Archive for December, 2006

What a New U.S. Congress means for Automotives

Tuesday, December 26th, 2006

The change in the U.S. Congress, which officially take place in January, signals a shift in the way U.S., Asian, and European automakers must do business in capturing the lucrative American auto market.

The changes could be vast and penetrating. For one, you see a change from a Republican-controlled Congress, which favors big business, to a Democratic-controlled Congress, which favors improved environmental policy, universal healthcare, and more rights for workers. To put it another way, the Chairman of the Senate Environment and Public Works Committee was Republican James Inhofe of Oklahoma. He has stated that he does not believe in global warming – an issue clearly important to the automotive industry. In the Democratically-controlled Congress, a more liberal perspective will hold the chair. Senator Barbara Boxer of California, a person who regularly drives a Toyota Prius, will lead the committee.

What all of this means is fairly straight forward and carmakers should be prepared. First, automakers, especially American ones, cannot expect special government protections like those that might have been afforded by the GOP in the last Congress. Further, they will not be able to rely on special incentives, including emergency anti-bankruptcy loans as we saw in the 1980s with Chrysler.

Secondly, and this applies especially the European automakers, the carmakers in 2007 will have to face fewer handouts to big oil (thus affecting the price of oil and causing consumers to think twice about buying vehicles of poor fuel efficiency), increasingly stringent standards on emissions and CAFE laws.

Mercedes sells only one diesel car in the USA and VW has sold one for the 2006 Jetta. Despite over producing this car for calendar year 2007, VW will fall short of diesel vehicles for the year as it struggles to introduce cars that meet 2007 diesel standards. VW, BMW, and Mercedes have all produced diesel version of their cars (which outsell the regular petrol version in Europe). Still, when it comes to the marketability and emissions standards of the U.S. they have been unable to bring the cars across the ocean. If the three are successful in this over the next two years, they stand to make a lot of money so long as they can keep up with emissions requirements that stand to become stricter in the next congressional period.

This may very well be the session of congress where lawmakers realize that the world’s oil supply is not infinite and that global warming is a clear and present danger to the environment and national security.

Chinese Growth = Big Opportunity for European Carmakers

Saturday, December 16th, 2006

The Financial Times reported next week that the Chinese will become the third largest buyer of Rolls-Royce Phantoms taking the spot from Japan. Rolls-Royce plans to sell 70 Phantoms in China and 50 in Japan according to the article.

The cost of a Rolls-Royce Phantom starts at about US$400,000 in the Chinese mainland. Most orders are in Hong Kong, which has the world’s highest number of Rolls-Royce motorcars per capita. After taxes, the price is nearly doubled because the Chinese heavily taxes imported cars. As a reference point, Thailand taxes imports so heavily the final price can be 4 times what it would be without taxation. Of course, no company knows customisation like Rolls-Royce, and this is the reason one Chinese developer recently paid US$2,000,000 to import a highly customised version recently.

Of course, taken in the grand scheme of it all, Chinese imports of 70 cars pales in comparison to California, which will import twice as many for the rich, and possibly, famous.

For the BTKM analysis, we view this all as a sign that with the significant increase in the number of Chinese millionaires, Rolls-Royce can expect to see increase demand and thus increased revenue generated in Asia. Therefore, R-R will need to consider a strong marketing and supply channel push in the country in the coming year. At current rates, Rolls-Royce could expect to import more cars than California in less than five years.

Of course the implication here is that other European carmakers will also prosper. Rolls-Royce former amalgamate, Bentley, would lead us to believe that the Crewe, England-based automaker will also see much increased sales, especially considering a lower, yet exclusive price point.

Editors note: Here at Beyond the KM, we would buy a Phantom, but still need to find the money and the driver ;-) … so feel free to click the ads to generate a little loving revenue!

European Cars from an Unlikely Source

Sunday, December 10th, 2006

The automotive industry today is global like none other. According to a recent International Herald Tribune article, the Thai auto industry will produce 1.2 million cars in 2006, with half being exported to locales including Europe. That makes Thailand the third largest Asian automotive exporter.

The article is significant because it discusses the incentives program currently in place by the government. Despite being a developing country, Thaliand has very stringent new rules. To receive incentives car makers must be producing cars that get a minimum of 47 miles per gallon (5 litres/100KM). Emissions must meet Euro 4 standards.

The key analysis here is that it is difficult for a country that is used to producing larger cars (Thais love big cars) to change over to smaller cars. The parallell is that the same problem exists for manufacturers, producing cars for the USA. In a country that loves to guzzle gas, it may be stringent standards and better fuel efficiency that saves the country from impending economic crisis.