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Ball of Confusion

May 15, 2013

Am I just stuck in time, or is the entire world caught up in an endless replay? It just seems like nothing is unique or new these days. It’s all just recycled news made by new players.

I write that after watching a YouTube video of one of the greatest tunes, “Ball of Confusion.” It was recorded by the Temptations in 1970. And like today, that was a turbulent time. We were caught up in a prolonged war, the economy was in depression and there was unrest in the streets.

Here’s a verse from the song:


“The sale of pills are at an all-time high.
“Young folks walking ‘round with their heads in the sky;
“The city’s ablaze in the summer time …
“And, oh the beat goes on …
“Evolution, revolution, gun control, the sound of soul.
“Shootin’ rockets to the moon, kids growing up too soon.
“Politicians say more taxes will solve everything,
“And the band played on
“Ball of confusion …”
For a song written and performed 43 years ago, it sure sounds like it speaks to our current problems, doesn’t it?

Ziegler revisits the dispute between China and Japan over a group of islands known as Senkaku in Japan. He says the fight is hurting Toyota’s push in the Chinese market.
Ziegler revisits the dispute between China and Japan over a group of islands known as Senkaku in Japan. He says the fight is hurting Toyota’s push in the Chinese market.
China in Focus
I am writing this month’s column on April 21. It’s just a few days after the Boston Marathon bombing. And like the rest of the country, I’m in a reflective mood. Hey, we’re all living on this earth, and it is indeed a ball of confusion.

It appears industry analysts are sticking with their 15 million-unit prediction for U.S. vehicle sales this year. And that’s despite erratic sales and market shifts. Of course, you know how I feel about analysts. If you don’t, break off the first four letters of the word “analyst” and you’ll know exactly how I feel about them.

I write this column as the Shanghai Auto Show draws to a close, which explains why all the news of late seems to center on China. Since the European economy continues to tank, we’re seeing all of the manufacturers doubling

General Motors announced last month it will open four more plants in China. Ziegler says he won’t be too happy if any of those vehicles are sold in the U.S. market.
General Motors announced last month it will open four more plants in China. Ziegler says he won’t be too happy if any of those vehicles are sold in the U.S. market.
down on China. 

There’s Toyota, which is still trying to regain traction in the Chinese market. I wrote about this back in November and described the tense relationship between China and Japan. In fact, anti-Japanese sentiment is at an all-time high in China, with Honda and Toyota dealerships being vandalized and Chinese tourism to Japan coming to a screeching halt.

All of this stems from the territorial dispute over a group of islands known as Senkaku in Japan. In Chinese, the islands are called Diaoyu.

Unfortunately for Toyota, part of its comeback strategy was to make serious inroads into the Chinese market with entry level products like the Yaris. But even before the dispute, the Yaris was tanking. Chinese drivers just don’t like the car. 

Now let me switch gears here so I can issue a predication. See, I believe a number of domestic car manufacturers will go completely bankrupt and out of business in the next few months. As a matter of fact, I’ve been writing about this for more than 10 years. But if you think I’m referring to General Motors (GM) or Ford, I’m not. I’m referring to these Chinese manufacturers who can’t sell their crappy cars to their own people.

When every moronic intelligentsia and supposed industry prognosticator was predicting a wave of Chinese cars coming ashore, I was out there saying that ain’t gonna happen. In fact, I’ve been saying that since early last decade, when Malcolm Bricklin was running around the country trying to bring Chery Cars to the U.S. market. If he had been successful, we would have been quickly reminded of what happened when he introduced us to the Yugo.

Now, media outlets like Reuters are reporting that Chinese people don’t want to own Chinese cars. What they want are Fords, Volkswagens and Buicks, which is probably why the three leading Chinese manufacturers, Chery, Geely and Great Wall, are losing vast amounts of money and cutting back production and product lines.

GM Accelerates China Push
In what is sure to upset President Obama’s United Auto Workers (UAW) cronies, General Motors announced last month it will open up four new production facilities in China before 2015. Now remember, GM opened two new plants last year, which means the OEM will now have 17 plants in China.
The new plants will take GM’s production capacity to five million units per year. They also represent another $11 billion investment in China by GM. And here’s where it gets a little sketchy: When asked if there was a chance GM will export vehicles to the United States from China, Bob Socia, president of GM China, said: “That could very well happen.”

If that does happen, this is a double-cross of epic proportion. That’s our bailout money at work shipping jobs and resources overseas to a communist country.

The Other Shoe Drops
Do you remember the weeks leading up to the November elections last year? In speeches and TV ads, Mitt Romney’s campaign claimed Chrysler was planning to move U.S. production of the Jeep to China. In one ad that aired in late October, an announcer says, “Obama took GM and Chrysler into bankruptcy and sold Chrysler to Italians who are going to build Jeeps in China.”

That claim was originally made by a conservative blogger, who the Tampa Bay Times’ PolitiFact.com website said, “… twisted an accurate news story into a falsehood.” The Dec. 12 article’s headline read: “Lie of the Year: The Romney Campaign’s Ad on Jeeps Made in China.”

The article also quoted Chrysler Chairman and CEO Sergio Marchionne as saying Jeep assembly lines “will remain in operation in the United States and will constitute the backbone of the brand. It is inaccurate to suggest anything different.”

Well, Mike Manley, CEO of the Chrysler Group’s Jeep brand, announced on April 20 that the company will begin producing the Jeep Cherokee in China, where the SUV will be made available in the Chinese market in the fourth quarter, according to reports. And he was quick to assure that this in no way impacts production at the Toledo, Ohio, plant.

I guess we’re supposed to believe that. I’d be willing to if he didn’t also say this: “We would like to localize the Jeep in China for the Chinese market, but it wouldn’t be a specific vehicle just for China.”

Posing with Rupert Stadler, chairman of AUDI AG, and Uli Hoeness, president of Bayern Munich football team, is Martin Winterkorn, head of Volkswagen AG. Ziegler is a fan of his push to dominate the market by 2018.
Posing with Rupert Stadler, chairman of AUDI AG, and Uli Hoeness, president of Bayern Munich football team, is Martin Winterkorn, head of Volkswagen AG. Ziegler is a fan of his push to dominate the market by 2018.
Seems to me Manley is hedging to export them. What I don’t understand is, if they can export vehicles from China, why can’t they export them from Toledo? But the question still stands: Will any of these Chinese-built Jeeps wind up in the U.S. market?

So was Romney lying? The way things are shaking out, it sure doesn’t seem so. One thing is clear, somebody was lying then and somebody is lying now.

I’m sure the Tampa Bay news rag will be quick to print an apology.
So there you have it. I don’t know what Ford is doing in China. Maybe it’s following a similar game plan. What I do know is two manufacturers that accepted bailout assistance — one of which is still partially owned by the U.S. government — are moving production to China, which means they are most likely intending to ship product built with foreign labor and materials back here.

Ford thinks its Focus was the No. 1 selling car in the world, but Toyota says the Corolla dominated the global market last year. The debate reminds Ziegler of 1989.
Ford thinks its Focus was the No. 1 selling car in the world, but Toyota says the Corolla dominated the global market last year. The debate reminds Ziegler of 1989.
Prius Misses Target
Just as President Obama called for a hike in the federal income tax credit for electric and hybrid vehicles to $10,000 in his mid-April budget proposal speech to Congress, Toyota’s Jim Lentz announced that it’s doubtful the Prius will hit its 2013 sales target. Ouch.

If you recall, Toyota was planning to put 250,000 Priuses into the U.S. market this year, but it appears sales of the hybrid are 9 percent below projections. Lentz blamed falling gasoline prices and the fact that Prius owners are defecting to other Toyota hybrids. It couldn’t possibly be that the bloom is off of the rose with electric and hybrid cars, as many industry experts have written. Prius is still the standard in the hybrid/plug-in segment, but I’m not sure it will retain this title.

The Battle Continues
Do you remember the blood feud between Honda and Ford back in 1989? That was the year the Honda Accord first outsold the Ford Taurus — by 14,600 units — in the U.S. market. It was ugly. Well, as Yogi Berra would say, “It’s déjà vu all over again.”

Right now the two companies are battling for bragging rights on whether the Focus or the Corolla own the title as the No. 1 selling car in the world.

According to Ford, the Focus beat Corolla sales by 300,000 units globally, a claim backed by Polk data (which you have to question since the firm owns Carfax). Polk also backs Ford’s claim that it sold 1.02 million Focus models worldwide, while Toyota claims that 1.16 million Corollas were delivered globally last year. I guess we can look for both parties to claim they’re No. 1 this year.

This Just In
Can you imagine paying $42,000 for a fully equipped Kia, and that’s before the addendum, pinstripes, and deluxe environmental package? Well, Kia’s new $42,000 Cadenza is for real. It’s a full-size sedan that’s expected to go head-to-head with the Toyota Avalon, Nissan Maxima, Lincoln MKZ and Buick LaCrosse.  

I’m not surprised by this development. When Hyundai Genesis sales took off, the writing was on the wall — Kia had to produce a high-dollar counterpart that targets the mature, near-luxury buyer. They loaded the Cadenza with every conceivable option available, but it starts at around $36,000.

And I have to say, it’s a really nice car. And I know Kia dealers, who have begged for new product, will sell the heck out of them. But do you know what’s really great about this? Unlike other manufacturers, Hyundai and Kia actually supply their dealers with hot inventory while it’s hot. You can’t say the same for some of those other guys.

Although top management denies it, I maintain my prediction that both Hyundai and Kia will eventually spin off a luxury brand like Toyota did with Lexus, Nissan with Infiniti and Honda with Acura. My guess is the Hyundai Genesis brand will be the first to get its own identity, with the Hyundai Equus serving as its flagship. In fact, I wouldn’t be surprised if the luxury brand assumes the Genesis Equus name at some point.

Comments

  1. 1. David Ruggles [ May 28, 2013 @ 10:53PM ]

    We should remember that all GM vehicles produces in China or with a Chinese JV partner. Same with Chrysler. If Chrysler builds and sells a Jeep built in Toledo, they make 100% of the gross profit. If the build it in China, the most they make is 50%. One can do the math on that one.

    If GM builds 5 million vehicles in China it would be like building 2 million in the U.S. based on the profit splits they have to make in China.

    The Senkaku Islands squabble is a serious beef between the two countries. No telling how it will get resolved. For those interested in the subject visit the National Bureau of Asian Research Japan American Forum.

    Type "Senkaku" in the search field and be prepared for chapter and verse on the issue.

    http://nbrforums.nbr.org/foraui/list.aspx?LID=5

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Author Bio

Jim Ziegler

President & CEO of Ziegler SuperSystems

Jim 'Da Man' Ziegler joined the magazine in 2011 to deliver his On-the-Point message about the car business to dealer principals and store managers. He'll offer strategy advice on everything from sales and F&I to marketing in the digital age. Catch him every month at www.fi-magazine.com.

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