Archive for October, 2006

The New Formula 1

Sunday, October 29th, 2006

For the last billion years, motor sports, and more specifically Formula 1, has been dominated quite solidly by Scuderia Ferrari and its hallowed driver, Michael Schumacher. Last weekend marked the end of Michael Schumacher’s career and the end of Scuderia Ferrari.

That’s not to say that Ferrari won’t be returning to racing next year. Quite the opposite, actually. Felipe Massa will return to Ferrari next year along with a new teammate, Kimi Raikkonen. Both racers have achieved great respect and success of the GP circuit. Ferrari, despite coming in second in the constructor’s championship this year, will be powering more vehicles for next year. Unfortunately for Scuderia Ferrari, much of the technical team that helped Michael Schumacher win dozens of races and six championships is splitting up.

With so many changes, on might ask: will Formula 1 ever be the same? To answer this is to realize which changes will be made. First, no Schumacher in 2007. Fernando Alonso may be the best driver next year, and for all we know, he may eventually become the best of all time, but he is unlikely to have the same pull or marketing appeal to the sport that Schumacher brought.

Second Renault and Ferrari are both suffering from major team changes at the end of this year. Renault stands to lose everything with the change of its champion drive. Ferrari is likely to be diluted by having to produce more engines for more teams, assembling a new management team, and leaving Massa to take over for a top driver.

Third and most importantly, the money that pours into Formula 1 will be changing. New EU rules outlaw the Marlboro type of advertising. These new rules have prompted an exodus from F1 by tobacco companies including British American Tobacco (producer of Lucky Strike cigarettes), once a title partner with the Honda team will exit. Marlboro has promised to stay on with Ferrari, but will be severely limited in advertising for the 2007 season onward. This regulation means that some teams will have a very difficult time finding major sponsors for next year. Formula 1 after all, is not cheap to run. On the upside, Speed TV in the U.S. has succeeded in paying a lot of money to the Formula 1 Administration to broadcast races next year, so no team is likely to be starving.

Ford Taurus Comes to an End

Friday, October 27th, 2006

As avid readers will note, I had posted a week ago, the announcement that today the production of the Ford Taurus will end. It is a bittersweet ending for one of the most recognizable cars on the America road.

The Taurus actually had a long life brought on mostly by its early popularity among the car buying public and later as a favorite fleet car for Corporate America and car rental agencies. It would be nearly impossible to leave one’s house on a trip in America and not see one. It had a distinctive front nose and shapely headlights, which seemed to suggest that it was gawking at you as you passed it on the road (some would suggest it wasn’t gawking so much as it was yawning).

Whatever the case may be, the Taurus marked an interesting era for Ford Motor Company. For Ford, the car meant large profit. It also signifies the end of an era. For Ford, that era is one of bad design, and the company clearly feels that the latest cars to roll off their assembly lines are much different in terms of quality and design. Given Ford’s announcement that they lose more than $8 billion in 2006, there are a lot of jobs riding on their judgment being correct.

Massa Wins, Alonso is Champion, & Schumacher Goes Out in Glory

Sunday, October 22nd, 2006

There was little surprise in today’s final Formula 1 race of the season. There were however many retirements, several car failures and accidents.

The important story of the day was Felipe Massa’s win, the first by a Brazilian since Ayrton Senna in 1993 on the home track. Massa dominated from the beginning and finished with a substantial lead over Fernando Alonso who finished second followed by an impressive third place finish by Jensen Button.

The finish meant that Fernando Alonso won the 2006 F1 Championship and Renault walked away with the Constructor’s Championship. It also meanth that with Schumacher finishing fourth, up from his 10th place start, that Ferrari finished second in the Constructor’s competition.

As for Michael Schumacher, today marked his last F1 race, but also represented an impressive display of driving. Early in the race, Schumacher’s left rear tire was nicked resulting in a very early pit stop, costing him dearly. He rejoined at the back of the pack. Combined with several retirements and what can only be described as amazing driving, Schumacher worked his way from 17th (after the pit stop) to fourth by the end of the race.

It is the end of the 2006 season and the end of Schumacher’s career, but 2007 will hold new challenges for Formula 1 with many changes for many teams and changes to the sport, some of which will affect the business-side of Formula 1.

Check back soon when Beyond the KM discusses implications of changes that F1 will make over the break and how that will affect the sport.

Schumacher’s Last Stand

Saturday, October 21st, 2006

In just a few short hours Michael Schumacher will start (and hopefully complete) his last race as a Formula 1 driver in Brazil, the last F1 race of the season. Schumacher holds many F1 records. Most notably, he holds 7 F1 titles.

Schumacher has also had the opportunity to take his 69th and final career pole, but due to an engine blowout, his hopes were dashed at the start of his final qualifying round.

Interestingly, Schumacher’s teammate at Ferrari, Felipe Massa took the pole despite also having problems. Massa’s problem required the changing of the gearbox, a process that took a mere minutes. In Formula 1 though, exchanging an engine, despite all of the money spent on R&D and technicians/engineers, still takes a long time. Moreover, an engine change means that Schumacher would drop from his previously guaranteed 5th row start to a more harrowing, and difficult 10th row start.

Meanwhile for Schumacher to win the title, he would have to have a flawless race AND Fernando Alonso would have to drop out. With those odds, Ferrari will have to settle for second place in both the individual and constructor’s championships.

Stay tuned for more analysis on the Brazil Grand Prix to follow after the race Sunday.

Update: Schumacher’s Ferrari suffered a fuel pump failure rather than an all out engine failure. This means that he will start 10th as he was unable to make a final round qualifying run.

The End of an Era, the End of the Ford Taurus

Friday, October 20th, 2006

It was brought to our attention today that Ford Motor Company is bringing the end of the Ford Taurus sedan next week after 21 years, and 7 million units sold.

Our feelings on this: AMEN! The demise of the Ford Taurus was due long ago. Popular or not, the design got old and the car lost its appeal.

Then again it was only inevitable after FoMoCo’s Jaguar unite opted to style the front of the latest XK after that of the Taurus. Like we said, LONG overdue!

Thanks Ford!

Commentary on the Possible Sale of Aston Martin

Thursday, October 19th, 2006

In 1986, Ford Motor Company bought 75 per cent of Aston Martin. In 1993, they bought the rest of the company from Victor Gauntlett. Since then, Aston Martin has been turned upside down. Barely is the company recognizable to fans of the Aston of yesteryear. Today the company is lean, innovative, and more or less profitable. The brand is stronger than ever, as are the sales figures.

In a lot of ways, the acquisition of Aston into Ford’s Premier Automotive Group was strategically sound long-term investment. Ford had needed a well-known company to purchase, one which could be bought on the cheap and turned around to reap long-term profits. The secondary benefit is that Aston brought a super car to the company that lacked one. Additionally technology that has started in Aston as motorsports technology has filtered down. Some technology has also been filtered to other companies in the Premier Auto Group portfolio. The Aston shares many design concepts and parts with Jaguar. Both companies are located in the West Midlands in what was long considered the heart of the British auto industry.

Aston Martin also had long-term potential in motorsports. In fact, Aston announced in 2003 that they would bring the marque to Le Mans starting in 2005. The efforts in motorsports and in rejuvenating the production car lineup have proven fruitful in adding value to the brand.

Despite all of the benefits of having Aston in the Premier Auto Group, Ford announced at the end of October plans to sell the luxury sports carmaker in an effort to raise capital. The question is: “is now the best time?” Hindsight is always 20/20, but the question is certainly valid. Ford has serious financial problems, to be sure, but dumping companies in which they have invested serious time and money to resolve short-term problems seems absurd. The fact is, Ford isn’t suffering because of Aston Martin, they are benefiting from having the company in the portfolio. Selling this company at this juncture with growth almost certain would be a bad move.

In a future posting, BeyondTheKM will examine the strategic moves that Ford may take in securing the future of the Premier Auto Group.

Are European automakers the new Ford and GM? Part 2

Tuesday, October 17th, 2006

In the previous posting of Beyond the KM, we took a look at the competition that the European automakers from Peugeot to Porsche will face in the coming years. We examined some of the East Asian manufacturers and assessed their strategies in Europe. In this installment we will suggest some strategies that the automakers might employ to fight off the increasing competition from Asia.

First, the marketing must change at European carmakers. Mercedes-Benz, for example, will see competition in the form of a Chery – Chery Automobiles of China that is. As noted in part 1, pointed out before, Chery will compete on price. Mercedes-Benz could never be profitable producing their vehicles and then selling them for $20,000. They require higher costs and profit margins. As a result, Mercedes and BMW must offer superior channels for delivery of vehicles, offer more models to fit as many niches as economically possible, and they must offer as much customization as possible, and they must develop a special connection with owners to retain current customers and gain more. These factors are essential to not just grow the market, but to retain market share in the face of stiff, price-based competition.

A second strategy that the automakers must focus on is innovation. Innovation does not mean BMW’s iDrive (few people find it fun OR enjoyable to spend five minutes “configuring” a car in order to turn it from mild mannered coupé into deadly beast). The innovation will not just come from more computers that interfere with driver usability, rather the innovation will come in the form of safety systems, handling improvements, design improvement, and improvements in drive train. Most importantly in the coming years will be improvements in engine technology that allows for more fuel-efficient engine designs and later the implementation of alternative fuel engines such as hydrogen.

Third, auto service must become increasingly important to the Europeans. Not only do they have the home field advantage, the companies have existing service centers. Additionally, service is typically higher profit than new car sales. Additionally examine, the highline car market. The average profit for a domestic car in the U.S., of which tens of thousands are made each year compared to the Porsche 911, which has fewer and far more customized vehicles, is vastly different. A Ford dealership may make just a few hundred dollars, but a new Porsche can make thousands because it is more exclusive, higher priced, and a very customized vehicle.

In another example, BMW has a service program called BWM Ultimate Service, available only in the U.S. This program should be offered everywhere because it really puts BMW in a class of its own in the way it deals with the customer. Any problem is easily taken care of, no questions asked. This allows the service departments at dealerships to run like cogs in a well-oiled machine. Service is where the profit is and will be in the future, car companies must embrace this.

Another area that will require change in the future will be on the part of government. Government changes must take place at the national and international levels. Tax laws must favor automakers and suppliers both. Labor laws must become less restrictive and more flexible as the market changes. Import laws must also be modified to handle imports from China. The European Union must take notice now so as to allow proper time for discussion.

Finally, the labor force must change. Germany’s automakers are some of the least product in the world. Only recently did VW force its unions to make its members more flexible in the hours it works. Until the recent agreement, VW workers were working under 29 hours per week and were the highest paid in the world! In addition to flexibility of the workers, the work forces in the EU and even U.S. must become smarter. Education levels are rising and the “blue collar” work is the worker of yesterday. In the future, workers will have to be mentally more flexible and be more innovative in the way they work.

Are European automakers the new Ford and GM? Part 1

Wednesday, October 11th, 2006

Change is afoot in corporate offices in Europe’s automakers. GM and Ford have struggled for many years now with the harsh realities of the global auto market. Now those realities are knocking on the doors of the European automakers. About two-thirds of Western Europe’s carmakers have seen changes in the executive suite in the last two years.

The reasons vary, e.g. BMW’s Helmut Panke left due to age restrictions, yet the BMW board failed to grant him a waive to allow him to drive the ultimate machine longer. The fact remains though that boardrooms and shareholders, alike, are concerned about increasing competition from the Far East.

Once a joke to respectable manufacturers, the Chinese automakers – led by Shanghai Automotive Industry Corporation (SAIC) and Nanjing Automobile – are increasingly competitive. The Chinese are increasingly developing more and more sophisticated facilities and borrowing more and more from the Europeans. Take American Axle and Manufacturing. AAM has been setting up new factories at breakneck pace. Indeed some of the intellectual property has been sold to the Chinese as well.

What all of this means is that the Chinese now have a way to produce good quality cars, yet sell them for next to nothing. Therein lies the problem not just for Renault and Peugeot and VW. Mercedes-Benz and BMW must be careful in their strategies since companies like Chery, is planning to bring their “luxury” automotives to the U.S. market soon. At $20,000 Mercedes and BMW are tracking the company, you can be sure. In the end, automakers will find difficulty in beating the Chinese on price. They must find other ways or they will falter as Ford and GM have done.

The next part in this topic will deal with possible strategies that the European automakers might develop to combat the competition from the east.

The Ford Focus

Wednesday, October 4th, 2006

For those reading this from you US of A, you might ask why I would write about a car which is so “American.” This, however, is simply not true. Many cars made in the USA also find root in other countries. Ford, long a player in the United Kingdom, also has a Focus sold to buyers in the UK – and only the UK.

Ford in the UK faces many different market forces not found in the US. For example, Americans tend to love car that chug gas. And at $2.50/gallon, it’s not wonder. Petrol prices in the UK are more than twice that figure, and so the buyers are much more mindful of fuel efficient vehicles. This of course means that UK buyers like cars that look like ants compared to big bad American cars like the Ford F-250 Super Duty truck. A truck so big and powerful that it could haul away my house without me even knowing it. Indeed, throughout Europe you see dozens of different hatchback models. Still, just because they value petrol more than the Americans, and thus little, versatile hatchbacks, the British enjoy the same thrill of driving that the Americans enjoy.

Enter the Ford Focus ST. Unbeknowst to most Americans, the Europeans have a class of car called the “hot hatchback.” Fine, but what does this mean? It means that car makers like Ford, Volkswagen, and all the others take a regular 3 or 5 door hatchback and tune it. They firm up the suspension to improve the handling, give it more horsepower to make it go like the wind, screw on bigger wheels, and typically do something exciting and radical with the face of the thing. In short, they give the car more “masculine” features – balls if you will.

Does everyone buy such a car? Certainly not everybody needs one, otherwise, why make model variations? The truth is, car companies need exciting models. They attract buyers. It’s the same thing for cell phone companies that make a “prototype” $1million cell phone studded with diamonds. It gets people’s attention, even if it’s not meant to be sold. The same thing is happening here. Ford may not sell a ton of “hot hatches” but it gets people in the door of the dealership. And for that reason Ford UK needs hot hatches.

And to explain my original point, Ford back home in the US needs the hot hatch too. Sure, there is currently little market for this in the US (e.g. the VW GTI), but that market is what builds other markets.

I read the newspaper these days and I note how everyone is predicting the demise of Ford Motor Company. It doesn’t have to be that way though. It’s true though that part of the problem is high healthcare costs, but that doesn’t explain why marketshare is shrinking. It’s shrinking because Ford isn’t putting out the goods. They need to get people excited again. Ford of America NEEDS the Focus ST, and it needs it now.

Additional: Autoblog

Welcome!

Sunday, October 1st, 2006

Welcome to BeyondTheKM.com! As you will no doubt notice the posts to come, this web site is designed to be YOUR source of insightful analysis of the automotive industry.

Specifically, we will provide coverage of any important event going on in the European automotive community (hence the Kilometer in the title).

Expect coverage ranging from Porsche, Ferrari, Aston Martin to European regulatory affairs.

Simply put, if it’s European and it’s Automotive, we’ll be analysing it!

Thanks and keep checking back for more from BeyondTheKM.com