Tag Archives: Auto industry

Moving the Iron amid Sagging Demand: Tesla Cuts Price of Model Y, after Cutting Prices of Model 3, S & X, as Other Automakers Offer Record Incentives, by Wolf Richter

Looks like the V-shaped recovery has bypassed the auto industry. From Wolf Richter at wolfstreet.com:

The time for deals on new vehicles has arrived.

Tesla fired its latest salvo to stimulate demand for its vehicles. But it is not alone; the entire auto industry is now cutting record deals to move the iron in face of sagging demand.

This weekend, Tesla chopped the price of its Model Y crossover by $3,000, or by 5.6%, from $52,990 when deliveries began in mid-March, to $49,990 (image from its website taken today):

The Model Y is Tesla’s hottest newest model, in the hot category of crossovers, and yet, price cuts are needed to stimulate demand.

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The Glut Cometh, by Eric Peters

All indications are that cheap financing has hyped-up car sales as much as they can and a painful correction or worse awaits the car industry. From Eric Peters at theburningplatform.com:

Wouldn’t it be nice to know the canary’s going to sing before he actually does?

Very few saw the crash coming back in ’08 – which was the last time the car industry hit the linoleum and the cry resonated from Detroit to DC: I’ve fallen – and I can’t get up!

By the spring of ’09, GM had become Government Motors – and remains so, in spirit, to this day. The taxpayer bailout money has been paid back, but the company was fatally tainted by its roll-under-the-sheet with Uncle. It became a virtue-signaling company more than a car company.

Pontiac, Oldsmobile, Saturn and Hummer – dust in the wind. Along with about 20 percent of GM’s previous market share.

Chrysler eventually got bought by Fiat and shed Plymouth, then Dodge.

Ford didn’t take any taxpayer money but did get a “line of credit” – just in case.

They all bent knee.

Now comes the glut – and it could be the canary in the coal mine, just before he opens his beak.

Continue reading→

 

Beyond the Hysteria about Auto Tariffmageddon, by Wolf Richter

It’s not easy trying to figure out which car companies will benefit and which will be penalized by proposed tariffs. The car business is complicated. From Wolf Richter at wolfstreet.com:

After decades of relentless offshoring, the equation may change for automakers and component makers.

President Trump’s threat to impose tariffs of 20% or 25% on auto components and vehicles imported to the US is causing a bout of hysteria that is splattered all over the media.

The auto industry lobbying group, Alliance of Automobile Manufacturers, is now claiming that a 25% tariff on imported vehicles and components would cost US consumers $45 billion a year, or $5,800 per vehicle. “This would largely cancel out the benefits of the tax cuts,” it says.

I have serious doubts about those numbers, and “propaganda” comes to mind. But even it they’re correct theoretically, the calculation assumes that the industry would not react to those tariffs except by passing them on to consumers. Consumers are unlikely to go for that program, and automakers will end up restructuring their supply chains and manufacturing to bring some production back to the US, after having spent decades on offshoring production.

That’s one purpose of tariffs. Another purpose is to persuade other countries to lower their own tariffs. It has been an uneven playing field for decades, stacked against US workers.

The EU imposes a 10% tariff on all cars, SUVs, compact SUVs, vans, and pickups imported from the US. The US imposes a 2.5% tariff on imported passenger cars, SUVs, compact SUVs, and vans from the EU and a 25% tariff on imported pickups (a tiny segment of the EU market).

China imposes a 25% tariff on all imported vehicles but offered to cut this to 15% as a goodwill gesture in the trade war. To get around the Chinese tariffs and sell vehicles to the 1.3 billion Chinese consumers, all global automakers have invested billions of dollars in China, have set up large manufacturing facilities in required joint ventures with often state-controlled Chinese companies, and have submitted to the required technology transfers. GM now makes and sells more vehicles in China than it does in the US.

To continue reading: Beyond the Hysteria about Auto Tariffmageddon

Making “Investments” in EVs, by Eric Peters

The car industry is all gung ho on electric vehicles…if they can get the government to subsidize them, because their customers aren’t quite as gung ho. From Eric Peters at theburningplatform.com:

The verbiage is interesting. As the country relies ever more on force to coerce, it resorts to soft language to hide what is going on.

For example, this news story about what the Alliance of Automobile Manufacturers – which is the lobby for the car industry – is up to. The Alliance published an open letter to nine governors of states it wants to emulate California’s policy of coercively – legislatively – force-feeding electric cars down the throats of a largely uninterested and unwilling buying public.

It’s not put that way in the letter, of course. Nor the news articles about it – the journalists who write them having learned to parrot the oleaginous verbiage of coercion, whether consciously or not.

The open letter – and the news stories – talk about “encouraging the governors to follow California’s lead” and the need to “commit resources” and make “investments” in electric cars – because of course the free market isn’t interested in committing its resources or making such investments. So what is actually meant by the verbiage is that the car industry – speaking as one through its lobbying arm – wants to see laws and regulations like those in force in California imposed by force (how else are laws ad regulations imposed?)  in other states.

The reasoning is perfectly understandable.

California is the only electric car “market” – and it is only a “market” because California has artificially created one, via the force and coercion of the California General Assembly and regulatory apparat, including the infamous California Air Resources Board. They have issued various fatwas mandating that electric cars be manufactured and “sold” – even if at a loss. The car companies have thus been forced to commit lots of their resources toward the making of electric cars (or the buying of offsetting “credits” from that electric car carny, Elon Musk) even if they can’t make any money making them.

To continue reading: Making “Investments” in EVs

Without Help From Uncle, by Eric Peters

Would you consider a car that averages 80 MPG and retails for less than $8,000? Too bad the government won’t let you buy it. From Eric Peters at theburningplatform.com:

Why don’t cars that make sense make it?

Five years ago, Paul Elio bought up a shuttered GM assembly plant In Shreveport, Louisiana with the intention of using it as home base for the manufacture of a low-cost/high-economy car – the kind of car no other car company makes anymore. Instead of $12k and maybe 40 MPG on the highway – the best you can get in a new car sold by any other manufacturer – the Elio would average at least 80 MPG and sell for less than $8,000.

Such a car makes all kinds of sense.

At a stroke, it would cut the cost of getting around by car in half – minimally. Keep in mind that the least-expensive new car being manufactured right now, the one referenced above, is the Nissan Versa. Most new cars cost significantly more. The average price paid for a new car is currently well over $30,000 – and the average new car averages a great deal less than 40 MPG, on the highway or otherwise.

It would also render many “alternative” fuel cars irrelevant; make them look even sillier as economic and functional and evenenvironmental propositions than they already do. The Elio’s “carbon footprint,” for instance, is so small it’s hardly there.

Which is why the Elio faces every kind of obstacle imaginable to preventits manufacture.

Unlike the manufacturers of those other cars, which make no sense at all – including environmentally-speaking – and so are given every artificial advantage (via government) imaginable.

Electric cars.

It is doubtful anyone would by them at a price which reflected their true cost to manufacture, absent all the manufacturing subsidies, including sweetheart deals/financing on their manufacturing facilities – such as the $1.3 billion the taxpayers of Nevada were compelled to provide the billionaire crony capitalist Elon Musk to finance the battery plant for his electric luxury-sports cars. As well as the retail ones, including not only the tax breaks dangled in front of buyers of the cars but also on the “fuel” they use – the electricity – which isn’t subject to any motor fuels taxation (for the moment) and often literally given away for free (well, at taxpayer expense) at so-called public charging stations, to further nudge the electric car into general use.

Elio enjoys no such help.

To continue reading: Without Help From Uncle

The V2V Bee Hive, by Eric Peters

The federal government and the auto companies are developing exciting new ways to keep track of us, and our autos, and eliminate the last vestiges of privacy. From Eric Peters at theburningplatform.com:

Ayn Rand, for all her quirks, had some solid things to say. One of these was that civilization exists – or declines – in proportion to privacy. The less privacy you’ve got, the more uncivilized the society in which you live.

Which is why this business of Vehicle to Vehicle (V2V) technology is so extremely uncivilized. It is meant to make sure you are never alone on the road – even if you are the only car on the road.

The concept emulates the bee hive. Each bee is an integral part of a collective and no action taken by any individual bee is unknown to the other bees, who all exist and operate in lockstep.

Your V2V-equipped car (several new GM vehicles and all Teslas already have the technology) will “stream information” to the other V2V-equipped cars, so that each knows where the others are in relation to itself, their relative speed and direction.

The “queen” will know, too.

The government queen – because she likes to know where we are and what we are up to. And the insurance queen – for the same reasons. Both will use this information to keep track of us – and to charge us.

Elon Musk is a third queen.

He likes to keep up with what you’re up to, too. All Teslas “stream” data back to the Teslian hive. The cars are literally tethered – electronically – to the great collective. The data pack includes how fast you drive, how long you drive – even possibly what you talk about inside the car. Teslas – and almost all new cars, period – have microphones built in, as part of the “concierge” system (e.g., GM’s OnStar and similar systems) or for the voice command systems that almost all new cars either have or offer.

Of course, there’s no Off switch.

To continue reading: The V2V Bee Hive

What’s Going On? by Ethan Gaines

The auto industry is trying to drive across quicksand. From Ethan Gaines at acoldwarrelic.blogspot.com:

I love selling cars, the industry gave me a purpose after the shitty experience of being a corporate cog. But I’m truly starting to fear the worst for the American car industry. The industry has shown growth since the dark days of the recession but the business model morphed into an ugly free for all. Automotive credit has become easier in the last few years, and manufacturers are still seeking whatever growth they can come up with in our market at any cost.
People are buying cars they can’t afford or shouldn’t even have been able to buy. Used car depreciation is at an all time high for many cars and yet everyday more and more people are trading them in. This whole scenario has a bleak end that became evident when I went to my buddy Paris’ repo lot. He called me to check out a 2016 BMW 435i he jacked for BMW Financial Services. It was a beautiful Estoril Blue M-Sport car with just under eight thousand miles on the clock. I could only imagine the circumstances where someone let go of a year old BMW, but as we walked through I noticed all of the cars seemed to be nearly new. Paris confirmed my fears when he told my about nine-out-of-ten vehicles he’s repossessed in the last few months were model year 2016 or newer. To make matters worse Paris only does work for prime and a few captive lenders, meaning a majority of these cars went out to consumers with good credit.
On the other end, every time I look up from my desk there is a customer who is absolutely drowned in their vehicle. Six thousand dollars in negative equity is the norm, but I’ve witnessed numbers as high as twenty thousand in the last year. Customers are always astounded by how their car has lost so much of its value so quickly. What they fail to realise is their car was worthless from the beginning. Rebates and incentives are at an all time high at many manufacturers, J.D. Power quoted an average around four thousand dollars earlier this year, and I’m sure that number has risen since then. The problem with high rebate numbers is it absolutely kills the resale value of a car. 
To continue reading: What’s Going On?

Harvey and Irma Won’t End Carmageddon, by Wolf Richter

As the auto industry goes, so goes the economy? From Wolf Richter at wolfstreet.com:

GM cuts entire shift at factory for crossovers due to “moderating” sales, layoffs not temporary.

For the first eight months of the year, car sales by GM and Ford plunged 19%. Industry car sales fell 11%, despite record incentives. Sales of trucks – pickups, SUVs, crossovers, and vans – have been the big hope. Total truck sales are up 3% for the year, reducing the overall sales decline to 3%. Particularly crossovers have been red-hot. Every manufacturer has jumped into this booming segment. They’ve been the big hope. But now, even that hope is fading.

“Although crossovers now make up a larger share of the automotive industry, overall volumes are moderating,” General Motors told employees in a layoff notice at its Spring Hill, Tenn., assembly plant that makes the GMC Acadia and Cadillac XT5. These crossover models are among the very vehicles GM is counting on to pull it out of its sales funk.

“We believe the best way to react…is to reduce output,” the statement said.

GM will eliminate an entire overnight shift with about 1,000 workers. Some of the workers might be transferred to the engine or component manufacturing side of the plant, according to the GM spokesman.

The notice was sent on Friday. It was meticulously timed. By the time it was reported by the Wall Street Journal, the markets had already closed and no one was supposed to pay attention any longer.

Already in December 2016, GM announced that it would kick-start 2017 by temporarily closing five assembly plants, temporarily laying off 10,000 workers. But most of those employees were involved in making cars.

What GM told its employees on Friday was different: It would cut an entire shift, it would not be temporary, and the purpose would be to cut production of formerly hot crossovers.

Every automaker is pursuing the hot crossover segment with a vengeance. They’re still selling, but not as well as expected, and demand is “moderating,” as GM put it, and now overcapacity is setting in, the bane in auto manufacturing. It has been hounding plants that make cars. But now the problem is spreading the plants that make crossovers.

To continue reading: Harvey and Irma Won’t End Carmageddon

If You Can’t Beat ‘Em . . . Ban ‘Em, by Eric Peters

Consumers, not governments, drive acceptance of technological innovation. When the government has to bribe consumers to take up a technology, or ban competing technologies, then the technology is not an improvement. From Eric Peters at theburningplatform:

Since they can’t sell electric cars – not enough of them, anyhow – and not without subsidies so huge they amount to outright bribes – the solution appears to be to outlaw all cars except electric cars.

This is no joke.

There are IC engine No Go Zones in Germany and France. The Brits have just decreed a ban on the sale of internal combustion-engined vehicles period, beginning in 2040 – which sounds like a long time from now but isn’t – because car companies begin designing cars about ten years before they see the light of production and so this fatwa means the car companies are on notice that the current generation of cars they are selling is either the last or the second-to-last generation of cars they will be selling . . . at least insofar as they are powered by internal combustion.

And so, they won’t be wasting resources to design and build the nextgeneration.

It’s not just Britain, either.

If it were, the madness could be contained. Instead, the madness metastasizes. India (well, the government of India) wants all IC engined cars off the road – or retrofitted with electric drivetrains – by 2030, which is only about ten years away and so just over the horizon as far as product planning cycles go.

And now the commissars in China have announced they are all in . . . or out – depending on your point of view. The world’s largest market for cars and the world’s largest manufacturer of cars.

Same 2030 extinction-by-decree date.

To continue reading: If You Can’t Beat ‘Em . . . Ban ‘Em

Pumping up a Leaking Tire, by Eric Peters

The auto market has been pumped up with credit, but now it’s sprung a leak. From Eric Peters at theburningplatform.com:

Every kid knows what happens when you try pumping up a leaking tire. As soon as you stop pumping air into it, the tire begins to go flat.

New car sales have been working that way for the past couple of years – with effectively free (zero or little to no interest) loans extended over the horizon – and leasescounted as sales – serving as the “air” in the tire.

We’ve been told that business is great.

In fact, it’s as rickety as a Jenga tower.

What’s happening in the used car market is a portent. Prices are collapsing – chiefly because of historically unprecedented depreciation. During the past twelve months, the average used car lost 17 percent of its value. This is almost twice the annual average depreciation rate just three years ago. It smacks of the post-2005 collapse of housing prices.

There are several reasons for what’s happening, all related and feeding off one another like chum-crazed barracudas.

The first is the inflated prices – as distinct from value – of new cars.

Things that have value – intrinsic worth – tend to retain it. Things that merely cost a lot – when they are new – but whose value is essentially a function of their newness and not intrinsic worth – hemorrhage  value the moment after they are no longer new.

This used to be almost uniquely true of high-status cars, which people bought largely on the basis of their being the Latest Thing. A year – six months – later, of course, they no longer are. This is why a high-end car that sold for $80k three years ago is worth maybe $50k today.

To continue reading: Pumping up a Leaking Tire