GM Meeting Whitacre Profit Goal Means Fixing ‘Critical’ Sedans

Bloomberg

General Motors Co. is cutting prices and reworking ads to revive sales of two sedans that executives consider vital to meeting Chairman Ed Whitacre’s goal for a 2010 profit.

The moves are aimed at shrinking dealer stockpiles of the Chevrolet Malibu and Cadillac CTS that ballooned to more than twice the industry average, North American President Mark Reuss said in an interview ahead of next week’s Detroit auto show.

“The CTS is going to be fixed, now,” said Reuss, 46. “We’re going to be right on the back of that working on Malibu. We’ve got to have Malibu selling a lot more than we do right now. We’re looking at what we should be doing with the car versus where we’re at.”

Whitacre’s prediction this week of “positive net income” in 2010 expanded on his challenges to management since becoming chief executive officer on Dec. 1 when the board ousted Fritz Henderson. He has begun early repayments on GM’s $6.7 billion in U.S. loans and replaced more than a dozen executives.

The former AT&T Inc. CEO and chairman is pushing his team to keep U.S. market share at about 20 percent, after 2009’s 19.9 percent, said three people familiar with the goal who asked not to be identified because the plans aren’t public. Whitacre told reporters this week he wasn’t commenting on his plans.

2010 Outlook

Holding onto that share may require boosting sales by about 200,000 units, from 2.07 million last year, based on GM’s forecast for industry volumes of as much as 11.5 million. That heightens the importance of the CTS, Cadillac’s 2009 U.S. top seller, and the Malibu, the No. 2 Chevrolet car after the Impala. GM unveiled the current CTS and Malibu designs in 2007.

“Those are the two critical vehicles in GM’s lineup,” said Michael Robinet, a CSM Worldwide analyst in Northville, Michigan. “They have to have success there as an anchor to their overall portfolio.”

President Barack Obama, whose administration oversaw Detroit-based GM’s government-backed bankruptcy last year, alluded to the Malibu in a March 30 speech as one of the models that is “now outperforming the best cars made abroad.”

Malibu and CTS inventory reached a five-month supply in late 2009, more than double the industry average of roughly two months, Reuss said. The CTS was priced too high against models such as Bayerische Motoren Werke AG’s 3-Series, he said.

GM slashed CTS prices this week by as much as $3,000, said Steve Shannon, executive director of marketing for Cadillac. One popular version was pared to $39,990 from $42,255, with monthly lease payments dropping to $369 from $417, he said. BMW’s U.S. Web site advertises 3-Series leases for as low as $379.

‘Didn’t Wait’

“Finally GM is willing to look at the price of the vehicle and adjust it to the market conditions,” said Dave Butler, general manager of Suburban Cadillac in Troy, Michigan, and Suburban Chevrolet-Cadillac in Ann Arbor, Michigan. “They didn’t wait until it got to a critical level.”

Butler said the no-interest financing offered by GM on 2009 Malibus isn’t being matched on the 2010 model, in effect boosting the price. “A lot of purchase intenders may be waiting for that kind of incentive,” he said.

Advertising decisions also played a role in the Malibu’s slowing sales, as GM “walked away” after the vehicle’s initial promotion to focus on other models, Reuss said.

“There’s going to be a whole bunch of things we’re going to do look at and do, and it’s not going to take me a year to do it, either,” Reuss said of the Malibu, declining to elaborate.

Sales Slide

Malibu’s 9 percent 2009 U.S. sales drop was less than the industry’s 21 percent slide, and the 25 percent decrease for the full Chevrolet line, according to industry researcher Autodata Corp. in Woodcliff Lake, New Jersey. CTS sales fell 34 percent, compared with 32 percent for all Cadillacs.

The Malibu and CTS aren’t GM’s only efforts to woo car buyers after focusing on light trucks in the 1990s and much of the past decade. The Chevrolet Aveo RS show car, with hidden rear-door handles and exposed headlamps to emulate motorcycle styling, will debut next week in Detroit at the North American International Auto Show.

Chevrolet and Cadillac are now more pivotal to GM’s sales, as the automaker trims U.S. brands to four from eight to help end annual losses that began in 2005. Buick and GMC also are being retained, while Saab, Hummer, Saturn and Pontiac are being dropped.

Reuss said he will present his 2010 priorities to the board next week, which include promoting vehicle quality over incentives to create profitable North American sales growth. New models reaching showrooms this year include a two-door CTS, Chevrolet’s Cruze and plug-in Volt, and Buick Regal.

Reuss said he’s using a page on the Facebook social networking Web site to keep in contact with customers and buff GM’s image one buyer at a time, if necessary.

“I’ve been here two weeks and I’m right in the middle of it,” said Reuss, whom Whitacre named to the post on Dec. 4. As to the CEO’s 2010 challenge for net income, Reuss said, “We’re going to make that, I think. I want to get the place profitable, I’m tired of it.”

Ford Motor To Create 1,000 New Jobs In SE Michigan

AP

Ford Motor Co. announced Monday it will invest another $450 million and create about 1,000 jobs as it further consolidates its electric vehicle program in southeast Michigan.

The new jobs are mostly tied to advanced lithium ion battery production, including some work shifted from Mexico to Michigan. It's welcome news in a state saddled with the nation's highest unemployment rate of 14.7 percent in November.

Ford also announced at the auto show in Detroit that it will build a next-generation hybrid vehicle and plug-in hybrid at Michigan Assembly Plant in Wayne starting in 2012. The new work comes in addition to the previously announced next generation of the Ford Focus, including an electric version, which will start production in 2010 and 2011 at the same factory.

Those projects combined could save more than 8,000 Ford jobs in southeast Michigan. Ford facilities in Wayne, Warren, Sterling Heights and possibly Rawsonville near Ypsilanti could get pieces of the new work, according to a memo outlining a tax incentive agreement approved by a state economic development board Monday.

Under the agreement, the new battery-related jobs would come with the help of a tax credit valued at up to $78 million over a multi-year period.

The other tax credit approved Monday by the Michigan Economic Growth Authority is to help save existing jobs. That tax credit is worth $110 million.

"This investment underscores how serious we are about delivering a range of electrified vehicles to customers - including hybrids, plug-in hybrids and pure electric vehicles," Bill Ford Jr., Ford's executive chairman, said in a statement.

Ford Motor To Put Focus On Fuel Efficiency

The Wall Street Journal

DEARBORN, Mich.—Ford Motor Co. is to unveil its all-new Focus compact car on Monday, and a telling detail is a small bump on each of the vehicle's taillights.

These lips jut out just enough to interrupt the airflow around the back of the car, reducing turbulence and allowing the redesigned Focus to travel a bit farther on a tank of gas. Most customers might never notice, but it is the kind of detail Ford engineers now refer to as "one percenters"—tweaks that add up to increased fuel efficiency.

These incremental improvements are actually part of a larger plan launched by Chief Executive Alan Mulally when he arrived in 2006: introduce only the best-in-class cars and trucks.

Mr. Mulally is betting that winning bragging rights in key areas such as quality and fuel efficiency will enable Ford to pull customers away from age-old rivals General Motors Co. and Chrysler Group LLC, and move the auto maker into an elite class of global giants that includes Toyota Motor Corp. and Volkswagen AG.

Leading on quality and safety are the "price of admission" to the top ranks of the global auto industry, Mr. Mulally said last week at the Consumer Electronics Show in Las Vegas. He added that improving fuel efficiency and offering new technologies are "strategically important because green technology and smart innovations are helping us serve our customers and differentiate Ford."

Since 2006, Mr. Mulally has shed Ford's noncore brands, steadied its balance sheet, accelerated new-model development and cut production to match consumer demand—all in an effort to turn Ford into a leaner, more-focused organization.

He also has pushed the company's engineers to make sure that Ford can claim that its vehicles are the best in their segments. The auto maker has had some success. In November, Consumer Reports magazine put Ford's overall quality on the same level as that of Toyota and Honda Motor Co., and rated the quality of the Ford Fusion sedan as better than that of the segment's juggernauts, the Toyota Camry and Honda Accord.A few months ago, the Ford Taurus full-size sedan arrived with some safety innovations that are normally found only in luxury cars, such as a system that warns drivers of vehicles entering their blind spots. On the technology front, Ford has been turning heads with its Sync in-car entertainment system that links to iPods and cellphones.

There is no guarantee this will pave the way for Ford's recovery. Detroit auto makers have made previous promises to produce world-class cars that never panned out. Foreign rivals such as Toyota, Honda, and Volkswagen are flush with cash compared with Ford, and have stronger reputations among passenger-car buyers.

Americans also have proved fickle regarding fuel economy. They flocked to small cars when gas prices were high, but a Consumer Reports survey released last week showed respondents put safety, quality and value at the top of the list of factors they consider the most important when buying a new car. The number of people who listed "environmentally friendly/green" as one of their top three priorities fell eight percentage points over last year's results.

For Ford, it's so far, so good. In 2009, Ford increased its U.S. market share by 1.1 percentage points to 16.1%, and reported almost $1 billion in net income in the third quarter.

The new Focus is to be introduced at the North American International Auto Show in Detroit on Monday and is expected to go into production in Europe and the U.S. in the second half of the year. Pricing for the car hasn't been released yet.

The car will be available with a new version of the Sync system that can provide wireless Internet access to passengers, but perhaps Ford's biggest effort went into improving the vehicle's fuel economy.

At the Detroit auto show Monday, company chairman Bill Ford is expected to say the redesigned Focus will be the class-leading car in fuel economy where it will be sold: China, Europe and North America.

The new Focus doesn't yet have a miles-per-gallon rating from the U.S. Environmental Protection Agency, but people familiar with the matter said Ford engineers expect the car to go at least 40 miles on a gallon of gas in highway driving. That would put the new Focus ahead of the older model and competitors such as the Honda Civic, Toyota Corolla and Chevrolet Cobalt, all of which are rated at 35 or 36 mpg on the highway.

Ford's new focus on fuel efficiency is a big change for the company known for its F-150 pickup trucks and Explorer sport-utility vehicles. Until recently, the thinking in Ford's vehicle-development group was "we're losing money as a corporation and we need to strip cost out" to improve profit margins, said William F. Gubing III, North American program manager for Ford's small cars.

When gasoline spiked to $4 a gallon, Mr. Mulally and product development chief Derrick Kuzak drove a new mantra: "Fuel economy leads to sales, which leads to profitability," Mr. Gubing said.

Then, at the start of last year, the company widened its approach, often seeking ways to eke out small gains. A fuel-economy course became mandatory for all engineers. Ford created a Web site for employees to offer up their own suggestions to improve its vehicles' fuel efficiency.

Hundreds of ideas poured in to try to claim the $100 prize for every accepted concept, said Ford's head of vehicle energy-management engineering, Nizar Trigui. The company has adopted at least a dozen of the ideas, but Mr. Trigui declined to describe them because they are still under development to be used in future products.

One feature adopted from luxury car makers in the Focus is an active grille shutter. Operating like Venetian blinds, the shutters under the hood close up at higher speed to prevent air from entering the engine compartment and improve aerodynamic performance by 6% on the highway. At slower speeds, the blinds open up, allowing more air under the hood to help with engine cooling not necessary at higher speeds.

Other improvements include tucking the windshield-wiper blades below the hood to improves the car's aerodynamic performance. Engineers also may add small arrow-shaped grooves on the side rear-view mirrors to reduce wind drag, features now found on the Ford Taurus and Flex crossover vehicle.

But each approach still has to be hashed out between engineers and designers, who often bristle at fuel-economy changes that impinge on a car's overall styling.

The first approach to the taillight lip "was a wing off the back of the car," Mr. Gubing said. "The designers said, 'No way am I putting a wing on the back of my car,' " he added.

But when the large wing was reduced to a small bump, Focus designers got on board. Today, "fuel economy holds a much bigger percentage of leverage in the debate," Mr. Gubing said.

Volkswagen Will Decide on Building Audi Cars at New U.S. Factory This Year

Bloomberg

Volkswagen AG, Europe’s largest carmaker, plans to decide whether to build Audi luxury cars at a new U.S. factory before the year is out, according to Peter Schwarzenbauer, the unit’s sales chief.

VW will gauge the recovery in the U.S. market before ruling on Audi’s production at the plant in Chattanooga, Tennessee, Schwarzenbauer said in an interview. VW now projects U.S. auto- market sales of as many as 11.5 million vehicles this year, “slightly more optimistic” than a few months ago, VW North American unit’s chief Stefan Jacoby told reporters yesterday.

While Audi is outperforming BMW and Daimler AG’s Mercedes- Benz unit in China and Europe, it’s lagging behind in the U.S., the No. 1 market for luxury vehicles, where some drivers still associate the brand with accidents in the 1980s and 1990s. Even as the gap narrowed in 2009, when U.S. sales held up better than at rivals, the total of 82,716 Audis registered was dwarfed by BMW’s 241,727 vehicles and Mercedes’s 190,604 cars.

“The U.S. hasn’t been a cushy turf” for Audi, Schwarzenbauer said in a telephone interview before the Detroit motor show, which begins today. The Ingolstadt, Germany-based unit needs “long-term growth” in the market, he said.

Targeting BMW

VW, which wants to dethrone Bayerische Motoren Werke AG as the world’s largest luxury automaker, has a target of selling 200,000 Audis in the U.S. by 2018, accounting for 20 percent of the 1 million cars VW aims to sell in that market by that year.

Volkswagen’s preferred shares rose as much as 1.33 euros, or 2 percent, to 67.79 euros and were up 1.5 percent as of 11:24 a.m. in Frankfurt trading. The stock has risen 73 percent in the past 12 months, valuing the Wolfsburg, Germany-based carmaker at 29.7 billion euros ($43 billion).

Volkswagen sold about 214,000 cars in the U.S. last year, excluding the Audi brand. VW aims to more than double the figure to 450,000 cars by 2012 to 2013, Jacoby said at VW’s U.S. headquarters in Herndon, Virginia.

Audi will unveil an electric concept car in Detroit. The vehicle won’t be on the market until 2012. Audi’s presentation will include a repeat rollout of the flagship A8 sedan, which made its world debut two months ago. The unit will hold back on presenting its new A1 compact until the Geneva show in March.

Audi’s Plants

The division has no factories in the U.S. and assembles cars at two German plants in Ingolstadt and Neckarsulm as well as in Gyoer, Hungary, and Brussels. Audi said Dec. 28 that it will spend 7.3 billion euros on new models and plant upgrades through 2012, with 3.8 billion euros going to the German plants. It didn’t give details on U.S. spending.

“Audi is still lacking a clear strategy for the U.S. market,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. “You’d expect more from a company with such outspoken global ambitions.”

Schwarzenbauer said Audi will keep up advertising outlays, which rose 15 percent last year. Spending included events such as television coverage of the Super Bowl and the inauguration of U.S. President Barack Obama.

Its German rivals and Toyota Motor Corp.’s Lexus brand, the top seller in the U.S. luxury segment, all benefit from larger customer bases and broader distribution networks. Audi relies on 130 brand dealers for 80 percent of U.S. sales, compared with 351 for Mercedes and 338 at BMW, according to company data.

As part of the 10-brand structure of its parent, Audi is limiting development costs more effectively than BMW or Mercedes by sharing spending with sister companies, said Stefan Bratzel, director of the Center of Automotive Research at the University of Applied Sciences in Bergisch Gladbach, Germany. An example is the A1, which will be based on the technical platform of Volkswagen’s Polo subcompact, he said.

Globally, Audi sold 870,600 vehicles in the 11 months through November, driven by sales in China, which overtook the U.S. as the largest car market last year. China is “a key pillar” in Audi’s plan to boost global deliveries to 1.5 million cars by 2016, the sales chief said.

Detroit Entrepreneurs Find Opportunities In Hard Times

NY Times

DETROIT — With $6,000 and some Hollywood-style spunk, four friends opened this city’s only independent foreign movie house three months ago in an abandoned school auditorium on an unlighted stretch of the Cass Corridor near downtown.

After the unlikely hoopla of an opening night, red-carpet-style event in an area known for drugs and prostitution, exactly four customers showed up to see a film.

Since then, the Burton Theater has had a few profitable nights. But, the owners say, this adventure in entrepreneurship was never completely about making money. It was also about creating a more livable community.

“Nobody could comprehend why we’d start a theater,” said an investor, Nathan Faustyn, 25. “But when you live in Detroit, you ask, ‘What can I do for the city?’ We needed this. And we had nothing to lose. When you’re at the bottom of the economic ladder, you have nowhere to look but up.”

Despite the recession — and in some cases because of it — small businesses are budding around Detroit in one of the more surprising twists of the downturn. Some new businesses like the Burton are scratching by. Others have already grown beyond the initial scope of their business plans, juggling hundreds of customers and expanding into new sites.

Across from the Burton, for instance, Jennifer Willemsen just celebrated the first anniversary of her shop, Curl Up and Dye, a retro-themed hair salon serving 1,500 clients. Not far away, Torya Blanchard, a former French teacher, recently opened the second location of Good Girls Go to Paris, a creperie. Next door, Greg Lenhoff, also a former teacher, opened a bookstore in August called Leopold’s.

And just down the street from Leopold’s, on Woodward Avenue, Victor Both runs Breezecab, a company he started with a severance package after a layoff from Wayne State University. He uses rickshaws to ferry workers and conventioneers around downtown. “This filled a transportation void,” said Mr. Both, 34, who picked up the pedicab idea while touring Las Vegas before his layoff. “I haven’t made much money, but the experience has been priceless. I had no idea Detroit had so much love.”

It is not an uncommon instinct to start an enterprise in bad times and seize on weakened competition, lower overhead costs and perhaps more free time. Nor is it limited to Detroit. But the trend is particularly striking here, in a city that was suffering long before the rest of the nation fell into recession and where hard times, business closings and abandonment became routine generations ago.

Experts say the zeal for entrepreneurship these days in Detroit and elsewhere has precedent: according to research by Dane Stangler, a senior analyst at the Kauffman Foundation, a center for economic research in Kansas City, Mo., half the companies on the Fortune 500 list this year were founded in recession or bear markets. Further, Mr. Stangler said in an interview, company survival rates going back to 1977 show a negligible difference between companies founded in expansions and recessions.

For some of the new businesses, preparation was minimal.

“All I really needed was a garage, a cellphone and a Web site,” said Mr. Both, who started Breezecab with two leased rickshaws.

Ms. Blanchard’s creperie was more complicated. The restaurant is in the first-floor retail space of what had been an unattractive apartment complex. When the site came under new management recently, the landlord offered to gut the retail space, spending about $70,000 on improvements, Ms. Blanchard said. She put in the rest: $15,000 in equipment, a coat of red paint, an oversize blackboard for the menu, and her own collection of vintage French movie posters.

Now, Ms. Blanchard pays what she calls a “ridiculously low” rent of $1,600 a month for a 1,000-square-foot space that accommodates 45 diners at Parisian-style cafe tables near the Detroit Institute of Arts.

“This was a place to watch your back just four years ago,” said Ms. Blanchard, who founded the business with a cashed-out 401(k).

“I just wanted to do something that I loved,” she said. “And everything worked its way out.”

Michigan, which has the highest unemployment rate of any state, has been aggressive in offering support for start-up companies, particularly in Detroit. The Michigan Small Business and Technology Development Center, which offers support and counseling, counts 20 small businesses, and 400 new jobs, created last year in the three-county area around Detroit, and the center expects that tally to grow as it completes its accounting in the coming weeks. That was down from 41 new businesses in 2008, but on par with the 23 such start-ups in 2007 and 24 in 2006.

At Wayne State University’s business incubator, TechTown, housed in a former auto plant, 150 companies jostle for space — up from one when the building opened five years ago.

“I find it inspiring,” Peter Bregman, the chief executive of Bregman Partners, a New York management consulting firm, said of what is happening in Detroit. “There’s something about that feeling — ‘Maybe America abandoned us, but we’re not going to abandon us.’ ”

Analysts say the entrepreneurs have tapped into buyers’ penchants for spending locally in a bad economy, along with a longstanding void in the service industry.

Some business owners are also capitalizing on a newly energized nostalgia for the vibrant Detroit that used to be, and the more general trend toward urban living.

“This is a passion project for most people,” said Claire Nelson, owner of the Bureau of Urban Living, an accessories boutique, and one of the organizers of a loose network of local entrepreneurs that functions like a support group.

“We’ve got all this empty space in Detroit,” said Ms. Nelson, 33. “If landlords are willing to work with us, we pour our hearts and souls into the place.”

Once the Burton Theater carved out its space in the schoolhouse that closed in 2002 — a 1920s-era building that had receded into the shadows like so many empty spaces in Detroit — the city, which had let the block go dark, turned the streetlights back on. The relighting was a victory felt far beyond the Burton.

“Our business ideas are about taking ownership of where you are and what you have,” said Ms. Willemsen, 29, of Curl Up and Dye. “We want to do right by our neighbors.”

And some customers are going out of their way to support the new city businesses.

“I live in the suburbs where I used to get my hair cut until Jen opened a store,” said Dessa Cosma, a client at Curl Up and Dye. “I’d rather spend my money here. It’s a conscious decision for someone who cares about the city.”

Mulally: Ford Making 'Tremendous Progress'

Bloomberg

Ford Motor Co. Chief Executive Officer Alan Mulally said investments in the company’s car lineup and efforts to pay back debt are helping the automaker make “tremendous progress” in its turnaround effort.

“During this worst recession, we chose to increase our investment in new vehicles that people want and value,” he said in an interview from the Consumer Electronics Show in Las Vegas. “Now we are delivering on that product promise, and we’re actually paying the loans back and improving our balance sheet.”

Ford, which reported a 33 percent sales rise in December, gained U.S. market share last year for the first time since 1995. New models like the Ford Fusion are fueling orders at the Dearborn, Michigan-based automaker. Its shares have risen more than fourfold in the past year to the highest level since 2005.

“The consumer loves a company that not only has a strong product line but is creating a strong business, and they know they are going to be around,” said Mulally, 64. “The goodwill that everyone has for Ford far outweighs the disadvantages.”

Ford is reaping the benefits of Mulally’s plan to invest in new models with much of the $23 billion the automaker borrowed in late 2006. Ford put up as collateral all major assets, including its name, to secure that lending, which allowed the company to stave off the bankruptcies that befell General Motors Co. and Chrysler Group LLC last year.

‘Driver’s Seat’

“This isn’t just lucky happenstance, it’s a combination of benefits from not taking a bailout, unassailably high quality and an interesting, exciting product lineup,” said John Wolkonowicz, an analyst at IHS Global Insight in Lexington, Massachusetts. “Ford is in the driver’s seat now.”

Ford rose 29 cents, or 2.6 percent, to $11.66 at 4:15 p.m. in New York Stock Exchange composite trading. That closing price was the stock’s highest since March 17, 2005.

Sales of the redesigned Taurus have climbed 90 percent since it debuted four months ago. Ford said its models commanded $2,700 more revenue per vehicle in the third quarter, as it slashed incentives and boosted prices.

Ford also is banking on bringing more technology into its cars. It’s using the Las Vegas show to demonstrate its plans to put social networking, Web browsing and iPod-style thumb controls in 80 percent of models by 2015.

‘Solidly Profitable’

Mulally, who came to Ford from Boeing Co. in September 2006, posted his first back-to-back quarterly profits at the Automaker on Nov. 2, with third-quarter net income of $997 million. He has said Ford will be “solidly profitable” on an annual basis in 2011.

“The advantages of us doing this ourselves clearly outweigh any of the advantages of going through bankruptcy,” Mulally said. “The only disadvantage that we have right now is that we have a little more debt, but we’re paying that back.”

Consumer Reports magazine said that Ford had “world-class reliability” and that the Fusion topped Toyota Motor Corp.’s Camry in quality.

Ford’s surge comes as Toyota stumbles. The Toyota City, Japan-based automaker has projected a $2.2 billion loss in the year ending March 31. Toyota is fixing 4.26 million vehicles in the U.S., its biggest recall, for accelerator pedals that may get stuck on floor mats.

“If Ford becomes the quality brand and is able to unseat Toyota and Honda at the top of the industry, there will be no stopping them,” Wolkonowicz said.

Gaining Share

Ford gained 1.1 percentage points of U.S. market share to 16.1 percent in 2009, according to Woodcliff Lake, New Jersey- based Autodata Corp. That will grow to 16.6 percent by 2012, Global Insight projects. GM will have fallen from 19.9 percent last year to 17.1 percent, while Toyota will grow to 16.8 percent in 2012, according to Global Insight.

“There’s going to be a three-way battle for the No. 1 spot over the next decade,” Wolkonowicz said.

The advantage to Ford of not taking a bailout will fade when GM and Chrysler pay back U.S. taxpayers, said Michael Robinet, a CSM Worldwide analyst in Northville, Michigan.

For now, Ford’s go-it-alone posture has improved its positive perception among car buyers to 51 percent in December from 41 percent a year earlier, said Beau Boeckmann, vice president of Galpin Motors in North Hills, California.

Boeckmann, whose store more than doubled sales last month, said that “several people have said I’m buying a Ford because they did the right thing and didn’t take a bailout.”

Ford could face challenges this year from a resurgent GM, which slashed costs and reduced debt in bankruptcy.

“GM is not going to go down without a fight,” Wolkonowicz said. “GM has some products now that are as good as they had in the 1960s when they were the top of the heap.”

Ford’s new cars have benefited from Mulally’s focus on developing fewer models that can be sold globally. He sold off the Jaguar, Land Rover and Aston Martin luxury lines and is trying to sell Volvo to China’s Zhejiang Geely Holding Group Co.

“Ford has been able to focus more of their energies on fewer vehicles with higher sales volumes,” said Robinet. “That’s going to have tremendous benefits.”

Ghosn Overruling Engineers on Battery Car Makes Lutz See Nissan Losing Bet‏

Bloomberg

The crowd of 600 falls silent as an employee asks Chief Executive Officer Carlos Ghosn if he’s staking too much of Nissan Motor Co.’s future on electric cars and not enough on green alternatives like Toyota Motor Corp.’s Prius gas-electric hybrid.

Ghosn steps to the edge of the stage at Nissan’s Yokohama headquarters and smiles, lightening the mood on a rainy October afternoon.

Hybrids, diesels and gas engines aren’t enough, Ghosn responds. In a world where oil prices may triple and political upheaval and climate change are intensifying, governments are promoting all-electric cars. Consumers will embrace them as soon as the price is right, he says.

“This is about preserving the planet,” Ghosn says, Bloomberg Markets magazine reported in its February issue. “If we start being skeptical, nothing is going to happen.”

A few minutes later, sitting sideways with his arm across the back of a chair in a conference room, Ghosn shifts from evangelist to micromanager. A Nissan ad that touts zero-emission motoring for future generations is vague, he tells a dozen executives.

“We should say specifically ‘young people, first-new-car buyer,’” he says.

Ghosn, 55, who turned Nissan into the most profitable of the world’s seven biggest automakers in 2005 and made Ghosn-san a Japanese household name, is placing the auto industry’s biggest bet yet on electric vehicles, or EVs.

Roadblocks Ahead

Ghosn is facing an abundance of challenges. It may take until 2030 for automotive batteries to be cheap enough for widespread commercial use, the National Research Council said in December. Before then, governments may tire of propping up the EV industry with tax breaks and buyer incentives.

Ghosn’s first electric car, the Leaf, can travel only 100 miles (160 kilometers) without recharging -- putting him in competition with hybrid vehicles that have no such limits.

The biggest stumbling block may be out of Ghosn’s control: the price of gasoline. His success -- or that of anyone who builds EVs -- hinges on whether car buyers get fed up paying increasingly higher prices at the pump, says Jerome York, the former Chrysler Corp. chief financial officer who has advised billionaire investor Kirk Kerkorian. On Jan. 6, gasoline averaged $2.68 a gallon in the U.S.

“If gas is $2 a gallon, this whole regulatory effort to promote EVs is going to be an ugly train wreck,” York says.

‘Being Innovative’

Ghosn has won supporters.

“We look very positively on the fact that they’re being innovative and have a plan for EVs that it looks like they’ll be able to achieve,” says Gilles Michel, assistant director of the New Jersey Division of Investment, which began buying its 6.6 million Nissan shares in March 2009. Since then, the stock price has more than doubled.

The division, which manages investments for the state’s $68.5 billion pension fund, also owns 500,000 Renault SA shares.

Renault started buying what’s now a 44 percent stake in Nissan in 1999, when Ghosn was the French company’s executive vice president. Renault shares rose 59 percent in six months to 39.25 euros on Jan. 6. Ghosn has been CEO of both Nissan and Renault since 2005.

Michel also likes that Nissan and Renault shares were beaten down, because he expects a recovery in U.S. auto sales. From its 18-year high in January 2007, Nissan stock tumbled 82 percent in two years. In February 2009, Ghosn cut 20,000 jobs, or one in 12. In December, U.S. sales rose 15 percent from the year-ago period. On Jan. 6, Nissan shares traded at 799 yen, up 38 percent in six months.

Rebel Without a Cause

Ghosn needs a bold move to restore his brands’ luster. Nissan’s net income peaked in 2005 at $4.8 billion. Since that year, U.S. dealers have reported a sales drop of more than 75 percent for the Titan pickup. The truck was a centerpiece of the effort by Ghosn, a Brazilian of Lebanese descent who speaks four languages, to revive Nissan and challenge Detroit.

Ghosn expects Nissan to lose $445 million in the fiscal year ending in March 2010, adding to a $2.3 billion loss the previous year. Renault lost $3.6 billion during the first half of 2009.

As profit sank, analysts began questioning whether Nissan had an enduring identity, especially among young people, says Andy Palmer, Nissan senior vice president for product planning.

“You need to be a rebel with a cause, and we didn’t have a cause,” Palmer says.

Zero-Emission Mobility

Ghosn has found his calling. He’s going all out to populate the planet with electric vehicles, starting in December 2010 with the Leaf.

“We aim to be the global leader in zero-emission mobility,” Ghosn told employees in October.

The five-person car, which he’ll roll out first in the U.S. and Japan, will cost as much to buy and operate as comparable gasoline models, Ghosn says. These include Honda Motor Co.’s $24,000 Civic Si. Drivers will have to recharge the Leaf’s 475- pound (215-kilogram) lithium-ion battery pack after 100 miles.

Ghosn is upending a century of automotive tradition by selling the Leaf without a battery. Instead, owners will rent the battery pack and pay for the miles used, like a cellular phone plan.

Drivers will recharge at home or at public plug-in stations, hitching to 3-foot-high (0.9-meter-high) metal posts. Or they may swap the batteries, like exchanging an empty propane tank for a full one. The price: about $120 a month in the U.S. for battery rental and electricity.

‘Community of Buyers’

“I’ll be very surprised if there isn’t a large community of buyers,” says Daniel Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley, who helped the state design its low-carbon-fuel standards.

Ghosn is so sure the vision will work that he’s building factories to assemble 500,000 EVs a year -- 10 times more units than General Motors Co. is planning to make of its Volt hybrid. The Volt, which GM says will go on sale in November, has a small gasoline engine that runs a generator to recharge the battery as needed.

For Nissan, Ghosn is planning a delivery van, sports model and two-seat urban commuter after the Leaf; for Renault, he’s looking at four EVs, including a one-seater similar to a motorcycle.

Ghosn predicts that EVs will grab 10 percent of worldwide industry sales by 2020. He has pledged to spend $6 billion on EV technology from 2007 to 2011 -- an amount equal to the combined annual research and development budgets at Nissan and Renault.

Not Much Fun

As for his companies’ recent losses, “has it been fun for anybody, you think, for the last two years?” Ghosn asks, referring to the financial crisis during a November interview at the Council on Foreign Relations in New York.

Worldwide auto sales were forecast to be 55.2 million in 2009, 23 percent below a mid-2008 forecast from research firm R. L. Polk & Co.

Investor Harris Kempner isn’t waiting to see whether Ghosn’s EV push derails. The CEO of Kempner Capital Management Inc. in Galveston, Texas, sold his 404,296 Nissan American depositary receipts in the quarter ended on Sept. 30.

“There’s plenty of room for improvement in gas engines that don’t require new infrastructure,” Kempner says.

For Rod Lache, a Deutsche Bank AG analyst in New York, the cost of electric vehicles’ battery packs is a major constraint. A pack as big as the Leaf’s costs $15,600, Lache says. That compares with about $30 for a gas tank in conventional cars that travel four times farther.

‘Massive Losses’

Eric Noble, president of research firm The CarLab in Orange, California, says the metals used in batteries are getting more expensive. In 2009, lithium carbonate cost $6,500 a metric ton, almost triple 2006 prices, according to the U.S. Geological Survey.

“The result will be massive losses,” Noble says of Ghosn’s EV effort.

Bill Reinert, Toyota’s U.S. manager for advanced technology who helped design the Prius, says range is a major detraction for electric vehicles.

“One hundred miles covers most daily trips but not all,” he says. “How many people can afford a specialized car that can’t be used on vacation?”

Toyota’s planned all-electric car, set to make its debut in 2012, is a four-seater designed for commuting. It will go at least 50 miles without recharging.

Ghosn’s Alliances

Ghosn says the Leaf’s range will satisfy most drivers. He’s signed agreements with 41 governments and utilities -- from Portugal to Portland, Oregon, to the prefecture of Kanagawa near Tokyo -- to build recharging stations as part of their plans to curb greenhouse gases and cut dependence on petroleum.

Even so, EVs may not provide the same environmental benefits in all countries. U.S. reliance on coal, a polluting fossil fuel, for half of its electricity needs taints EVs’ green credentials, says Jan Kreider, an engineering professor at the University of Colorado, Boulder.

An EV with a 40-mile range will emit 110,000 pounds of carbon dioxide equivalents during its lifetime because it relies partly on coal as the original energy source, Kreider says. Toyota’s Prius will emit 97,000 pounds, and Nissan’s gas-powered Sentra compact will put out 140,000 pounds.

Ghosn says that once EVs arrive in showrooms, companies will invest in nuclear, wind and solar energy to create cleaner electricity.

Building Batteries

For now, his success turns on batteries. Ghosn plans to build them through Automotive Energy Supply Corp., which Nissan owns jointly with NEC Corp., Japan’s biggest personal computer maker.

NEC has a 1 percent market share for lithium-ion batteries, says Menahem Anderman, president of technology consulting firm Advanced Automotive Batteries in Oregon House, California. NEC trails Samsung Electronics Co., Sanyo Electric Co. and Sony Corp., each with 10 percent market share or more, he says.

Batteries are harder to build for cars than computers, Anderman says. That’s because they require high voltage and a long life and are more sensitive to variations in manufacturing.

“AESC has produced less than 1,000 EV batteries, and its testing of durability for a 10-year automotive life cycle is at an early stage,” he says. “Talking about producing 500,000 batteries a year is quite premature.”

‘Rolling the Dice’

Lache predicts that high-volume manufacturing will cut battery costs -- now $650 per kilowatt-hour -- in half by 2020. Ghosn says costs will fall faster. He’s working on batteries with twice the range of Leaf’s and has teamed up with Sumitomo Corp. to sell used batteries that can no longer withstand automotive requirements but can store power for utilities.

GM Vice Chairman Bob Lutz says their limited range puts all-electric vehicles years from widespread adoption.

“He’s rolling the dice,” Lutz, 77, says of Ghosn’s battery-only tack. “I don’t see it happening.”

Until the early 1900s, when Texas gushed with cheap oil, electric cars were about as popular as gas models. A century later, as governments and consumers struggle to cut fossil fuel use, EVs may be coming back.

Portuguese Prime Minister Jose Socrates has pledged to use them for 20 percent of government transportation needs, build 1,350 public recharging stations by 2011 and give buyers tax credits and subsidies of more than 8,000 euros ($11,518).

‘Three Oil Shocks’

“I’ve seen three oil shocks,” says Socrates, 52, whose country of 10.6 million has no commercial coal or oil production. “It’s not possible to live through these situations and do nothing.”

In recent decades, Nissan has made its name with the Z and Skyline GT-R sports cars. Yet the company has had a team investigating lithium-ion technology for almost two decades as it has braced for rising oil prices.

Even as Nissan shuttered factories in 1999, it continued battery work. In 2006, Ghosn overruled Nissan’s researchers and approved high-volume EV manufacturing.

“The engineers will always tell you, ‘Wait a little more,’ and if you keep playing this game, you never launch any product,” he says.

By the time Ghosn attended the World Economic Forum in Davos, Switzerland, in January 2007, he was a full-blown EV booster.

He met Shimon Peres, the Israeli vice prime minister who’d become an EV advocate because of his country’s limited oil. Peres brought Shai Agassi, the Israeli-born founder of Better Place, a Palo Alto, California, company that builds and operates networks of recharging stations, to a meeting at Peres’s hotel.

‘I’ve Got Your Car’

As the two pitched EVs, Ghosn said he didn’t need to hear it.

“I’ve got your car,” Ghosn said, Agassi recalls. “Let’s do it.” Peres, who is now Israel’s president, declined to comment for this story.

Ghosn agreed to build 100,000 electric vehicles to be recharged by Better Place in Israel and Denmark. Peres slashed import taxes on EVs to 10 percent compared with 83 percent for gas models. Agassi is building 500,000 recharging stations where drivers use credit cards or mobile phones to pay.

In August, Ghosn drove a sky-blue Leaf onto the stage at Nissan headquarters with former Prime Minister Junichiro Koizumi riding shotgun.

“It was so unexpectedly smooth and quiet,” Koizumi said. “I am sure this car is going to be popular.”

‘Superb Executive’

Toyota’s Reinert isn’t convinced. He says EVs could experience a five-year bubble, like solar panels during President Jimmy Carter’s term in the late 1970s. If budget cuts force governments to end subsidies, only a handful of EVs could be left standing in the market, he says.

Ghosn says competitors are trailing Nissan in EVs, so naturally they’re going to play down the technology’s prospects.

“They cannot say, ‘we’re forecasting a 10 percent market share for EVs and, by the way, we have nothing,’” he says.

Ghosn is spreading his electric gospel. “He’s a superb executive and works beyond belief,” York says.

Ghosn says he’s waiting for the right time to talk with U.S. carmakers about alliances that would support investments in zero-emission vehicles, aiming to get everybody behind his quest to use EVs to tackle climate change.

Businessmen must advocate policies that alter societies, Ghosn says, noting that oil prices could suddenly shoot up to $250 a barrel from $82.36 on Jan. 6 and nobody would be prepared.

“It’s about having a road map to avoid this continuous discussion about the disaster looming on us in the next five or 10 years,” he says.

It’s also about whether history remembers Carlos Ghosn as a Henry Ford, whose vision shaped the modern auto industry -- or as an automotive rebel who found a cause the world wasn’t ready to embrace.