'Automotive & Transport' Archive
The world’s cheapest car has been put on hold, as protests over Tata Group’s plans for a Nano plant in eastern India have been stymied by protesters and politics.
Although Tata plans to repurpose other plants to build what it has billed as the world’s least expensive car (around $2,500), it had to nix plans for a production volume of 40,000 per month, instead settling for 10,000. The move could affect the price as well, since one of the factors allowing the company to offer the car at this price point was cheap land.
Although normally I would take umbrage at the forced change in Tata’s plans, the critics have a point. From an environmental standpoint, does India need more vehicles? Should it be moving farmers off their land and building factories?
The giant nation is beset by pollution, as are most countries with growing middle classes, and the Nano could exacerbate the problem in India. Another question is that of energy. Won’t 40,000 extra cars a month on India’s roads put pressure on the country’s energy supplies? What about the world’s oil markets?
India has been stepping up its oil development and exploration efforts as domestic demand has risen. The country is a net importer of oil, although it looks to be sitting on some fecund oil and gas fields of its own. The US isn’t the only country seeking energy independence — that could be India’s slogan as well.
The question is, is the increase in oil production going to fuel the Nano, or is the Nano (and increasing wealth that is causing rising consumption) fueling oil production? And if India is truly seeking energy independence, is a Nano in every garage the way to go about it?
Even though I would like countries to scale back their energy consumption, it’s hardly fair to insist that nations forego the conveniences of cheap energy that Americans and Europeans have enjoyed for more than a century. In general, the benefits of a sturdy middle class outweigh the disadvantages of consumption. So I hope Tata’s plan for a Nano plant gets the green light again.
And then, maybe next, Tata can tackle global warming. After all, is there nothing this company can’t do?
In The New Yorker recently, an article discussed antibiotic-resistant bacteria, strains that are so resistant they make an MRSA infection look like a walk in the park. So what does this have to do with quarterly earning reports? Well, drug companies have, by and large, pulled out of antibiotic research because it’s not where the money is. When you have shareholders to mollify, you direct your research platform toward blockbuster drugs. No matter how much we are going to need new antibiotics, they will never be profitable for drug companies (especially since overuse is what got us into this mess in the first place).
Richard Syron, the CEO of Freddie Mac, recently allowed that even if he had acted on 2004 warnings that the company was underwriting very high risk loans, there was little he could have done about it.
“This company has to answer to shareholders, to our regulator and to Congress, and those groups often demand completely contradictory things,” Mr. Syron said in an interview. But if Freddie and its sister, Fannie, had kept their underwriting standards tight, fewer bad loans would have been made and the subprime crisis could have been partially averted.
Never really healthy, the auto industry has been bleeding cash over the years, interspersed with short periods of remission. Now the cure — trucks and SUVs — has become the disease. Automakers grew too comfortable building for the “cheap gas” economy, even when interest was rising in hybrids and electric cars, and they marginalized their research in these new technologies. And that was before gas prices soared. Now they are playing catch up, but don’t expect changes any time soon. Gas prices have dropped a little, and the short-term mentality (i.e., quarterly earning reports) will come back into play.
The oil companies have been reaping record (some say windfall) profits. Each quarter as gas prices rise, so have their profits. Nice, huh? A port in the storm? But their business model is built on a non-renewable resource. Oil sands, offshore drilling, Arctic drilling … it doesn’t matter. The oil is going to run out. Instead of quarterly earnings, shouldn’t we be asking ExxonMobil and its ilk what their long-term plans are?
As Syron points out, companies answer to shareholders. At what point do we require companies to answer to the rest of us? As long as a company’s success is measured in quarters, can our industries build the products and provide the economic stability that the we need for the long term?
The auto industry suffered another setback recently when several finance companies, some tied to automakers, others among the biggest names in lending, said they would get out of the lease financing business.
It turns out that lenders were having trouble selling previously leased vehicles when their leases were up. High gas prices and a generally weak economy were fingered as the culprits. So what had once been a fairly lucrative business was hit by the malaise Americans are feeling due to higher gas prices, higher grocery bills, and other pains in the wallet.
Chrysler started the run of bad news when it said that its financial unit would get out of the leasing business entirely. In response, JPMorgan Chase subsidiary Chase Auto Finance basically said, “Hey, don’t look at us.” The company announced it would not take on any new leasing business from Chrysler dealers.
Wells Fargo Auto Finance also exited the business, citing low volume in its quarterly earning press release. Ford Motor Credit tried a different approach — it raised the prices on its leases, presumably to discourage prospective customers and encourage them to buy instead.
The bad news kept on coming, as GMAC Financial Services attributed a nearly $2.5 billion loss for the second quarter in large part to its auto leasing operations.
Leasing won’t go away forever, but customers who love the idea of driving a new car every few years might have to wait til the market comes back. Either that, or get some of that spray stuff.
Once there was an automaker that was struggling to reverse its years of poor performance. One could say it had to change its ways from that of a light-hearted grasshopper, hopping and sawing away in the summertime, to that of the diligent ant, droning away on the assembly line of management plans and strategic forecasts and stuff. The auto company even divested its grasshopper-like sports and luxury nameplates, so you know it was serious.
And all this hard work paid off! The end.
Wait — that’s not our moral. Hold on. The automaker found that, much like the little red hen down the street who planted the wheat, harvested the wheat, ground the wheat, and made the bread, now that it had dough, all the other animals wanted in.
In this case, the investor. The investor said, “Hmmm, I’d like part of that bread.” And the automaker said, “Uh, that was just an analogy. We don’t actually bake bread, we build cars. You mean, you want to buy up nearly 6% of our stock?”
“Yep,” said the investor.
“Well,” said the automaker. “The last time you bought large stakes in car companies, you tried to take over one and force another one into an alliance.”
“Oh, that won’t happen this time,” said the investor. “We don’t even want a seat on the board. In fact, don’t mind us, just go about your business. We’ll just be right here, nice and quiet, raking in dividends. You do have dividends, right?”
Now at this point the car company was probably thinking of another fable, the one about the fox and the scorpion.
In this one, a scorpion asks a fox to carry him across a river. The fox demurs, saying that the scorpion will sting him and he will drown. “No,” said the scorpion, “for if I sting you, I will drown right along with you.” So the fox agrees, and he takes the scorpion on his back across the river. Right at the other side, the scorpion stings the fox! And the fox cries out, “Why? why?!” and the scorpion says, “because it’s in my nature.”
On the other hand, in this case, the investor was validating the car company’s hard work and recent success. And as the automaker points out, anyone can buy stock in a public company. But it sure seems like it would be against Kirk Kerkorian’s nature to remain a passive investor for long — though it is doubtful his sting would be a mortal wound. Still, it’s going to be very interesting to see what comes of this turn of events.
Oh yeah, moral of the story: Investors aren’t scorpions. Carmakers aren’t foxes. And the little red hen needs a better business plan.
The long-rumored deal has become fact: Tata will buy the Jaguar and Land Rover car business for about $2.3 billion. The deal will net Ford about $1.7 billion after it pays into the pension fund for the unit. The car company will use the money to revitalize its long-standing brands.
Tata’s acquisition of Jaguar and Land Rover will allow the company to fulfill a longstanding goal — to move out of the East and become a truly global company. The first step was its acquisition of Corus Steel. Now, with Jaguar and Land Rover, it can take its aspirations a step further. East won’t just meet West — will East become West? Interesting that its two biggest western acquisitions are British: first Corus and now these two venerable nameplates. Tata was founded during the period of the British Raj. If Freud analyzed corporations, I wonder what he would think of that.
Tata has said that it will keep the unit separate from its Indian auto operations, famous for its recent unveiling of the one-lakh car, a small economy car that costs about $2,500. The one-lakh car is about as far on the other end of the scale from a Jaguar or Land Rover as a car can be. I wouldn’t be surprised if in the next few years we saw another acquisition by Tata of a mid-market nameplate.
Whether Tata can make a go of the luxury nameplate — Ford couldn’t — is still up in the air. Certainly right now it doesn’t look so good: The economy is fragile and Jaguar sales have been dismal recently. But recessions end, and the good times have a way of creeping back up on you. When people are ready to open their pocketbooks again, Tata will be ready.