Hudson's Blog

Feb 25, 2008 - The Shaky World of Automotive Investing

Until around 1950, there was a Wild West-like attitude in the American automotive industry. It was a frontier to be conquered. Throughout automotive history, there have been something like 5,000 individual makers of cars and trucks in the world with about 3,500 of them being situated in the United States.

Companies like General Motors, Ford, and Chrysler have survived, in one form or another, for over a century. General Motors turns 100 this year but its oldest parts (Cadillac, Buick, and the late Oldsmobile) are well over the century mark. Ford was founded in 1903. And while Chrysler was created in 1924 from the remains of Maxwell, parts of the company can be traced back to Rambler which dates back to 1903 as an automobile manufacturer.

There are a few minor vehicle manufacturers in the US. The most prominent of them is Panoz which is slowly approaching its 20th anniversary.

Outside of these tiny footnotes, there hasn't been a major successful American manufacturer founded since World War II. And even new import brands on US soil have been a rare find in the past 30 years.

Rare successes like Hyundai and Kia are at odds with struggling Mitsubishi and soon-to-be-gone Isuzu. So you might have to forgive my apprehension everytime someone announces a new venture.

When Bob Lutz announced the revival of Cunningham about eight years ago, I was excited. This was the first time in half a century that a new manufacturer would be coming to the US where I trusted the founder. Bob Lutz is the consumate car guy with REAL automotive experience working with the likes of BMW, General Motors, and Chrysler. Lutz even had novel, and as I saw it workable, approaches to manufacturing (which he laid out in two issues of Automotive Industries).

But when Lutz was hired by General Motors, it was obvious that all bets on the Cunningham were off. So if Lutz prefered to take the corporate route instead of laying the foundation for real history, I knew new car production was truly a tough nut to crack.

When people with questionable backgrounds talk about their automotive ventures, I automatically write them off in my head. People like Malcolm Bricklin, Gerald Weigert, and many others show great enthusiasm, some even know aspects of the automotive business, but most of them are just in business to make a quick buck.

So ventures trying to tap the Chinese automakers for the next big thing find their way to my "skeptical" list. I understand that these people are trying to do what the Germans did in the late 1940s, the Japanese did in the 1960s, and the Koreans in the 1980s...catch the next big wave at its beginning. People like Max Hoffman and Kjell Qvale did just that, but the market was vastly different than it is today.

The members of my list have included many different types of ventures. Importers of the ARO from Romania, the Proton from Malaysia, the TVR from the UK, the Citroen from France, the Alfa Romeo from Italy, and the Chery from China, among many others, have all announced their intentions in the past 20 years. Many times, these announcements have been followed by many different setbacks, some even could be just called frauds or scams.

So it was of no surprise that Automotive News revealed that the head of one of these latest ventures was hiding a shady past. CHAMCO is a New Jersey-based importer who has announced that they plan on selling Chinese trucks in the next few years. The head spokesperson for CHAMCO has stated that he's simply a consultant for the company, but it seems that his wife is actually the chief stockholder of the company. And his past, according to the newspaper, shows that "he did time for fraud" in an earlier trucking venture that he controlled.

I'm a huge car fan. I would love to see new and exciting choices in cars and trucks in the US. But each time a Build-To-Order or CHAMCO or ARO America is announced, I need to take a step back and see what's actually going on. The odds of any of these ventures getting off the ground, let alone becoming successful, are becoming smaller an

11:52 am | Categories: automotive history, general motors, ford, chrysler, cadillac, buick, oldsmobile, maxwell, rambler, panoz, hyundai, kia, mitsubishi, isuzu, bob lutz, cunningham, bmw, automotive industries, malcolm bricklin, gerald weigert, max hoffman, kjell qvale, aro, proton, tvr, citroen, alfa romeo, chery, automotive news, chamco, build-to-order Comments (1) | Permalink | Alert Administrator

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Jan 7, 2008 - CAFE and Your Car Choice

In a previous life, people relied on me to keep them abreast of the goings-on in the automotive world. My current life makes knowing the restoration market a little more important than the global production of cars and trucks, but that doesn't mean I've stopped paying attention.

All the buzz in the American automotive industry today, aside from "when is the market coming back," is about CAFE. CAFE stands for Corporate Average Fuel Economy. It's the basis for improving the fuel economy of vehicles sold in the US and has been for well over 30 years. The fuel economy of each manufacturers fleet of vehicles sold in the United States is averaged together, weighted by the number of vehicles sold, to generate a CAFE number. Currently, up to three CAFE numbers are generated per manufacturer: domestic car, imported car, and light-truck.

The idea is that each manufacturer would be required to sell more fuel efficient vehicles to keep their CAFE number above a set level or else face a stiff penalty. The CAFE levels peaked in the late 1980s and early 1990s with the car number set at 27.5 and the light-truck number set around 23.5.

(Please understand that the CAFE number is not the number, city or highway, found on the EPA sticker on every new car. Rather it's the "combined" number formulated way back when before the gas mileage rating system was revised...twice.)

In reality, CAFE has done very little to help improve the economy of the American fleet. Since the mid 1970s, the advent of fuel injection and other technologies have made engines smaller, more powerful, and more fuel efficient so the manufacturers have been able to keep up with the rising CAFE (which was slowed because manufacturers petitioned the government in the mid-1980s). By 1990, the average fleet fuel economy in the US was TWICE what it was only 15 years earlier.

But fuel prices didn't rise as expected in the 1980s and early 1990s. Demand for larger, more fuel hungry vehicles rose but since CAFE didn't allow for the supply of large cars to meet the demand, manufacturers turned to trucks. And the SUV market bloomed! From just a couple hundred thousand vehicles in the early 1980s, the SUV market in the US peaked at about 2 million vehicles a year in the early part of this decade. Car production made up less than half of all vehicles built in North America just a few years ago, mostly due to CAFE regulations.

Another "benefit" of CAFE was to be the added domestic production of small cars. General Motors tied up with Toyota to produce some small models in California. But Ford, on the other hand, moved production of the large Ford Crown Victoria and Mercury Grand Marquis to Canada (later NAFTA would make Canadian vehicles "domestic" in CAFE formulas).

The whole concept was to get more fuel efficient vehicles on American roads.

Bob Lutz, former Vice Chairman of Chrysler and current Vice Chairman of GM (and a real "car guy"), described CAFE as being akin to getting everyone to lose weight by requiring clothing manufacturers to produce smaller clothes.

And now CAFE is potentially on the rise again. How will vehicles change with the rise of CAFE from 27.5 to 35? How will truck sales change with an increase there? Whatever will capitalistic Americans do without gas guzzlers?

We'll be just fine. Cars today are much smaller on the outside than they were before CAFE, but have much the same interior space. Cars today have more power, far better fuel economy, are much more reliable and dependable, pollute far less and are safer. All of this, and cars are just as affordable as ever. I expect the same in the next 15 years. And I don't expect gasoline to fall from its perch as the number one fuel for personal transportation.

I, personally, am looking for a commuter car that doesn't tie me to oil companies. When oil companies get government assistance and generate record profits, I can't imagine why gas prices jump every few days. Are they at risk of losing money because a barrel of oil went up a few cents?

Why should I continue to fuel (pun intended) their record profits? And why should ANYONE worry about CAFE do any harm to the car as we know it? The first 30 years of CAFE didn't hurt the car...or the oil companies.

I'll keep my gas-consuming cars for fun, but I'm in the market for a good, used Standard-Vanguard Citicar electric for my daily commute. If you've got one sitting around, I'd sure like to talk to you, but it seems like many people have the same idea as me. Have you seen the price of a Citicar on eBay? As Economics professors taught me....supply and demand!

5:53 am | Categories: cafe, oil companies, standard-vanguard, citicar, ebay, gas guzzlers, bob lutz, chrysler, general motors, nafta, ford, ford crown victoria, mercury grand marquis, suv Comments (0) | Permalink | Alert Administrator

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Sep 3, 2007 - The Ultimate Car Dream!

Surfing through CarSpace the other day, I ran across this guy who is discussing his dream of starting a car company. He video blog addresses the people who have pointed him in different directions to design is production car. I admire his dedication to his dream and I wish him all the luck in the world. Because he'll need it.

I've been a car person since I could express my fanaticism around age two. I started designing cars around age six. And I started designing my first car company when I was 10 or 12. Yes, I share the ultimate dream of many car fans. And I still have it today.

But I have become realistic about my dream.

Since I first developed the germ of an idea to build a car company, my car company has changed many times. Sometimes it changed because of sudden pangs of Henry Fordism where I wanted to build the car for the masses. Sometimes it changed because I wanted to build a better sports car than anyone else and put my name up there alongside Enzo and Ferruccio and the Brothers Maserati.

(By the way, "Hudson" is just a pseudonym. I know there was a car with that name.)

A few years ago, I was about to be in-between jobs. My employer was eliminating my office and I was going to need a new means of support. Having spent some time in the publishing field, I thought I'd start my own car magazine. I found the niche I wanted to cover and I was sure that I had access to some great writers. I was missing many parts of this puzzle and quite a bit of the knowledge that I knew I'd need, so I asked for help. After a few calls, I had David E. Davis on the phone.

Mr. Davis launched Automobile magazine back in 1986. It will probably be the last successful mainstream car magazine launched in print form. He seemed like the best person to ask about this publishing attempt. And, besides, he was about to be "in between jobs" as well and maybe he'd be interested.

Our discussion started with my idea. I wanted to launch an upscale car magazine; a sort of coffee table magazine like Architectural Digest or Cigar Afficianado for car fans. Something that would make Automobile look plebian, no offense to Mr. Davis' magazine.

Mr. Davis continued by telling me just how much his magazine cost to launch. In 1986, Automobile cost $11 million to start. ELEVEN MILLION DOLLARS?!?! I figured I'd rather start a car company with that money.

And so it went. I planned out a car company that I could launch for far less than that $11 million price tag. I mentally designed a car. Ran spreadsheets to show the cost and projected sales of the company. In a perfect world, the company would be profitable in six years and would be debt free in ten.

Alas, life got in the way and I moved the "company" to the back burner again. And it's not the only one back there. I have two or three other, ranging to $1 billion, companies sitting on that back burner. I'm counting on a Powerball win to move them to the front burners.

But I was born in the wrong era. Had I been born 100 years earlier, I could have started a car company. Today, however, it's nearly impossible.

A century ago, it was the wild west. There were no rules and anyone with the ability to tinker could put together a car or truck and get it into production. In the US alone, there were three or four thousand vehicle manufacturers prior to World War II. And nearly every concept was put into those vehicles.

Radial engines, sleeve-valve designs, electric power, steam power, and various other engine designs hit the market. Three-wheelers, four-wheelers, six-wheelers, and even eight-wheelers were put into the field. Today, the car industry consists of simply internal combustion engines (diesel or gas) placed in the front (for the most part) of the car and driving (typically) two wheels. Nothing radical there.

Sure, there are oddities like McLaren's highly exotic F1 which sat three with the driver in the middle. Mazda has their rotary (unlike radial) engine in the RX8. And a limited number of hybrid powertrains which use the tried-and-true gasoline engine as their primary motive force.

But all of this homogenization is a necessary after effect of the world of vehicle regulations. In 1900, there were very few laws stating what could or could not be put into a car. Today, the car is rigidly defined and must conform to regluations that differ from country to country and even from state to state. Many of these regulations are improvements that I could not imagine a car not having. They also prevent the "small guy" from entering the industry.

In the past 40 years, regulations have required seatbelts and air bags and crumple zones to protect us. Lighting and steering and braking improvements have made it much easier to drive safely. Emissions controls have literally removed 99% of the pollution from exhaust gases. And Europe is even working on protecting pedestrians from impacts. All of this comes at a cost.

Two generations ago, car manufacturers radically changed their products each year. You could tell a 1955 Chevrolet from a 1956 Chevrolet from a 1957 or 1958 model because each one was quite distinct. Today, manufacturers need four to five years to get their money out of their investment. You can still tell differences in many cars by the detail changes, but, for the most part, the first year of a model is very similar to the fifth year of that model.

And if multi-billion-dollar, multi-national corporations can't afford to change a million-unit vehicle more often than every five years, what makes you think that a start-up company could even afford to build ONE model? This is why it is generally believed that the automotive world will soon consolidate to six car companies.

As he was preparing to leave Chrysler, Bob Lutz was talking over dinner to a bunch of journalists. He said that technology is improving to the point that automotive start-ups could work. I was quite skeptical but a year later, he outlined his "virtual" car company when he announced his plan to revive the Cunningham. I read all of the articles and I believe he's right and it is possible, even if Lutz abandoned the idea and went back to the big corporate automakers.

All of these positive ideas followed by negative results has made me a skeptic. It has been my job to follow the goings-on in the industry so when someone would announce that they planned to launch a new automaker, I'd look into them.

I've been given business plans for amateur attempts to lauch new car companies over the years. Some are basic, some are laughable. Oddly enough, the laughable ones are from the more experienced of these entrepreneurs. And then there are the companies that actually build a concept or prototype.

There have been obvious flops along the way. The American Vector company was doomed when it took 15 years to get their first car produced, but the surprising part was that it took another decade for the company to fully collapse. A revival of the Packard nameplate seemed to be quite ambitious and ended with a failed auction of all the company's assets on Ebay. Romano Artioli's attempt to revive Bugatti was even more ambitious but also collapsed under the weight of all that hype. But the best ones are the ones who aim to change the world.

The most memorable of this type was called Build-to-Order. Talk about hype, this company was going to do everything different. From building cars within days of an order to eliminating traditional dealerships, BTO was going to be the wave of the future.

As a car nut and a fan of the underdog, I want these guys to win. But when you look into them, any reasonable mind will say that it's just not going to happen. BTO was this way...and has become a minor footnote in history. And I've got a list of dozens more in just the past 30 years. This doesn't count the hundreds or thousands of companies that American Cars Since 1775 called "cars that never turned a wheel" over the last 120 years or more.

It's a great dream to have. I hope that some of them make it to the prototype stage. And that one of them actually makes it into production. This industry will always have conglomerates like Hyundai who decide to go into the automotive business, but I'm always rooting for another Lotus or Porsche who turns their automotive expertise into a road-going product that car fans can desire...and perhaps even drive.

One day, maybe, I'll sit down with a multi-multi millionaire who likes cars and we'll discuss some of my concepts. And then, just maybe, my dream can come true. And maybe one of these blogs will win a Pulitzer Prize. Perhaps I'll find a cure for cancer. And then onto world hunger and world peace and intergalactic...

3:40 pm | Categories: dreams, manufacturing, vector, packard, bugatti, porsche, lotus, bob lutz, chevrolet, mclaren, mazda, david e. davis Comments (2) | Permalink | Alert Administrator

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