Fortune magazine review of the Auto industry in 2006

[SDNR]

Intro:

Tom LaSorda, left, CEO of Daimler Chrysler AG's Chrysler Group, Rick Wagoner, center, CEO of General Motors Corp., and Alan Mulally, CEO of Ford, met with President Bush in November to discuss issues affecting the auto industry.

General Motors announced a shocking $10 billion annual loss early in the year, and just so it wouldn’t be lonely, Ford and Chrysler came along with their own billion dollar losses later on. Delphi, the bankrupt parts supplier, found some of its former top executives under investigation by the Securities and Exchange Commission for cooking the books.

That alone would be enough to make 2006 memorable. Here are some other events of the year just passed that won’t soon be forgotten.

1.

Billionaire investor Kirk Kerkorian

Sour Grapes Award
Maverick investor Kirk Kerkorian rattles GM's cage by buying 9.9 percent of its stock and sending hit man Jerry York to serve on the board. York discovers that changing GM is like punching a pillow - the company successfully fends off an alliance deal with Renault Nissan - so he quits the board after only a few months. Kerkorian then starts selling his stock, presumably so he can find another sandbox to play in.

2.

Chrysler's Jeep SUVs in a lot awaiting shipment to dealers.

What were they thinking?
All year long, Chrysler built thousands of cars without dealer orders and stored them on open lots around Detroit until it could move them. By July, the total number of unsold cars in inventory reached 647,000. After contending for months that it was working off the surplus, Chrysler finally conceded in October that it had an inventory problem and announced a $1.5 billion third-quarter loss.

3.

Ford President and CEO Alan Mulally

Ties that bind
After five years at the helm of his family's company, Bill Ford finally concluded that he was in over his head. In tacit acknowledgement of Ford's weak management team, he went outside the company and recruited an industry outsider, Alan Mulally, from Boeing. One of Mulally's first acts was to hock the company's physical assets to raise cash.

4.

The Jaguar X-type wagon

Flop of the year
Sales of Jaguars plunged 31.4 percent through October. Leading the fall was the "sub-luxury" X-type, the car that was supposed to vault Jag into the big leagues but displayed its Ford engineering a bit too proudly.

5.

Maybach 57

Flop of the decade
DaimlerChrysler's $350,000 Maybach sedan. The fancied-up Mercedes sedan, which has all the warmth of a doctor's office, aimed at 400 U.S. sales annually when it was launched in 2002. Exactly 99 units were sold through the first ten months of 2006.That's about one-third of the number for arch-rival Rolls-Royce.

6.

Hummer H3

Surprise of the year
Despite record-high gasoline prices, Hummer sales have risen 37.8 percent. Credit the success of the smaller, more sensible H3. Is an even smaller, even more sensible H4 around the corner?

7.

Hyundai Chairman Chung Mong-koo

Bad guys
Hyundai Chairman Chung Mong-koo was indicted on charges of embezzling company funds and allegedly using secret accounts to bribe politicians. If convicted, Chung faces life imprisonment.

8.

BMW Chairman Helmut Panke

Good guys
Despite leading BMW to record sales and steering the company through a design controversy, chairman Helmut Panke was denied an opportunity to extend his contract and was forced to retire at 60, BMW's mandatory retirement age. Panke immediately becomes a candidate for almost any top job in the industry, though he's still waiting for a call from DaimlerChrysler.

9.

Malcolm Bricklin

Hard luck guys
Entrepreneur Malcolm Bricklin, father of one big success - Subaru - and several flops - Yugo, the Bricklin sports car - parted ways with his Chinese car supplier, Chery, which seems more interested in arranging a deal with somebody more stable. Bricklin now plans to design and engineer his own cars and build them in China. Don't hold your breath.

10.

Former Volkswagen Chairman Bernd Pischetsrieder

Sour Grapes Award: Runner-up
After failing to purge his one-time protégé Bernd Pischetsrieder from the chairmanship of Volkswagen last year, former Chairman Ferdinand Piech tries again this year and succeeds. Piech nearly drove VW into a ditch when he ran the company by overspending on grandiose projects. Now he gets a second chance to screw up the company by short-circuiting the mostly-successful turnaround program that Pischetsrieder put in place.

11.

The Porsche Cayenne, engineered in partnership with Volkswagen

Small fish department
Porsche, which has annual revenues of $9.3 billion but makes the highest margins in the business, upped its stake in VW, which has revenues of $138 billion but some of the slimmest margins in the business. Porsche owns 27 percent of VW.

12.

Volkswagen chairman Ferdinand Piech

Entangling alliances
Piech's family controls Porsche and Piech chairs the supervisory board of Volkswagen. Piech is in charge of as many auto companies as Carlos Ghosn, but he has a shorter commute.

13.

Toyota Scion xB

Too much of a good thing
After selling 151,939 cars in the first ten months of 2006, Scion, Toyota's youth brand, decides it is becoming too popular to remain cool and puts a lid on sales. Next year, it plans to sell no more than 150,000 for the full 12 months. Are you listening, Maybach?



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[phaeton]

Good Review

Although I would not say Dr. Piech was bankrupting VW.

[notic]

"Flop of the Decade"...ouch!

[Yannis]

Great report Rob.

Maybach is the flop of the decade indeed and i still don't understand why Jeep made all those cars just to store them!

[Mr. M]

An entertaining and informative review. Thanks Rob.

I wonder which leading men are going to turnaround the American car companies - Ford has given up on Ford, excess inventory remains a bleeding bank for Chrysler, GM's $10 billion loss (how it got to that amount is beyond me) - they certainly need a saviour right about now.

[Tycoon]

Good guys...

[Bruce]

Great, thanks a lot Rob

[warot]

That was a really good read. Good to know Panke was one of the good guys. As for Maybach, I don't know if I agree with that. I'd say Rover is up there with the flop of decade.