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US Mail - Trainer wheels

By John Lamm, 17 Jul 2009 Industry

US Mail - Trainer wheels

Wheels US correspondent John Lamm updates us on the latest mishaps and money problems in Motown.

While the bankruptcy courts have been determining what will happen to the U.S. car business, they have been answering some questions while creating a great many more.

Here are just a few.

We know the basic form of the New General Motors as it collects the best assets from the Old General Motors and the remainder is sold off or liquidated. By 2010, it's The Incredible Shrunken GM, no longer publically owned, brands cut from eight to four, nameplates from 48 to 34, factories from 48 to 34, U.S. employees from 81,000 to 63,500 and dealers from 6099 to 3600.

Will the consortium of traditional GM bosses, government overseers and the union (which will own 17.5 percent of the New GM) be able to work in harmony?

What will be GM's true labor cost to build each vehicle, a number that has kept it at a disadvantage against the Japanese, Europeans and Koreans for years?

Will U.S. taxpayers just have to write-off the $50 billion loan given GM so it can survive? That's the conclusion of the well-known newspaper, the Washington Post, and other analysts.

What will happen with the cast-off GM and Chrysler dealers?

GM shed 1100 dealers while Chrysler dropped 789 franchises, thanks to the bankruptcy laws. This caused a terrible row in the U.S. with stories about dealerships that have been in families for decades being closed, many in small towns. There was one particularly poignant photo of an 85-year-old dealer being told he was dropped, learning by way of a letter read to him by his son, as the older gentleman is too blind to read.

This might come across as melodramatic for some, but you have to understand how the dealer system grew in the U.S. How the automobile became part of our society, thanks in part to Henry Ford, who made Model Ts cheap and readily available throughout the land. This system put dealerships by U.S. automakers in small towns all over the country, where they became part of the local community, just as a school or church might be.

Now many such dealers are gone because they don't fit the profile required by an automaker. That doesn't mean the dealership wasn't profitable, as many of the financially questionable "stores" had already been shut during the recent financial crunch.

So why close those that are left?

I asked a friend with one of the automakers and he explained that at the end of the day you can sell more cars through a smaller, profitable dealership body that can provide proper service, local advertising and image than though a larger group.

The proof lies with the Japanese, European and Korean automakers that have slowly built their dealership system in the past 50 years rather than as Detroit did over the past (in some cases) 100 years.

Some of those now-defunct GM and Chrysler dealers will just lock up and throw away the key. The sight of vacant, lonely-looking dealerships with a huge dark showroom and stripped work bays in the service department is common in many U.S. cities.

Some dealerships already had a second or third franchise with import car companies and those automakers will now get the dealer's full attention. Other dealers might get lucky and take on a new franchise for the first time. Still others will become independent used-car dealerships, selling all types of brands. While this last choice might have seemed like a big step down in the past, given the quality of many of today's vehicles and their honest value when used, it could work very nicely...especially at a time when consumers are watching their money and it's more important to get to work than to do it in a brand new car.

Regardless of which direction these still-active dealers take, guess they all will become?

Competition for GM and Chrysler that will take great delight in every car and truck they sell against their former companies.

And what about Chrysler? If Daimler, with all its expertise and technology couldn't make Chrysler work, can Fiat? But then can Koenigsegg make a go of it with Saab after buying it from GM...another case of the little guy trying to bite off too much, only to choke on it? Why did the names Porsche and Volkswagen just pop up?

We keep hearing praise for Fiat's 500, which apparently will be the only model sold in the U.S. under the Fiat name. According to Automotive News we'll get four models as of 2011: hatchback, convertible, station wagon and sporty hatchback, with the chance of a small SUV. Nice car, but in the U.S.? While the Mini does sell nicely here, Smarts aren't exactly flying off the showroom floors and the 500 has only a nano cult following.

Hearing hopeful praise for Fiat's 500 and listening to what our government says about the small, fuel-efficient cars it thinks U.S. consumers should buy leads one to question who's in charge?

Trying to force small cars on the public won't work, even with recent watered-down "cash for clunkers" legislation aimed at getting older cars off the road. As long as gasoline always seems to settle into the sub-$3-per-gallon range for about six months out of the year, Americans are reluctant to give up big vehicles.

And don't even think about raising gasoline taxes significantly to prompt us into small cars, as that seems to make everyone a little crazy. In a country that has grown up around the automobile for the past 100 years and has a citizenry that thinks of cheap gas as an inalienable right, high gas taxes are political suicide.

So, again, how does one get Americans into smaller cars?

The shrinking of GM and Chrysler certain leaves a potential hole in the U.S. car business other automakers hope to plug. As we know, the car business is an odd one and not like others, as several executives a Cerberus can attest to after their disaster at Chrysler. And yet we already have a new U.S. auto firm being formed, which leads us to ask, who are these guys?

It's called the V-Vehicle Company and it recently announced it would soon (18-22 months from now) be operating a car factory in Monroe, Louisiana. San Diego, California-based VVC is named for Frank Varasano, who has wrangled some impressive backers, including the well-known Silicon Valley venture firm Kleiner, Perkins, Caulfield & Byers.

What will they build? Good question, as they will only say it is a, "...high quality, environmentally friendly and fuel-efficient car for the U.S. market."

The site is a former factory of Guide, the one-time lamp division of GM, in an economically depressed area of this southern state. Louisiana is chipping in with $67 million in start-up funds, with another $12 million for working training. There's to be another $248 million in capital investment.

We know a few of names behind the project. T. Boone Pickens is an outgoing entrepreneur who has transitioned from the oil business to being a proclaimed environmentalist.

Tom Mitano, the car's chief designer, was with Mazda for 19 years and ran its U.S. design efforts and was acting leader of Mazda global design. Mitano's VVC efforts are only part-time as he also directs industrial design at the Academy of Art College in San Francisco.

And Tom Perkins of the investment firm was at one time one of the better-known vintage car collectors in the U.S. and a competitor on both the Italian and U.S. Mille Miglias...though one suspects he never lets his love of cars intrude on his business sense.

Guess which companies the firm as invested in early on? Yahoo, Google and America Online.

Stay tuned...