[sgarnett]

The Senate, UAW, et al, just gave up (ie failed) on reaching a compromise a few minutes ago.

I don't know how GM will come out after bankruptcy (they just hired the bankruptcy lawyer), but the stock market futures are looking ugly tonight. It actually held up well through some dismal recent employment numbers, but I suspect tomorrow is gonna be ugly. Rebuilding my retirement is going to mean austerity and no new cars for a very long time, and I suspect that will be true for many others. That can't be good for any automaker.

I'll admit I wasn't convinced that bridge loans to March could solve the problems for GM, so I don't claim to know what the right answer was. Nevertheless, this is going to be a big kick in the teeth for the economy.

This post has been edited by sgarnett: Dec 12 2008, 04:07 AM

[mitchntx]

Interesting reading ...

Heavy Load
For Toyota, a New Small Truck
Carries Hopes for Topping GM

Targeted at Emerging Markets,
Hilux Takes Risk on Quality:
It Bypasses Japanese Plants
Lessons of a Financial Crisis
By NORIHIKO SHIROUZU and JATHON SAPSFORD
Staff Reporters of THE WALL STREET JOURNAL
May 12, 2005; Page A1

BUENOS AIRES -- Martinic Drasko wants 50 new pickup trucks to lease to oil companies that operate in Argentina's hinterlands. But he doesn't want just any truck.

Mr. Drasko says he has tried Ford Ranger and Chevy S10 pickups and a Brazilian-built Nissan truck, but no vehicle has proved more reliable than Toyota Motor Corp.'s Hilux model. "If you break down in remote oil fields, and it's winter, you're cooked," he says.

Now, Toyota is banking on a new version of this sturdy workhorse and a couple of related models it will sell mostly in the developing world as a key part of its strategy to overtake General Motors Corp. as the world's No. 1 car maker. The retooled pickup is Toyota's 21st-century answer to the Ford Model T, a vehicle for the masses that is versatile, inexpensive and highly reliable.

But Toyota is also taking a big gamble on its reputation for quality with its new emerging-market strategy: It's dumping its high-cost plants in Japan as a source of critical components.

For years, Toyota has followed a widely successful formula. It assembled cars in and near local markets, providing jobs and making the products less foreign. But the company produced those cars with engines, transmissions and other key components brought in from the company's world-beating Japanese factories.


That emerging-market business model fell apart during the currency crisis that struck Southeast Asia in the late 1990s. Suddenly, Japanese-made components were prohibitively expensive for buyers using devalued Asian currencies.

So Toyota devised a new approach. It is building the new Hilux and related models in developing countries using parts made almost entirely in factories strategically located to take advantage of regional free-trade zones and cheap labor.

With the new strategy, the company hopes to boost its sales numbers while damping the risks that foreign-currency conversions will eat up all of its profits. But the big question is whether Toyota can keep quality to its lofty standards even as it moves to build more of its cars almost bumper to bumper outside Japan.

Toyota executives say they know achieving a high level of quality is a must if the IMV project is to succeed. Decades of experience Toyota's manufacturing division has in producing vehicles outside Japan "have given us confidence to say we can proceed with the project, even though it almost completely bypasses Japan," says Yoshi Inaba, the Toyota senior managing director in charge of operations in North and South America, Oceania, Asia and the Middle East.

The new Hilux truck, the first of a wave of vehicles built on a single, low-cost vehicle platform known inside Toyota as "IMV," shorthand for "innovative international multipurpose vehicle," hit the marketplace in Thailand last August.

If the strategy succeeds as planned, the Hilux and its related vehicles -- a sport-utility vehicle and a minivan -- will be a crucial part of Toyota's ambitious push to grab a 15% slice of the global auto market by 2010. It had a 12% share at the end of 2004, according to CSM Worldwide, a research firm in Farmington Hills, Mich. Toyota expects the new family of emerging-market vehicles to sell an additional 500,000 vehicles over the old Hilux line, which has consistently sold about 250,000 vehicles a year. The sales jump would make up about a third of the 1.6 million additional vehicles the company needs to sell annually if it is to overtake GM for the top spot. Toyota has no plans to sell the Hilux pickup and its related vehicles in the U.S.

This week, Toyota parked three IMV models outside the hotel ballroom where the company disclosed its latest annual sales and profits. Inside, Toyota President Fujio Cho said the new line was the main reason Toyota's sales in developing markets from Asia to Africa jumped by 362,000 cars, more than the combined increase in sales for developed markets of Japan, Europe and North America.

Toyota's overall sales reached 7.4 million cars, a record. Yet the growth came at a cost. Earnings for the year ended March 31 edged up 0.8% to a record $11.09 billion. But in the final quarter, profits slumped 17% from a year earlier to $2.76 billion in part because of heavy investment in plant and development, including that for the new vehicles.

Big Western and Japanese auto makers have long sold cars and trucks in less affluent, developing countries. But few auto makers have tried a project as ambitious as Toyota's IMV strategy. Toyota wouldn't say how much it spent to develop the new platform and the three basic models based on it, but the company said it sank at least $1.4 billion so far into updating or building plants in Argentina, India, Indonesia, Thailand and South Africa, among other countries, for the project.

The IMV architecture, a basic vehicle building block known in the industry as a chassis, is designed to support a family of rugged vehicles. The vehicles, including the Innova minivan and the Fortuner SUV in addition to the Hilux, will be marketed in 140 emerging-market countries.

By using low-wage factories to make major components, Toyota can offer the new trucks at prices well below the norm in markets like the U.S. The base price for a Hilux pickup is $9,900 in Thailand, for example. In the U.S., a Toyota Tacoma compact pickup -- essentially the same size as a Hilux -- starts at $13,415.

Rivals are skeptical of what GM spokesman Patrick Morrissey calls a "one size fits all" approach to emerging markets. "You can't sell the same car in different markets," says Nissan Motor Co. Chief Executive Carlos Ghosn. "You always have to tune it."

GM uses its global brands and alliance partners to come up with a different portfolio of products for different emerging markets. Ford Motor Co., on the other hand, tries to tap shared technology and vehicle architectures to approach the emerging world. In Asia, for instance, Ford is rolling out a version of the Ford Focus that has been tweaked to Asian tastes but shares basic technology and architecture with the namesake car originally developed for Europe.

Toyota says its IMV-based vehicles are fine-tuned for subtle differences in local markets. Officials also stress that the new models aren't Toyota's only emerging-market offerings. It also sells an affordable entry-level car tailored to various major emerging markets as well as its big-selling global sedans, the Corolla and the Camry.

Behind the emerging-market strategy is a significant shift in the way Toyota operates around the world. Toyota's top brass often touts the "internationalization" of the company, but the car maker has long relied heavily on building engines and other crucial components in Japan. Workers at the company's traditional factories there have long experience with Toyota's brand of highly-efficient "lean" production. One reason the company was reluctant to move such operations off shore was concern about quality.

But in 1997, when the Asian economic crisis triggered a recession in many of Toyota's key developing markets, the company was forced to reassess its strategy. At Toyota manufacturing operations in Thailand and Indonesia, the devastating slide of the local currencies against the yen pushed up the cost of importing Japanese-made components by 80% or more. Those prices made the company's cars just about unsellable in some markets.

Toyota executives also realized that the company's internal system of pricing and discounting made it impossible for them to determine accurately whether the company was making or losing money on each car produced in the Asian region.

Toyota bosses decided the company's developing-market strategy needed a fundamental overhaul, starting with the Hilux trucks.

Toyota's traditional approach to cost-cutting is kaizen, continuous effort on the shop floor to systematize work processes and make them more efficient. But kaizen often yields only incremental savings over time. The approach wasn't adequate to deliver the deep cuts the Asian financial crisis called for, says Kaoru Hosokawa, the executive chief engineer of the team that developed the IMV vehicle architecture and the three models based on it. Mr. Hosokawa says he set out to slash the cost to manufacture each vehicle, including parts procurement and logistics costs, by as much as 30% to make the project viable.

Mr. Hosokawa and other top strategists devised a new plan that completely bypasses Japan as a source of quality but high-cost parts. Toyota located new factories to take advantage of some of the liberal free-trade agreements in different regions, from South America, to Africa, to Southeast Asia.

Gasoline engines for the IMV vehicles, for example, are being made in Indonesia and shipped to assembly plants in Thailand, South Africa and Argentina, among other countries. Diesel engines are being made at a plant in Thailand. Manual transmissions are being shipped around the world from plants in India and the Philippines.

Toyota has set up a war room for IMV production at its office in Bangkok. On the wall is a long line of coded numbers, each representing a component, from wipers to heat sensors to nuts and bolts. Red lines fan out from each component to its subcomponents, which in turn have more red lines going out to further subcomponents. In some cases, the components are traced back to 12 levels of suppliers.

It was drudgery to map out those supply chains. But once they did, Toyota executives discovered all kinds of areas where subcomponents were going back and forth between suppliers, needlessly raising costs. "We found a lot of waste to cut before we even got started," says Akira Okabe, a Toyota managing officer in charge of Asian operations.

In the end, Mr. Hosokawa, the chief engineer, says Toyota was able to reduce the cost to manufacture the vehicles based on the IMV platform by 20% to 25%, compared with old Hilux trucks they replaced. The savings allowed the Japanese auto maker to price those vehicles affordably in the developing world and still make a profit.

Toyota's new strategy has some potential weaknesses. For example, a port strike in India, one of the two sources of manual transmissions, could paralyze Hilux production around the world. Supply lines could also be disrupted by a natural disaster -- another tsunami or earthquake -- or political unrest. Another round of currency upheaval in the region, or changes in tax policies on parts moved across borders could undermine Toyota's strategy.

As insurance, Toyota has created "backup capacity" in Japan and Thailand for each major component and ordered each factory producing the Hilux and its family of vehicles to stock roughly a two-week supply of engines, transmissions and other key components to prepare for an unforeseen disruption in parts production and cross-border shipments. That is a departure from Toyota's traditional ideal, which is to run with very little inventory stored in warehouses.

Through the project, Toyota is also learning that selling vehicles to customers in less developed economies isn't what it used to be. Years ago, auto makers could get away with selling old technology vehicles to relatively isolated Third World customers.

That no longer works, says Mr. Inaba, the Toyota senior managing director. Thanks to the Internet, car makers can't keep consumers in the dark as to what kind of cars they sell in different markets around the world.

At a dealership in Buenos Aires, some customers showed up well before Toyota said anything about its plans for a launch of the redesigned Hilux, waving pictures of the new Toyota model that had already been unveiled in Thailand. They demanded to know when they could get their hands on the new truck, says Mariano Fernandez, vice president of the dealership who manages its day-to-day operations.

Now, Toyota is trying to offer as much up-to-date technology as possible with the new vehicles. The new Hilux, for instance, offers more powerful engines -- including two types of four-cylinder, 16-valve direct-injection turbo diesel engines -- as well as front- and four-wheel-drive versions and either one or two rows of seats. Some versions of the truck also offer antilock brakes and front airbags, although low-end models still come without those features in order to keep them more affordable. "No car maker can get away with the old trick and deprive emerging markets of the latest technology," Toyota's Mr. Inaba says.

So far, sales of the new Hilux and its sister vehicles are brisk. In Thailand, a market Toyota bets will become its biggest for IMV-based vehicles, customers bought a total of 112,300 new Hiluxes in the first eight months after the pickup's launch, compared with the 76,200 sold during the same period a year earlier.

In Argentina, where the economy is showing signs of recovery after a devastating economic crisis in 2002, Mr. Fernandez, the Buenos Aires dealer, believes the new Hilux truck will allow him to expand his sales by 40% this year to 1,400 vehicles. He says that would put his business solidly back in precrisis profitability.

Mr. Fernandez expresses frustration that Toyota isn't making more trucks to meet demand. Toyota's "really conservative," he barked at a Toyota sales representative, Gustavo Salinas, in his showroom one recent day. All Toyota needs to sell more is to open up the taps at the factory: "You just have to produce more," he said.

Write to Norihiko Shirouzu at norihiko.shirouzu@wsj.com1 and Jathon Sapsford at jathon.sapsford@wsj.com2

URL for this article:
http://online.wsj.com/article/0,,SB1...330907,00.html

Can't argue with you Jeff other than within that article it does elude to an import tax which prompted manufacturers like Toyota to begin assembling their products, which are normally sold in the US market.

Your questions, though, prompted even more questions.

Remaining on the vehicle theme ...The realist in me tends to wonder what a vehicle would cost if it were completely built inside the US borders AND it did so at a price which didn't require US government intervention in order to remain solvent.

I see this as a viscious cycle that continues in a do loop till something gives.

Workers demand wage increases to maintain the life to which they've become accustomed.
Manufacturers pay the wage and benefit increase to maintain production and pass along the wage increase as the "cost of doing business".
Consumers/workers purchase said products, but it takes a bigger chunk out of their budget. So a wage increase is necessary.

So who is supposed give in? A bazillion workers conceding a dollar each or a handfull of companies yielding a bazillion dollars?

I don't know the answer and don't pretend to be smart enough to figure out all the differnet angles. But I try and be informed and learn as much as I can.

[BigEnos]

I see this as a viscious cycle that continues in a do loop till something gives.

Workers demand wage increases to maintain the life to which they've become accustomed.
Manufacturers pay the wage and benefit increase to maintain production and pass along the wage increase as the "cost of doing business".
Consumers/workers purchase said products, but it takes a bigger chunk out of their budget. So a wage increase is necessary.

So who is supposed give in? A bazillion workers conceding a dollar each or a handfull of companies yielding a bazillion dollars?

I don't know the answer and don't pretend to be smart enough to figure out all the differnet angles. But I try and be informed and learn as much as I can.

You forgot the part about ambition, wanting to give your kids a better life, the seemingly relentless march to buy what currently constitutes a "good life", etc. It's difficult to boil down, and I don't know the answer either. Unlike most people I went to college with, I found economics fascinating. I wish I'd taken more classes in it.

[mitchntx]

You forgot the part about ambition, wanting to give your kids a better life, the seemingly relentless march to buy what currently constitutes a "good life", etc. It's difficult to boil down, and I don't know the answer either. Unlike most people I went to college with, I found economics fascinating. I wish I'd taken more classes in it.

Again ... JMHO ...

Every parent wants more for their children than they had as a kid, a better life, a better education, better amenities ... Nothing at all wrong with that ambition.

But one's personal ambition vs abilities is based upon their personal means, right?

Just because I graduated a JuCo and live in a 1500 sq/ft house with 2 cars doesn't mean I should expect my employer to pay me enough to send 2 kids to Harvard, put them up in a 1750 sq/ft house each and both add an RV to their driveway does it?

I know that's a rather silly extrapolation, but the point I feel as though my ambition is mine. It's not incumbent upon some one else or something else to make that possible. It's up to me. If I can't, does that make me a failure?