Car Insurance

While Range Rover has a relatively short history in the U.S., it is in fact celebrating its 32nd anniversary this summer. Long though this is for a single model, what is more astonishing about this ground-breaking vehicle is that it went a full two dozen years before undergoing its first facelift.

It was in June 1970 that the original Range Rover first saw the light of public day. Coming from Land Rover, which had made its name in producing rugged off-road workhorses used by farmers, the military and police the world over, the new model aimed to continue the tradition. It had all the off-road capability for which Land Rovers were renowned, and even retained some of the utilitarian aspects-it was recommended, for example, that the interior could be hosed down as there were not any carpets to worry about-but it was aimed at a different type of buyer. In the event, though, it became apparent that the closest most Range Rovers ever went off-road was when mounting a kerb in a tight parking situation. As its off-road behavior had been at the expense of its on-road characteristics, air suspension was adopted-at a considerable price for the customer-to the top of the range versions in 1984. However, it was not until 1992 that the car began to change visibly, when the wheelbase was lengthened and the originally oldsmobile-designed V8 was enlarged from 3.8 to 4.2 liters.

It was to take still another couple of years later, though, for the model to undergo the first major makeover in its life. The shape substantially changed although the design remained basically traditional. A separate ladder chassis with deep side members gave good protection for the underside of the body and all the under-works. Steering was by recirculating ball, which limited kickback over hard going and the exceptionally long travel of the beam axle suspension endowed the car with very high cross-articulation abilities, valuable for preserving traction in extreme situations-and air suspension was adopted for the entire range.

By this time, though, the company had passed into BMW ownership, along with the rest of what was now called the Rover Group in 1993. Thus it was that when the latest Range Rover was conceived in 1996, its engineering and style design were under BMW direction. But to add to the convoluted story, BMW sold Land Rover to Ford in July 2000 when disentangling itself from its Rover Group investment-and in a strange twist of fate, the new model came back under the control of the one person who can be regarded as its godfather. As BMW board member responsible for product development, Wolfgang Reitzle had pushed hard for the new model before he lost his job. And now, as president of the Premier Automotive Group, to which Land Rover became a subsidiary, he was once again master of its fortunes.

By the time of the Ford takeover, the design had been completed, but development was still in progress. As Land Rover engineer Peter Thomson explains, “BMW was contracted by Ford to complete the development work. There were already a large number of Land Rover engineers working on the project, and the number of them increased after the sale–so we have had a parallel organisation within Land Rover/BMW since the takeover. It’s a great reflection on the part of the project management that the whole thing has come up so well.”

It has not been a cheap project for Ford. Before the new model could be built at the Solihull plant, Land Rover’s traditional manufacturing base in the West Midlands of England, a massive investment was needed to upgrade the historic plant. To date, almost $300 million has been invested in the 121-hectare (308-acre) site specifically on the Range Rover project.

Principal improvements directly linked to the new Range Rover project include the implementation of a $90 million new stamping plant–a first for Land Rover, which has previously relied on outside suppliers for all its body panels.

The plant, which was opened in December 2000 and is staffed by around 120 people, contains the largest press in terms of bed size in Europe. The five station, 8,300-tonne crossbar transfer press was manufactured by Muller Weingarten and is capable of handling aluminium and steel blanks between 1,370-mm and 4,500-mm wide.

It took just 14 months from the start of the building project–which saw 180,000 cubic metres of soil removed from the site–to the initial run of the press. At its peak, it will produce 58,000 steel or aluminum panels per week. Press changeover, including the switching of dies to change the pressings, takes less than 10 minutes. On older equipment, this procedure can take hours.

Alongside the new press is a $6 million try-out press, on which new tools and maintenance work can be carried out to ensure minimum downtime and disruption during routine maintenance. As well as producing panels for the Range Rover, the new press provides body panels to BMW for the new MINI; stamping time is currently split 50/50 between the two models. The press will also produce panels for future Land Rover models, though existing models will continue to source panels from existing suppliers.

While analysts seem to agree that the macro picture for aftermarket retailers is

brightening, CSK Auto, the nation’s fourth largest player, continues to struggle as a result

of costly acquisitions starting in 1999 that nearly doubled the company’s store base. As

aggressive and praiseworthy as this growth plan was at the time, it has now saddled the

Phoenix-based retailer with a financial burden that may prevent it from prospering in

today’s increasingly favorable market conditions.

While growing its market was top priority two years ago, CSK is now working to contain

itself as it looks to commercial sales to drive results. The company, which is the top auto

parts retailer in the West by store count, pledged at the outset of fiscal 2001 to cut debt

and lift profits–with inventory reduction a key component to its strategy. However, auto

parts retailing is seasonal and highly dependent on weather. High rainfall in California,

where the company has its largest share of stores, conspired with overall economic malaise

to drag first quarter comp sales down 1%. High energy costs in that state also harmed

results.

Then the inventory cuts and payout of legal settlements hurt second quarter profit margins

as vendor volume allowances and cash discounts were lost; net income before restructuring

charges fell 37.5% to $5.2 million year over year. For the first half of fiscal 2001, ended

Aug. 5, CSK’s revenue rose just 1% to $738 million; same store sales were flat.

The company has renewed liquidity thanks to its recent $30 million in financing secured

from Oppenheimer Funds. It is calling for income in the third quarter, which ends Nov. 4, to

rise 50% over the second. But some analysts worry about the company’s high borrowing levels,

the financial strain from the hefty price paid for its acquisitions and subsequent

integration costs and high product costs.

To conserve cash, CSK has halved its planned 2001 store openings from 50 to 25 and is

closing 36 underperforming stores. Management hopes these actions, along with eliminating

120 mostly corporate jobs and scuttling low-selling product lines such as clutch parts, will

help return it to the healthy profit growth it enjoyed before its rapid expansion-not to

mention boost the company’s ailing stock. CSK’s shares trade between $6 and $8, down sharply

from highs over $30 in 1999.

Charges for these second quarter restructuring moves totaled $44.6 million and led to a

reported loss of $21.6 million for the first half of the year. Before the charges, net

income was $9.5 million, or $0.34 per share, still far short of the $21.5 million, or $0.77

per share, earned in the first half of 2000. CSK expects the store closures to reduce

revenue by $23.6 million and gross profit by about $10.6 million over the next 12 months.

However, all the recent measures are expected to lower operating expenses by $9.3 million in

the second half of 2001 and $16.5 million in fiscal 2002. The job cuts are seen shaving $7

million from annual salary costs and the closures lifting annual profits by $4 million.

Another bright spot is that sales at the acquired Big Wheel/Rossi stores are growing in

double digits, although the business is still undercutting CSK’s earnings. The June 1999

purchase of the chain gave the retailer a presence in the upper Midwest, with 86 locations

in Minnesota, Wisconsin and North Dakota converted to Checker stores, and a distribution

center in Minnesota. CSK paid $62.7 million in cash for the company and assumed its debt,

which it funded by borrowing $125 million. Management has promised the stores will turn a

profit in 2002; Lehman Brothers analyst Alan Rifkin estimates they will add $0.05 to $0.07

per share to earnings next year.

Already contributing to CSK’s earnings are 194 former Al’s and Grand Auto Supply stores in

five Western states acquired in October 1999 for $143 million from PACCAR Inc. The purchase

solidified CSK’s dominance in the West. To strengthen its position in the Midwest, the

company purchased All-Car Distributors and its 22 stores in Wisconsin and Michigan, now

operating under the Checker banner, in April 2000.

The acquisitions left CSK with 84 auto service centers, which generated $7.6 million in

sales in fiscal 2000, but also lost $2.9 million that year. The company has ditched the

service business and closed or sublet most of the centers. Integration of all the 1999 and

2000 acquisitions cost CSK about $24 million in fiscal 2000, while capital expenses ate up

another $10.2 million.

In response to manufacturer marketing initiatives that have encouraged dealership care for a

longer period, CSK paid $10 million last year for Automotive Information Systems, a database

service whose “Identifix” diagnostics technology can be marketed to both professionals and

consumers through the Internet.

In fact, one of the few areas where CSK is doing well is its burgeoning commercial business.

In a recent conference call with the investment community, chairman and ceo Maynard Jenkins

noted the success of the CSK Proshop wholesale business, which has grown about 25% per year

since it began in the mid-1990s. Sales to commercial accounts rose 14.5% in fiscal 2000. In

its latest quarter, the commercial side totaled 19% of all sales at $71 million and rose

11.5% on a same store basis. By comparison, DIY same store sales were only slightly in

positive territory. Commercial comps were the chief driver of CSK’s 2% same store sales gain

in the second quarter.

“The diminished DIY business has been offset this year by growth in the professional and

corporate side, which generally improves the productivity of CSK’s stores,” said Moody’s

Investor Service analyst Marie Menendez. CSK has been so effective at marketing to

professional installers that it has been able to maintain its position against AutoZone’s

entry into its key markets, she added. AutoZone has about 400 stores in California.

CSK credits expansion of its parts depots, an on-line local warehouse network and increased

sku mix for growing sales to commercial accounts. “We have significantly increased our

marketing efforts to the commercial customer,” the company said in its most recent quarterly

filing. CSK operates commercial sales centers in about 554 of its stores.

According to several store managers, CSK is beginning to format some of its Midwestern

stores in what presumably will be the prototype for new stores going forward. At a Checker

Auto Parts outside Milwaukee that opened in March, the format is a marked contrast to a

former Big Wheel site in a nearby strip mall that has operated as a Checker for about two

years.

The newer store, a freestanding site, is smaller. It has lower ceilings, narrower aisles and

merchandise more easily within reach. Most notably, the parts counter, located in the rear

of the older store, is now positioned adjacent to the checkout registers near the entrance.

Motor oil, one of the most in-demand items in any auto parts store, is more prominently

displayed high up on the wall facing the entrance near the batteries, clearly visible to

anyone entering the store. In the older store, motor oil is hidden away in an aisle far from

the entrance. And on the wall above the display of FRAM air filters, banners carry all the

brand names found in the store. An electronic parts catalog in the same section, where

customers can key in their vehicle type and find the proper product, is also a new feature,

the manager said.

The overall effect is a more shopper-friendly store where any item a customer is looking for

can be easily spotted, with more accessible sales staff to answer questions. One manager

said that new stores will also trend toward free-standing sites.

“The company has invested heavily in systems and in-store improvements in recent years to

reduce future needs,” Moody’s Menendez wrote in a report, noting that CSK’s broad geographic

coverage, strong branding in its markets and seasoned management team are the retailer’s

primary strengths. “There is potential for sales to increase over the next few years as the

increase in auto production in 1994 and beyond translates into a larger number of cars

entering the sweet spot for repairs.

“But greater longevity of parts, changes in lease and warranty terms and [new] technology

could change the timing and venue of repairs, [which] have migrated toward professional

channels.”

Jenkins allowed during the recent call that the company’s comps have been spotty. “We can’t

draw any conclusion on the way comps are running. In areas where there’s no competition our

business has been tough, and in other areas with more competition, it’s been better.”

During the 1990s, investors bid up the share prices of Ford, General Motors and Chrysler to new highs as the companies reported spectacular profits fueled by record sales of light trucks, low inflation and reduced fixed costs stemming from actions taken to lower breakeven points. But by 2001, the auto group was under selling pressure as investors began to fear the consequences of an economic slowdown and competitive pressures from European and Asian manufacturers who were relentlessly claiming more market share. The auto stocks always lose their appeal in the face of a recession, with its corrosive effect on margins and overall profits but the group rallied briefly in early 2002 when it seemed that the economy was turning up. However, the year ended with the individual stocks close to their lows for the year with investors questioning not just the cyclical outlook but whether these companies could reverse long-term, negative trends.

In the mid 1990s, investors were told by automakers that this time everything would be different. Breakeven points had been reduced through plant closings, while remaining capacity had been shifted to popular trucks. Meanwhile, variable profits on those light trucks climbed each year as material and component costs were stable and customers accepted higher prices and more content each year. Incentives had virtually disappeared by the late 90s as new vehicle demand set new records. A buoyant stock market minimized post retirement pension costs by inflating the value of pension assets. Actions to curb health care cost inflation seemed to pay off for a time.

These were heady times for auto companies, even as executives at the auto giants complained that their stocks were ignored by the rush into high tech. The boom years masked the underlying problems of this industry, which have been laid bare by the recession and the stock market collapse.

In 2002, GM, Ford and DaimlerChrysler accounted for less than 60 percent of the cars and light trucks sold in the country. GM succeeded in taking market share away from Ford but the three together failed miserably in the car segment while, as a group, they lost ground to foreign competition in light trucks. That American brands, even the best, should have warranty and recall costs five and 10 times greater than Toyota is an embarrassment in 2002. I believe that the methods by which the Japanese maintained high quality were revealed in various studies in the early and mid 1980s, more than enough time for them to have been employed by Detroit. Incentives have been the curse of the industry for decades and they never work. Oh sure, in the short term people flood showrooms. But after a year and a half of the same message, shoppers realize that the deals will be there when they are ready to buy a car.

In addition, billions of shareholder dollars were wasted on questionable acquisitions and investments. GM might luck out and not have to buy Fiat, but Ford wasn’t so lucky with Kwikfit or the mega bucks spent on Internet silliness.

In 2003, the auto industry will sit down with the UAW to discuss its predicament. The UAW has not succeeded in unionizing any foreign-owned assembly plant. As the numbers of these facilities increases, the massive burden that the Big 3 carry in post retirement costs becomes even more crippling. GM’s unfunded pension liabilities were probably more than $16 billion at year-end and retiree healthcare costs are more than three times that level. GM’s market value of about $25 billion appropriately recognizes that the company is “owned” by its retirees who have first claim on its assets. Without a booming stock market, the Big 3 will have to satisfy pension claims from operating results.

2002 revealed how little progress Detroit had made in closing competitive gaps with its rivals while it had the chance and had the cash. Now investors are wondering what’s in it for them if industry sales are weak, price deflation continues and post retirement costs claim cash needed to revitalize factories and product lines. I think I won’t sell my Treasury bonds yet!

The new-car warranty is designed to protect both the carmaker and consumer. It warrants certain parts of the vehicle for a specific period of time or a specific number of miles. It also limits the carmakers’ liability beyond those points.

Knowing what’s covered, and what’s not, is important for all concerned. The specific items covered are explained in detail in the warranty statement or booklet that comes with each new vehicle.

Some car owners fear they’ll void their new-car warranty if the car isn’t serviced by the dealer. According to the federal Magnuson-Moss Warranty Act, you can have your car serviced by any competent independent service station, shop or garage and still maintain your warranty. In addition, you can use any name-brand, quality parts to service the car. The carmaker cannot require you to use original equipment brand spark plugs, filters, oil, belts, hoses, brakes, wiper blades or any other parts unless they’re supplied for free!

All you have to do to keep your warranty in force is have the car serviced at the intervals specified in your Owner’s Manual or Warranty Booklet, and keep careful records. Read all the fine print about service requirements. Note that the carmaker’s definition of “severe service” may be what you consider normal driving.

Service receipts should list the date, odometer reading, make, model and vehicle identification number, and show the brand names of all parts used. If there’s a service log in your Owner’s Manual or Warranty Booklet, fill it in for each service visit.

If your car breaks down and the defective parts are still covered by your warranty, the new-car dealer should make the repairs. Carmakers rarely reimburse customers directly for warranty work done at independent shops, other than in emergency situations where a new-car dealer is not readily available.

Many warranties are a package of different coverages for different time periods. The Basic Warranty covers most parts on the vehicle. Tire and battery warranties, on the other hand, vary by year and manufacturer. Other equipment groups may be covered for varying periods of time.

On some earlier models, a separate Powertrain Warranty may cover the engine, transmission and driveshaft for a longer period, but may have a $50 or $100 deductible the car owner must pay.

The Corrosion Warranty pays for the repair of body parts, but only if rust eats a hole all the way through the metal. Paint bubbles, cosmetic rust or damage from paint scratches or industrial/ environmental fallout are not usually covered.

Chrysler Group said it will concentrate on improving its overall product quality and reducing its warranty costs in Europe before expanding its seven-year/ 70,000-mile U.S. warranty program to European markets, WardsAuto.com reported.

The car maker may even postpone exporting its standard U.S. extended warranty until a new generation of vehicles are developed for the European market, Jim Schroer, executive vice president of Chrysler Group global sales and marketing, told Ward’s in an interview. “We’re working on our quality costs in Europe right now and we really need to have the same kind of progress on our actual quality and our warranty (costs) that we’ve demonstrated in the last three to five years here in the U.S.,” Schroer told WardsAuto.com.

According to Ward’s, Schroer admitted it may take several years before Chrysler’s European products meet quality and warranty cost marks similar to those in the U.S., where the car maker said it has reduced warranty costs by 50 percent over the last three to five years. “Our warranty costs are down 50 percent in the U.S. and we need that kind of progress in our international business to get (the seven-year/70,000-mile) kind of warranty,” Schroer told WardsAuto.com.

Chrysler imports some products such as the Neon, PT Cruiser and Jeep Liberty into Europe from U.S. plants while the Jeep Grand Cherokee and Voyager minivan are locally assembled in an Austrian plant recently sold to Magna Steyr.