Tag Archives: chief financial officer

Audi Bucks the Trend, Promises More Product, Not All for U.S.

Hyundai’s U.S. CEO John Krafcik said it best earlier this year: “flat is the new up.” By that measure, Audi AG is riding high. Global sales fell 11 percent in the first half of 2009, versus 18 percent for the whole industry. What’s more, Audi was comparing its number to a record-setting 2008. In North America, sales fell 12 percent in the first half of the year, versus a one-third drop in sales for the industry. More important, Audi is making money. Its global first-half profit was 823 million euro ($1.17 billion), off 36.6 percent. Chief Financial Officer Axel Strotbeck said Friday that the company posted a “clear profit” in both of the first two quarters. “We’re the most profitable premium manufacturer, at the present.”Audi continues its struggle for more premium market share in the U.S., of course. It’s been about 17 years since it nearly left our market. Audi’s still a pretty small player here, only its fourth-largest global market (after Germany, China and Great Britain) whereas we’ve traditionally been the second-largest market for Mercedes-Benz and BMW (though their Chinese sales undoubtedly rival U.S. sales now, too). Nevertheless, Strotbeck said Audi will “not push sales by artificially pushing lease prices down” in the U.S. Instead, it will continue to move upmarket. In terms of features, quality and luxurious interiors, Audi’s reputation is nearly that of BMW and Mercedes. While its A4 and A5 can get very expensive with optional equipment very quickly, the A4 especially strikes many upper-middle-class buyers as an accessible step up from an entry level Lexus, Infiniti or Acura, and perhaps a step-and-a-half up from a loaded Camry or Accord.The other element that’s working for Audi is marketing. While other luxury brands cut marketing and advertising budgets and get out of racing, Audi is a marketing powerhouse that led Super Bowl XLII advertising and spent a truckload of euro to go to Le Mans. It’s setting itself up well for the next decade, when strong marketing will pick the winners in a plethora of good new product. Strotbeck pointed to three new models Audi will introduce in coming months: the A5 Sportback, an all-new A8 coming in calendar 2010 and a new A1 in the third quarter of ’10. Two will not be imported to the U.S. Audi said this about future models/strategy in the North American market:No U.S. production plans for now. This became a big issue for models like the A4 last year when the euro’s value went past the $1.60 mark. Volkswagen is building a plant in Chattanooga, Tennessee, which will build the Passat replacement beginning calendar year ‘1l, but Audi won’t be part of it, for now. No plans to bring the 2011 A1 to North America. Audi hopes to grow A3 sales with a new diesel version coming to the U.S. in December. Problem with the A3 is that it costs nearly as much as a base A4 in the U.S., and despite the Mini’s popularity, we don’t like hatchbacks here. Given the expected technology, the A1 could cost Audi at least as much to build as the A3 or even the A4. Still, if the new A1 is as cool and cutting edge as the original, won’t it be as desirable as a Mini Cooper?While Audi still considers diesels the best green/fuel-efficient technology, it will have a hybrid Q5 on the market in one-and-a-half to two years.All of Audi’s 2010 gas-powered models will have direct injection, and it claims it will be the first to achieve that milestone.
Source : blogs.motortrend.com/6564153/corporate/audi-bucks-the-trend-promises-more-product-not-all-for-us/index.html


Healthiest Patient in ICU: Ford Posts $424-million Operating Loss

DEARBORN, MICHIGAN – It’s not party time, yet, at Ford Motor Company’s World Headquarters. Ford’s $2.3-billion in net income for the second quarter of ’09 is the result of “special items,” those bookkeeping procedures that in past years have reversed the fortunes of the Detroit Three, especially General Motors. Probably the most important line item is this: Ford has cut automotive structural costs by $1.8 billion, of which $1.2 billion came from North American savings.

Cost reduction is the New GM’s key goal, of course, and both Ford and GM are quickly slashing costs in order to transform themselves into companies that can make profits even when no more than 10 million cars and trucks are sold each year in the United States. Thursday’s Q2 results for Ford proves the automaker is on-track with what it used to call The Way Forward Plan.

Ford still plans to “get back to profitability and positive cash flow in 2011,” says Alan Mulally, president and CEO. And it won’t happen any earlier, considering the current economic climate and predictions that any recovery will be slow in 2010. Mulally says Ford is heading for profitability thanks to improvements it has made in customer satisfaction, revenue and margins. Some of Ford’s numbers:

Pre-tax loss of $424 million; net income of $2.3 billion in the second quarter, equal to 69-cents per share.
Special items totaled $2.8 billion, and Ford reduced its debt by $3.4 billion.
Issued 345 million new shares of common stock, which raised $1.6 billion. “Completed actions” to cut automotive debt by $10.1 billion.
Pre-tax profit of $646 million compares with a pre-tax loss of $294 million for the second quarter of ’08.

*Market share is up significantly. In the U.S., Ford/Lincoln/Mercury have 16.4-percent market share, up two points. So FoMoCo is on solid ground to remain one of the Big Three in North America. We’ve been heading, for some time, to the European model, in which three automakers lead that market with about 18-percent share each. In the U.S., the new Big Three are GM, Ford and Toyota. And yes, Ford is nipping at the New GM’s heels.

*European market share is up a half-point, to 9.0 percent, highest second-quarter level in 10 years. In South America, share is up one point, to 10.4 percent.

Mulally deserves a lot of credit for, first, changing the business culture in Dearborn, and perhaps foremost, for having the insight or the luck to hock the entire company up to and including the Blue Oval emblem in exchange for some $23 billion in credit, before the credit market collapsed. It seemed like a foolhardy idea at the time, and frankly, Ford isn’t in the clear. It’s the proverbial healthiest patient in intensive care. Any downward blips in the global or U.S. economy, and/or in the North American automotive market could prove fatal.

Mulally figures Ford has gained some consumer equity by not taking taxpayer money, although he stresses that Ford has been on-record in supporting the government’s restructuring of the U.S. auto industry.

Another factor is gasoline prices. When the economy finally improves, that will put pressure on oil supplies, sending gasoline prices higher. And Ford is well poised with Mulally’s One Ford plan to rationalize most car and truck lines for the world. Whether gas is $2.25 or $4.50 a gallon, the Fiesta and an all-new global Focus arrive in U.S. showrooms next year. Ford’s margins are up, especially in Europe, and our midsize car, the Fusion, is selling well here with higher levels of content. Ford dealers here sell Sync-equipped cars three-times more quickly than non-Sync cars, says Lewis Booth, executive vice president and chief financial officer.

Still, here’s the problem: the Fiesta can typically sell for $25,000 or more in Europe, at current exchange rates. That gives Ford of Europe good margins on a car with a wealth of features and a nice interior. The margins will be razor thin for the U.S.-market Fiesta, even with it being built in Mexico. And Ford will have to be careful with how it prices the new Fiesta against the next-generation Focus when they both arrive here.

Ford’s success in the car line rides on the Fusion, which for now is different than Europe’s midsize Mondeo. Can Ford take enough cost out of the Fusion’s replacement, when it converges with the Mondeo for the 2013 model year? Even when higher fuel economy standards kick in, the heart of the U.S. car market will remain the four-cylinder midsize sedan. Ford is starting to dig into the Camry/Accord’s sales with its Fusion. Save for the hybrid model though, a $30,000+ Fusion — the price range for the European Mondeo — is very much a stretch.

Mulally says Ford can sell European models at U.S. prices by using its innovation and global scale. He also believes Americans are more willing to pay more for high-quality, high-content small cars. Every new b-segment car is not a Mini, however. I believe that if Ford wants to be the healthiest athlete in the gym when the Great Recession finally ends, it’s going to have to revert to its Model T-era roots and figure out how to keep car prices from rising too quickly. Another car company that posted better than expected second quarter results Thursday, Hyundai, will see to it.

Source : blogs.motortrend.com/6561444/earnings/healthiest-patient-in-icu-ford-posts-424-million-operating-loss/index.html

Mystery Over: Chinese Company in Talks to Buy Hummer

DETROIT – Who is going to buy Hummer? General Motors took the unusual action of announcing a memorandum of understanding on its sale Tuesday morning, without naming the buyer. GM’s chief financial officer, Ray Young, said in a conference call  that Hummer’s potential new owners “prefer not to disclose” their identity at this time.

But the drama behind the identity of Hummer’s prospective new owner didn’t last long. Earlier in the day, the New York Times reported that GM has reached a preliminary agreement with the Chinese company Sichuan Tengzhong Heavy Industrial Machinery Company Ltd. GM confirmed the report later this afternoon.

Sichuan Tengzhong is a privately owned maker of road equipment, but has recently been moving down into the heavy-duty truck market, according to the Times. If completed, the deal would mark the first time a brand selling cars in America would be bought by a Chinese company. Several Chinese companies have been rumored to be in the running to buy Swedish automakers Saab and Volvo in recent months. Estimates have Hummer selling for less than $500 million.

“The Hummer brand is synonymous with adventure, freedom and exhilaration, and we plan to continue that heritage by investing in the business, allowing Hummer to innovate and grow in exciting new ways under the leadership and continuity of its current management team,” said Yang Yi, CEO of Tengzhong. “We will be investing in the Hummer brand and its research and development capabilities, which will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S.”

According to GM, Hummer will continue to maintain its U.S. headquarters and operations, and the brand will continue to be managed by the existing leadership team. Hummer’s dealer network is also expected to be expanded worldwide by Sichuan, with the Chinese market of course one of the main targets. If all goes well, the deal will be completed by the third quarter of this year.

It may end up being a hard sell here, however, as Hummer has been associated with the American military. The potential sensitive nature of Chinese ownership may be why Sichuan Tengzhong did not want to be named at the outset.

Early on, last year when GM said it would sell or close the brand, Russian investors were the lead candidates, later, Chinese automaker Hunan Chengfeng Motor Company entered the rumor mill as a potential suitor. Middle Eastern oil was also a possiblity; Aabar Investments recently acquired 9.1-percent of Daimler AG, and Mubadala Development Company owns 5-percent of Ferrari. Both investment firms are based in Abu Dhabi.

GM says it will continue to build H3s for the new owner on an interim basis, until the purchaser can get its own production up and running. The deal “will secure more than 3000 jobs in manufacturing, engineering and dealerships across the country,” GM says in its press release.

It has closed its South African plant that built the H3 for right-hand-drive markets, but the Shreveport, Louisiana factory that builds left-hand-drive H3s also is gearing up for new compact pickups expected for the 2012 model year.

And GM has designs for the next-generation H2 and H3, plus plans for the Jeep Wrangler-like H4 that should sweeten the deal for the new owner. One big question mark is whether AM General would resume production of a civilian H2 under contract for a new owner.

Young said GM has some 16 entities interested in buying Saturn division. He described them mostly as “interested parties,” i.e. dealership groups, and private equity groups. Young noted that the process is taking longer than expected, that one issue still not resolved is whether GM would continue to build Saturns on contract or whether a new owner will find another source of vehicles. Roger Penske’s interest is rumored to involve a deal with Nissan/Renault in which excess Nissan capacity in the U.S. would go to future Saturn models.

Young also tried to offer some reassurance that Opel will continue to be an integral part of General Motors. Asked who is going to be running Opel, he said that the new GM European team will report to Adam Opel AG. He said that American models developed, in part, overseas are still on track for introduction. But we already knew that – the 2010 Buick LaCrosse is scheduled to go on-sale this summer and the 2011 Chevrolet Cruze, already on sale in much of the world, enters the North American market more than a year from now.

But the LaCrosse’s Epsilon platform was developed chiefly in Warren, Michigan, with Opel-specific tuning done in Germany, and the Cruze is largely a product of GM’s Daewoo operations in South Korea.

My concern is whether GM will continue to have substantial operations in Western Europe (where Chrysler has been lagging for decades). Young admitted that lots of details needed to be worked out with Magna International and Sberbank. The good news here is that GM isn’t dealing with Fiat’s Sergio Marchionne, the guy who extracted $2.5 billion from GM so it wouldn’t have to buy Marchionne’s company.

Finally, Young also outlined a plan for “wind-down” agreements with about 1100 dealers it plans to close, on its way to a total dealer reduction of roughly 2700 dealers in the next few years. GM expects some dealers will drop out due to attrition, and others will have agreements with whoever owns Hummer, Saturn and Saab.

GM will contribute support payments to dealers that have been told they will lose their franchise agreements. Young didn’t disclose how much each dealer would get. Nor did he say how GM would handle the dealers’ inventory. Turning over unsold cars and trucks from a closed dealer to one that stays open means the ’09 leftovers will linger that much longer into 2010. It’s better than the alternative, however; accelerating sales incentives to clear cars and trucks from lots before they close. That would have a devastating effect on the value of new, and late-model GM vehicles.

Source : blogs.motortrend.com/6549275/car-news/mystery-over-chinese-company-in-talks-to-buy-hummer/index.html