Automotive News - March 24, 2008 - (Page 53)

MARCH 24, 2008 • 53 No panic, but Japanese wary of strong yen Mark Rechtin and Hans Greimel mrechtin@crain.com Japanese automakers are not pushing the panic button over the strong yen — yet. By moving more production to America from Japan, Japanese automakers have insulated themselves from all but the worst currency swings. So now, pressuring suppliers, raising sticker prices and cutting dealer margins would be last-resort tactics. Honda CEO Takeo Fukui said his company may have to tweak production plans if the yen stays in the 90s against the dollar for a long time. “It is beyond our forecast if the yen reaches 95 to the dollar, but whatever the exchange rate may be, our basic policy is to produce where the market is,” Fukui told Automotive News in Tokyo. “If we are going to see this level continue for some time, then we may have to reconsider something.” On Friday, March 21, a dollar bought ¥99. Six months ago, a dollar bought ¥115. The change means Americans need more dollars to buy goods made in Japan. It also means Japanese automakers receive fewer yen for each dollar’s worth of sales in the United States. Crunched by the yen Japanese automakers have been squeezed by the strong yen. Here’s the value of $1 in Japanese currency. SEPT. 21, 2007 MARCH 21, 2008 CHANGE No ‘second-guessing’ In a worst-case scenario, Fukui said, Honda might try to boost Japanese sales of domestically produced cars or import vehicles from the United States. Nissan is so insulated from exchange rate swings that it doesn’t use currency hedges, said Dominique Thormann, Nissan North America senior vice president of administration and finance. “It’s out of your control. There is no way you can manage it,” Thormann said last week at the New York auto show. “If you are hedging, you are second-guessing the market.” A main part of the Nissan Revival Plan was to build up manufacturing in key sales markets. Transferring production of the Pathfinder SUV ¥115 ¥99 16.2% and Maxima sedan to the United States in 2001 and building nearly 1 million engines a year in Decherd, Tenn., integrated North America as a production base, Thormann said. Favorable interest rates Toyota, which exports a higher percentage of cars to the United States, sees some belt-tightening ahead. “The streamlining of the ’90s has become standard procedure,” said Randy Pflughaupt, Toyota Division group vice president of marketing. “We follow the playbook of where to cut costs. It’s going to hurt.” Pflughaupt predicts that production cuts and reductions in incentive spending will be the first places Toyota will look to save money. But he notes: “Production isn’t driven by the yen. It’s driven by the market. We wouldn’t be cutting Tundra and Sequoia production if there was a robust full-size pickup and SUV market.” Low interest rates in the United States are easing the pain of the strong yen. When the dollar slumped in the ’90s, U.S. interest rates were high. But with the Federal Reserve dropping its key short-term rate to 2.25 percent last week, the lower cost of funds for big lenders means that subvention costs for loans and lease deals are cheap. Said Jim O’Sullivan, CEO of Mazda North American Operations: “If the cost of funds comes down, will captive finance companies become more aggressive with incentives, or will they hold their rates steady and use it as a cost offset? It could really help with variable marketing expenses.” c SALES Automakers lower their expectations continued from Page 1 not hampered their ability to line up car loans for customers. In fact, some banks are being more aggressive with auto loans because they’re not getting as much mortgage business, says Allen, who owns a three-store chain in Pocatello, Idaho. “They’ve still got to loan money, just like we’ve still got to sell cars,” he says. Toyota is trimming production of the Tundra pickup, above, and Sequoia SUV. Down, down Ray Young: GM has saved $500 million through cost cuts and will seek more savings. U.S. light-vehicle sales history and forecasts.UNITS IN MILLIONS Cutting jobs But the continued availability of loans has not been enough to prop up the market, and automakers are ratcheting down their expectations. “No matter what, we’ll keep doing what we have to do to structure ourselves to the lower demand,” Ford CEO Alan Mulally told analysts last week during the New York auto show. Ford’s signup period for buyouts ended last week. While the company hasn’t released results, news reports suggest that only about 5,000 hourly workers accepted Ford’s offer. Mulally says he’s prepared to pursue additional cost-cutting steps, if necessary. While Mulally declined to specify those steps, Ford personnel chief Joe Laymon told Automotive News last week that Ford would consider additional white-collar job cuts if hourly buyouts don’t go deep enough. The downturn has led automakers to seek small cuts as well as big ones. For example, Chrysler announced plans on March 8 to close its 20-employee Pacifica design center in Carlsbad, Calif. Four days later, Chrysler said it would sell its engine plant in Curitiba, Brazil, to Fiat Powertrain Technologies. But the ax began swinging last November, when Chrysler said it would eliminate shifts at five plants and reduce the hourly work force by 8,500 to 10,000 jobs. General Motors has saved $500 million through cost cuts and will seek further reductions in manufacturing, commercial and administrative expenditures, says Ray Young, GM’s CFO. GM has more cash than Ford or Chrysler to weather a recession. Nevertheless, GM is taking steps to conserve funds. The company has de- 17 16 15 14 NADA layed some nonproduct capital projects to the second half of the year. “If the market doesn’t return, we will defer that further into the future,” Young says. J.D. Power and Associates 0 '03 '04 '05 '06 '07 '08* * Estimates Four-day week Even the import brands, which have been gaining market share, are cutting back. Last week, Nissan confirmed that starting next month its assembly plant in Smyrna, Tenn., will operate just four days a week to reduce inventories. Its Canton, Miss., plant’s truck line went to a four-day week on March 17. The short schedules will last through May, trimming about 4,500 vehicles from its production plan. Nissan also canceled two days of work from this month’s schedule at its Smyrna, Tenn., plant. That eliminated an additional 2,900 vehicles. A week earlier, Toyota said it would trim Tundra pickup and Sequoia SUV production, as well as V-8 engine output in Huntsville, Ala. Toyota declined to say how many units will be eliminated. As industry sales tank — and as automakers trim production — the big dealership groups are relying more heavily on used-car sales. For example, Lithia Motors Inc. has opened two used-car stores in Texas and one in Colorado. Meanwhile, AutoNation is slowing down the acquisition of new stores. And Asbury Automotive Group is reducing advertising, cutting staff and trimming inventories. Smaller dealership groups are taking similar cost-cutting steps as bargain-hunting consumers hold out for the best possible deal. Pat Ryan: “Aon is extremely well-positioned for continued growth and success.” F&I pioneer Pat Ryan to retire from Aon Ryan Beene rbeene@crain.com Bargain hunters “New-car buyers are shopping much more,” said Chris Saraceno, vice president of Kelly Management Corp., which operates 10 dealerships in Pennsylvania and Florida. “I think they sense that some of the dealers — especially the domestics — are desperate and they’re looking for deals.” To compensate, dealers such as Saraceno are selling more used cars. His stores have raised their closing ratio by selling certified used vehicles to consumers who had started out shopping for new cars. To reduce expenses, Saraceno also has kept a smaller vehicle inventory. “We’ve got to work harder, and maybe with less people than we have in the past,” he said. “But we look at it as an opportunity. When things are tough, the well-organized and wellexpensed dealers will grow.” c Lindsay Chappell, Jamie LaReau, Bradford Wernle, Amy Wilson and April Wortham contributed to this report Finance and insurance pioneer Pat Ryan plans to retire Aug. 1 from Aon Corp., the global insurance juggernaut he founded in 1964. Ryan, 70, has been Aon’s executive chairman since he stepped down as CEO in 2005 after 41 years. “The transition to a new management team under the sound leadership of Greg Case is complete,” Ryan said in a statement last week. “Aon is extremely well-positioned for continued growth and success.” Ryan said he plans to continue to be an active shareholder. In 1962, Ryan forever changed how auto dealerships operate when he created the first F&I department at Dick Fencl Chevrolet in suburban Chicago. “I put in a system where I had to see every customer,” Ryan said in a 2005 interview with Automotive News. “I offered them the dealership financing, whether they were going to go to a credit union or pay cash or go with their own bank. I asked if I could also sell them credit insurance.” Before Ryan introduced his concept of selling credit life insurance directly to dealership customers, dealership salespeople handled financing. The practice at the time was inconsistent, scattered across multiple banks and other lenders. Ryan soon expanded his concept by hiring his own employees to promote the idea to other dealerships throughout the Chicago area. In 1964, he founded Pat Ryan Associates. The small underwriting agency specialized in distributing credit life insurance products to dealers. Eventually, it grew into the insurance behemoth that Aon is today, with 500 offices in 120 countries that generate more than $7 billion in annual revenue. c

Table of Contents Feed for the Digital Edition of Automotive News - March 24, 2008

Ford lists 6 to succeed Mulally GM pushes luxury superstores Industry straps in for rough ride Bob Irvin is a worthy addition to Hall of Fame Debate at Scion: How to grow Ford moves executives in Asia to new jobs CEO of lanelogic: We're still here Kia's N.Y. duo Chrysler's exec trio: Reports of friction mostly fiction Where others see gloom, Honda chief sees boom in U.S. Fukui: Nickel battery is best bet for hybrid Beijing conference explores key issues in China market Planworks keeps its role as buyer for GM ads Lincoln: MKS will make up for brand's slow start in '08 Deal's no big deal: Styling top reason to buy GM Penske's Smart start: He'd like 15,000 more Dodge's pitch for Challenger: A halo that you can afford Chrysler plans 'We listen' ads You go, Bob With zest, activist Ditlow remains on lemon patrol Autos did the job after 9/11; don't bet on that now Chinese cars? Dealer beware Solar power is the only answer Where will we get power for the Volt? Want higher CAFE? First, do this In N. California, hybrids are hot Detroit 3 can learn from the Marlboro Man The Prius is a phenomenon Wait 3 years, then judge Ford How many Jeeps will India buy? Lithia looks into improper sales reports at dealerships AutoNation's lead shrinks as largest U.S. dealer group Honda ad agency creates unit to build Acura brand Study: Consistent theme in auto ads builds viewer recall Big-truck sales continue slide in Feb. -- off 27.1% MazdaSpeed revs up racing accessory sales Calif. company eyes electric charging stations for Volt, Vue Indictment: Bribe scheme cost GM $83.3 million The greening of Toyota dealerships 6 more finalists in race for PACE recognition Tenneco expands Japanese work, seeks more Bosch buys diagnostic equipment firm in China JV will design vehicle platforms Citation moves headquarters NxtGen tests emissions system VW stake may help Porsche on fuel economy rules Chrysler's Project Genesis wins over Ore. dealer Germany, new EU members send up European sales Saturn will choose store system soon VW thinks modular for flexibility at auto plants Automakers eager as axles turn high-tech Talking drivetrains with American Axle Dollar halts U.S. retail sales of Audi Q7 hybrid Hyundai: Genesis Coupe offers more go for dough Maxima's target: Luxury Euro makes Pontiac adds 3 sporty variants Outsider Elmer Johnson shook up GM Importer Yanase was Hall of Fame member Obituaries Redesigned TSX has many Acura firsts Dealers Certified sales up 7.5% in Feb.; Audi leads the way eBay's new Web site has new look, more features Big pickups and SUVs lead plunge in used-vehicle prices Ex-Reynolds CEO O'Neill joins J.D. Power Auto Hall of Fame will induct 8 Liberatore looks beyond Daimler Molina gets the top job at GMAC F&I pioneer Pat Ryan to retire from Aon Study: Hydrogen research worth the cost Gulf States trial halted As yuan rises, so do prices of Chinese parts Personnel exec Laymon: Ford still seeking outside talent GE gives supplier credit Dana CEO wants Asian growth Tesla launches production Todt steps down as Ferrari CEO Union pursues Toyota effort Chrysler offers spiffs for military Land Rover ads focus on heritage Mark Rechtin Fresh heir: To turn green, must BMW create brand? GM ponders mini-muscle Camaro New Ford ads coming in April With a spiffier image, Lincoln would rock abroad Rival says Nardelli's OK Ford hails its cab, but mpg is an issue

Automotive News - March 24, 2008

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