Reporting on the auto industry can be a bit difficult, these days, certainly if you're hoping to find something good to say. And the latest news is no exception.

Wrapping up the second quarter, General Motors announced a whopping $15.5 billion loss, the third-worst in its history, and nearly double the record loss reported by Ford Motor Co. barely a week before. Chrysler did announce it had found a way to set aside $1.1 billion during the first half of 2008, but that's about the only thing good the automotive arm of Cerberus Capital Management seems to have to talk about these days.

And to make sure prospects don't look any better for the months to come, industry sales numbers showed that the market is, if anything, getting worse, with automakers large and small collectively reporting what would, on an annualized basis, come in at barely 13 million cars, trucks, and crossovers. That's down from an industry peak earlier in the decade of more than 17 million.

Chrysler, in fact, posted the worst downturn of any of the major makers, a 28.8 percent decline for July, with GM close behind, at a 26.1 downturn. Ford was off 14.7 percent, but there was something positive to note there, with the ailing makers passenger car sales actually rising by 1.9 percent. The big downturn - no surprise - across the industry is on the light truck side, where even Toyota reported a 27.1 percent drop, compared to year-earlier sales of vehicles like the Tundra pickup and Land Cruiser SUV.

But even Honda, which has seemingly defied gravity in recent months, proved that Newton was right. The Japanese maker reported an overall 1.6 percent decline.

The one positive surprise? Nissan delivering an overall 8.5 percent increase in July sales, despite its continuing decline on the light truck side. High-mileage small cars, such as the Versa, have helped the Japanese marque gain traction.

And that's what analysts are hoping can put a bit of momentum back into the industry, as makers race to expand production of products like Versa, Honda's Fit, and Toyota's Yaris. But even though domestic manufacturers are shutting truck plants as quickly as possible and converting many to handle small passenger cars, the changeover won't be easy - or quick. The first American version of Ford's new Fiesta, for example, won't roll out a former F-Series plant in Mexico until the 2010 model year.

A slight reprieve in fuel prices could help August's numbers, some analysts believe. But few expect a resurgence in the truck market. And the overall slump in the U.S. economy, with surveys showing consumers expecting even worse, isn't going to help the auto industry.

Indeed, the lending crisis is actually worsening things for the auto industry. Automotive finance subsidiaries and traditional lenders alike are tightening credit and, in many cases, curbing or eliminating entirely the leasing programs that, in recent years, helped get millions of motorists out of used vehicles and into new ones.

"I'm really worried about keeping my doors open," one Detroit-area Lincoln Mercury dealer told me last week. About 80 percent of his business is leasing, noted the retailer, who asked not to be named. And if he can't offer those low-cost deals anymore, he doesn't expect to convert many of his struggling blue-collar customers to a traditional sale.

The leasing cutback could be felt across the industry. For most luxury marques, leasing accounts for 70-plus percent of their business. Yes, makers like Lexus and Mercedes-Benz have more affluent customers, but many of those are also stretching their budgets to stay in the luxury market. If makers are forced to retune leases to reflect financial realities, some products could see huge price jumps. And that could lead many potential customers - especially those coming back for new leases - to walk away.

There's clearly light at the end of the tunnel. But right now, nobody's quite sure when they're going to get near enough to the end of this downturn to see it.

By all rights, the BAT 11 simply shouldn't exist.

The incredibly sexy sportscar, pictured above, is the work of the folks at Stile Bertone. Certainly, you've heard that name before. It's penned the designs for a long procession of over-the-top autos, such as the Lamborghini Countach. But when work began on the BAT, successor to a rare and exotic breed of past concepts, like BAT 9, the Italian design house was in serious trouble.

As the year began, Stile Bertone was written off, with even its owners ready to pack it in. But Gary Kaberle, a dentist from Traverse City, Michigan, wasn't quite ready to call it quits. As a young man, he'd stumbled onto a slightly beat-up sportscar called the BAT 11, which he picked up from a local dealership for a couple thousand dollars. Years later, he sold the one-off collectible for what is estimated to be in the millions, in order to pay for his now-late wife's chemotherapy.

Kaberle push hard to get Bertone to update the BAT 9, and it was scheduled for a splashy debut at the Geneva Motor Show last March. Unfortunately, with the company expecting to close, its display at the big exposition was canceled. And that might have spelled the end had not a few Bertone designers quietly continued working on the BAT 11 on their own time. Eventually, they got it completed and arranged to have it delivered to a party in Geneva, where just enough folks saw the concept to turn it into an instant classic.

And to generate renewed interest in Bertone. The styling house now reportedly has about 20 projects going, enough to keep its doors open.

As for BAT 11? Roland Martin, Bertone's business development director, tells the Detroit Free Press' Mark Phelan that anywhere from 25 to 50 of the striking coupes could be produced. How much? Since you asked, you probably can't afford one. But if you happened to attend the annual Meadowbrook Concours d'Elegance in suburban Detroit this past weekend, you would at least have gotten to see the concept car that someday we may say saved the legendary house of Bertone.

Hard as it is to imagine, we're coming up on the first anniversary of Chrysler's takeover by the folks at Cerberus Capital Management. It's been a year of turmoil and one involving some massive change, both in the industry as a whole and at Chrysler in particular. Plants have been ordered closed; thousands of jobs have been cut; but despite it all, CEO Bob Nardelli says there's good news.

In a letter to employees marking the first anniversary, the former Home Depot boss reveals the automaker generated $1.1 billion in cash during just the first half of 2008. What the bottom line itself looks like, well, you'd have to be a senior Cerberus insider to know, but some good news is better than none, it seems.

Wondering what else Nardelli had to say? Here's the full text of his e-mail:

Dear Employees,

One year ago, we began to write a new chapter in Chrysler’s proud history as Cerberus acquired the majority stake in our company. In spite of the severe economic and industry challenges of the past 12 months, we have laid the groundwork for a successful turnaround and transformation of our business. Today, we are working together with a clear direction and with a sense of urgency to return Chrysler to profitability and its rightful place as an iconic American company. On behalf of the Office of the Chairman -– Tom LaSorda, Jim Press, Ron Kolka and me –- I want to thank you for your hard work, and pass along the personal appreciation of Steve Feinberg as well as our partners at Cerberus and Daimler. I’d also like to share some thoughts with you on the occasion of this anniversary.

As a privately held company, we operate with some real advantages. Being private helps us be agile and decisive, highly responsive to our customers and fast to act on market opportunities. We are re-establishing our own culture and identifying our own measures for success based on operating as a single team focused on the common goals of “customer first” and “quality ... period.”

We also have a clear focus on achieving the key financial expectations of our owners, which include EBITDA (earnings before interest, taxes, depreciation and amortization) and cash flow performance. As a private company, we’re now able to generate cash more easily through the sale of non-earning assets. This enhances our ongoing operational improvement efforts, enabling us to continue to invest in new products as we work to reduce our fixed costs, inventory and working capital.

Working together with the UAW, we signed a landmark labor contract that provides a framework to improve our competitiveness. Over the past year, our leadership also made some difficult decisions to "right-size" our company in line with the realities of a tough economy and an auto industry caught in the rapid shift in consumer preferences driven in part by escalating fuel prices. I can assure you that these gut-wrenching decisions are not taken lightly by me or anyone on the leadership team. Going forward, we will do what’s necessary to remain competitive in the short term, while balancing the need for continued investment in support of our long-term strategy.

Our company strategy can be boiled down to what I call the three E’s:

• Enhance our Core
• Extend our Business
• Expand our Markets

We’re making progress on all fronts.

Enhancing the Core includes an intense focus on customers and quality, our product line and our dealers. We hired the industry’s first Chief Customer Officer to help lead efforts to better define, measure and improve quality. Creating a new online Customer Advisory Board has enabled us to get fast feedback on important issues. The Let’s Refuel America program, for example, was a direct response to customer concerns over fuel prices.

In line with our customer focus, enhancing the quality of our current and future products is critical to our success. Launch performance results for the past year are encouraging: from our own teams and from our dealers, we’ve heard that our recent launches have been among our best. During the last year, we approved more than 400 product enhancements designed to improve interiors, upgrade materials, and reduce noise and vibration. To date, more than 250 of these changes have been implemented, and the remainder will be in production during the 2009 model year and the start of 2010.

Although we did not perform as well as we should have in the recent J.D. Power and Associates Initial Quality Study, our company did improve five points overall, our Chrysler and Dodge brands were up in the ratings, and the Durango and Dakota were first in their segment. A more significant gauge of our progress in quality is that, since last August, we’ve seen a 29 percent reduction in our warranty claims. In addition, we expect a 20 percent improvement for our 2009 models. While we’re early in our launches, the results we’re seeing –- like reduced NVH (noise, vibration and harshness) in the Challenger, the Ram truck interior quality -- are greatly improved.

In the area of productivity, the recent Harbour Report showed that Chrysler equaled Toyota as the most productive auto manufacturer in North America. This is a remarkable turnaround from seven years ago, when Chrysler was dead last among major manufacturers. In addition to boosting our productivity, this achievement has the added benefit of increasing our capacity utilization significantly. It really shows what we can do when we work together with a commitment to continuous improvement.

We are continually re-evaluating our model lineup to ensure that we’re focusing our resources on the best opportunities in the market, and we made a decision during the year to drop four models from our portfolio. Many industry analysts continue to bemoan the “light truck” bias of our product mix. They miss a salient point: most customers do not consider our Compass, Patriot, PT Cruiser, Pacifica, Journey or minivans to be “trucks,” although they are classified as such. So, from the customer’s perspective, our current mix is 59 percent car, compact SUV and minivan, and 41 percent pickup, medium and large SUV.

Meanwhile, our product portfolio is becoming more balanced, and our newest models are right for the times. The Dodge Journey, which received a rave review from USA Today, is a “right-sized” crossover that offers class-leading 25 miles per gallon highway, starting at under $20,000 in the United States. The Dodge Challenger, a modern muscle car, will come with a fuel-efficient V-6 option and an aggressive entry-level price of $21,995 in the United States. Customers focused on fuel economy will find six vehicles that offer 28 mpg or better on the highway in our 2009 model lineup -- the Compass, Patriot, Avenger, Sebring Sedan and Sebring Convertible -- and the Caliber achieves 30 mpg highway fuel economy.

There will be a viable and sustainable light-truck market going forward. It’s just likely to look more similar to the truck market before the light-truck boom of the '90s, with the notable exception that we expect to capture a greater share of it. For example, the crew cab segment represents half of the truck market. With our new all-new 2009 Dodge Ram crew cab offering we’ll be able to compete in this segment for the first time. We think the current economic climate, in spite of its challenges, provides us a real opportunity to gain even more ground. Our new Ram full-size pickup will be a "game changer," thanks to its outstanding performance, technical innovations, breakthrough design and top quality. We elected not to delay this launch as our competitors have, therefore, we will be first to market with a better product, along with marketing, advertising and retail launch support that’s truly world class.

To develop future products with greater appeal to customers, we are in the midst of investing $3 billion into powertrains to create multiple driveline solutions that will increase our overall fuel efficiency, including new engines, axles and transmissions.

And we created a group called ENVI that will develop electric-drive vehicles that support the vision of our Chrysler, Dodge and Jeep brands. Derived from the word "environment," ENVI is a dedicated in-house organization charged with making Chrysler the leader in advanced-propulsion technologies. Our electric vehicle program will really send a shock through the industry -- so stay tuned for more details!

Rebuilding strong relationships with dealers has been a major priority this past year. One example of how we’re listening to our dealers is that we have reduced inventory by 67,000 units compared with a year ago. We’ve changed our dealer incentive program and put dealers back in charge of our regional advertising associations because they know their local markets better than we ever will. We’re also working with our dealers to "right-size" our network. Fifty-eight percent of our dealers now carry all three of our brands under one roof, up from 53 percent just last year.

The latest J.D. Power Customer Satisfaction Index (CSI) shows progress in the way our company and dealers are serving our customers. Chrysler LLC scored 865, a 10-point improvement with Jeep and Chrysler brands among the most-improved brands in the industry, and the Chrysler brand (882) outperformed the non-premium average (879) in the 2008 study. We have implemented a number of efforts with our dealer partners that we believe will continue to improve customer satisfaction.

The second part of our strategy is Extending our Business, which means capitalizing on adjacent opportunities in a number of ways. For example, consumers tend to keep vehicles longer in a slow economy, which represents a significant opportunity for us to capture more of the growing service and parts business. And we’re extending our business by investing in new products that give us coverage in new segments. Last year, we extended into the class 4 and 5 medium-duty truck markets with entries that offer best-in-class fuel economy. This followed our return to the class 3 truck market in 2006 with the all-new Dodge Ram 3500 Chassis Cab, which quickly achieved a 29 percent market share.

We’re working diligently to fill gaps in our portfolio by adding small car programs both through internal development as well as partnering initiatives. Later this year we’ll launch our first hybrids, the Chrysler Aspen and Dodge Durango. Both deliver a 25 percent overall improvement in fuel economy without sacrificing performance or the towing capabilities our customers need and expect.

We’re also extending our business through innovative new technologies, including in-vehicle wireless Internet connectivity available from Mopar by the end of the year. Our next generation of innovations also includes a segment-first Blind Spot Monitoring system for our minivans and a Chrysler-first Rear Cross Path System that notifies the driver of any car crossing his or her path when backing up.

In June, we announced our new uconnect family of technologies that provides consumers with phone, GPS, music, video and Web connectivity. Uconnect phone provides voice-controlled wireless communication between the occupants’ mobile phones and the hands-free system that automatically downloads up to 1,000 phone book entries from supported phones. Uconnect tunes features a 30-gigabytes hard drive to store music, videos and photographs. Uconnect GPS offers navigation and real-time traffic reports combined with voice recognition and an easy to use touch screen. Uconnect web turns the vehicle into WiFi “hot spot," delivering Internet connectivity directly to the vehicle.

Expanding the Market is the third part of our strategy, and it involves increasing our participation in vehicle segments and international markets where there is significant growth. Our international sales continue to grow, and we’ve established Global Centers of Excellence to support design, engineering, sourcing, manufacturing and distribution activities for local and regional markets.

We are currently engaged in more than two dozen alliances and partnerships with other OEMs and suppliers around the world to help extend our product portfolio and better use our manufacturing capacity. In January, we struck a deal with Nissan to supply us with a version of its B-segment sedan, the Versa, for limited distribution in South American markets beginning in 2009. Then in April, we reached another agreement under which Nissan will manufacture an all-new, fuel-efficient small car based on a unique Chrysler concept and designed for sale in North America, Europe and other markets in 2010. In return, Chrysler will manufacture a full-size pickup for Nissan in 2011.

Enhance the Core, Extend the Business and Expand the Market. Still, there’s one more “E” -– it’s the need to Execute. Going into this second year as an independent, we need to flawlessly execute our strategy and commit to improving everything we touch. We must pull together to design, build, sell and service aspirational vehicles with true competitive advantages –- vehicles that can be proudly displayed in showrooms around the world. We will continue to face the realities of the economic environment and our global industry, see them for what they are, and do what’s necessary to return Chrysler to profitability and sustained growth. As we have for the past year, we will work to shape the future before it shapes us.

While I’m proud of how we’ve faced business challenges together this year, I’m also proud that we’ve never lost sight of our commitment to support the communities we’re privileged to be a part of. Our philanthropic fund changed its named to The Chrysler Foundation and continues its work around the world to strengthen the communities where our employees and customers live and work. One example of how the foundation is tying together our dealers, business centers and communities is our partnership with KaBOOM! to build playgrounds, helping ensure every child has a safe place to play. We’ve identified 25 new playground sites and many of them already have been completed.

Building on our proud American heritage of support for those who wear the uniform, we also inaugurated the “Honoring Those Who Serve” program and forged partnerships with groups like Operation Gratitude and the Freedom Calls Foundation. Our military support efforts won several awards, including the Secretary of Defense 2008 Employer Support Freedom Award. At our Military Appreciation Month celebration held in May, employees put together 500 packages for Operation Gratitude to send to service men and women on active duty abroad in addition to the 300,000 packages already sent and distributed. At the event, we also revived the wonderful military tradition of the service flag. We are prominently displaying a Blue Star flag for every employee on active duty. In addition, we unveiled a Gold Star flag to honor an employee whose life was taken while on active duty, and presented it to his loving family.

Our continuing efforts in diversity also were recognized during the year. Chrysler was named “Company of the Year” at the Urban Wheel Awards; we were named to Black Enterprise magazine’s list of “40 Best Companies for Diversity”; we received the top grade in the automotive sector in the annual NAACP Economic Reciprocity Report; and Chrysler was recognized as a “Top 50 Company for Supplier Diversity” by Hispanic Enterprise magazine.

Perhaps the highlight of the year for many of us came on June 26 with the long overdue return of Lee Iacocca to the building and to the company he so strongly influenced. If you were able to attend this event, you saw first hand some of the energy, spirit and passion that Lee brought to Chrysler. He took time to talk with the leadership team and was extremely impressed as he reviewed the next generation of Chrysler, Jeep and Dodge products in our styling dome. He was particularly moved by the warm reception he received from our employees, and as he departed from the Tech Plaza event, he stopped and shook hands with everyone he could. In my remarks that day, I quoted from the speech Lee gave in 1979, just about one year after he joined Chrysler. He spoke about the people of Chrysler, and his words are just as true today:

“If the old-fashioned American virtues of hard work and dedication still work in this country –- and I believe they do –- we will not fail. Our people are the hardest working, most dedicated individuals I have ever been associated with, and they believe in this company.”

Looking ahead, we face a sobering reality of an economy and an industry in North America that continues to contract. But we continue to meet the challenges head-on, never losing sight of our goals. For example, this week Chrysler Financial announced that they will discontinue offering new lease products in the United States. But we will also significantly enhance our incentive and financing options to make our vehicles available to customers at affordable payments. Here are a few more facts on this change to keep in mind: Current vehicle owners who lease through Chrysler Financial are not affected, and the terms of their contract will remain in force. Chrysler dealers are still able to offer lease financing arrangements with other financial institutions. Employee lease and Company Car Programs for current and retired salaried employees whose vehicles were obtained through the company are not affected, and we’re working to protect this program for the future.

Our July sales, which we will announce today, while disappointing, continue to reflect the downward trend of this market and economy. Our challenge is to return to profitability and to profitable growth, which begins with a focus on revenue generation and sales.

So, let’s meet this challenge together. As we mark this first anniversary, let’s all focus on revenue, put our sales hats on and talk up our products to everyone we know and make a sale. And to help get started, I’m pleased to announce that all employees and retirees will be given a CDI (Certain Designated Individuals) number. More details will be sent to you next week, but similar to the Employee Choice program, this number will enable anyone to purchase a new Chrysler, Jeep or Dodge vehicle at the employee price through Sept. 30.

In closing, I can tell you that I am very proud to be part of this great team, a team with the experience, the intellect and the passion to bring Chrysler back to its historic place. I thank you for your hard work and many accomplishments of the past 12 months, and ask each of you to bring the same dedication to the coming year. Chrysler may be down, but we’re a long way from out. It’s time for us to prove the naysayers wrong with another one of our patented comebacks!\

Sincerely,
Bob

The V-8 is dead. Long live the V-8.

Probably nothing is more symbolic of America’s love affair with the automobile than the classic eight-banger. It’s the engine of choice for muscle car knuckle-draggers, luxury car aficionados, and truck haulers alike. And until recently, V-8s were stuffed under the hood of nearly a third of the vehicles sold in the U.S. market.

Industry observers have long wondered what it would take to get American motorists to change their buying habits. The market barely nudged when gas hit $2.50, and there were only marginal changes at $3. But as Ford marketing czar Jim Farley observers, there’s been a sea change since the pump price topped $4.

Light truck sales, as we all know, have collapsed. But even in the luxury market, normally immune from recession and rising oil prices, buyers are rethinking their options. “V-8 output is expected to plunge 45 percent…by 2009,” notes a new report from PriceWaterhouse-Coopers. In fact, ask authors, are we looking at the “death of the V-8?”

You might recall that General Motors recently scrubbed plans to replace the big Northstar V-8, the fast-beating heart of its Cadillac lineup. On the other hand, it’s also developed the massive, new LS9, for the coming Corvette supercar, and a variation of the LS line will power the next-generation Caddy CTSv. But GM product chief Bob Lutz frets that with the new emissions and mileage standards the industry is facing, there may be little room for 8 cylinders much longer.

Of course, there are those who see that as good news – and not just “tree-huggers,” many of whom would like to see the automobile vanish entirely. Notes the PWC report, “I4 engines will soon be able to perform at levels similar to current V6s, while future V6 engines will perform at levels comparable to V8s, while also achieving better fuel economy than their predecessors. This transition will allow smaller engines to compete in segments that were previously dominated by V8s.” The Ford Ecoboost engines, which will be used in models like the Flex and the upcoming Lincoln MKS, are good examples.

That’s not to say we shouldn’t lament the loss of a brutish powertrain that has thrilled drivers and passengers alike for much of the last century. And, of course, like Mark Twain, we should be wary of anything that prematurely reports the death of the V-8. It was labeled a “dinosaur,” during the fuel crises of the '70s, and was expected to be gone by the end of the millennium, yet in 2004, Americans bought 4.7 million V-8s. And even by 2009, the PWC study shows likely demand remaining at 2.7 million.

The V-8, the report concludes, “will continue to play a role in the North American market, albeit in an increasingly limited capacity within more specialized segments. As new CAFE milestones are implemented through 2020, V8s are likely to become a more niche offering.”

General Motors posted a massive $15.5 billion second-quarter loss, a widening deficit that underscored the mounting problems facing the giant automaker, Detroit, and the auto industry in general.

The huge loss, one of the worst in industry history, and nearly double the record deficit posted by Ford, last month, was the result of a variety of problems: labor unrest, the collapse of the light truck market, the slump in housing, record fuel prices and the overall slide in new vehicle sales.

The big loss included $9.1 billion in one-time charges, which included $3.3 billion to buy out 19,000 U.S. workers. Another $1.3 billion was written off because of the declining value of the trucks held in the portfolio of General Motors Acceptance Corp., GM’s captive finance subsidiary – which it owns in partnership with the private equity fund, Cerberus Capital Management.

The huge problems facing GM – which slipped to number two in the global sales sweepstakes, behind Toyota, during the second quarter – forced the automaker to announce a new restructuring plan, last month, that will lead to billions of dollars in cost-cutting. Among the targets: a reduction of 5,000 salaried jobs in the months to come.

TheCarConnection.com will have more to come later today.