Ford-GM gap isn't as wide as it looks

                                     

DETROIT -- Detroit's two largest automakers are heading in opposite directions so far this year, with General Motors' record profits defying signs of a U.S. market slowdown, while Ford spends big on recalls and on technology it hopes will pay off later.

Their first-quarter results -- GM earnings up 34 percent, Ford earnings down 35 percent -- reflect the companies' strategies to grow sales today and to stay relevant in the future, along with the fact that GM is at the peak of its product cycle while Ford weathers a lull.

They aren't necessarily emblematic of how each company will look later in the year, when GM will halt some of its most profitable plants for retooling and Ford anticipates hitting its stride. But GM does expect to have the better year, saying it will meet or beat its 2016 performance, even as U.S. industry sales soften.

"GM is really starting to get the scale that a company that makes 10 million vehicles a year should get," said David Whiston, an analyst with Morningstar Inc. "They've got all the crossovers getting redone this year, and then new pickup trucks next year. GM dominates the full-size SUV segment, too, and those are extremely profitable vehicles that are well in demand right now."

Across town at Ford, which had its best quarter in company history a year earlier, executives say last week's earnings report doesn't tell the whole story. They said Ford's pretax profit for the rest of 2017 will be about even with or possibly better than a year earlier. Including the first quarter, though, Ford expects to fall short of last year's $10.4 billion pretax profit, second-best in company history.

"We know the timing of our spending regarding engineering and building prototypes and we also know our launch cadence," Joe Hinrichs, Ford's president of the Americas, said in an interview. "We're pretty confident that we understand our costs for the year, and we mentioned that the large cost increases in the first quarter are what you'll see for most of the year."

Stevens: GM sees "another strong year."

GM plant downtime

In contrast, GM's results will take a hit this year, when it has scheduled 10 weeks of downtime at multiple North American factories to retool for redesigned pickups and crossovers. CFO Chuck Stevens said the downtime will happen in the third quarter and reduce output by about 60,000 vehicles.

Because automakers book revenue as vehicles are shipped to dealers, rather than when dealerships sell them, the downtime could have a significant impact on GM's third-quarter performance. It's also boosting GM's results now, as the company's dealerships amass extra inventory in preparation.

Stevens said GM will have "another strong year" overall but warned that the third quarter will be "weaker than normal."

Ford's first-quarter profit was pinched by charges for recalls, continued investment in new mobility services and higher parts costs for some 2016 launches. Hinrichs said prices for steel and other materials rose more than expected.

"We've seen some rising commodity costs and we're responding to that with cost reduction actions across the company," he said.

Ford doesn't expect any more growth in U.S. sales, but it's benefiting from strong demand for pickups and SUVs -- segments in which Ford is investing and updating its products, including the recently redesigned Super Duty and freshened Escape.

"We're assuming the industry in the U.S. comes in a little less than last year, but still in the mid-17 million range," Hinrichs said. "We're very confident the plan we have in place to deliver the $9 billion of pretax profit is a good plan and one we're working on intensely."

Wall Street doubters

Amid the differences, one common trait between Ford and GM is that neither has gotten much respect on Wall Street lately. Both companies' shares have been sluggish, and last week's results did little to generate enthusiasm among investors.

For GM, it was the eighth consecutive quarter in which its results topped analysts' expectations. Brian Johnson, an analyst with Barclays Capital, called the performance "a solid step forward in disproving its doubters," but shares of GM barely moved.

"It's not fair, as we believe GM deserves to be better rewarded for overall strong results and execution," Johnson wrote in a note to clients Friday, April 28. "But unfortunately sometimes the prevailing market sentiment can be overly difficult to fight."

 

tags: Earnings Automakers 

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VW will spend billions to strengthen engines portfolio

BERLIN -- Volkswagen Group plans to invest billions of euros through 2022 to strengthen its portfolio of combustion engines and electric drivetrains as it braces for a further tightening of emissions rules in key markets.

VW will spend about 10 billion euros ($11 billion) over the next five years to raise the fuel efficiency of combustion engines by 10 percent to 15 percent in anticipation of stricter emissions standards in Europe, the U.S. and China, CEO Matthias Mueller said on Friday.

VW will also triple its investment in electric drivetrains to about 9 billion euros over the same period, including a new generation of full hybrids for the U.S., where its emissions scandal broke in 2015.

VW has spent 3 billion euros on zero-emissions technology in the past five years.

"Even though modern combustion engines will be relevant for at least another 20 years, it is clear that the future will be ruled by electric drives," Mueller said, citing a need to respond to "epochal changes" in industry.

"What's at stake is to develop a future-proof drives portfolio as a basis for transforming the core autos business," Mueller told an auto industry conference in Vienna.

VW's diesel emissions scandal has cast a shadow over the entire market for diesel cars and has ramped up pressure on automakers to improve combustion engines while rushing into electric cars and hybrids, stretching development budgets.

To rein in costs, Mueller said VW will reduce the variety of engine types for mass-market models by as much as 40 percent through 2020, without giving details

VW last year announced a multi-billion-euro shift to embrace electric cars and new mobility services as it battles to overcome its diesel scandal, and the automaker is cutting costs in all areas of operations to fund this transformation.

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Sogefi says 68% profit increase in Q1 confirms turnaround plan is working

David Jolley

                                                                                         
                                              CARS WORLD 
April 30, 2017 06:01 CET

Sogefi's first-quarter adjusted operating profit (EBIT) rose 68 percent to 26.8 million euros as the Italian supplier begins to feel the benefit of its restructuring plan, the company said.

Overall global revenue rose 13 percent to 439 million euros, bolstered by a 4.2 percent increase in Europe to 274 million euros and a 2.5 percent rise in North America to 81 million euros.

Sogefi, which makes engine systems and suspension components, said it expects growth to continue for the rest of the year, but added that this would be at a slower pace than the previous quarter.

The results confirm the effect of the turnaround actions aimed at increasing profitability and cash generation, CEO Laurent Hebenstreit said in a statement on Wednesday.

You can reach David Jolley at djolley@crain.com.

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VW's Seat counts on SUVs for turnaround

إضافة تسمية توضيحية

2017 06:01 CET 

Volkswagen Group's once-ailing Spanish brand, Seat, cured itself last year of a chronic problem -- losing money. This happened thanks in part to its successful entry into one of the hottest segments in Europe. Now it is counting on an even heavier dosage of SUVs -- two more launches in the next two years -- to become a reliable profit machine after 11 consecutive years of financial losses put the brand’s future in doubt.

Seat CEO Luca de Meo is feeling bullish about his SUV-driven strategy because of strong demand for the automaker's first-ever crossover, the Ateca, which in less than six months of availability last year accounted for about 25,000 of Seat's nearly 410,000 overall sales. The Ateca also finished 2016 as Europe's 14th ranked compact SUV/crossover, playing a key role in the overall segment's 21 percent increase in sales to 1.44 million.

Seat’s midsize SUV will take styling cues from the 20V20 concept unveiled at the 2015 Geneva auto show.

The Ateca will be joined by the Arona subcompact SUV this year followed by a midsize crossover due in 2018. Growing to three SUVs from zero will expand Seat's coverage of the European market to 72 percent from 53 percent, de Meo told Automotive News Europe. De Meo wants SUVs to account for 30 percent to 35 percent of Seat's global sales, up from 5 percent last year, because he knows it will help Seat maintain its financial well-being.

Subcompact SUVs such as the Arona have a transaction price that is 15 percent higher than same-sized hatchbacks, figures from market researcher JATO Dynamics show. Industry sources say that about 4 to 6 percentage points of this premium translates into higher profits for automakers. In the compact segment, the additional margin ranges from 8 to 10 percentage points. Some of this comes from strong customer demand for models with higher specifications, something that Seat is already seeing. "Over 36 percent of the Ateca sales are with 4wd," de Meo said.

Because of the Ateca's arrival, efficiency improvements and a rebound of its core southern European markets, Seat overcame its heavy reliance on low-margin small cars -- 42 percent of its total volume last year was from minicars and subcompacts -- to report a 143.5 million euro operating profit.

Revenue rose 3.2 percent to a record 8.6 billion euros and Seat had an operating margin of 1.7 percent. By comparison, the VW brand's margin was 1.8 percent last year.

Perfect timing

Seat's financial turnaround, which happened less than 2 years after de Meo's arrival, came at a crucial time. When VW Group moved the Italian executive from head of sales at Audi to the top job at Seat in September 2015, the parent company was facing the biggest business crisis in its history. With massive legal bills and costly fines looming because of VW Group's admitted cheating on emissions tests, several experts suggested that struggling Seat should be closed. That way a potentially cash-strapped VW Group could focus on its more profitable Czech subsidiary, Skoda. Although Seat's return to profit has reduced speculation about the brand's future, there are still some who believe VW Group would be better off without the automaker.

"The short-term pain of terminating the Seat brand would probably end up helping the group's focus, pricing and profitability in the long run," said Max Warburton, an auto analyst at Bernstein in London. "The brand means almost nothing to consumers. Building it into something truly profitable and viable is not totally impossible -- it's just going to cost huge amounts of time, money and other resources. Resources that could be used better elsewhere in the VW Group." Arndt Ellinghorst, an auto analyst at Evercore ISI in London, has a different view. "Keeping Seat was the right decision," he said, adding that "closing down Seat is too expensive in any case."

Strong support

The mixed opinions from analysts don't worry de Meo. He says he has the full support of the VW Group because design-driven, connectivity-oriented Seat has the youngest average customer age of any brand in Europe -- about 43 years old -- and 70 percent of its sales are conquests. "We must play on these strengths to better differentiate Seat within the group and to become a gateway for the group's other brands," de Meo said.

De Meo is also confident about Seat's future because the Ibiza subcompact will be the first car to use VW Group's new MQB-A0 platform and his team will engineer and manufacture Audi's Audi A1 replacement in Spain. "Seat is extremely efficient with its r&d budget. Not only because we have never had so many new projects going on at once, but also because I continually get calls from other VW Group companies asking us to engineer vehicles for them. We are recognized for being quick and highly cost effective," de Meo said.

Skoda complex

Despite de Meo's sense of security, Seat remains in Skoda's shadow. VW bought Skoda in 1991 and Seat in 1986 and three decades later VW Group's two entry brands deliver very different results. Skoda last year sold nearly twice as many vehicles as Seat. The Czech brand's operating margin was almost 10 times higher (1.2 billion euros) and its 8.7 percent operating margin even topped VW Group premium brand Audi. Even de Meo's stretch target for Seat is about half what Skoda produced last year.

A key reason for de Meo's modest long-term operating margin goal of 1.5 percent to 4.4 percent is Seat's limited reach. Last year, Seat counted on Europe for 94 percent of its vehicle sales. Skoda, meanwhile, recorded more than 30 percent of its sales in Asia-Pacific. "Skoda began to internationalize when Seat was still struggling to recover financially. On top of this, I think – and the VW Group board agrees – that it would be wrong if all brands play in the same field," de Meo said. To help make Seat more international it has been picked to lead the VW Group's in Algeria, starting with the new Ibiza in the second half of the year.

Bernstein’s Warburton thinks that Seat's 4.5 percent margin target is realistic if car prices in Europe remain strong and mass market automakers continue to make money in the region. Evercore ISI's Ellinghorst also believes Seat can reach its goal, but for that to happen he said the brand will need to be given more freedom to stand on its own. "Too often, Seat has been the training ground for VW's German management bench," he said.

Key model

De Meo knows that achieving his margin target depends on the success of his growing family of SUVs, especially the biggest member of the family, which the executive has been pushing for since he arrived at Seat. "I was convinced that to move Seat to the next level a midsize SUV would be much more profitable than a midsize sedan," de Meo said. "When we made our pitch to get the model our proposal was like something you would see from an ad agency. Our message was: 'You cannot prevent us from doing this because it is just too good'."

The midsize SUV, the first new Seat model fully conceived under de Meo's watch, will be built at VW brand's main plant in Wolfsburg. It's a move that Evercore ISI's Ellinghorst fears might be more about filling capacity at VW brand's main plant than it is about boosting Seat's profits. Nevertheless, it wasn't that long ago that the idea of VW making a model for once-sickly Seat in Wolfsburg would have been considered preposterous. Not anymore.

AUTOMOTIVE NEWS EUROPE MONTHLY MAGAZINE

This story is from Automotive News Europe's latest monthly magazine, which is also available to read on our iPhone and iPad apps.You can download the new issue as well as past issues by clicking here.

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Nissan's new design chief on following a legend

“It was sort of a Peter Pan existence for me, getting to design when I wanted to.”Nissan's Alfonso Albaisa

NEW YORK -- Alfonso Albaisa admits his new job at Nissan Motor Co. is daunting.

Not the part about taking over global design oversight last month, which includes design for all things Nissan, such as dealerships, office buildings and public displays. After nearly 30 years with Nissan, Albaisa, 52, says he is ready for all that.

What's daunting is the part about filling the shoes of his mentor, Shiro Nakamura, the automaker's design chief since 1999.

Nakamura delivered nearly two decades of Nissan's history, including the first Murano, the 370Z, GT-R, Juke, Infiniti Q50 and FX35 crossover, now called the QX70.

"I've got to follow Shiro," Albaisa says with an eyes-wide look of emphasis. "How does anybody do that?"

Albaisa oversaw the latest redesigns of the Maxima.

Albaisa is the automaker's first non-Japanese design director. The historic moment leads him to ponder the difference between his design instincts and all of those who came before him at the company. 

"There is clearly Japanese thought and sensitivities in the look and shape of our cars," he says. "But what does it mean today to be a Japanese car company? Especially for Nissan, which has so many Westerners involved in directing the company?" 

After heading Infiniti design, Albaisa will now manage a design force of 700 around the world, working on vehicles that range from small Japan-only kei cars, to American-sized sedans and trucks and even large commercial vehicles.

The first vehicle that will bear Albaisa's stamp as Nissan design chief will take the stage in January at the Detroit auto show, he says, declining to say what it will be.

There are 30 vehicle design projects in the works of varying global scale. First up are Nissan's body-on-frame vehicles, as well as a new initiative for Renault and Nissan to deepen their alliance collaboration on light commercial vehicles. 

He says his approach to the creative process will differ from what Nissan's studios around the world are used to. 

At his first design meeting as the new boss last month in Japan, Albaisa dispensed with the usual formal meeting room ambiance of chairs and desks. Instead, sofas were brought in and designers sat around in clubby comfort. 

"I want to encourage more casual collaboration," Albaisa said, talking to Automotive News during the New York auto show.

In recent years, Nakamura was steering more responsibility to Albaisa, who was named executive design director of Infiniti in 2014, and corporate vice president for design business management and global strategy last year. He started with Nissan's California design studio in 1988, just after graduating from Pratt Institute in New York. A Florida native and son of Cuba-born parents, Albaisa has spoken in recent years of wanting to bring a Latin flavor into the designs he was overseeing at Infiniti. By that, he meant introducing more emotion and flair in the styling, he has said, adding that the influence would begin to emerge in 2016 and 2017. 

Last month in New York, Albaisa presented the Infiniti QX80 Monograph concept, what he called a design study for the next-generation QX80 SUV. He pointed out that the concept's sides and creases were intended to suggest human muscle, an effect that he said evoked the sculpture of Auguste Rodin. 

Under Nakamura, Albaisa also oversaw the most recent redesigns of the Maxima and Murano. The global Micra subcompact was Albaisa's project. 

But as Albaisa moved up the ladder of global design leadership, Nakamura urged him to set down his pencils and focus only on managing the company's creative talent. 

"I was still designing," Albaisa said. "Shiro told me, "You have to stop designing now.' I don't know if can. I've wanted to design my whole life." 

Most of mentor, Nakamura Albaisa allowed to do most is pleased, Albaisa says. 

"It was sort of a Peter Pan existence for me, getting to design when I wanted to," he says. "But those Peter Pan days are now over. We have a lot of work to do."

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FNR-X concept spotlights Chevy's new technology

SHANGHAI -- Chevrolet's sporty FNR-X crossover, a funky plug-in hybrid concept developed in China, is loaded with new technologies that will appear in production vehicles, possibly worldwide.

The all-purpose crossover came out of General Motors' Pan Asia Technical Automotive Center in China and draws its FNR name from the Chevy tag line "Find New Roads."

The low-slung silhouette exudes a sporty aura, with a narrow greenhouse, steeply raked rear window and sharp fender creases.

Chevrolet says the vehicle's rear-hinged doors can be controlled remotely to make entry and exit easier.

Under the hood is a plug-in hybrid drivetrain, and an adaptive suspension adjusts ground clearance on demand to smooth the ride.

Chevrolet designed the FNR-X with the China market in mind, but the company may take the concept overseas as well to test international reaction, Alan Batey, head of Global Chevrolet, said on the sidelines of the Shanghai auto show here in April.

If produced, the FNR-X could hit a sweet spot in Chinese and global markets. Worldwide demand for compact crossovers is hot, while in China, increasingly stringent emissions regulations are forcing carmakers to roll out more plug-in hybrids and other electrified vehicles.

"There are parts of this vehicle that will absolutely find their way into our production vehicles," Batey said.

The FNR-X features next-generation fuel economy, safety and connectivity technologies.

To reduce drag and improve aerodynamics, the vehicle gets active grille shutters and switchable wheel blades that automatically adjust during high-speed driving, Chevrolet said.

Front and rear spoilers also adjust to speed to smooth airflow.

Speech-activated commands, an augmented reality head-up display and an infotainment system tailored to individual preferences round out the in-cabin tech options. On the exterior, an array of optical and acoustic sensors provides highly autonomous driving ability.

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