TodayApril 17, 2022

The Musings of Detroit

What’s going on in Detroit?

Malcolm Bricklin is the owner of Visionary Vehicles LLC. Bricklin has announced an agreement with the Chinese company, Chery Automobile Company to import vehicles from China starting in 2007.

Bricklin is a risk-taker, founding both Subaru of America and Yugo of America. While Chinese cars in America are inevitable, Bricklin is touting seven cars by 2007 with sales of 250,000 vehicles in the first years. That is lofty by anyone’s standards.

According to Bricklin these vehicles will be priced 30% below competitive models currently being sold in the United States and will have a warranty comparable to the Korean import cars: 10-years/100,000 miles.

Bricklins made his living in cars; he founded Subaru of America and Yugo of America. He imported the Italian Pininfarina Spyder and Bertone X1-9, both sports cars. Bricklin manufactured and distributed the Bricklin SV-1 sports car.

According to Automotive News, there are many questions left to be answered. Bricklin has promised to enroll 250 dealerships by 2007, so far there are none. Bricklin promises to sell 250,000 vehicles in the first year. Saturn sold 212,017 in 2004. Bricklin has promised 5 Chery models for 2007, yet only three prototypes exist.

New cars exported from America to the Middle East

The 7th International Auto Show, at Expo Centre Sharjah in the Middle East, was held in late November. The big news is that the cars they are selling in the Middle East are being produced in the United States and exported to the Middle East. Nissan is the second leading car brand in the Middle East region per market share. 70% of the Middle East car market is Japanese dominated. Nissan has approximately 15% of the market. They started to import CBU vehicles from the Nissan plants in Smyrna Tenn., and Canton Miss., in the USA and have overachieved sales expectations by 30%. The mid-size sedan market is the one with the biggest potential in the Middle East and Altima is Nissan’s volume seller.

The Nissan Altima was launched in the Middle East in June 2004. This was followed in September 2004 by the launch of the largest SUV line-up in the Middle East by Nissan with five vehicles. The Patrol, an SUV that has been used by the United Nations since the 60s has been refurbished. The SUV Patrol is joined in the Gulf Coalition Countries by the Murano, and Armada joining the existing X-Trail and Pathfinder.

In addition, in December 2004 the full Infiniti line-up that comprises five vehicles QX56 SUV, FX35, Q45, G35 coupe, G35 sedan was launched in the Middle East.

According to Simon Sproule, Vice President Global Communications & Investor Relations, Nissan Motor Co. Ltd, the Middle East market is similar to the Americas. “The heat and sand are the biggest issues. Imagine driving flat out from Riyadh to Jeddah (about 1,100 miles). The roads are big, they have lots of gas and they drive really fast.”

Big SUVs, big roads, lots of horsepower and men who drive really fast. Did I say, men? Yes, men – women aren’t allowed to drive in Saudia Arabia.

This works well for Nissan. Their fixed costs in the U.S. are in U.S. dollars. A gradual shift in higher U.S. exports will help the dollar become healthier.

GM and Ford are both very active in the Middle East.

Edges and Hedges

What does a Manufacturer do when the dollar is weakening, yet they can’t raise prices because the market is so competitive?

Welcome to the question of the day from the Detroit Auto show. According to BMW and Porsche, they both protect their earnings by hedging.

When the dollar is weak it makes foreign imported cars more expensive. The euro has gained against the dollar, running about $1.32 right now.

An example of hedging is when the dollar is weak in Europe; Europeans will buy enough American dollars to use when the American dollar starts going back up. It’s a strategy that Manufacturers understand.

Hedging by BMW, Porsche, Mercedes-Benz, and VW would be prudent. It would disconnect them from the pressures of currency rates and allow them to have some extra cash for incentives. The problem is, you have to have the cash to spend in order to buy cash reserves. BMW and Porsche have both said they are hedging for the future.

Mercedes-Benz may not be able to hedge. They’re in a bit of a slump with all the bad press about quality problems. They could take the edge off by pulling a “Jaguar” and close a factory or lay off some workers, but Wolfgang Bernhard was already let go for thinking out loud about such a thing.

Mercedes-Benz, BMW, Porsche all have plants here in the United States. This is another hedge for them. All their fixed costs are in U.S. dollars. If they produced more vehicles here it would act as a buffer for the weak dollar and escalating Euro.

The weak dollar also helps foreigners in another way. On their gasoline bills. According to Pekka Tefke, President of Volvo Auto Oy Ab (Finland) all oil is purchased in U.S. dollars. When the dollar is weak, foreigners can buy more dollars and buy more oil.

Watch for other countries to start stockpiling gas reserves and for demand to go up.

Let’s just say that while the Europeans were in Detroit, they were the ones buying the drinks.

Lou Ann Hammond

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a founding member of the Women's World Car of the Year #WWCOTY, and board member of the Women in Automotive.

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