Trucks at Work Blog

“We can see that what we’re doing is good for the environment, and also that it leads to better production economy for us.” –Anders Olausson, plant director for Volvo Trucks’ facility in Umeå, Sweden

It’s interesting to note that global truck manufacturers aren’t just looking at ways to just increase the energy efficiency and lessen the environmental of their vehicles; they are trying to do the same thing with their factories as well.

For example, take Paccar’s Kenworth Truck Co. manufacturing facilities in Chillicothe, Ohio, and Renton, WA: both recently earned ISO 14001:2004 certification for effective environmental management systems established to help build Class 8 trucks in what’s euphemistically called “an environmentally sustainable manner.”

Kenworth’s Chillicothe plant also snagged a Global Six Sigma award last year for its efforts to reduce waste within the factory’s paint department. The end result of that effort? The elimination of 21,000 gallons of paint waste from the landfill per year, while simultaneously cutting volatile organic compound emissions by more than 15 tons annually.

Now, however, Sweden’s AB Volvo – parent company of Volvo Trucks North America – is taking another big stride in OEM efforts to not only make their plants “greener” but also power them with alternative sources of energy (read as: niether petroleum nor coal) while making them more energy efficient as well.

Volvo is gradually replacing the propane gas used to power its cab factory in Umeå, Sweden, with dimethyl ether or “DME” because it’s relatively cheap and produces little pollution from combustion. DME is also getting serious attention from Volvo as an alternative to diesel fuel for its commercial trucks sold in Europe, for though DME’s energy density is lower than diesel, the overall engine thermal efficiency is the same or higher.

As a liquefied gas like propane, that becomes liquid under low pressure of 60 psi (pounds per square inch), DME is in many ways considered an ideal diesel fuel replacement because it has very high oxygen content – 35% by weight – and no carbon-carbon bonds, meaning it cannot produce soot particulates or black smoke.

[You can view more information Volvo’s DME vehicle testing efforts below.]

It’s also interesting to note that DME is calculated to cost less than diesel on an equal energy basis, with 1.8 gallons of DME costing less than one gallon of diesel, assuming $70 per barrel or higher oil prices.

Back at the Umeå plant, some 90% of the factory’s energy consumption is from renewable sources. As of last year, out of the 106 GWh (gigawatt hours) of energy the factory consumed, only 13% still consisted of propane – the only fossil fuel used in the plant. Today, the propane used for the painting ovens is being replaced with district heating fueled by DME – and all told, that’s helped cut carbon dioxide (CO2) emissions from the plant by 8,000 tonnes a year.

[That reduction in “greenhouse gas” emissions may become crucial in the near future, as the European Union – like the U.S. – is contemplating caps on CO2 emissions.]

The rest of the plant’s electrical power, by the way, is produced locally and is renewable – as it comes from hydropower generated by the nearby Ume River. That helps the plant “recycle” energy to the tune of 80 GWh per year – done, in part by using hydropower but also (and I for one think this is really cool — no pun intended) by tapping into an ice-cold underground river to cool production machinery.

This underground ice river maintains a constant cold temperature in summer or winter and its icy water is pumped via a two-kilometer long pipe into the factory, replacing the need for artificial refrigeration agents as Freon. The biggest consumer of the river’s cooling water, however, is the dehumidification of the air that is fed to the paint-boxes in the factory’s paint shop.

All told, the cooling effect of this underground ice water corresponds to 3,000 kilowatts of energy – not too shabby, if you ask me, for river water!

In terms of the big picture at the Umeå factory, energy consumption at the facility decreased by 30% per manufactured cab over the past decade, while, at the same time, there’s been a record increase in production volumes to 62,000 cabs a year, with a maximum of 90,000 cabs possible on an annual basis when running a full three shifts.

I think the lesson to be learned from all of this is while there are planet of environmental benefits to be gained from what Volvo is doing at its Umeå factory – by next year, for example, they expect it to be a “CO2 neutral” facility – there’s a tremendous amount of money being saved as well; money that isn’t being spent on petroleum imported from the Middle East or anywhere else for that matter.

It’s pretty sharp thinking that, hopefully, can be deployed in other factories around the world – tweaked here and there to handle differences in available resources, geographic location, etc. It just goes to show that there a lot more options available in terms of energy generation that bring environmental benefits and costs savings with them that many of us might not have thought possible.

“Our commitment [is] to generate positive results for our shareholders during these challenging economic times.” –Daniel C. Ustian, Navistar’s chairman, president and CEO

These are probably the worst of times to try and develop and deliver new truck products to the market, mired as we are in the midst of a calamitous economic recession and facing stiff surcharges for expensive emissions control technology in a scant four months.

Yet all the truck OEMs instinctively realize you just can’t sit still anymore, either; making only the bare minimum of investments in new truck designs for this marketplace. Even though all the pricey emission control systems heading for new trucks Jan. 1, 2010, are the result of federal mandates (Read as: the OEMs have no choice but to put them on their products), all the manufacturers took the opportunity to make design changes and upgrades to their products outside the emissions arena.

Most are also forging ahead down new product avenues, even though these expensive and time-consuming efforts sometimes don’t pan out. But building trucks is sometimes akin to playing baseball; you often don’t improve your hitting averages unless you step up to the plate and swing more frequently.

Navistar provides a good example of this strategy as it continues to try new endeavors despite some recent tough going.

For instance, the company just took the wraps off its new truck-making joint venture with erstwhile truck engine denizen Caterpillar Inc. – rolling out NC2 Global LLC to build a full line of commercial on-highway trucks for a wide range of global markets, while simultaneously designing a heavy-duty vocational truck for North America.

The 50/50 joint venture – hammered out in June last year – is focused initially on developing, manufacturing, and distributing commercial trucks in Australia, Brazil, China, Russia, South Africa, and Turkey. NC2’s product line will feature both conventional and cab-over truck designs and will be sold under both the Navistar’s “International” brand and well as Caterpillar’s “CAT” brand.

Both companies are also still aiming on rolling out a new proprietary, purpose-built, heavy-duty CAT vocational truck for the North American market by mid-2011; manufactured at Navistar’s Garland, Texas facility, yet sold and serviced through the CAT North American dealer network.

Navistar’s Al Saltiel (at left) is going to serve as president of NC2, with Bob Iacullo as the firm’s CFO. Saltiel has been a key player at Navistar since he joined the company in 2004, serving not just as vice president of marketing but responsible for all brand, product and pricing strategy. Iacullo is the former business resource manager for Caterpillar’s infrastructure product development division, so both Navistar and Caterpillar are going to have key executives at the helm of NC2.

This is a pretty bold effort, and it’s one both companies are betting on for long-term success. “The formation of this joint venture represents a long-term strategic decision,” noted Caterpillar Group President Doug Oberhelman (seen here at right), who will service as NC2’s chairman of the Board, with Navistar’s Truck Group President Dee Kapur as lead director.

“Despite the current challenges facing the global economy, both Caterpillar and Navistar are dedicating the right people and investing significant resources to ensure NC2’s long-term success in the global on-highway truck market,” Oberhelman stressed.

Navistar in particular could use some long-term success after it lost a large-scale effort to win a big contract to build mine resistant armor protected (MRAP) vehicles for the U.S. military back in June to Oshkosh Corp. And it didn’t help matters when Navistar had to take a $30 million charge against earnings in its third fiscal quarter due to revised tax estimates, resulting in a $12 million net loss for the period on $2.51 billion in revenues. That’s compared to profits of $331 million on $3.95 billion in revenues in the third quarter of its last fiscal year.

“The third quarter is traditionally our most challenging quarter, but we remain focused on the long-term success of the company,” said Daniel C. Ustian, Navistar’s chairman, president and CEO in a statement. “Therefore, we elected not to implement drastic short-term cost cutting actions that would have impacted our ability to deliver long-term results.”

That being said, Ustian (at left) expects Navistar to be profitable by the end of its fiscal year, though not as profitable as previously projected. When the company’s fiscal year ends on Oct. 31, he said overall profits should range between $182 million and $207 million.

This comes despite Navistar’s belief that overall truck industry retail sales volume for Class 6-8 vehicles and school buses in the U.S. and Canada will remain sluggish, totaling between 165,000 and 185,000 units. The OEM added that the industry is anticipating only a minimal pre-buy in 2009 ahead of 2010 emissions requirements, with industry volumes will be in the range of 175,000 to 215,000 units next year.

It’s a tough road to travel this year for everyone in trucking, OEMs included. But as Navistar’s story illustrates, no one is slacking off in terms of future plans – and that should serve truckers of all stripes well in the years ahead.

“Meeting stricter EPA emissions levels in 2010, unfortunately, comes with a higher price.” –Jack Allen, president, Navistar North American Truck Group.

Now is when things start to get interesting.

Daimler Trucks North America (DTNA) today took the wraps off the surcharge it’ll be adding to the base cost of its trucks for meeting the Environmental Protection Agency’s 2010 emission standards – for trucks equipped with engines using selective catalytic reduction (SCR) technology built by its subsidiary Detroit Diesel Corp. as well as for those using Cummins mid-range SCR-equipped engines.

Those increases amount to (drum roll please):

• A surcharge $9,000 for trucks equipped with Detroit Diesel DD15 and DD16 big bore engines, as well as the medium bore DD13;

• An extra $7,300 added to vehicles equipped with the Cummins ISC8.3 engine;

• And a $6,700 surcharge attached to the price of vehicles equipped with Cummins ISB6.7 engines.

This follows previous announcements from Navistar and Volvo Trucks North America (VTNA) about their sticker price increases to cover the cost of 2010 emission compliance. VTNA is charging $9,600 extra for its SCR-equipped trucks, while Navistar’s non-SCR emission reducing package, called advanced exhaust gas recirculation (EGR), comes with variable pricing much akin to DTNA’s format:

• An extra $8,000 for Navistar heavy-duty trucks equipped with the OEMs MaxxForce 11- and 13-liter engines;

• A surcharge of $6,000 for medium-duty models featuring Navistar’s MaxxForce 7-, 7.6-, 9- and 10-liter engines;

• And a similar $6,000 upcharge for all of Navistar’s IC Bus school bus models – the BE Series, CE Series, FE Series and RE Series – as well as IC commercial models (including the HC Series and LC Series) that are equipped with MaxxForce engines.

Of course, that’s not the entire pricing story as ALL of these products from every OEMs are subject to federal excise and sales taxes, raising the cost for meeting 2010 requirements another $2,000 per truck or more – for technology, if you recall, mandated by law by the very same federal government.

(A nice one-two punch, don’t you think? Mandate emission control upgrades and then collect higher taxes. And some in government wonder why truck owners and OEMs alike grit their teeth over emission regulations.)

Paccar’s two truck OEM subsidiaries – Peterbilt and Kenworth – still remain mum on the surcharges that’ll be applied to their trucks. Mack Trucks also hasn’t offered a firm price increase number yet, but in comments back in March at the Mid American Trucking Show, the OEM noted its increase would be in the range offered by its brother company Volvo.

“We have more models than Volvo, in such markets as vocational and refuse, so we are still working out the cost,” explained Kevin Flaherty, Mack’s senior vice president of sales. “But we will be in the ballpark of Volvo’s number.”

These, of course, are the official “sticker price” numbers – how discounts get applied in terms of volume orders, etc., is something yet to be worked out. There’s also the worry – one that’s become all too concrete in recent days – that these cost increases due to 2010 emission control technology are going to tamp down demand for new trucks even further, as sales orders and sales plummeted this year due to the economic troubles we are currently wading through.

According to FTR Associates, preliminary data shows that Class 8 total net orders for all major North American OEM’s totaled 9,002 units in July this year – an increase of 9.6% over June, coming on the heels of June’s 9.7% increase over May, yet still down significantly from last year.

FTR noted that July’s 9,002 orders represent a 37.3% year-over-year decline from 2008, representing an annualized order rate of 108,024 orders that encompasses the U.S., Canada, Mexico and exports.

“In early July we expected to see modest improvement in the monthly orders and that has come to pass,” said Eric Starks, FTR’s president. “However, while the orders are increasing month over month, the annualized rate continues to represent a very weak market for new vehicles. We expect this trend to continue well into 2010.”

Needless to say, these necessary but big price increases are going to make selling trucks that much more difficult as 2010 draws ever closer.

“The next decade needs R&D programs to decrease medium- and heavy-duty truck petroleum fuel consumption.” – from the testimony of John Johnson, professor of mechanical engineering at Michigan Technological University before the U.S. House Subcommittee on Energy & Environment of the Committee on Science & Technology

We all want commercial trucks large and small to get better fuel economy; that’s a given no matter what your economic, environmental or political philosophies are. Using less fuel means spending less money on a day to day basis for every truck owner out there, while simultaneously emitting less pollution. To use a very overworked cliché, that’s a “win-win” for almost every political point of view, from die-hard conservative to left-wing liberal.

Yet to achieve the technological breakthroughs necessary to improve fuel economy requires that single, all-important ingredient that tends to ignite a wide variety of volatile political fuses: money. Especially in this day and age, with federal deficits ballooning to frightening heights, it’s even harder to hold out the research and development (R&D) hat to gain the necessary funding.

So one must ask the fundamental question: is funding such R&D worth the money? Can government research dollars truly make a difference to the economic and environmental footprint of the trucking business? And how important is this funding anyways?

Several months ago, John Johnson – professor of mechanical engineering at Michigan Technological University – tried to answer that very question in testimony before the U.S. Congress. He chaired a committee that reviewed the “21st Century Truck Partnership” formed back during President Clinton’s administration to see if in fact this public-private R&D effort delivered concrete technological advances worthy of its funding. In his opinion, it did, but I share his thoughts so you can decide for yourself if his argument holds water to your mind.

For the record, I’ve never met Professor Johnson and know very little about his work. But his resume indicates he’s well versed in diesel engine technology.

After getting his PhD, Johnson spent two years as a 1st Lieutenant in the U.S. Army in the late 1950s at the Tank-Automotive Center in Warren, Michigan managing engine research projects. He then worked as chief engineer of applied engine research at International Harvester (now Navistar) before joining Michigan Technological University in 1970. Since3 1980, Johnson said he’s participated in 12 different National Academies Committees, so he’s well-versed in the rigmarole required to get public-private ventures up and running successfully.

“Despite the many benefits of the ‘21st Century Truck Partnership,’ including helping the engine industry meet the EPA [Environmental Protection Agency] 2007 particulate and 2010 NOx [oxides of nitrogen] standards, the program suffered from the dwindling resources devoted to the program by DOE [the Department of Energy],” Johnson said in his testimony back in late March.

“Funds were about $87 million in FY 2002 and decreased to $30 million in FY 2008. This funding pattern does not reflect the number of productive R&D opportunities. It also does not reflect the economic weight of the industry,” he said. “In the 2002 Economic Census, the truck transportation industry consisted of more than 112,698 separate establishments, with total revenues of $165 billion. These establishments employ 1,437,259 workers, who take home an annual payroll of $47 billion.”

[Though those numbers more than likely decreased over the past year and half due to the economic downturn in the U.S. and worldwide, it still shows how big the trucking business really is.]

“Truck and bus manufacturing also account for a significant share of national income,” said Johnson. “According to the same census, light-truck and utility-vehicle manufacturers have total shipments of $137 billion. Heavy-duty-truck manufacturing had sales of $16 billion. Another way to look at the trucking industry’s economic contribution is to compare the revenue from trucks with other sectors in the transportation industry, in which case trucks account for about one-fourth of the industry’s total revenues.”

Because of the low level of funding from DOE, he noted, the 21st Century Truck Partnership (‘21CTP’) chose to focus its R&D effort on the Class 8 long-haul type of vehicle, which consumes 75% of the petroleum in the heavy- and medium-truck sector.

“Yet it was forced to cancel many projects originally in the 21CTP roadmap, including light-weighing vehicles, all-electric components on vehicles, aerodynamic modeling and design, and low rolling resistance tires,” Johnson stressed. “Federal, state, and local governments and commercial trucking firms, such as utility and delivery operations that use medium-duty trucks, are also interested in the fuel economy of their vehicles since it also affects their operating costs – they want advanced technology such as hybrid vehicles.”

As a result of potential fuel economy regulations by NHTSA [National Highway Traffic Safety Administration], he said it’s important that the Federal government fund the DOE program at levels such as $200 million/year with $90 million/year for engine, emission control systems, and biodiesel fuels research.

“The program should be funded for 5-10 years at this level so that the industry will have the technology in the 2015-2020 timeframe to meet potential fuel economy regulations,” Johnson emphasized.

He also pointed out that safety is another important part of the 21CTP program. Though crash protection measures have not substantially reduced highway fatalities during the past decade, Johnson said the main research objective going forward should be to prevent crashes using crash avoidance technologies and in-vehicle communications systems.

“There is need for $25 million per year for safety related research which should be designated for DOT [Department of Transportation] by line item for the 21CTP,” he said.

Johnson added that other efforts need funding over the next decade, especially R&D programs to decrease medium- and heavy-duty truck petroleum fuel consumption. Those areas include: the use of advanced diesel engine and aftertreatment technologies, advanced truck and trailer aerodynamic designs, and low rolling resistance tires.

The use of hybrid systems in applications that have duty cycles that can reduce the fuel consumption, including advanced cooling systems and engine components that use less energy, is another area, he noted, along with “light weighing” of vehicles and trailers so that more payload can be carried which reduces the fuel consumption in gallons/ton of payload-miles are needed.

“A major effort must be carried out to develop biodiesel fuels that meet ASTM specifications, are energy and greenhouse gas efficient in the production of the bio component and make good use of the land without compromising the food supply and the price of food,” Johnson argued. “It is important that the price differential between gasoline and diesel fuel does not increase more than the 60 to 70 cents per gallon that has existed in the past few years.”

Decreasing the truck petroleum fuel consumption with lower fuel consumption vehicles should help this diesel fuel market demand condition that now exists, he said. “More biodiesel fuel use should help decrease the demand for the petroleum fuel if the research program is aggressive,” Johnson explained.

“One of our findings on the management strategy and priority setting pointed out that the program operated as a virtual network of agencies and government labs with an unwieldy structure and budget process,” he added. “This would be significantly improved if heavy truck funds for EPA, DOE and DOT were designated by line items that are directed at this program. I know that this is very difficult because each of these agencies go to different Congressional Committees for their funds. [But] the U.S. has always been a world leader in developing advanced trucks. The heavy-duty diesel engine has always been cutting edge technology in durability, reliability, low fuel consumption, and now in 2010 low in emissions. This product development and manufacturing base in the U.S. must be maintained if we as a country are to be strong in the global economy.”

Johnson also stressed that this truck manufacturing industrial base is also important to the military, particularly to the Army and Marines since diesel powered vehicles and diesel fuels are critical elements of U.S. ground forces.

“We must maintain this base … [and that] will happen with an aggressive R&D program in the commercial sector that includes maintaining National Laboratories and Universities as strong components in the program,” he stressed.

You may agree or disagree, but Johnson makes some very interesting points – especially in terms of how much our military relies on the very same network of manufactures and suppliers that supports the commercial trucking business. That connection is a critical one, as both military and commercial trucks can benefit from fuel economy advances, yet equally suffer from a lack on investment. Thoughts worth pondering in the continual debate over U.S. transportation and trucking needs for the future.

“The General Motors board of directors authorized the filing of a chapter 11 case with regret that this path proved necessary despite the best efforts of so many.” – Kent Kresa, GM’s chairman.

Today doesn’t mark the end of General Motors – the former bellwether of American economic might. Rather, it’s the end of the GM we once knew – and maybe, just maybe, that’s not a bad thing.

Yet it’s sad nonetheless because I really thought – heck, really KNEW – GM had finally turned a corner on product quality and reliability; a corner it desperately needed to turn many, MANY years ago, but a critical achievement regardless.

Top-notch redesigns of its pickups (Chevrolet Silverado and GMC Sierra), “car of the year” honors for the sleek new Chevy Malibu, the return of Cadillac and Buick to true luxury-brand status … all of these moments seemed for a while to serve notice that GM was on the way back after decades of dismal performance.

But alas … all of this came too late. The bottom dropped out of the automotive world last year with a fury, leaving GM strapped for cash and saddled with too many workers and too many plants. Beset by cost control issues for years, it could not make up the ground anywhere near fast enough, as cost cuts and government loans did little to staunch the heavy fiscal bleeding.

And so we reach today’s nadir: bankruptcy. Kent Kresa, GM’s chairman (at left), said in a statement that bankruptcy court-supervised process and transfer of assets should enable a “New GM” to emerge as a stronger, healthier, more focused and nimbler company with a determination not to just survive but to excel – and confident that this “New GM” can operate successfully in the intensely competitive U.S. market and around the world.

That remains to be seen, of course – yet I for one am hoping for the best. Much of my car-driving life involved “American iron” and I want to keep it that way. Not that I didn’t have poor experiences here and there with U.S. made cars and light trucks (the Chevrolet Cavalier leading the list in that regard) but there’ve been many more hits than misses.

My Chevrolet S-10 pickup, for one, stood the test of time, while my dad’s Oldsmobile Bravada SUV did well, too. While I’m a Ford person now (Windstar minivan and Explorer SUV), I still admire the products GM’s been cranking out of late.

I hope this bankruptcy interlude helps GM get back on the right track – and maybe this is kick it needs to get rolling again. But with Oldsmobile gone, Pontiac about to fade away, and the once-unique Saturn slowly disappearing from view, it’s hard to remain optimistic. But I’m going to try anyways.

“If there’s a filing by Chrysler today, it will create a great deal of uncertainty for the industry and suppliers.” –Bill Kohlder, co-chair, Butzel Long’s Global Automotive Practice, as told to Reuters after Chrysler LLC announced it will file for Chapter 11 bankruptcy protection.

So it’s come to this: Chrysler LLC couldn’t restructure its debts with bondholders and so must file for bankruptcy protection. It’s been a long, sad road for Chrysler thus far and now we enter a new and more worrisome chapter – especially for those fleets that rely on Dodge-branded light trucks to do business.

Here’s why bankruptcy may prove to be more harm than good when all is said and done: in a recent poll, the majority of consumers said they don’t want to buy vehicles from a bankrupt automaker. And without buyers, Chrysler – and any other automaker that goes down this road – would have no hope for recovery.

In a new study, advertising research firm Ad-ology found that 21% of the consumers it surveyed said they DEFINITELY would NOT consider buying a car from an automaker considering bankruptcy, with another 28.6% saying they PROBABLY would NOT consider buying a car from a struggling manufacturer.

Note that Ad-ology surveyed an online consumer panel of 1,225 adults in a manner that is 98% representative of the U.S. adult population from April 24-29, 2009, with the margin of error in this survey is +/- 2.2 percentage points.

Of consumers who would consider buying a car from a struggling automaker “only if they got a great deal,” 38.6% said a deeply discounted price and 38.8% said a discounted/free extended warranty would make a purchase more likely, the group reported.

“It’s not just out of sight, out of mind: It is worse,” said C. Lee Smith, president and CEO of Ad-ology Research. “Whether it’s GM, Chrysler or individual dealerships, the auto industry must stay top-of-mind to rebuild consumer confidence.”

Another hurdle for automakers is that 46% of the consumers in Ad-ology’s survey view a company’s products or services much less or somewhat less favorably after an announcement of a large number of layoffs.

The reaction from the investment community is none too positive either, according to interviews by reporters from Reuters.

“Bankruptcy will damage the Chrysler brand and that is regrettable,” noted Brian Bethune, an economist with IHS Global Insight. “The government has to think carefully about how long they can bleed Chrysler out. They need to bring some fresh blood there to lead this company.”

“If it ends up being bankruptcy, why have we wasted all our time? Has the government’s political process been of any benefit at all other than to waste a lot of time and money, and do we have to suffer this for every other bankruptcy?” wondered Andrew Kanaly, chairman of the Kanaly Trust Co.

“Bankruptcy is not new. It’s been there all along. For some reason these days the government seems to be the only remedy when we have plenty of remedies available to us,” he told Reuters. “Maybe this is a pattern that we are going to see for Ford, GM, maybe Bank of America, maybe Citi – a whole lot of hand waving, a whole lot of talking, a whole lot of hand wringing, when the bottom line is.”

Kanaly believes we should just let such “failed institutions” go so the nation as a whole can get on down the road to recovery.

“It’s no shocker. If you bought a Chrysler a year-ago you knew you had an issue,” he said. “The American [consumer] has already voted with their feet by virtue of their purchases. They are driving down in their Honda.”

Still, it is the contention of others such as Jeff Kleintop, chief market strategist at LP Financial, that the certainty of even a bankruptcy is better than the uncertainty of not knowing where this is going to go or how deep the cuts or layoffs at Chrysler might end up being.

“The fact that it’s moving toward bankruptcy, the range of possibilities is being narrowed and the market always prefers certainty over uncertainty, even if it means the certainty of a negative outcome,” he said. “The market is looking forward for the first time in quite a long time, and so the near-term issues around what happens with the automakers, or even the stress tests with the banks, have taken back seat to a bigger picture view by the American investor.”

Time will tell of course if Chrysler survives this latest chapter in its ever-more rocky history, or gives up the ghost for good.

“We’re still seeing economic headwinds and reduced consumer demand for new vehicles, making it a tough marketplace.” –Gary Dilts, senior vice president of global automotive operations, J.D. Power and Associates

For an automotive industry on the ropes, trying to right a wallowing ship, the U.S. retail sales figures for cars and light trucks compiled by J.D. Power and Associates over the last few months don’t offer much of a lighthouse in a storm.

That being said, though, other data points to some potential rays of light that might break through to help lessen the economic typhoon we’re in. How those trend lines play out is what may help car makers finally get back on the road towards fiscal health.

First, however, there’s the grim news. Based on data gather from 10,000 dealerships across the U.S., retail new-vehicle sales during the first 17 selling days of March were down by 40% compared with the same period in 2008. J. D. Power projects new-vehicle retail sales for the entire month of March are projected to come in at 633,000 units, compared with 1.07 million units in 2008 – a dismal month, to be sure, but one hard on the heels of lower February sales figures of 557,000 retail units.

The consulting company said those numbers translate in to a seasonally adjusted annualized rate (SAAR) for retail sales in March of around 7.4 million units, down from 7.7 million units in February. However, when fleet sales are included in the March figures, total light-vehicle sales rise to a projected 798,000 units, which translates to a SAAR of 9.2 million units.

Note, however, that as late as mid-2008, annualized demand hovered between 16 million and 17 million light-vehicle units – and witnessing worldwide market sales projections fall by more than half in less than 12 months is enough to give anyone in the automotive industry heartburn.

“While the automotive market is down 40 percent year over year through the first quarter of 2009, the remainder of the year continues to be an open question,” said Gary Dilts, senior vice president of global automotive operations at J.D. Power – not exactly a soothing balm for what’s occurring in the market right now.

If there is any silver to be found in these dark clouds, it’s where the crossover utility vehicle (CUV) segment is concerned. These models generating the greatest year-over-year segment share growth, up by three percentage points since March 2008, with a total of nine new models have been introduced since February 2008 to capitalize on this shift in consumer demand, noted Dilts.

In contrast, though, the traditional utility vehicle, compact car and midsize car segments are generating the greatest year-over-year declines in segment share, he said.

All this, of course, is a direct result of the economic upheavals the world is undergoing at the moment, said Chris Kuehl, Ph.D., chief economist for the National Association of Credit Management (NACM) as well as co-founder and managing director of Armada Corporate Intelligence.

“What we’ve seen over the last year or so is a dramatic change in the U.S. economy as well as the world economy,” he explained. Yet there are positive signs out there – ones that give Kuehl room to be encouraged.

“Getting back to an expansionary position will be not be simple and may take a few more months, but there are more and more signs that the recession may have reached its low point. The key issue from this point is how fast the rebound may be,” he said. “Given that the most important issue in this recession has been access to credit, it is encouraging to note that the index is showing a pretty significant increase in credit extension, the best numbers since December 2008.”

Kuehl pointed to improving data as a basis for a more positive outlook, such as the seasonally adjusted Credit Managers’ Index (CMI), which rose another 0.5% in March after rising by 2.5% in February. This two-month increase broke a lengthy string of negative readings and matches up well with some of the other data that has been emerging, he said – a slight reversal of the downward trend in manufacturing, a small boost in retail sales and a sharp spike in durable goods orders. A number of the components in the index are still below the 50 level, but they are starting to trend in a positive direction for the first time since July 2008.

“The key will be the favorable factors as they will likely show progress of the recovery more quickly than the unfavorable factors,” Kuehl stressed. “ It is not uncommon for business to feel the most threat as the economy starts to come out of a recession – bankruptcies often surge as stronger competitors begin to put pressure on weaker companies. But if new credit applications and the amount of credit extended show signs of progress, the economy will respond relatively quickly,”

NACM Chairman Dave Beckel, also manager-sales service & credit for MiTek Industries, stressed something very important – that even if the storm clouds start to life and the economic hurdles begin to be surmounted, businesses must deign never to repeat the bad habits that got them in this mess to start with.

“There seems to have been basic practices that were lost — at least on Wall Street — that we as credit professionals deal with on a day-to-day basis,” Beckel said. “That’s the basic acknowledgement that we need to evaluate customers not only on their ability to pay, but also on their willingness to pay — and the recognition that everybody should be kept within a certain credit limit to ensure that they can pay their bills.”

“I will be forever grateful for the courage and commitment you have shown as we have confronted the unprecedented challenges of the past few years. GM is a great company with a storied history. Ignore the doubters because I know it is also a company with a great future.” –From the resignation speech of Rick Wagoner, chairman and CEO of General Motors

So Rick Wagoner is out and little-known Fritz Henderson is in, taking the helm at General Motors at a time when many believe the global carmaker is in its death throes – a notion much of the mainstream media seems all to happy reinforce.

President Obama’s administration gave GM, along with its ailing competitor Chrysler, failing remarks for its turnaround efforts. To get access to more government funding to survive, the White House asked Wagoner for his resignation – and he acquiesced pretty fast. Whatever you think of GM and Wagoner (pictured at right), give the man credit – he could’ve created a protracted media spectacle out of his government-forced ouster but didn’t.

That being said, however, the wreckage Wagoner leaves behind is daunting. A 32-year veteran of GM, Wagoner served as president and CEO since June 2000, moving up to chairman and CEO on May 1, 2003. By 2005, however, GM already was drowning in red ink — racking up $11 billion in losses – and watched its market share crash from 45% in the mid 1980s to around 22% by the end of 2008.

Many of the reasons GM is in a major pickle right now are due squarely to the global carmaker’s own poor decision-making. Increasing global production capacity over the last decade to feed a projected annual worldwide market of 17 million units is probably going to be tagged as the big one, followed by the laughable decision back in the late 1990s to focus almost entirely on building big gas-guzzling SUVs and pickups, reducing car production to almost an afterthought, thinking that fuel prices would stay at $1 a gallon indefinitely. Talk about a bad bet!

Yet it goes deeper than all of that, because in the world of car and truck making, success really boils down – to my mind at least – into two very simple concepts: you must build good, reliable and durable products and you must support them through your dealers. Because automotive and truck buyers have long memories – and word of mouth between them trumps every single splashy advertising campaign in the known universe.

I know this because – like all of you out there – I’ve lived it. When I turned 16 a billion years ago, my parents bought a two-door four-cylinder Chevrolet Cavalier as a third car for me to shuttle my brother and sister (and myself) to school every day, to run errands to the grocery store, etc. I’ll sum my experience up with that car in two simple words: it sucked. (And it was WAY uglier than the model in this picture, to boot.)

From day one, it underperformed – just getting up to 55 mph to merge on the highway overtaxed the engine. Moderate braking would stall and then kill the engine – a problem two trips to the dealer failed to solve, despite costly maintenance work. And it came equipped only with an AM radio and weak, scratchy speakers. In some way, I think my parents jumped for joy over the crappiness of the Cavalier – I simply couldn’t get into any trouble with it.

Flash forward a few years: a design flaw in the motor caused the Cavalier’s engine cylinders to crack, forcing my family (thank the lord!) to unload this lemon. Its replacement was one of the ugliest cars I ever drove – a 1987 Honda Civic LX.

I called it a “trapezoid and wheels,” while my brother referred to it as the “Goofy-mobile.” But its four-cylinder motor cranked out the horsepower, it never gave me any trouble, and it shuttled me and my friends all over the eastern seaboard with reliable regularity. Oh, and it came standard with an AM/FM radio and cassette tape deck.

(End note: ye olde Civic bit the dust with my sister at the wheel in a serious crash, but did its duty, allowing her to walk away unscathed. Honda, we salute you.)

I didn’t abandon GM, though, and by the 1990s things were improving: my S-10 Tahoe pickup proved a rugged workhorse that lasted 16 years without major defects. Yet the company proved infuriating, to say the least. They nixed the S-10 and replaced it with the Sonoma – again, underpowered and not nearly as reliable in my estimation. My wife loved her Saturn four door sedan, which she drove for almost 10 years, but GM let that vaunted effort almost fade away to nothing by failing to invest in the brand. Though now revived, today Saturn is nothing more than a glorified “distribution channel” for rebadged GM products – its uniqueness is gone.

Of course, the old saw about GM’s costly union labor agreements comes into play, but again, it goes deeper than hourly wages, pensions, etc. For decades, many line workers simply didn’t believe in the products they were building. Longtime reader Steve Grantham starkly illustrated that with an example from his trucking days:

“In the early 80s I delivered loads to a Ford plant in California and I had an opportunity to break with some of the line workers,” Steve wrote in. “They were complaining of the closing of the plant and wondering why. Stupid me – I popped up and said, ‘look at all those Toyotas, Hondas and Chevys in the parking lot. Do ya think if at least the employees would buy their own product it would help?’ I wasn’t too welcome there after that.”

Part of the problem, too, is that the folks at the very top of GM for far too long have been finance guys, not product guys. Bringing Bob Lutz into the mix at GM proved to be a super but long overdue move – though he’s successfully revamped GM’s cars and trucks, all that effort may now be too late. Lutz himself is out of the picture anyways, and with the focus at GM now completely on dollars and cents, the gains he’s made in product quality may suffer. Time will only tell.

No matter what happens next, though, the fundamentals in the car and trucking making business aren’t going to change. It’s all about products and support. Build good products, support them well in the market, and you’ll be a success. Build so-so products and treat customers like so much cattle, and you’ll find yourself in a world of hurt. Let’s hope GM internalizes this lesson now for good.

“An automobile’s design must make an emotional connection to a potential buyer, immediately. No connection, no sale. Design is the last great differentiator in the automotive business.” –Robert A. “Maximum Bob” Lutz, outgoing vice chairman for global product development at General Motors

Probably the best adjective ever applied to Bob Lutz came from Reuters upon the announcement of his impending retirement at the end of this year: “Colorful.”

Here’s one example from a speech last October on the subject of effective public relations: “I’ve been a lifelong critic of corporate communications that don’t communicate, or are too sanitized. Instead of being a weapon for putting out the truth, [communications] becomes simple risk avoidance. It focuses on making sure that no one says the wrong thing. And often, by focusing on not saying the wrong thing, you’re essentially saying nothing. By over-sanitizing everything we say, we make sure that every little bit of personality, corporate or otherwise, gets taken out.”

Here’s an even shorter bon mot: When journalists asked him for his take on global warming last year, he described it in four words: “a crock of s—.”

I myself got the great fortune to interview him at a General Motor’s product preview in Salt Lake City back in 2005 and it was quite an experience, let me tell you. I asked him about how he goes about designing new vehicles and he cut me off fast. “I am NOT a designer – I COACH designers,” Lutz explained to me. His job, he strongly believed, boiled down to getting designers to acknowledge and then incorporate “real world” wants and needs into vehicles so people WANT to drive them.

“You can’t choose between low cost or high quality anymore – you must be both,” he told me. “You have to be best in class for everything – the chassis, frame, suspension, engines, and interior – yet still be priced for value.”

Yet at the end of the day, cars and trucks still need that “something extra” that only comes from a great design.

“Everybody has great powertrains and adheres to the same basic fuel economy and safety standards. Everybody has good, flexible, low hour-per-vehicle manufacturing,” Lutz said recently. “Everybody has efficient purchasing and uses the same suppliers. Everybody has roughly similar reliability and quality ratings. But you can be best in quality and if you’re worst in design, and you fail to create that emotional connection with the customer… you still won’t sell any cars or trucks.”

But now Lutz is now planning his exit from the day-to-day stage at GM and it’s a sad moment to say the least. This is a guy with a long track record at all three major U.S. automotive OEMs – Ford, Chrysler, and GM – with a lot of successes I feel, especially for GM. But it’s looking more and more likely that all that may not be enough, as GM teeters on the edge of bankruptcy. It’s certainly not the coda to his career I think Lutz, myself, or anyone else would have expected.

And what a career! Born on February 12, 1932, in Zurich, Switzerland, his life is almost of storybook proportions. He served as a jet-attack aviator in the U.S. Marine Corps from 1954 to 1965, attaining the rank of captain, while earning a bachelor’s degree in production management from the University of California-Berkeley in 1961, along with a master’s degree in business administration from same school a year later.

Lutz actually began his automotive career in September 1963 at GM, where he held a variety of senior positions in Europe until December 1971. For the next three years, he served as executive vice president of sales at BMW in Munich and as a member of that company’s board of management. Then he spent 12 years at Ford Motor Company, where his last position was as executive vice president of truck operations.

He then joined Chrysler for 12 years, eventually reaching the position of vice chairman after serving as president and chief operating officer, responsible for Chrysler’s car and truck operations worldwide. He led all of Chrysler’s automotive activities, including sales, marketing, product development, manufacturing, and procurement and supply and came up with some real winners – the 300 C (below at left) being a prime example, as the low-slung, “gangster” inspired rear-wheeled sedan became an instant classic.

Lutz came to GM as vice chairman of product development on September 1, 2001 – not an auspicious month in U.S. history as we all know – after a short stint at battery-maker Exide Corp. and then in November that year became chairman of GM North America and served in that capacity until April 4, 2005, when he assumed responsibility for global product development.

Lutz’s design “coaching” is readily apparent in all of GM’s products today – from the HHR to the renewed Impala sedan, the well-received Chevy Silverado and GMC Sierra pickups, and finally the coup de grace, the Chevy Malibu (below), which took “car of the year” honors in 2008. All of this for a guy well into his 70s – not too shabby, if you ask me!

Yet it almost seems too late for all of this. An outspoken critic of GM’s earlier attempts to cut costs by using cheaper materials in vehicle interiors and its past failure to maintain consistent quality, Lutz really revived GM’s product lineup. Yet, as Reuters noted, though his efforts are highly regarded by critics in the automotive trade press, they received a mixed reception from consumers. He championed the revolutionary Chevy Volt – an electric car equipped with a small gasoline motor – yet won’t be seeing it through its 2010 launch date.

Lutz transitions to vice chairman and senior advisor as of April 1, providing strategic input into GM’s global design and key product initiatives until his retirement at the end of 2009. Whether GM survives until his retirement, of course, is a matter of great debate right now, which makes the winding up of his legendary career all the sadder to me.

“Despite product differentiators, more responsibility for the customer’s overall brand experience must lie with the dealer and automotive brands are ultimately reliant on their dealer networks to manage customers’ in-store buying experience from start to finish.” –Fabrizio Arena, senior manager, Arthur D. Little’s Global Automotive & Manufacturing Group

There’s a new study out from global consulting group Arthur D. Little about the critical role car dealerships still must play in sustaining the global automotive market – but there’s a lot in here that I think heavy truck dealerships and their customers might find interesting, too.

According to the group’s new study – entitled “Delivering the Brand” – nearly 80% of all car purchases are still done face-to-face, and the report’s author, Fabrizio Arena, warns that as the global automotive industry faces a growing number of new competitive pressures, OEMs must develop dealership management initiatives to ensure their retail networks are building and reinforcing brand loyalty from the test drive through to after sales service.

“Dealerships have a major role to play in delivering an excellent brand experience that will attract new customers and retain the existing base,” Arena said. ““Customer satisfaction is an urgent concern for OEMs looking to move ahead of their competitors in an environment where simple survival is every brand’s primary objective for the year ahead.”

He also noted that one local dealer his firm worked with not only improved its customer satisfaction performance by approximately 16% in a single year, it helped the car brand they represented move up several places in the New Car Buyers’ Survey, a key industry benchmark.

OK, so what does this have to do with trucking? Car buyers, as we all know, are a lot less brand loyal than truckers because they simply don’t rely on their vehicles for their livelihood to the degree a trucker does.

[Photo courtesy of Christopher Ziemnowicz]

That being said, I know from my own experience in talking to fleets and owner-operators that many are loathe to consider making a brand switch if they are getting good product reliability and service, no matter the sticker price savings. Yet I also know service means a tremendous amount to truckers – and woe to the OEM or dealership that stumbles in that regard.

Let’s face another reality – very unpleasant levels of pressure are being applied to the bottom line of OEMs and their dealers from all directions. With 2008 new car sales having reached record lows in most developed markets, global automotive companies are under more pressure than ever to avoid collapse, noted Arena in his report, with a bevy of other issues banging away as well: regulatory pressure on carbon dioxide emissions, tougher international safety standards, high oil prices, and changing customer lifestyles, just to name a few.

Competition amongst global players has been pushed even further as a dramatic increase in overall vehicle quality over the past decade had progressively weakened the role of the product itself as the key differentiator, said Arena, so dealerships are going to play an ever more critical role in attracting and retaining customers from now on.

“Ensuring results and investment decisions are consistent with customers’ expectations and its dealerships’ capabilities are key to implementing an effective global brand strategy that will reinforce the products’ desirability through a positive customer brand experience,” he said.

“To be successful, a global customer satisfaction improvement program for the automotive industry requires a clearly defined relationship between the OEM headquarters and its local [dealer] branches,” Arena added. “Defining roles and setting consistent, measurable targets will allow local branches to adapt the corporate brand strategy into the local market context in a meaningful way.”

I’m sure heavy truck OEMs and their dealers can relate to these issues in a big way.