What It Costs to Kill a Car

Illustration for article titled What It Costs to Kill a Car
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Ford takes a huge hit as it executes a global restructuring, update number 1,684,349 on a possible Renault-Nissan merger, and a one-year check up on Ford’s sedan-less future. All this and more for The Morning Shift of Friday, April 26, 2019.


1st Gear: Ford Takes a (One-Time) Bath on Earnings Amidst Restructuring

Pretty much every automaker is struggling this year amidst a global slump in demand for new cars, but Ford took a particularly large bath with net revenue plummeting 34 percent. The company says this is due to global restructuring and other one-time charges to shore up the business. Here’s Automotive News:

Ford attributed a majority of its $600 million decline in net income to one-time charges related to its global redesign, including exiting the heavy-truck market in South America and restructuring its operations in Europe.

It took a $24 million hit from ongoing layoffs of salaried employees in North America, a process Shanks said is “coming toward its end.”

Also included in that write-down is a $67 million charge to end U.S. production of the Focus as part of the company’s sedan-killing strategy (more on that later), which is a reminder that it costs a lot of freaking money to kill off a car.

Although it’s a rounding error for Ford, the company also took an $11 million hit to close the Chariot micro-transit program, which, at least in New York, was a hilarious failure. The write-down, though, would suggest that was not unique to the Big Apple.

In general, Ford beleives this is good news. Again from Automotive News:

“It was a good start, but we still have three quarters of the year to go,” Ford CFO Bob Shanks told reporters Thursday. “We’re happy, but our enthusiasm is well under control.”


“Our enthusiasm is well under control,” is a fantastic oxymoron I plan to use on the regular. Anyways, investors seem to also have controlled enthusiasm:

Following the release of the company’s first-quarter financial results, Ford shares surged above $10 each in after-hours trading for the first time since August.


There will probably be more of this to come for Ford as it, like most other automakers, prepare for a bad sales year and shore up for an expected recession.

2nd Gear: The Neverending Story of the Nissan-Renault Merger Adds More Pages

The Nissan-Renault partnership is decades old at this point, but despite Carlos Ghosn’s best efforts, they just can’t seem to put a ring on it.


The main sticking point has historically been the French government’s 15 percent ownership stake in Renault. But a new plan hatched by Renault and reported by Nikkei seeks to finally come up with an arrangement that can please all parties:

[Renault] is proposing that Nissan and Renault shareholders have equal stakes in a holding company, which will own 100% of each carmaker, and equal board representation. Under the plan, the French state’s 15% stake in Renault would become a 7% share in the holding company.


Renault is pushing the issue because both carmakers need a shot in the arm. Nissan keeps revising revenue and sales projections downwards as the company breaks from Ghosn’s rapid expansionary policy, while Renault continues to struggle to gain market share in general.

There are a lot of complicating factors, as a decades-long engagement period might suggest. Yet Renault think they’ve hit on the right plan at the right time. More from Nikkei:

Renault’s approach comes as the Japanese company this week announced its second profit warning of the year, saying operating profits would be 45% down on last year.

Renault Chairman Jean-Dominique Senard believes that he can address some of Nissan’s concerns by suggesting the holding company structure and proposing the headquarters should be based outside of both Europe and Japan. Renault has mooted Singapore as one option. Nissan would retain ownership of the 34% stake in Mitsubishi Motor, the third partner in the carnmaking alliance.


Will this work? Nikkei certainly doesn’t think so:

Nissan is expected again to reject the plan, setting the stage for a clash over the future relationship between the two companies and calling into question the stability of the alliance that is crucial to both carmakers.


Hey, you miss 100 percent of the shots you don’t take.

3rd Gear: Add Daimler to the List of Slumping Automakers

Daimler’s first quarter results were basically as bad as everyone else’s, as Reuters reports:

Daimler’s first-quarter operating profit fell 16 percent on Friday as a 718 million euro ($800 million) one-off gain failed to offset costs from a production delay for its Mercedes-Benz GLE and higher raw material costs.


Daimler said problems launching a new sports utility vehicle platform at its plant in Tuscaloosa, Alabama caused production delays for its GLE model, leading the return on sales at Mercedes-Benz cars to fall to 6.1 percent, down from 9 percent a year earlier.

Mercedes-Benz sales in China, the world’s largest car market, also fell 3 percent and sales in smaller compact vehicles helped erode margins, Daimler said.


Daimler said it had also incurred costs after ceasing production of its X-Class sports utility vehicle in Argentina. Markets in South America were not ripe for a premium pickup truck, Chief Financial Officer Bodo Uebber said.


Slumping sales in China? Production problems and/or closures in the U.S.? Leaving the South American large vehicle market? Sounds familiar.

It’s going to be a tough year for The Cars.

4th Gear: Hey Ford, How’s That Sedan-Less Future Working out for Ya?

One year ago, Ford shocked pretty much everyone by declaring the company was going sedan-less. Much digital ink has been spilled about why Ford did this and whether it was a good call to stop making the most car-y cars of all the cars. But let that not prevent us from spilling yet more digital ink on the subject.


Some, like our own Tom McParland, argued at the time it was smart because Americans looking to buy Fords almost always preferred the larger crossovers with little trade-off in fuel economy or price but offered higher riding positions and more space. And since they were getting clobbered in sedan sales anyways, they adhered to the Bart Simpson theory of car sales: can’t win, don’t try.


One year later, Ford is very much sticking to the plan, the Detroit Free Press reports:

“The migration out of passenger cars into SUVs has accelerated,” Mark LaNeve, vice president, U.S. Marketing, Sales and Service at Ford, told the Free Press. “It’s breathtaking. It’s a generational shift. At Ford, we believe it’s structural, or otherwise permanent. It won’t bounce back with an oil shock.”


LaNeve even went on to basically make the same argument our own McParland did, replete with the Detroit automaker staple “my wife as a stand-in for the American consumer” anecdote:

Years ago, when you shifted from a car into an SUV, you had to make trade-offs on fuel economy, ride quality, technology, LaNeve said. “Now with the SUVs we currently build, you don’t have to make the trade-offs. We’ve invented a better mousetrap. My wife, the No. 1 thing with her is visibility. She wants to be able to see. And a heated steering wheel. She likes the command seating position.


Ah yes, the wife of a Ford Motor Company executive, the token car buyer of America.

Not to worry, Ford is sure they made the right decision even though there are some people who actually like sedans. They’ll win them over by getting them to buy something other than a sedan:

“Are there some die-hard sedan customers we may lose? We’re hoping to minimize it,” LaNeve said. “We’ll play to our strengths. We’ll take every opportunity to introduce them to Ecosport and Escape (compact SUVs). And we’ll use capital we’ve allocated to sedans. That’s the trade-off we’re making. We’ll put money where the growth is occurring rather than declining.”

What about drivers of the Ford Fiesta, Ford Focus, Ford Fusion? They’ll switch to other Ford products, LaNeve predicted.


I mean, maybe? A lot of this rhetoric wafts in the old stink of of Detroit hubris (everyone will buy the cars we tell them to buy!) but there’s also some data to back it up.

Another possibility, outlined by the Wall Street Journal, is that SUVs will become progressively smaller to the point where they straight up become the new sedan:

As the sedan has fallen out of favor with many U.S. car buyers, auto makers have rushed to introduce cheaper, more diminutive sport-utilities to their lineups. These new offerings are aimed at giving customers a new entry-point into car brands as small-car and hatchback models—long the go-to for many first-time car buyers—are phased out. In some cases, auto makers are targeting younger consumers with smaller SUVs, only to find older drivers more enthusiastic about the models.

The subcompact SUV category barely existed a decade ago but has grown rapidly in recent years, from only one model in 2009 to roughly 16 this year, according car-shopping website Edmunds.com. It now includes nameplates like the Nissan Kicks, Ford EcoSport and Toyota C-HR.


This sounds like Ford’s bet to me. Even when fuel prices inevitably rise again, they’ll have a robust lineup of fuel-efficient small SUVs that can still address consumer demand for better fuel efficiency. But this would require the price for subcompact SUVs to fall, as the Journal says:

Car makers tend to make more money on sport-utility vehicles, mostly because they can command higher prices than sedans for relatively little extra cost. For instance, the average price paid for a subcompact SUV was about $22,400 in 2018—more than $6,000 higher than a car model of similar size, according to research firm J.D. Power.


It’s obviously (still) too early to tell what Ford’s sedan-less future means in the long run, but it sure seems like they’re banking on being in poll position should sedans no longer be the the archetypal car.

5th Gear: You’ll Never Believe This but Uber Lost a Crap Ton of Money Again

Ever so gradually, it seems like markets are wising up a bit to the fact that Uber and Lyft have extremely wacky business “models.” Here’s Reuters on the latest Uber IPO news and earnings report:

Uber reported in the filing a net loss attributable to the company for the first quarter of 2019 of around $1 billion on sales of roughly $3 billion.



The valuation that Uber is seeking in its IPO is less than the $120 billion that investment bankers told Uber last year it could fetch, and closer to the $76 billion valuation it attained in its last private fundraising round in 2018.

This reflects the poor stock performance of its smaller rival Lyft Inc following its IPO last month. Lyft shares ended trading on Thursday down more than 20 percent from their IPO price amid investor skepticism over its path to profitability.


Lost $1 billion on sales of $3 billion in one quarter. And soon they’re going to be worth tens of billions of dollars on the open market. I can’t help but shake the feeling a market this perplexingly unbothered by catastrophic P&L measurements is somehow linked to the oft-rumored recession waiting around the corner.

Reverse: UAW and Chrysler Reach Deal in 2009, Setting Bankruptcy in Motion


Neutral: One Year On, How Do You Feel About Ford’s Sedan-less Future?

Even though I understand the logic, it still feels weird to me that Ford completely abandoned the sedan market.

Former Senior Reporter, Investigations & Technology, Jalopnik



“What about drivers of the Ford Fiesta, Ford Focus, Ford Fusion? They’ll switch to other Ford products, LaNeve predicted.”

The only other Ford I may get into after my Fiesta ST, is the new Bronco, or a Ranger Raptor (if that happens). I do enjoy my hot hatches though and hope the future is bright for them. I will be curious to see what comes out in a few years.