Good Morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know.
1st Gear: Chrysler Invests Big In The Pacifica
The new Chrysler Town & Cou—er, Pacifica (I’ll never get used to that, sorry) is a big deal for Fiat Chrysler. Reuters reports the automaker has invested $3.7 billion Canadian, about $2.65 U.S. at the current exchange rate, and 1,200 jobs since September 2014 to build the new minivan in Windsor, Ontario.
It’s a tough time for Canadian production, too:
The investment comes at a time when the Canadian auto sector is facing headwinds, as manufacturers shift production to lower cost jurisdictions like Mexico. Auto executives at the show said concerns like the Canadian government’s decision to tax federal loans to manufacturers and the country’s trade policy would impact future investment in domestic production.
Autoworkers and Canadian divisions of Detroit’s automakers met the federal government in December over the Trans-Pacific Partnership, which would phase out tariffs on Japanese imports to Canada in five years, compared with a phase out over 25 years in the United States.
There’s also the fact that the minivan segment isn’t nearly what it used to be, thanks to crossovers and SUVs dominating the market. And just a few years ago, the Chrysler 200 was the product of a $1 billion investment at the Sterling Heights Assembly Plant in Michigan, which is now being allowed to die a natural death as the market shifts away from sedans. Can FCA pull this one off?
2nd Gear: Volkswagen Group Ekes Out A Win
Sales have not been great for members of the Volkswagen Group amid the never-ending, I mean, ongoing diesel emissions scandal. But the Group as a whole did manage a slight sales bump in January, Reuters reports, thanks to China:
Volkswagen (VOWG_p.DE) group sales returned to growth in January thanks to demand in China, where core brand VW posted its best month ever despite the furor over the German carmaker’s cheating of U.S. diesel emissions tests.
Deliveries at the 12-brand group, including luxury division Audi and sports-car maker Porsche, climbed 3.7 percent to 847,800 in January, Volkswagen said on Friday.
In December, sales had dropped 5.2 percent, contributing to the first decline in full-year sales since 2002.
As for the VW brand itself in January in the U.S., well, things were less than good.
3rd Gear: Trucks Trucks Crossovers Crossovers
Trucks trucks trucks trucks crossovers crossovers crossovers crossovers. Via The Detroit News:
Automakers can’t produce enough pickups and crossovers to feed demand of U.S. consumers.
That’s the resounding messages out of the 2016 Chicago Auto Show, as automaker after automaker on Thursday announced new and updated sport utilities — from off-road pickups by Ram Truck and Toyota, to crossovers from Chevy, Kia and Hyundai.
[...] “There’s a consumer shift going on,” said Nissan North America Director and Chief Marketing Manager Phil O’Connor. “We want to take advantage of that.” He said the Japanese automaker is “looking at all possibilities” for new utility vehicles to help satisfy demand.
4th Gear: Gas This Cheap Is Increasingly Not A Good Thing
Okay, we’ve all had our fun. I know I have. With these oil prices we can burn through gasoline cheaply like there’s no tomorrow, doing wanton burnouts in our Hellcats and Ram Power Wagons and Cressidas for no other reason than it’s what feels right to us deep down inside. God knows I’ve enjoyed paying $25 or less to fill up our Mini Cooper S on premium.
But! The Detroit Free Press reports that we may see sub-$1 gas in parts of the U.S. soon, and while cheap gas is nice for our wallets, we’re getting to the point where that could have serious effects on the economy. (It already has in places dependent on the oil and gas industry.)
What’s wrong with lower prices?
More than you realize. When prices of most basic commodities used in manufacturing fall, we face the risk of deflation. Deflation is scary because once consumers understand that what they want today will be cheaper tomorrow they delay buying, sometimes indefinitely. That doesn’t help anyone, other than investors who have bet that commodity prices will keep dropping.
There’s not much more central banks can do to fight deflation. The Federal Reserve could reverse the modest quarter-point interest rate hike approved in December, but hasn’t indicated they want to do that. Even if they did, that would take rates back to 0% and beyond that the only option would be to take interest rates negative, which the Bank of Japan did on Jan. 29. Negative interest rates mean investors pay banks to hold their money.
5th Gear: Can Cadillac’s German Pricing Stick?
Cadillac’s been turning out some impressive product lately for sure. The CT6 is a winner, and the XT5 crossover will probably be a sales hit at least on par with the fast-selling old SRX. But it’s also more expensive, priced in line with Mercedes and the rest (though admittedly Cadillac has gone heavy on incentives lately.) Bloomberg analyzes this strategy:
Cadillac has gone to great lengths to make Teutonic-style pricing stick—and doing so has probably cost the brand quite a few transactions. Dollar for dollar, a lot of drivers would choose a Benz over Detroit’s best. To many who remember the darkest days at GM, a Mercedes still carries the image of a better-made car, even if that point is now very debatable on the merits.
But that’s exactly why Cadillac is keeping its prices up. Pricing is marketing by another means, especially when applied to lavish, not-quite-essential things such as a diamond ring or a luxury SUV. If GM wants to signal to buyers that its machines are just as good as the top cars of the class—as finely tuned and leather-soaked as anything designed in Germany—then it needs to embrace the same heftier price tags. Last year, in another demonstration of premium pricing’s impact, Cadillac sold only 3 percent more vehicles than it did in 2014 but realized a 7 percent revenue boost.
Reverse: The Storm Begins