Fiat is now looking for partners to build cars for the U.S. market. The first U.S. models, probably 2009 model year, will be imported, but eventually they’ll look for plants with idle capacity in North America. Also, the first models will be more exotic (think “Spider 8C”) or retro-chic trendy (think “Fiat 500″) than the Alfa 147 5-door pictured here, but I think something like the 147 will make a lot of sense in the U.S. market. Fiat S.p.A. (OTC: FIATY) has made quite a financial turnaround since Sergio Marchionne took over 4 years ago.

Hmm, wasn’t it just three years ago that General Motors terminated its five-year marriage to Fiat? What a Fiatsco! GM sold out right at the bottom, in terms of Fiat’s Western European light vehicle market share, after throwing quite a bit of money into the Fiat recovery that was to come. Regardless of anything GM might have gained from Fiat’s perceived diesel technology edge, they tossed aside a chance at participating in Western European turnaround and possibly importing some of Fiat’s small cars in the middle of today’s “gas crisis.” Remember that the deal with Fiat was started months before Rick Wagoner was made CEO of GM, but the decision to throw more money at Fiat, and then to end the deal, was done with Rick as CEO. Strategic decisionmaking is obviously as big a problem for GM as anything in the macroeconomic realm.

Ford announced last week that they are selling their Land Rover and “Jag-You-Are” brands to Tata Motors. This, at the bargain price of about one-third what they paid to buy the brands 19 years ago! Adjusted for the CPI, that is about an 83% loss on their investment in the brands, not counting any cash flow in or out, of course.

What Ford has done to Jaguar’s brand is a crime. The “Baby XJ,” the X-Type, is a tarted-up and rebadged Ford Mondeo (think “Contour” in the U.S. market), making that the equivalent of a time-warped “Cadillac Cimarron” brand decision. Imagine the clean, crisp body shape of the 2000 Contour, on sale as a 2008 “entry-lux” level Jaguar, with a premium price! Yeah, that floats my boat, too. I can’t say that Ford did nearly as much damage to the Rover Group’s brand name, only because some of their biggest Rover mistakes, like the Freelander (2002-2005), aren’t sold anymore and thankfully aren’t remembered by much of the public. Ford is selling these brands because, in almost two decades of ownership, they haven’t figured out how to capitalize on or expand their luxury images (arguably they have degraded the image of the brands) and haven’t been able to lever the brands into substantial growth.

I know that these are only two data points, but they are recent, and are in my opinion indicative of the modern (3 decades or so) history of the branding, product design, and strategic decisionmaking that the “Big Two” have been guilty of in the U.S. markets. In both these cases, the “Big Two” made substantial partnerships or purchases for known strategic reasons, poured tons of resources into those deals, failed to get meaningful results out of those deals, and eventually sold out of those deals at a significant monetary loss.

The problems of the “Big Two” may be exacerbated by the macro trends of foreign growth and cheaper labor, but they are ultimately not helping themselves with their own incompetence.

Disclosure: no current positions in GM, F, TTM, or FIATY.

At issue in this New Scientist article are two variables, one of which is important, and one of which isn’t, but is immediately apparent. I’ll cover the unimportant and immediately apparent one first, that is, the inherent physical characteristics of the vehicle itself, by comparing a prototypical SUV to a prototypical sports car.

The prototypical SUV has a rigid frame which is located somewhat higher than the structural components of a typical passenger car, which generally means that in a collision between the two different types, the net energy transfer is more likely to be FROM the SUV and TO the car. Even in most “crossover” and unibody vehicles, the equivalent point to a hypothetical framerail is higher than in a passenger vehicle. This means that, relatively speaking, regardless of the collision type (head on, ass end, t-bone) and which vehicle is in what position (hitter or hittee), the driver in the car is worse off than the driver in the SUV. Some researchers call this “aggressivity” and it is a primary reason I like to drive an SUV – I am safer in it. This “aggressivity” is part of what legislators and car manufacturers have been actively trying to reduce, by altering the frame height of frame-based SUVs, adding in lower frame extensions at the front and rear, and structuring those lower frame extensions (or equivalent unibody components) to collapse and absorb energy in a crash.

The SUV has a higher center of gravity, making it inherently less stable in a crash-avoidance situation. It will not respond as quickly (as evidenced by slalom test times in car rags) and will be more likely to roll over, given the same type of maneuver being attempted.

The SUV cannot stop as quickly as a sports car. Typically the brake design is suboptimal (drums in rear rather than 4-wheel disc brakes, fewer pistons per caliper in the discs, non-vented discs, etc.), and even if the designs were optimized, there are practical limits to the same size and specification set of brakes stopping a mass that is significantly larger.

All this adds up to SUVs being a “relative menace” to other drivers on the road, all other things being equal.

So why, then, do sports cars kill more people per crash, and crash more often, than SUVs?

It’s the DRIVER, Stupid!

This is the second, and by far the more important, variable. All other things are decidedly not equal, and the person who picks the sports car as their primary mode of transportation is more likely (statistically speaking) to be the type that enjoys driving the dogshit out of it – thereby causing more accidents – and those accidents are more likely to “enjoy” higher levels of kinetic energy.

E = M * V^2

Hmm, 33% less mass going 25% faster = a 4% increase in kinetic energy, therefore a 3,000 lb sports car going 50 in a 40-mph zone is carrying more energy than a 4,500 lb SUV going 40 in a 40-mph zone. Do the math on 33% less mass going 33% faster, and you get a 17.9% increase in kinetic energy – something like a lighter sports car doing 80 mph versus an SUV doing 60 mph.

Drivers of sports cars skew younger than drivers of SUVs. Part of this is economics (SUVs are more expensive), and part of this is demographics (SUV owners need space for kids, car seats, dogs, and family groceries). Younger people have (statistically speaking) less ability to quantify risk, and this translates into riskier driving behavior – thereby causing more accidents – and if the risk involves high levels of speed, see the above point about kinetic energy.

Sports cars are more dangerous than SUVs, not because of their inherent characteristics, but because of who chooses to drive them.

This is part of why I’ve been peeved at the nanny-state mindset that has toned down the “aggressivity” of SUVs sold in the U.S. over the last few years. By God, I WANT “aggressivity” in my vehicle, because it keeps me and my family SAFE! Screw the younger drivers in the sports cars who’re causing all the accidents!

This change in vehicle construction, the wrong-headed emphasis on making “safer SUVs,” is a net Reverse Darwinism. It transfers some of the deaths FROM those who cause the most (and most dangerous) accidents (sports car drivers), TO those who not only have managed (for the most part) to live to breeding age and achieve some modicum of material success (SUV drivers and their families).

Totally aside from the vehicle-related and policy-related issues, there’s a deeper point, and that’s about how to think critically. Critics of SUVs have, by and large, missed the most important variable in the dangerousness of vehicles – the driver! The lesson on critical thinking is simple: identify the variables; find which ones matter; focus on them and not other, possibly more readily-apparent variables; examine the implications; rinse, repeat. Apply liberally to all aspects of life …

I’ve written about Toyota Motor a couple of times, in Good Looking Toy and Big Trouble for the Big Three. Overall I’m favorably disposed to the company and the stock, but I’m not currently long – although as some of my positions have stopped out, I may be long TM stock soon.

I couldn’t resist putting together a Yen-denominated financial analysis, however.

Which does point out one of the twin weaknesses for TM stock: exchange rates. The other, of course, is industry risk, which could be ameliorated with a pairs trade, possibly shorting Ford, GM, or Volkswagen.

What do people want out of what they drive? And how can knowing that help a company design vehicles? I’m focusing on three different areas and viewing them as mutually independent for the purpose of analysis, although there is certainly some overlap. Those areas are:

Luxury
Performance
Style

Let’s take a look at luxury. I don’t necessarily mean a wet bar and a privacy screen, but simpler things that qualify as luxuries. For example, a minivan with 3-zone automatic climate control has “luxury,” whereas the same minivan with front and rear manually controlled AC would not. Twelve Infinity speakers and an MP3 and iPod compatible head unit with CD changer is “luxury” while six speakers and AM/FM/Cassette/CD is not. Luxury can also imply a high level of “fit and finish” and a comfortable ride for its level of performance.

Performance is sometimes viewed as the antithesis of luxury, but this isn’t necessarily so. Acceleration, braking, and handling are the usual suspects here, but one might also include towing capacity as a performance item. For trucks and SUVs, it is conceivable to include off-road ability as a performance feature. It is arguable whether high levels of “fit and finish” and a reputation for reliability fit in luxury or performance, but I would put “fit and finish” in luxury and reliability in performance.

Style needs to be looked at in the context of the vehicle type. For example, Mercedes makes a minivan now – they call it the “R-Class.” Chrysler has a vehicle that is basically a minivan with swinging rear doors, but they don’t call it a minivan. For your bread and butter four-door mid-size sedans, does it look like a jellybean or can you tell it apart from the competition? Is it distinctive? Can you tell that it’s a [fill in the blank] by looking at it? Does the car look like you’ll get laid? That’s what I mean when I talk about style.

Now that we have two extremes in each of three categories, we have a total of eight choices. Visualize a cube made up of eight smaller cubes, stacked in two levels of four squares each. The bottom layer is “no style” and the near row of the bottom layer is “no performance.” On the left is “no luxury” and on the right is “luxury.”

So the leftmost, near, bottom corner is no style, no luxury, and no performance. A true volksvagen. The brand identity here is obvious, it’s all about value, and the automaker competing here must sell in volume.

The rightmost, far, top corner is today’s Cadillac. Score one for GM, and don’t say that I always speak ill of GM. But even a blind hog can find slop once in a while.

The message here is for the automakers: put your brands in the corners! If you have your brands in the corners, then the people that want what you’re selling can find you! How many brands do you have? If you have fewer than eight, you need to either ignore a corner or several corners, or put different models in a brand in different corners, which is brand dilutive in my opinion.

I don’t know if this has any implications for trading, but it was on my mind today. Incidentally, with a different set of metrics it probably applies anywhere that products aren’t commodities …