FORMER GM VICE CHAIRMAN BOB LUTZ: The automobile business consumes enormous amounts of capital, which is why our fixed cost is so high and why when there's a downturn and the volume collapses, we're all into the multibillion-dollar losses and hemorrhaging cash.
AVTOVAZ CEO BO ANDERSSON: Very few car companies are making more than 5 percent net income. For 66 percent of my business I'm a supplier. I'm more healthy as a supplier than making cars.
FORMER BORGWARNER CEO TIM MANGANELLO: At BorgWarner ... we used an artificially high cost of capital. Our true cost of capital is probably 10 or 11 percent. We set our hurdle at 15 percent. Anything we did had to have a return on invested capital of 15 percent. That accounted for canceled programs, unexpected price-cut demands that weren't part of the contract.
So I thought Sergio was right. It's kind of simple. If your return on invested capital isn't greater than your cost of capital, you are destroying shareholder value. Bottom line was, there aren't too many companies in the auto sector at the OEM level that basically return their cost of capital.
ANDERSSON: The cost of powertrains is going up every year.
ASTON MARTIN CEO ANDY PALMER: What often … get called minor projects in an automobile company have simply exploded. Those kind of projects, basically regulatory compliances, are now a major part of our r&d spend every year. That is really, really a problem. It creeps up on us. Basically that's destroying value.
LUTZ: I no longer have access to General Motors figures, but I would be surprised and shocked if the 200-mile electric Bolt is going to make money. You look at the cost per kilowatt hour of batteries and the number of kilowatt hours they have got in there and then you look at the selling price. It's just not going to work.
MANGANELLO: This is a great opportunity for OEMs to partner with suppliers on longer-term partnerships ... to help them offset some of their need to spend their capital.
PALMER: If we look at ... our enterprise value and how we compare to those other industries, it is really rather poor. That's the point Sergio is making. Should the auto industry be compared with the other industries? The answer has to be yes. People putting money into shares have choices.