D. Murray - Brand manager for Firebird, Transport. Formerly assistant general sales and service manager at Pontiac.
* James W. Bunnell - Brand manager for Sunfire. Formerly director of GM-NAO car planning.
* Mark R. LaNeve - Brand manager for Bonneville. Formerly director of advertising and marketing planning at Cadillac.
Brand managers also will be named in the near future for the Pontiac GraND Am, GMC Truck Jimmy, Oldsmobile Bravada/Silhouette, Buick Regal, Cadillac Seville/Eldorado and Chevrolet Venture. They will include appointments from outside of General Motors.
Eaton says York is
`Full of baloney'
Lamenting that "I don't see an end" to Kirk Kerkorian's full-court press to grab control of Chrysler Corp., Chairman Robert J. Eaton says that if the Las Vegas billionaire is successful "we'd (his management team) all go." Several Chrysler executives later confirm to WAW that they'd walk, even if Mr. Kerkorian dangled big cash to entice them to stay.
A testy Mr. Eaton targets former Chrysler and IBM Corp. chief financial officer Gerald York, who jumped to Mr. Kerkorian's Tracinda Corp. as vice chairman in August, for special criticism. Mr. York's haranguing about Chrysler's alleged quality problems, he says, "is a bunch of baloney."
Mr. York left Chrysler early in 1993 "when we were a $29-billion (per year) company," he says. Today's Chrysler is a far different company, he adds. "Now we're $52 billion and growing." That's why Chrysler now needs a cash stash of around $7 billion to weather a downturn, keep new products coming and continue its strategy for global expansion, not the $4 billion Mr. York thinks would be ample, Mr. Eaton emphasizes.
Implicit in Tracinda's maneuvering is that several billions of Chrysler's cash would be used to fund the takeover. Tracinda also wants at least one board seat, with Mr. York an obvious candidate. "To get control they need my seat," says Mr. Eaton, who says he'd exit if that happened.
He calculates Mr. York's payoff could run as high as $125 million based on the formula Mr. Kerkorian established for wooing him away from IBM. Asked what's motivating former Chairman Lee A. Iacocca, a Kerkorian ally, Mr. Eaton simply replies: "Money. That's what they all want."
Motors Corp. intends to convert its assembly plant in Normal, IL, to production of Mitsubishi vehicles only once the Japanese automaker's contract to supply Chrysler Corp. with sport coupes, expires at the end of the 1999 model run.
Dr. Hirokazu Nakamura, chairman of Mitsubishi, confirmed in an interview what had been speculated for some time, that the automaker needs more U.S. vehicle production to help offset the rise in costs from unfavorable yen/dollar exchange rates that penalize imports shipped into this country.
All Japanese automakers have undertaken plans to increase U.S. output and only a few weeks agosaid it will even add another assembly plant to produce trucks here to reduce costs brought on by exchange rates.
"Our current plan is that when the contract with Chrysler is terminated at the end of the 1999 model year, the plant will build only Mitsubishis. We could provide some product to another company (like it now supplies Chrysler), but that hasn't been decided," Mr. Nakamura said through an interpreter while in Normal for a ceremony to mark both the 10th anniversary of the plant and production of the one-millionth car, a red Mitsubishi Eclipse coupe.
The Normal plant can produce 240,000 vehicles a year. Output is now shared evenly with Chrysler: Mitsubishi builds the Galant and Eclipse models for itself, the Eagle Talon, Chryler Sebring and Dodge Avenger for Chrysler. Dropping Chrylser cars would give Mitsubishi 120,000 more vehicles on its own.
Meanwhile, Chrysler, which currently produces the Jeep Cherokee in right-hand drive version for the Japanese market, planned to unveil four additional vehicles converted to right hand drive at the Tokyo Motor Show last month. Mr. Gale wouldn't say which vehicles have been targeted for Japan, but said the five combined would help achieve the automaker's goal of selling 100,000 vehicles annually in that country by the end of the decade, making Chrysler the No. 1 exporter to Japan.
Chrysler recently invested $100 million to set up its own distribution network in Japan.
GM's product barrage
kicks off in January
General Motors Corp.'s new vehicle line executives (VLEs) and brand managers (see story p. 22) won't se the results of their labors reach the market before the century's turn, but GM won't wait. In fact, chalk up 1996 as GM's year to mount a new-product barrage, starting with the North American International Auto Show in early January. Among the vehicles GM will unveil: There new sedans off GM's all-new midsize platform: Pontiac's Grand Prix, Buick's Century and Oldsmobile's Intrigue. The '97 Grand Prix, close to the show car displayed last January in Detroit, will be first to reach showrooms, likely during the first half. Century and Intrigue arrive in the fall. Other possible first showings in January: GM's all-new APV minivan, Chevy's compact Malibu, and possibly a hint of what the revamped '97 production cars also are slated for exhibition, including the restyled Buick Park Avenue and Ultra, which go on sale next fall.
In God we truck
Being No. 1 in the full-size pickup market always has been important to Ford Motor Co., but at a recent Dallas preview of new '97 F-Series pickups, divine intervention was officially requested. In an invocation preceding a rodeo and display of the new trucks, the arena announcer asked for God's help in making the trucks a sales success. Media wags quickly labelled it the Ford's Prayer. Seeing a few quizzical looks, Ford PR folks quickly denied having anything to do with the requested blessing. The Almighty could not be reached for comment.