Chrysler

Automotive-industry-metals-price-index-metalminer-january-2014

2013 proved a great year for automakers as well as a beacon of hope for metal producers that supply to that industry. MetalMiner’s Automotive MMI®, the best performing of all indexes throughout 2013, moved above its January 2012 baseline reading of 100 to 101.

Hot dipped galvanized steel, copper and lead pricing lent support during December, while key precious metals used in the automotive industry held relatively steady.

Compare with last month’s trends – here’s our free December MMI® Report.

MetalMiner has consistently warned that the automotive sector has reached its peak, but the numbers continue to delight.

And despite profit warnings from companies such as Ford, the proverbial bloom is not off the rose.

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car on fire

GM, Ford and Chrysler sales are on fire – well, in a good way. (Certainly better news than Tesla’s battery fires, above). Source: engadget.com

In spite of declining consumer confidence, a drop in residential construction and sales of existing housing stock, and mediocre retail sales, one section of the US economy is booming – cars.

Aided by falling fuel prices, widely available cheap credit and an improved model range – at least from the domestic Big Three – sales have exceeded expectations in November. An FT article reports General Motors (NYSE: GM) posted particularly strong growth, selling 14% more vehicles than last November, helped by a 41% annual rise in sales of its Chevrolet Malibu midsize sedan and robust demand for its Chevrolet Silverado pickup truck.

Ford Motor Co. (NYSE: F) also benefited from a strong pick-up in truck demand, selling 16.3% more of its F-series pickups than last November. It also sold 51% more Fusion sedans than the same time last year – the Fusion has been a runaway success, becoming one of the best-selling cars in the US. Overall, Ford’s new vehicle sales were 7 percent up on last November, against forecasts of 6 percent.

But the biggest success story is arguably Chrysler, the No. 4 by domestic sales, with sales up 16% on last November, boosted by the popularity of its new Jeep Cherokee sport utility vehicle. The No. 3 producer, Toyota, by comparison, posted a more modest rise of 10.1% over last year while Volkswagen saw its US car sales plummet 16.3%, reflecting the lack of new models in its range.

So what underlying factors make this possible?

ANALYSIS: Why the US Auto Market May Not Be Driving So Fast and Furious

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Ron Krupitzer paints AISI as the central hub of cooperation between steel companies and automotive OEMs.

MetalMiner recently had the chance to sit down with Ron Krupitzer, vice president, automotive market for the Steel Market Development Institute.

Having covered the aluminum industry’s involvement in lightweighting, we wanted to get the steel perspective on the issue.

Ron began his career as a metallurgist/researcher at Republic Steel in Cleveland, then moved to Chrysler and put his research to use for 8 years in R&D and engineering. He finally moved to stamping, actually making the products that he had been researching before retiring from Chrysler — which offers him a singular perspective on how the steel and automotive sectors come together.

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Continued from Part One.

Fiat’s Sergio Marchionne is coming under political pressure, according to an FT article. Understandably, his response was blunt.

“Would you invest in a market overwhelmed by the crisis in which not only do you not have the certainty of making one euro of profit, but risk losing the money invested?” he is reported as saying.

Marchionne’s investment in Chrysler looks brilliantly prescient today as its profitable US partner props up loss-making Fiat.

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Who would want to be a carmaker these days?

You don’t even get the endless golf, private jets and unlimited expense accounts that once were a feature at least in the corporate world of Auto America.

Although GM and Chrysler have been shamed by going cap-in-hand to the taxpayer, Ford at least has been able to hold its head up as surviving without recourse for support and for that, they deserve due credit; the firm has proved swift of foot and not afraid to take drastic measures to survive.

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Continued from Part One.

In another twist to the tale, a report in the FT says GM seems to be at an advanced stage of discussions with France’s Peugeot, also a struggling carmaker with excess capacity, to jointly develop engines, transmission systems and entire vehicles that would be sold under their respective brands. While this could have design and production cost savings, it would really only make sense if between them they closed excess production capacity.

While no shares will change hands in the proposed cooperation between GM and Peugeot, it has similarities to Chrysler’s cooperation with and later 53.5-percent takeover by Italy’s Fiat, the loss-making carmaker that owns the Lancia and Alfa Romeo brands in addition to Fiat. That merger could be said to be timely for Fiat, as the combined company reported a small net profit for 2011 and projected $1.5 to 2 billion net profit for 2012, largely on the back of a resurgent North American market for Chrysler brands.

On the other side of the coin, Tata’s Jaguar Land Rover (JLR) has been investing something like $1 billion per year for the last few years and is set to double this next year as it expands production in the UK and overseas, and takes on more staff to meet record demand. Tata Motors bought Jaguar Land Rover from Ford in 2008, for £1.5 billion, in a move some derided as a mistake. Last year, JLR made a profit of £1.1 billion and this year’s profits are expected to be even higher still.

GM probably missed the boat in selling its European operations back in 2009.

Who would buy them in today’s market is unclear. GM could still make the operations profitable; they have great research and design resources and some plants that are highly efficient. Arguably, in a world where smaller cars are likely to be a long-term trend, a European design and production base is a strategic asset that could be of considerable benefit to the global GM corporate.

However, GM as a group will not be willing to carry the cost of a loss-making European division for long, and unpopular as it will be among European governments and unions, plants are going to have to close.

Europe’s car companies could be said to mirror the European economies in the sense that there’s a stark contrast between the haves and have-nots, or between the profitable and the loss-making.

Unlike the US, where all carmakers were pulled down post-2008 and some teetered on the edge of bankruptcy while others actually went into Chapter 11, European carmakers are much more of a mixed bag. And before I get comments about government subsidies, let me say this: while they have over the years detrimentally impacted the structure of the European car industry, today’s winners and losers do not split neatly down the line between beneficiaries of state largesse and not.

In stark contrast to its parent, now (free of onerous pension obligations and high union pay rates) a highly profitable enterprise, General Motors’ European operations (which includes Vauxhall in the UK and Opel in Germany) lost $747 million last year, with $562 million of that coming in the final quarter of the year and including a restructuring charge of $200 million.

It has lost money in Europe for a decade, but targeted breaking even in 2011 as talks broke down to sell the business to Magna a year back. Even so, the loss is a marked improvement from the $2 billion deficit in 2010, the Telegraph reports, but is in stark contrast to a year of record global profits for GM group, where profits surged to $9.19 billion from $6.17 billion.

Perversely, GM’s rescue plan may include the closure of Europe’s most efficient car-making plant, Ellesmere Port in the UK, because GM is prevented from closing German plants until 2014 due to union agreements — even though the Bochum plant in Germany, which has a capacity of 160,000 cars but is said to need 3,100 employees to operate, compared to Ellesmere’s 187,000 capacity with only 2,100 employees.

Continued in Part Two.