How did this Tesla miracle happen?

I drove my first Tesla more than a decade ago — an afternoon scooting about the Hollywood Hills in a little Roadster that was an abomination.

The converted Lotus was a skateboard stuffed nose to tail with sizzling cellphone batteries. They didn’t catch fire or explode thanks to an extensive on-board cooling system. The ride was back-breaking; my ass, sitting in a paper-thin bucket, was inches from dragging along the pavement, with no apparent shocks or springs to cushion the bounces and blows of bad roads. The cockpit was a bare collection of hard plastics and somewhat crude controls.

The back-punishing Roadster was a joke of a car, yet Tesla survived it and George Clooney panning it.

The test drive had been set up by an old friend and colleague from Detroit who had guzzled CEO Elon Reeve Musk’s Kool-Aid. She had quit journalism and moved west to promote Tesla and its “visionary” leader and founder, Musk. “He’s got a great story,” she said.

To me, the story was about a huckster who had taken the lightest, cheapest, least complicated platform he could find – the Elise from perpetually-in-crisis Lotus – stripped out the gasoline powertrain and replaced it with thousands of tiny and very hot batteries, along with an elaborate radiator array to keep them from igniting.

It was a joke and I said so on my Car/Business TV show and in my column for the national newspaper.

As a business journalist, I’d come face-to-face with the likes of Musk and his roadster time and again. This venture had all the markings of a stock play for suckers: the “visionary” genius creates something out of pure inspiration, launches a prototype, then milks gullible idiots and dreamers for millions before the whole thing collapses under the weight of the practical business demands like costly R & D; product creation; safety concerns for both the cars and the people building them in what can be dangerous factories; reliability, production challenges; staggering marketing costs; the demands of sales, distribution and customer support; and, finally, regulatory pressures.

Tesla HQ in Palo Alto, Calif.

Of all the industries to choose for a start-up, the car business is the least likely for success. The business requires billions in capital to launch and support just one model and regulatory pressures are fierce. After all, if your new cellphone fails, you just drop a call. In a car, if something as simple as an ignition switch fails or a floormat gets stuck under the accelerator pedal, people die.

I gave the Pay Pal man, Musk, six months, a year, tops. By then, he’d have lined his pockets and moved on to selling some other “vision,” like space travel to Mars or a Hyperloop high-speed underground railroad. In between, he’d get his name in the Hollywood Reporter and Vanity Fair for dating beautiful starlets.

Well, here we are in 2018 and Tesla survives – 15 years since the company was founded. The stock market says Tesla is worth more than $50 billion (all figures in US dollars), though since the latest financials were released, Tesla’s share price has been up and down. The Roadster is long gone, but Tesla is a three-model company, with, of course, more coming, we’re told. Yes, Model 3 production has fallen woefully short of Musk’s promises, but that hasn’t stopped him from making more promises, still.

If you take a dispassionate look at Tesla, if you simply look at the company as a business venture with costs, R &D and production challenges, and the need to make a profit, Tesla is a disaster. Aside from the fact that key elements of the Model 3 have been panned, most recently by noted industry expert Sandy Munro of Munro & Associates – he says Model 3 build quality is comparable to a KIA from the 1990s – the biggest issue is funding. In the last quarter, Tesla burned through a record amount of cash, posting a $785 million loss for the quarter. Model 3 production peaked at 2,270 cars a week, well below the promised 5,000/week.

Earnings? Tesla is a cash-burning dumpster fire of a company.

Tesla, then, continues to miss promised production targets, it’s Model 3 has major quality issues and the company is tracking to lose $3 billion a year, with less than $3 billion cash on hand. Unless Tesla raises more money or — miracle of miracles, becomes profitable –Tesla will empty its coffers in 12 months or less. Yes, there is reason to believe that Tesla as we know it cannot continue as it has; change is coming.

But what cannot be denied is how Tesla has transformed the entire landscape of the car business. Once the big, established car companies realized that Musk’s “vision” had deep and lasting appeal among very influential consumers, and once governments from Beijing to Washington, D.C., to Berlin recognized that electrification was the future of transportation for a planet choked and overheated by carbon emissions, then the idea of a world of EVs (as articulated passionately by Musk, to give him credit) became a roadmap for the future.

And so here we are. In another article, I will lay out the EV landscape that will unfold this year and it’s staggering in breadth and depth. Starting this year and heading into the next decade, Tesla faces competition of a scope and scale that threatens the very survival of what is already a money-losing operation.

I don’t believe Tesla, at least under its unfocused, dilletante of a CEO — the Elon Musk who still does not understand and appreciate the very basics of carmaking and is constantly distracted by his other “visionary” projects — can survive and thrive on its current path. But Tesla the brand is enormously powerful and I believe it is here to stay.

At some point, the big institutional shareholders who control two-thirds of Tesla stock, will find a way to ease Musk out of his operational role, replacing him with someone who can do the nuts and bolts of making cars on time, on budget and with great quality. Musk will remain the product visionary, chief pitchman and so on, but someone who knows the car business will run the operation.

It’s also possible that a merger or alliance will be the ultimate solution. Whatever happens, those institutional investors will not lose their $50 billion; they will manipulate the company and the financial marketplace to their own ends.

I will give Musk and Tesla this much: I never believed that horrible Roadster would lead to this.

 

 

 

 

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Ford’s touts future models, tech — but today’s quality remains a major problem

Ford Motor is a mess.

While Ford quality is an issue today, the company has a vision for the future and it includes Ford Co-Pilot360. This includes standard automatic emergency braking with pedestrian detection, blind spot information system, lane keeping system, rear backup camera and auto high beam lighting. Ford Co-Pilot360 will roll out across Ford’s new passenger cars, SUVs and trucks up to F-150 in North America, starting on the new 2019 Ford Edge and Edge ST this fall.

The question is, will Ford clean up its mess quickly? Or is Ford back in the sort of downward spiral that led to near-bankruptcy towards the end of the last decade – a crisis that forced Ford to leverage every asset, including the Ford logo, to fund a complete remake of its products, services and marketing under a new CEO recruited from Boeing?

Adam Jonas believes in the former, not the latter. Jonas, the Morgan Stanley auto analyst most famous for touting Tesla, is among the optimists who have entered into a new romance with Ford.

Jonas believes Ford is in the early stages of a turnaround that will see Ford’s shares jump more than 40 per cent – to $16 from the current $11.15 (all figures in U.S. dollars). Jonas loves the profitability of the F-Series pickup and other Ford trucks, and he sees opportunity for Ford to profit from a boost in U.S. infrastructure spending.

Wow! Jonas has long considered Ford an underperforming dog. This This change of heart is noteworthy, no shocking.

Keep n mind that auto analysts, especially those at big institutional investment banks like Morgan Stanley, look at car companies through the lens of opportunity, not as owners of the actual product. Analysts, in addition, are employed who frequently profit most from share offerings and other financial services done for the very companies their analysts cover.

In a perfect world, analysts independently assess a company’s numbers – sales, profits, yield, etc. – and make an upside or downside prediction designed to steer investors to profits.
Perhaps Jonas is correct, then, that there’s value in Ford and you stand a good chance of earning a pretty buck on a Ford investment.

Part of Ford’s new strategy includes going all-in on hybrids to bring more capability to customers of our most popular and high-volume vehicles like F-150, Mustang, Explorer, Escape and Bronco – and serve as a hedge for customers against higher gas prices.

But I don’t think so, even now, as Ford’s leadership appears desperate to convince us that Ford is a forward-looking technology company with a smart plan for the future. Ford wants us to believe this is a cutting-edge carmaker with a grand and brilliant vision for the future.

I am unconvinced so far by Ford’s plans for a massive push into electrification and autonomous vehicle technology. The new initiatives may work. But what we’ve seen to date is unoriginal; every car company has been saying these things for years.

In the meantime, consider the mess that Ford is today, right now. And let’s start with quality.

Ford’s quality is terrible. The Ford brand ranks well below average in J.D. Power’s latest three-year Vehicle Dependability Study (VDS). True, Ford isn’t at the very bottom of the study, with Jeep, Fiat, Land Rover and Chrysler. But Ford is nowhere near industry leaders Lexus, Porsche, Buick and Infiniti.

There’s more. In Consumer Reports most recent brand ranking, Ford is ranked 20th out of 34 brands, while Lincoln is No. 17. Terrible, though in fairness, the F-Series is CR’s top-ranked pickup.

Where the profits are: Ford’s truck business will continue growing as the company adds new models and powertrains with an eye toward continued growth in high-end trims. Some highlights include: a new 3.0-liter Power Stroke® diesel engine for F-150 and updated version of the popular F-150 Raptor in 2018; the return of Ranger to the midsize truck segment and the debut of a new F-Series Super Duty in 2019; and a new F-150 with new hybrid powertrain featuring a mobile generator in 2020.

I’d wager that if you know someone who’s owned a Ford in the last decade, that person has gone through one, two, three or more transmissions. Jeff D., for instance, went through three trannies with his Explorer over 10 years, until moving along to something European. Donna C. has suffered through three new gearboxes for her Focus hatchback. Do your research on recalls and you’ll see Ford has not just transmission woes but suffers with recurring problems all over.

There is no excuse for bad quality, not in this automotive environment. But Ford quality has been disastrous for years. Poor quality has a negative effect on resale values and it turns off existing owners, forcing the company to spend extra to draw in new buyers who have not yet suffered through problem-plagued cars and trucks.

This brings me to management. Ford is also in the midst of a major management re-shuffle. There is uncertainty at the top and that’s never a good thing.

Ford’s new CEO, Jim Hackett, made his management bones running a business furniture company, followed by a short stint as a college athletic director. Selling work stations and overseeing a football program are not what you’d expect to find on the resume of a global car company chief.

A notch down from Hackett, there also appears to be turmoil. Case in point: Ford replaced its head of The Americas and the former product chief in a surprise move that smells of scandal, though details remain scant.

The all-new Ford Bronco will be one of eight SUVs in Ford’s North American lineup by 2020 — and one of two off-road SUV offerings.

Ford makes virtually all its money in North America (selling pickups and SUVs). A messy situation at the top of Ford’s most important region is not good for business. The new Americas head made his reputation running Lincoln. Lincoln? Another lagging luxury brand, one loaded with Fords in tuxedos.

And sales? Ugly.

In Canada, Ford lost more than a point of market share this year – with sales down 3.4 per cent. This compares to chief rival General Motors Canada, with sales UP 11.7 per cent this year.

The U.S. story is troubling, too. Ford posted a 6.9 per cent decrease in U.S. auto sales during February 2018 compared with February 2017. Ford’s car and SUV sales slumped in the double digits, though the F-Series remained strong (up 9.3 per cent in February).

Ford’s Explorer, Edge and Escape SUVs are also doing well enough. Strong truck sales are reflected in transaction prices that in the U.S. are above average. Still, Ford has a lot of unsold inventory sitting around on lots.

Then there’s China. Not good at all. Sales there were down 18 per cent in January. Ford remains a relative bit player in China, at least compared to rivals such as GM and Volkswagen.

Ford is rightly focused on China and this may yet become a good news story – if Chinese buyers prove to be as excited about light trucks as Americans and Canadians. Ford is also now touting a big push into autonomous vehicle technology and electrification of future models.

Ah, the future. Car companies love to talk about it when the present is unpleasant. Ford is no different.

Ford plans to drive SUV growth with two all-new off-road models: the new Bronco and a yet-to-be-named off-road small utility – both designed to win a growing number of people who love getting away and spending time outdoors with their families and friends.

Ford, we’re told, will have its freshest lineup ever by – wait for it – 2020. That’s two years from now.

Ford plans to have a fleet of “smart vehicles in a smart world.” Look for an explosion in electrified vehicles, and “full connectivity” that will allow Ford to do what Tesla already does – deliver “over-the-air updates” via the “Transportation Mobility Cloud.”

A few details. By 2020, Ford expects to replace 75 per cent of its current portfolio and add four new SUVs.

Ford will offer hybrid-electric versions of vehicles such as the F-150, Mustang, Explorer, Escape and Bronco. And Ford will sell a high-performance battery electric ride by 2020, with six more battery-driven vehicles by 2022.

For some context: Volkswagen claims that one in four new VW models will be all-electric by 2025. So, VW will introduce 30 new electric vehicles by 2025. By 2030, VW expects to have at least one hybrid or electric version of every model in its lineup. The goal is to have EV sales account for 25 per cent of all VW Group sales.

In the midst of all this EV talk, Ford is also touting its new 3.0-litre Power Stroke diesel for the F-150. Diesel? VW’s product plan is intended to erase the stain of Dieselgate.

Moving on…

Autonomous vehicles: Ford is now touting something called Co-Pilot360™, a technology “package that includes standard automatic emergency braking, blind spot warning and other driver assist features.” Ah, Tesla, GM, Nissan, Daimler, Audi and others have been aggressively touting AV technology for quite some time now. Ford leaves me unimpressed.

Let me summarize: Ford is moving $7 billion in R & D money from cars to SUVs. By 2020, Ford will offer eight SUVs, five of which will have hybrid drive available and one battery electric. There are two new off-road models coming, too – the new Bronco and an unnamed small utility. And Ford plans to catch rivals and apparently pass them in AV technology.

Ford Co-Pilot360 comparison

We’ll see.

I can say this: Ford has a lot on the go and by the early part of the next decade we may all be looking in wonderment at the brilliance of the new leadership. But between then and now, I’ll be looking at things more mundane, with quality first and foremost.

When Ford is among the world leaders in quality and resale value, and when my friends, family, readers and viewers cease to tell me horror stories about Ford’s transmission woes and the like, then I will believe that Ford has cleaned up its mess.

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Robocars are almost here, right? Not so fast

On the crowded streets of Tokyo, Nissan Motor has just shown us a prototype Infiniti Q50 sedan loaded with the latest version of ProPILOT Technology. It’s a preview of the real-world version of ProPILOT promised for 2020.

Dial up a destination in the navigation system, and ProPILOT will drive you there, all by itself. Clogged city streets, wide-open highways? No matter. That’s Nissan’s promise.

The cockpit of Infiniti’s ProPilot prototype.

What makes this possible? The hardware includes a staggering array of sonars, cameras, millimeter-wave radars and laser scanners. They feed real-time information into a computer brain loaded with complicated algorithms designed to sort out a massive pile of non-stop data. ProPILOT speedily and continuously processes the data, makes non-stop decisions and spits out a self-driven route on a high-definition map – a route that can change instantly based on road conditions, weather, traffic patterns, pedestrians and any manner of other factors.

Nissan – like everyone else working on self-driving technology – promises robocars that deliver peace of mind and convenience. It’ll be safe.  It’ll be seamless. You’ll love it!

Toyota Motor’s Lexus division is among the many making such claims. A new concept luxury sedan called the LS+ Concept offers a vision automated driving technologies and artificial intelligence that will be available as early as 2020.

Lexus says a strength of its approach is artificial intelligence (AI) that communicates with a data centre. The car’s AI learns from “big data, including information on roads and surrounding areas” to ensure “a high level of automated driving.”

The LS+ Concept offers a vision automated driving technologies and artificial intelligence.

Nissan and Toyota are among the horde of automakers and suppliers who are aggressively promoting the inevitability of self-driving cars. It’s not about if, but when.

They all argue that self-driving cars will make for safer roads, and an end to snarled traffic. Robocars will free commuters of the stop-and-go grind and allow long-distance drivers to sleep safely behind the wheel – if there even is a wheel in the cars of the future.

REGULATORS ON BOARD

The powerful U.S. National Highway Traffic Safety Administration, the key regulator in all this, has asked automakers and technology companies to identify “any unnecessary regulatory barriers to automated safety technologies.”

NHTSA, it seems, wants to clear the path for self-driving cars. And given the official Canadian Government policy is to harmonize regulations as much as possible with the U.S., self-driving cars are coming to Canada very soon, too.

THE RACE IS ON

Which of course is great news for Infiniti’s parent, Nissan Motor, as well as the very long list of carmakers and suppliers racing to make drivers redundant. Takao Asami, Nissan’s senior vice president of research and advanced engineering, is one of many making bold pronouncements.

The Chevrolet Bolt in San Francisco with Jeremy Cato.

“Today’s demonstration is another example of our successful work toward creating an autonomous driving future for all,” he said of the Q50 prototype on Tokyo’s streets.

General Motors, for its part, says it is a world leader in self-driving technology – if not THE world leader. CEO Mary Barra has not been shy about touting the company’s technological achievements.

“GM and Cruise Automation recently deployed our latest generation self-driving electric test vehicle,” Barra said on a conference call. “We believe it will meet the redundancy and safety requirements necessary to operate without a driver.”

Cruise Automation plans to make a major announcement in this area on Nov. 28, in fact, further underscoring the leadership position GM continues to tout. GM has a fleet of Chevrolet Bolt EVs (electric vehicles) testing its self-driving technology on the streets of San Francisco. All this has not been missed.

“We think GM’s proactive approach is allowing the company to move faster than most peers, with in-house (intellectual property) related to electric drivetrains, shared vehicle platforms, and autonomous vehicle hardware/software,” Piper Jaffray analyst Alexander Potter says in a recent note.

GM, Nissan and others are part of a crowded field that is working to make autonomous vehicles a reality, and soon. The autonomous vehicle industry is highly competitive and shockingly interconnected. In California’s high-tech hotbed, Silicon Valley, more than 40 companies are grinding through the challenges facing self-driving cars and their adoption.

These companies include Intel,  Nvidia, Waymo, Tesla,  Uber Technologies and even Samsung. All and more have secured permits from the California Department of Motor Vehicles to test self-driving cars on public roads.

THE GLOBAL RACE TO AUTONOMY

This is a global race, not one confined to the San Francisco Bay Area, either.

A survey from the Cologne Institute for Economic Research found that German car manufacturers and supplier firms had filed way more patents for self-driving cars than most other global automotive companies. From 2010 to 2017 a total of 5,839 autonomous-driving patents were filed by carmakers and suppliers. Fifty-two per cent of globally registered patents for autonomous driving came from German companies.

Still, there is a feeling that the rest of the world outside Silicon Valley is playing catch-up. Palo Alto, Calif.-based Tesla, the battery-car company, has been a pioneer in autonomous technology. It’s Autopilot system is well-regarded and Tesla has collected a great deal of on-the-road, real-world data on autonomous technology through its electronic connection to owners.

For all its data mining, however, some believe that for technical reasons Tesla is falling behind, even as the company says its vehicles will be able to drive from Los Angeles to New York City without a “single touch” by the end of the year.

Rivals argue that because Tesla’s vehicles do not have something called LIDAR and cannot be equipped with LIDAR without a hardware upgrade, the Silicon Valley start-up is in trouble.

LIDAR? The acronym stands for Light Detection and Ranging. LIDAR uses pulsed laser – light pulses – to measure distances, and when combined with other data from cameras and GPS systems, allows the most advanced self-driving systems to generate precise, three-dimensional information.

Audi, for instance, will launch a new, LIDAR-equipped A8 premium sedan with Level 3 autonomy starting next year. Audi’s Level 3 tech will allow the A8 to carry on autonomously at speeds up to 60 km/hour or 37 mph. BMW says it will launch Level 3 in 2021, good for speeds up 129 km/hour or 80 mph.

The staggering complexity of reaching Level 3 requires LIDAR and a camera in the instrument cluster, monitoring the driver, according to BMW, Audi and others. Tesla’s Model S and X, as well as the Model 3, cannot be software-updated to Level 3 autonomy; they don’t have LIDAR. Instead, Tesla’s Autopilot relies on radar and cameras to provide data for the car’s computer brain.

Level 3 autonomy allows the driver to look away from the road ahead for brief moments, but provides for prompts that snap the driver back into control immediately when required. The A8 is the first production car available with LIDAR and it’s intended as an antidote for painful stop-and-go driving.

BMW for its part, believes in LIDAR, arguing that its iNext system, to debut in 2021, will take autonomy to a higher level, still. Those going the LIDAR route argue that it’s the most complete and safety route to self-driving cars, though things like a camera to monitor the driver are also required.

Tesla, however, has said LIDAR is not only “exceptionally expensive,” but also has other drawbacks. LIDAR requires four or more devices mounted on the vehicle to get 360-degree coverage and even then, and LIDAR doesn’t detect colour or light. So LIDAR-quipped vehicles will still need cameras to detect taillights and stoplights, for instance. Tesla says LIDAR may prove to be an unnecessary and costly approach.

“Radar and cameras may do a better job, as the radar work in conditions where LIDAR and cameras will not (fog, snow, heavy rain, etc.),” says Tesla in a blog post on the pros and cons of these sorts of technologies.

YOUNG PEOPLE WANT SELF-DRIVING CARS

Virtually everyone agrees that the youthful wave of new-car consumers want self-driving cars. A recent Edmunds study reported by Bloomberg had some startling though predictable numbers.

Some 40 per cent of Millennials age 33 and younger would be willing to buy a robocar in the next five years. Less than 20 percent of Millennials would never consider a self-driving car at all. That’s in sharp contrast to 55-plus drivers, half of which would never let a robocar take over the driving.

SELF-DRIVING CARS ARE ALREADY HERE – SORT OF

Except, of course, many Baby Boomers and such are already using early forms of self-driving technologies. As the Detroit Free Press notes, early forms of autonomous technology have been steadily creeping into mainstream models. Active safety systems such as adaptive cruise control, blind-spot detection and automatic parking are now available on more than 60 per cent of new models.

“While there are a number of ways one can define who’s ‘leading’ in the race to autonomy, analyzing the prevalence of active safety features demonstrates just how ready (automakers) are to bring this technology to mass production, and how willing consumers are to adopt it,” says Jessica Caldwell, executive director of industry analysis at Edmunds.

Just consider: Edmunds notes that among 2017 models, Tesla leads the pack for offering active safety features with 57, followed by Volvo with 47 and Honda at 37. At the bottom, Mitsubishi (3) offers the fewest, behind Fiat Chrysler (7). Nissan and General Motors were tied with 13 and Ford offers 14.

WHAT’S IN THE WAY OF SELF-DRIVING CARS

The road to self-driving is littered with potential roadblocks, however. Jason Levine, the new head of the Center for Auto Safety, tells The Detroit News that fully autonomous cars are “a long way off,” adding that all the latest hype overlooks the reality of all the cars in “someone’s driveway today.” That is, the new self-driving cars must share the road with millions and millions of older cars piloted exclusively by humans.

Regulators, says Levine, create rules based on copious safety data and both real-world and controlled test data. Among many things, regulators will be looking for proof that robocars are safer than traditional cars driven by live human beings.

There is also the issue of cybersecurity. What will the car companies do to ensure that your automated vehicle won’t be hacked, with not just privacy implications in play, but the actual safety of those on board and others sharing the road.

Some other questions to be answered, barriers to be overcome:

  • How will automated vehicles navigate roads crowded with non-automated cars, pedestrians and bicycles. Which groups and individuals get priority in difficult and dangerous circumstances?
  • What about the economics of self-driving cars? For instance, if millions of truck drivers are replaced by self-driving technology, what happens to them, and the broad highway network of truck stops, motels, service centres and the like? Automation causes dramatic workforce displacement and the promise of economic disruption.
  • Litigation: When two autonomous vehicles collide, who’s liable? When an autonomous vehicle collides with a car piloted by a human, who’s responsible? When systems fail or are fooled by various circumstances, who gets the blame?

Yes, it certainly appears that self-driving cars are coming. They seem inevitable. We are promised that they will be here sooner, not later. But will we be ready for them, and all the disruption they bring?

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Dieselgate: rival car companies claim the high ground

On a late summer day in Detroit, Mich., a disgraced Volkswagen engineer named James Robert Liang left a courtroom after being sentenced to a 40-month prison sentence for conspiracy to defraud the U.S. Government as part of a global scandal that some believe has permanently besmirched and undermined diesel powertrains around the world.

2018 Chevrolet Equinox with its diesel engine: GM claims performance and high technology.

So, is diesel dead? Bear with me.

First, consider the case of Liang. U.S. District Court Judge Sean Cox said VW was cheating and worked to cover it up. “The conspiracy perpetrated a massive … and stunning fraud on the American consumer that attacked and destroyed the very foundation of our economic system,” Cox said.

Yes, but Liang was not president of VW, or VW USA when he committed this crime. He never sat on VW’s management or supervisory boards and he never had operating responsibility for any large division of the global automaker. Indeed, no senior officer of VW has yet been convicted of a crime in this scandal.

Liang was a mid-level employee, as was Oliver Schmidt, a former manager of a VW engineering office in suburban Detroit. Schmidt will be sentenced in December after also pleading guilty to conspiracy and fraud charges related to the scandal.

VW itself pleaded guilty in March to defrauding the U.S. government and agreed to pay $4.3 billion (US) in penalties, on top of billions more to buy back cars. Other relatively low- and mid-level VW employees have been charged in the case are in Germany, so they are out of reach of U.S. prosecutors.

Earlier this year, Courts in Ontario and Quebec approved a class action settlement with Volkswagen Group Canada Inc. involving emissions from 2.0-litre TDI diesel engines in roughly 105,000 vehicles. And while affected VW owners were made eligible for payments ranging from $5,100 to $8,000, depending on the model and age of the vehicle, the class settlement is apparently not an admission of liability by Volkswagen.

But the scandal in Canada is not over. In September, Investigators for Ontario’s Ministry of the Environment and Climate Change raided the headquarters of Volkswagen Canada. They executed a search warrant as part of the international investigation into “cheat devices” meant to evade emissions regulations. So far, no official of VW Canada has been accused or charged with any wrongdoing.

And around the world?

To date, VW the corporation has agreed to settlements with consumers and government agencies around the world worth more than of $30 billion (US) and counting. These are costs shareholders ultimately bear. If you own a stake in VW, you are paying a price for the scandal.

VW, I should note, is not alone.

For example, in late summer, VW, Daimler and BMW agreed to upgrade around five million newer diesel cars in Germany and offer trade-in rebates on older models in a deal to avoid more costly remedies and salvage diesel technology and avoid driving bans in cities, Bloomberg reported.

But the Dieselgate scandal has not led to charges or convictions of a single senior executive or board member of any automaker. Not one. There have been resignations, but the only VW officials facing jail time are relatively junior executives and engineers – what you might call rank-and-file car company  “grunts” working in the trenches.

The lack of accountability at the top of carmakers is itself a scandal. It strains credulity to think that no one in a senior position at VW or any other carmaker has had knowledge of the depth and breadth of the cheating and the cover-up that has affected millions of diesel passenger vehicles.

And this is a core reason why so many consumers lack confidence in diesel engines. They’ve seen how easy it apparently was to cheat the system and cover it up for years. And they recognize that the only heads to roll belong to workers in the trenches.

Into this environment, General Motors is making a renewed push to position diesel as a viable technology that is cost-effective and rewarding for consumers who want strong powertrain performance – performance that is particularly good for towing and long-range driving. Indeed, modern diesel technology offers more power while emitting about 15 per cent less carbon dioxide than equivalent gasoline engines.

Dan Nicholson, GM global vice president of global propulsion systems, argues that for the time being, diesels are well-positioned to “play a role in GM’s fuel economy efforts.” Diesel delivers 20 per cent more energy per litre, compared to gasoline, he notes. So it’s a more efficient fuel and current diesel pump prices make it significantly more economical than gasoline.

The question is, why should consumers believe that GM is producing and selling diesels that do not “game” emissions tests? It’s a fair question. And it is the perfect question to put to Nicholson. And as the penalties to Laing and Schmidt demonstrate, he is precisely the sort of car company employee most likely to suffer jail time in any cheating scandal.

“I have worked my whole career at GM, and I can tell you integrity runs through the leadership and individuals at this company,” says Nicholson. GM, starting with CEO Mary Barra, now enjoys the best leadership in the company’s history, he adds. From Barra down, leadership is committed to the highest standards of honesty and integrity. It’s easy for anyone who sees wrongdoing at GM to speak up, he says, insisting that what happened at VW can and will not happen at GM.

“Not all companies are like that,” says Nicholson, clearly alluding to VW. He adds that his own personal credibility and that of GM is at stake when he and other company officials say GM’s diesels meet the highest standards for emissions compliance, performance and quality.

“I am not willing to work at a company that does not back up its employees and I am not willing to go to jail and will bring up any issue” related to cheating or scandal, Nicholson says forcefully.

At GM, diesel is alive and well and it has an interim role in the long-range fuel efficiency and climate change initiatives at the big automaker.

 

 

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Daimler, not Tesla, points to the auto industry’s future

I have lately been testing a parade of Mercedes-Benz and smart cars – from a fortwo cabriolet the size of microwave oven to a sporty little SLC 300 hardtop convertible; a GLE sport-utility; an E-Class sedan and coupe; and, even an exquisitely imposing S550 convertible hardtop.

Mercedes-Benz Concept X-CLASS

I’ve not spent much time in a muscular sprinter van, popular with police breathalyzer units, and the smaller Metris van remains untested, too. But I can say that both are very good fleet values, according to the research firm Vincentric.

Point is, Daimler AG has been delivering a steady stream of new Mercedes, smart and Freightliner models for years now. They come in all shapes and sizes, and across price ranges: the smart fortwo starts at $17,300 while a Maybach S600 starts at $232,400.

In the heart of the Canadian market, Merc has its Honda Accord-fighter, the CLA, not to mention the B-Class station wagon. They run in the mid-$30,000s and up. Merc, while a luxury brand, has managed to cover an impressive swath of the marketplace. Rival BMW AG surely must have noticed.

Mercedes, in fact, passed BMW last year to become the world’s No. 1 premium car brand in the world. Why is quite simple: Mercedes has unleashed a torrent of new products in the last few years, while BMW’s new model cadence has been slower and certainly more haphazard.

Mercedes-AMG SLC 43

I believe BMW has become sidetracked by its floundering i-Brand of electric cars and hybrids. The “greening” of BMW seems to have sapped the Bavarian company of energy and enthusiasm for what buyers want today, right now.

BMW has spent billions on the i-Brand and related “green” initiatives with not much to show for it in sales, revenue and profits. At least for now. The result: the gang in Munich could only wave as waved Mercedes passed them in the fast lane.

Daimler hasn’t been mortgaging the future to fund the present, however. No, the company is plowing billions into electrification and hybrids and cleaner assembly lines and all the rest, while also growing sales and revenue, and maintaining very healthy profit margins. True, Daimler has been caught in a worrisome diesel emissions scandal that reeks of collusion among car companies from Germany. This could end up costing Daimler dearly. Regardless, it’s a black eye for the company and the other German automakers involved.

The Mercedes-Benz GLA shares its platform and powertrain with the QX30.

Nonetheless, if I were an investor (and I am not, not in car companies, not any of them), I would take a closer look at Daimler. The stock is cheap and offers an appealing yield. Moreover, Daimler is investing in products, technologies and services that should make the company a formidable player in the auto industry for many years to come.

Consider: Daimler is making a $10 billion investment in electric vehicles and plans to roll out 10 new electrified passenger cars by 20200. Daimler estimates electric vehicles will account for 15-25 per cent of Mercedes-Benz sales by 2025.

Daimler is also building its own in-house battery (take note, Tesla), is developing an electric semi for its Freightliner division, and is moving quickly to take advantage of the rapidly emerging importance of electrified vehicles in the world’s biggest car market, China.

Mercedes-Benz G-Class: used to chase Jason Bourne.

In China, Daimler is working to expand its presence in a joint venture that is being called Beijing Benz Automotive. Daimler and its Chinese partner, BAIC, plan to produce Mercedes-branded battery electric vehicles (BEV) by 2020, while also developing a deep and rich research and development presence in China.

This brings me to autonomous driving technology, where Daimler is a world leader. That’s good. Also good is Daimler’s vision for the smart brand. Smart is the tip of the spear for car-sharing and city car initiatives.

More immediately, if you’re a car buyer today, well, Mercedes quality is world class and resale values are excellent. Indeed, the Mercedes brand is strong and valuable and Daimler’s global infrastructure is good for owners and poses a formidable competitive challenge for all luxury brands.

The AMG GT is one of the very hot AMG products from Mercedes-Benz — so hot they’re driving sales to great heights.

Daimler isn’t the darling of investors, though, just consumers. Indeed, Daimler’s stock market capitalization is a relatively modest $64.76 billion. Tesla, you might wish to know, has a market cap of $58.63 billion (all figures in U.S. dollars).

This, of course, makes no sense. Daimler did $153 billion in sales last year and earned a profit of $8.53 billion. Tesla’s sales amounted to just $7 billion. Not surprisingly, Tesla lost $674.91 million.

Daimler is a juggernaut, but Tesla is the toast of Wall Street and a legion of true believers. You may go ahead and be entertained by Tesla and its Tweeting, starlet-dating CEO, Elon Musk. But if you want to know where the auto industry is headed, watch Daimler.

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