Photo: AP
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Ford and GM sedan owners turn elsewhere for new cars, a new trade deal we know very little about, Honda’s parts crisis, and a little tiny detail about AVs that may matter someday. All this and more in The Morning Shift for Wednesday, December 11, 2019.

1st Gear: Turns Out If You Stop Making Cars People Don’t Think Of Your Company When They Want A Car

I increasingly believe we’re going to look back on Ford and Chevrolet’s decision to abandon honest-to-God cars as one of the most misguided, short-sighted mistakes of the decade in the industry. I thought this before I had any real justification for it, but now there’s data!

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From The Detroit News:

Some 42% of Ford Focus and Chevy Cruze compact car owners have stayed in the compact car segment with a significant percentage buying competitors’ vehicles, according to an industry study by Edmunds that finds a deterioration of market share for the Detroit makes, and a decline in brand loyalty.

Here’s Hyundai’s case:

“There are 6.5 million car owners who do not have a successor sedan for them from their manufacturer. Forty-four percent of those say they want a sedan, so if you look at the raw numbers, there are still a lot of buyers out here,” Hyundai Vice President of Product Planning Mike O’Brien said at a media test of the new Sonata in Phoenix.

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Interestingly, Edmunds analyst Jessica Caldwell thinks I have it backwards, that this is better for Ford and GM in the long run but hurts them in the short run:

“Ford and GM made a strategic decision to prioritize profit at the expense of market share,” said Edmunds auto analyst Jessica Caldwell. “While this may set them up better in the long run so they have the cash they need to fund electrification and autonomy, there’s no question that decision is giving their competitors an edge now.”

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To which I say, why not both? It is bad that customers are switching to other brands in the short run, bad that they won’t have many affordable nameplates should the economic winds change, bad that they’re driving away brand-loyal customers who likely care about fuel efficiency just before they’re going to start churning out electric vehicles, and potentially bad that they’re doing this to fund AV research which may or may not actually pay off in a tangible way.

2nd Gear: NAFTA Out, USMCA In, Cars Go Vroom

You may recall that among many of the promises Trump made was replacing the North American Free Trade Agreement (NAFTA) with something else because that was the “worst deal ever.”

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Well, yesterday, the U.S., Canada, and Mexico signed a NAFTA replacement called the U.S.-Mexico-Canada Agreement (USMCA). Hopefully, in these divided times, we can at least all agree the name is worse. What’s that? We can’t agree on that? Fair enough, moving on.

As you can probably guess, this trade deal has huge implications for The Cars, as many of The Cars are now made in Mexico. So what does this mean for The Cars?

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To be determined. Here’s Bloomberg, via Auto News:

The major sticking point in talks for months has been labor-rights enforcement. The deal creates a new labor-specific dispute panel system covering all goods and services, and labor violations can lead to “penalties on goods and services.”

Instead of U.S. labor inspectors in Mexico, which Mexican negotiators opposed, the deal creates an inter-agency committee to monitor labor rights in Mexico and allow labor attachés to monitor labor reforms.

The agreement establishes benchmarks for Mexico’s implementation of its new labor law. If the deadline is not met, that leads to “enforcement action,” according to the summary.

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Basically, NAFTA labor regulations have been incredibly hard to enforce and this deal in theory makes it easier to do that. The AFL-CIO, among other major unions, praised the deal as leveling the playing field. GM and Ford both put out bland, predictable statements in support of the deal as well, which you can find in the above link if you’re so inclined.

Want to read the agreement and see for yourself? Too bad, it’s not public yet. Congress should vote on it soon.

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3rd Gear: How, Exactly, Will AVs Make Money? Reply Hazy, Ask Again Later.

We’ve spent a decade wondering whether AVs will ever work and forgot to ask how they will make money.

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Here’s Reuters:

Sky’s the limit optimism about self-driving cars is giving way to tougher questions about how expensive automotive artificial intelligence will ever make a profit.

Those are questions the founders of Argo AI - and automaker partners Ford Motor Co and Volkswagen AG - are betting they can answer by taking a different road than more highly valued rivals. They are steering away from building a robotaxi fleet and focusing instead on getting paid by the mile by customers that will use robot vehicles for multiple purposes, including delivering goods or transporting groups of people in vans.

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You might be thinking, wait, is that really different than what other AV companies are thinking? The answer is, no, it is not. In fact, when I Google “autonomous vehicles e-commerce” I get 11.2 million results, including 47,500 news stories about how autonomous vehicle companies, or people paid to think about autonomous vehicle companies, are thinking about e-commerce applications. Just off the top of my head, I can tell you Waymo, Google’s AV company and widely regarded as the industry leader, has been thinking about e-commerce/trucking applications for quite some time. They even have a truck and everything. And getting paid by the mile is the exact opposite of “innovation” in the trucking industry.

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The real challenge, for pretty much everyone but Waymo, will be convincing people their self-driving car company is better than everyone else’s self-driving car company.

As an aside, let’s tie this back to the Ford/GM sedan thing. They killed off an entire product line to squeeze the short term profit lemonade to fund AV research for the future. But what if they...can’t make money from AVs in the future? I don’t mean to be alarmist, big, expensive, long-term bets that don’t pay off is how companies die. Or, more accurately, how companies end up running to the Feds asking for a bailout.

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4th Gear: 30,000 Pre-Orders For The Taycan

From Auto News:

Porsche has taken down payments from 30,000 customers in Europe for its Taycan, the automaker’s first full-electric model, Germany’s Handelsblatt reported.

These customers have made down payments of 2,500 euros ($2,771) each and 10,000 of them have already placed a firm order to buy a Taycan, CEO Oliver Blume told the business paper. This exceeded the company’s expectations, Blume said.

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But how many preorders would they have gotten if it was a truck and shaped like a drunken triangle and cost only $100 and had a name referencing the purgatory between reality and fantasy?

5th Gear: Honda Has A Parts Crisis

Honda is generally regarded as one of the more reliable automakers but apparently they are not. Again, from Auto News:

At the Hotel Higashinihon in Utsunomiya, [Honda CEO Takahiro] Hachigo told them the Japanese automaker was facing a crisis after a string of costly recalls and other quality blunders and it needed to plot a new course, according to two people who attended the meeting.

Since then, Hachigo has been quietly working on reforms to centralize decision-making by bringing Honda’s standalone r&d division in-house and cutting some senior management roles, according to three Honda insiders.

Expected to be announced early next year, the reforms are meant to simplify the way Honda designs cars and put its engineering resources to more effective use at a time when it needs to develop vehicles for an electric age, the sources said.

“Decades ago, localization ... was the buzz word and our tech center independence was a key driver for innovation,” said a former Honda executive who now is the head of one of its suppliers. “Those days are over.”

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Basically, Honda has too many models and too many trims, which makes building the cars hard. In my experience, the things that make or break massive enterprises are whether or not they get the details right—or, more precisely, have the organizational ability to course correct when it’s getting stuff wrong—so best wishes to Honda as it tries this delicate corporate maneuver.

Reverse: The Greatest Heist In U.S. History

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Neutral: How Will AVs Make Money?

I know this sounds like a stupid question, but sometimes the stupid questions are the best ones. Or, they’re just stupid, but there’s only one way to find out.

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The only thing I’ll say before taking it to the comments is: remember, they don’t just have to make a profit from day one of operations, they’ll have to account for the billions of dollars in R&D already invested.