Subaru’s trying to recover from a slump, VW begins its electric vehicle onslaught, the Chinese car market isn’t doing so hot, and more for The Morning Shift of Friday, May 10, 2019.
1st Gear: Subaru Is Hoping for a Comeback After a Tough Year
The brand that seemed poised to continue dominating the U.S. crossover market, Subaru, showed its earnings report earlier today, revealing that the fiscal year ending on March 31 was plagued with issues.
Operating income was down 48.5 percent, net income was down 32.9 percent and global unit sales dropped 6.3 percent over the previous year. Reuters—who referred to Subaru’s last 12 months as “dismal”—quotes Toshiaki Okada, Subaru’s Chief Financial Officer, as saying: “Quality and production issues slowed output, which led to the drop in sales.”
It’s a surprise for a small but scrappy automaker that’s been posting record sales in recent years and punching way above its weight. But it’s been a rough go for nearly every car company lately, and Subaru’s growing pains have been part of that.
Automotive News Europe breaks down those quality and production problems, writing:
In January, Subaru lost almost 10 days of output as it halted output at its sole assembly plant in Japan. Lines were stopped to address a problem with electric power-steering units in the Forester and Crosstrek crossovers as well as the Impreza small car. That shutdown affected all models made in Japan, and Subaru suffered some 30,000 units of lost output.
Last fall, Subaru of America issued a recall and stop-sale for all U.S. 2018 Outback crossovers and Legacy sedans — 228,648 vehicles —because of a software programming error that can cause the low-fuel warning light to fail to illuminate. The miles-to-empty display may erroneously indicate that more driving range is available than actually remains.
Just before that came a global recall of 411,000 vehicles to fix faulty valve springs that can cause engines to stall. And that came on the heels of Subaru’s recalling a half-million vehicles in Japan to address a problem of cheating on final vehicle inspections.
The good news is that Subaru is expecting a stronger 2020 fiscal year, with Automotive News writing:
Subaru forecast that operating profit will increase to 260 billion yen ($2.35 billion) in the current fiscal year ending March 31, 2020, while net advances to 210 billion yen ($1.89 billion).
Subaru said global wholesale volume should increase 5.6 percent to 1.06 million vehicles. North American sales, it predicted, will rebound 5.1 percent to 753,000 in the current fiscal year.
Back in November, we wrote about Subaru’s quarterly loss with the headline “The Golden Age of Subaru May Be Over.” This new annual report appears to reflect many of the same issues mentioned then: recalls and scandals—two areas that Subaru will want to minimize for 2020 to meet its goals.
2nd Gear: The First Car in VW’s EV Onslaught Sees 10,000 Pre-Orders
Volkswagen has huge plans for its “MEB” electric car platform, with the company saying it hopes to sell at least 10 million vehicles on those bones. Earlier this week, the Wolfsburg-based company opened pre-orders in Europe for the very first ever MEB-based electric car, the ID.3, and apparently struggled to handle the demand.
The pre-orders required a 1,000 Euro (roughly $1,120) deposit (but apparently cheaper in the U.K.?) on the I.D. “1st” special edition, which is expected to cost under 40,000 Euro (~$45,000). VW says the price for a base model ID.3 will be under 30,000 Euro(~$34,000).
Apparently VW wasn’t quite ready for the 10,000 pre-bookings it received in the first day:
Sometimes, the IT systems are unable to handle the large number of users accessing the system at the same time. This leads to long waiting times and interruptions in the registration process in some markets. Volkswagen is working hard to eliminate the hitches. Nevertheless, more than 10,000 registrations were received throughout Europe during the first 24 hours.
When it launched the pre-booking on Wednesday, VW described the importance of this car in a press release, comparing it to the wildly successful Beetle and Golf, writing:
With the ID.3, we will be ushering in the third major chapter of strategic importance in the history of our brand, following the Beetle and the Golf. With the ID.3, we are making the electric car fit for mass mobility. Initially, we will electrify Europe with the ID.3 and then other regions with further electric models in the ID. family which are to follow in the near future.”
Obviously, a car company saying its new car will be important doesn’t mean a whole lot, nor does the 10,000 pre-order figure (especially since, as the Detroit News points out, this number pales in comparison to the Tesla Model 3's deposits in the first 24 hours). Still, VW says it’s built 200 pre-production ID.3s already, and after having seen the new platform in Germany last year, it does appear to me that VW is truly about to jump head-first into the mass-market EV world.
3rd Gear: If You Can’t Beat Them, Join Them?
With Americans obsessing over trucks and SUVs, and automakers quitting sedans altogether, what’s becoming of the traditional four-door family car? According to a new Bloomberg article, the answer is that the traditional sedan is doing its best to adapt by adding SUV-esque features. From the story:
The latest entrants to the all-wheel stable include the Mazda6, Nissan Altimaand Toyota Prius. As sales of crossovers, sport utility vehicles and pickups have grown, automakers are equipping more of their sedans with all-wheel drive to hang onto buyers wanting more SUV-like features.
The story cites Edmunds as saying that 63.4 percent of new vehicles sold last year were available with all-wheel drive—a record figure that’s up seven percent from a decade ago. The goal is to help improve sedan sales by outfitting them with this tech, with Bloomberg writing:
“The transition to SUVs has primed American auto buyers for additional capabilities,” said Jeremy Acevedo, Edmunds’ manager of industry analysis. “The recent increase in cars offering AWD is an attempt to level the playing field between cars and SUVs.”
And, at least to some degree, it appears to be working, with the news site citing the Nissan Altima sedan’s take-rate on all-wheel drive variants:
Nissan Motor Co. began offering all-wheel drive on its latest Altima sedan in the U.S. market in November. Since then, the company says more than 20% of buyers in the U.S. have opted for the $1,350 package, and close to half of all Altima sales in wintry markets such as the Northeast have all-wheel drive.
Between current fuel prices making buyers less averse to giving up an MPG or two for the perceived safety and security of all-wheel drive, and the fact that some all-wheel drive systems sometimes carry with them little or no fuel economy detriment, it’s no wonder that cars like the Dodge Charger, Mazda3, Mazda6, and Toyota Prius can send torque to all for wheels these days.
It’s especially important for Mazda, which has been trying to go up-market. For them, all-wheel drive is “premium.” Per Bloomberg:
Masahiro Moro, chairman of Mazda’s North American operations, expects as many as 40 percent of Mazda6 buyers to choose the option. “All-wheel drive gives more of a sense of safety for customers, and they see it as something like a premium feature,” Moro said in an interview.
4th Gear: The Big 25 Percent Tariff on Chinese Goods Just Went Into Effect
As is the case every morning, I bet you want to know how our trade war with China is going. Well, today’s big news is that, as of 12:01 A.M., China got hit by a giant tariff on $200 billion in goods, according to Bloomberg. The news site mentions car parts as a significant item being hit by the new tax:
The new tariffs that took effect at 12:01 a.m. Washington time Friday raise from 10 percent to 25 percent the duties on more than 5,700 different product categories from China — ranging from cooked vegetables to Christmas lights and highchairs for babies.
Auto parts ranked 10th on the list of products facing the higher tariffs with a value of $2.3 billion, according to the U.S. International Trade Commission.
As drama seems to fill our political news stories, you won’t be surprised to read this next part:
China immediately said in a statement it is forced to retaliate, though hadn’t specified how as of 3:55 p.m. in Beijing.
Bloomberg says this move will “pinch” both the U.S.’s and China’s economies, going on to say:
Trade data released Thursday showed the U.S. trade deficit with China decreased to the narrowest in almost three years as imports slowed and exports advanced. Strong gross domestic product and jobs numbers in recent weeks have also emboldened Trump.
While Trump insists that the tariffs are paid for by China, most economists say the evidence shows that their cost is being absorbed by American companies and consumers.
I bet there’s more drama coming soon. Stay tuned.
5th Gear: China Wants Incentives
Once considered an endless money-fountain for automakers, things have been getting tight in China of late, and Bloomberg says consumers are waiting on incentives before plopping down the cash for a new vehicle, writing:
The worst car-market slump in a generation is dragging on as shoppers stay away from showrooms ahead of potential government incentives aimed at reviving the market, with local brands being particularly hard hit. Carmakers have invested billions of dollars in the hope that the world’s biggest market will keep growing even as vehicle demand in Europe and North America wanes.
Secretary general of the China Passenger Car Association paints a pretty bleak picture, telling the news site that “There’s little hope for us to see positive signs for the auto market in the first half.”
The story goes on to say the trade “spat” with the U.S. is threatening to make things worse, though the good news is that electric vehicle demand remains strong thanks to the government’s push towards “New Energy Vehicles,” and certain brands like Toyota, Honda, and BMW seem to be doing okay, too. Cheaper Chinese brands, though, are feeling the hurt, and may experience consolidation soon, though there may be some relief on the horizon:
To help the market rebound, carmakers are counting on the Chinese government to introduce consumer incentives such as tax cuts. Officials are drafting measures to bolster auto sales, people familiar with the matter have said.
Reverse: The World Loses an Automotive Icon
Carroll Shelby died on this day in 2012. Here’s what we wrote about him at the time:
But more than a driver, Shelby will be remembered as a man who built many, many fast cars. The first, and in many ways still most iconic Shelby came about in 1959, when Shelby obtained a license to import AC Ace cars from Britain. Shelby’s revelation was to replace the straight-6 Bristol engine with a Ford 260 V8 engine, creating a light, incredibly fast sports car. Shelby went on to work with all of the Big Three American car companies, producing such car as his Series 1 with GM mechanicals, the Dodge Viper, and the Ford Mustang Shelby line that is still in production today.
Neutral: How Do You See Things Going For Subaru In The Future?
Subaru is such a strong brand, especially in the U.S. Do you see this continuing to be the case or do you think it’ll struggle, and if so, why?