Amid The Glitz And Glamor Of The Detroit Auto Show, Let Us Ponder How Close Doomsday Is

Photo credit AP
Photo credit AP
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Good morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning.


Before you catch up with all of our coverage so far at the 2018 Detroit Auto show, here’s our morning video recap of last week’s big story:

1st Gear: Who Still Thinks The Next Few Years Will Be Good?

The auto industry closed out 2017 with a slight decrease in sales, but there’s still some observers who believe that, thanks to a better economy and a tax cut that’ll increase someone’s take home pay by a couple bucks, everything’s going to be just fine. Because a marginal increase in one’s pay is what compels them to go out and buy a new car.

Anyway, we’ve long tried to stress how this seems highly implausible for a litany of reasons, and now The New York Times has delivered what could charitably be described as a knockout blow—pending how this year shapes out.

“It’s going to be a very good year in 2018,” Mike Jackson, chief executive of auto retailer AutoNation, happily told the Times. Here’s why that could be wrong, per the Times:

But a closer look suggests that the industry may be headed for choppier waters than the hoopla in Detroit would indicate. While sales are healthy, consumers are actually buying fewer new vehicles. Purchases by individual customers at dealerships — known as retail sales and considered the most accurate reflection of demand — declined slightly in both 2016 and 2017. Some automakers are offsetting lower consumer purchasing by selling more cars to fleets like rental-car companies.

More worrisome is that the drops in retail sales have come even as manufacturers have resorted to heftier discounts, which eat into their profits. Sales incentives are now equal to more than 11 percent of the average vehicle’s sticker price. As recently as 2014, that figure was below 8 percent.

Oh, there’s more. Interest rates are ticking north, meaning it’ll cost even more to finance a car. So what’s worrying some analysts is that, though the industry exists through ebbs and flows, we could be heading for a pretty nasty dip. You remember the last time this happened, yeah?

All of this is happening as automakers like Fiat Chrysler hop on the Trump Tax Cut PR bandwagon by announcing a small bonus to all workers and a new $1 billion investment in American production. And then there’s a Toyota-Mazda joint-factory planned in Alabama; as Automotive News points out, maaaaybe it’s not the right time for it. Here’s why overproduction may be something to fear, even as we celebrate American jobs:

The industry runs into trouble when automakers get stuck producing more vehicles than customers are willing to buy, said Ron Harbour, an auto manufacturing expert at Oliver Wyman, another consulting firm.

He added that one part of the industry was already in considerable distress — the car business. With Americans flocking to roomy vehicles like S.U.V.s, sales of family sedans and compacts have plunged in the last few years. Family cars like the Toyota Camry used to make up 25 percent of all new-vehicle sales. Now they account for just 15 percent.

As a result, some manufacturers are seeing a split in their operations. While running truck factories almost around the clock, they have been idling workers, cutting shifts or slowing assembly lines at their car plants. Ford, Toyota, Honda and Hyundai all cut output at car plants by 10 percent to 22 percent last year, according to data compiled by Automotive News. G.M. cut production by about 33 percent at its Lordstown, Ohio, plant, which makes the slow-selling Chevrolet Cruze compact. In Oshawa, Ontario, G.M.’s large-sedan factory lowered production by almost half.


Buckle up, friends.

2nd Gear: Ford Planning More Electrified Vehicles

Last fall, Ford teased a plan to reallocate billions of dollars for new electric vehicle models, and at the Detroit Auto Show this week, the automaker expanded on its game plan. It’s a big one: 40 new electrified vehicles, $11 billion in total, all by 2022.


Here’s more from Reuters:

Of the 40 electrified vehicles Ford plans for its global lineup by 2022, 16 will be fully electric and the rest will be plug-in hybrids, executives said.

“We’re all in on this and we’re taking our mainstream vehicles, our most iconic vehicles, and we’re electrifying them,” [Chairman Bill] Ford told reporters. “If we want to be successful with electrification, we have to do it with vehicles that are already popular.”


That seems like a smart idea to rope in possible newcomers who’re wary about electric powertrains. Ford already revealed over the weekend that it’s planning a F-150 Hybrid and a battery electric performance car called Mach 1. Quite the name, eh.

3rd Gear: Diesel Sales Slumping And Could Cost Jobs In The UK

So everyone’s snapping up big trucks and crossovers in the U.S., but across the Atlantic, thousands of jobs in the British car industry are at risk, reports The Guardian, thanks to tax increases and negative publicity from you-know-what.

According to sources, executives are preparing for redundancies, with the rush to embrace electric vehicles adding to the pressure on diesel. Last year, sales of diesel-powered vehicles in the UK plummeted by 17.1% to just over 1 million.

One industry source said the focus on electric, allied to a recent tax increase on diesel cars, poses a serious threat to a vehicle type that accounted for nearly 38% of car sales in 2017.

“It’s created a cliff edge for diesel. Diesel should have been phased out and electric phased in. Our government has tightened the noose [with a duty increase on diesel vehicles in the budget]. The government should have realised this was not good for employees. In the short term, it will create unemployment.”


The industry employees about 169,000 people, according to the news publication, but that number could be trimmed in the coming years. Part of that has to do with Volkswagen’s decision to blatantly lie about installing defeat devices in cars to skirt diesel emissions tests.

As one unnamed source put it to The Guardian, there’s a “sense of alarm” right now as the industry shifts toward more electric vehicles. It’s going to be a difficult ride.


4th Gear: Marchionne Sees A Future In EVs

Sergio Marchionne, between actively seeking a new suitor for FCA and planning his retirement next year, sat down with Bloomberg ahead of this week’s auto show. Despite trying to find someone—anyone—to buy FCA, Marchionne told the news publication that he had a waring for his competitors: reinvent themselves or risk being commoditized.


Part of that seems to be because Marchionne sees a big future for electric and autonomous vehicles.

Developing technologies like electrification, self-driving software and ride-sharing will alter consumers’ car-buying decisions within six or seven years, the Fiat Chrysler Automobiles NV chief executive said in an interview. The industry will divide into segments, with premium brands managing to hold onto their cachet while mere people-transporters struggle to cope with the onslaught from disruptors like Tesla Inc. and Google’s Waymo.

“Auto companies need to quickly separate the stuff that will be swallowed by commodity from the brand stuff,” Marchionne said.


Marchionne says he believes fewer than 50 percent of cars sold by 2025 will come with an internal combustion engine. And he believes that by 2028, there’ll be a widespread adoption of cars capable of driving themselves within well-defined areas.

That’s not particularly surprising, I suppose. Marchionne and FCA teamed up early on with Google’s self-driving car unit Waymo to test out autonomous cars, so he has to see some potential in the technology. I’m just wondering how serious he is about selling the company before he leaves.


5th Gear: DOT Chief Wants Self-Driving Cars To Benefit Rural Communities

The auto industry’s in a frenzy trying to push out autonomous vehicles, touting enormous expectations for the technology that, without incredible steps being taken, will probably never come to fruition. So I was a tad surprised to see current U.S. Transportation Secretary Elaine Chao suggest that self-driving cars need to benefit rural companies, not just urban cores.


That was one of Chao’s main talking points at a speech she gave this week at the Detroit Auto Show, explains USA Today.

“We want to be inclusive as well and consider how this technology can benefit rural America,” Chao said in an interview on the sidelines of the auto show.

Automakers and tech companies are making great strides in delivering self-driving cars, but they are likely to be first available in ride-sharing fleets in urban environments.

“That’s great, but not everyone lives downtown,” Chao said in a speech at the North American International Auto Show. “And it is worth noting that rural America accounts for a disproportionately large share of highway fatalities. So, automated technology (has) an important role to play in rural mobility and safety.”


It’s hard to overstate just how difficult the challenge will be for automakers to develop self-driving cars that can function outside of highways or dense urban cores. The conditions of roads in Manistee, Michigan, just aren’t the same as sunny Silicon Valley.

It’s nice to hear Chao say this sort of thing, but it presents enormous—if not impossible—expectations, barring drastic change from regulators and the industry itself. I mean, some advanced autonomous cars couldn’t even handle a little rain at last week’s Consumer Electronics Show. We still have a long, long way to go.


Reverse: Here’s Something I’d Like To Dig Into One DaNeutral:

Is the party over? And if so, how long’s the industry going to be in a downswing?

Senior Reporter, Jalopnik/Special Projects Desk


I don’t read tea leaves, but I have a gut level feeling a recession is in the offing, probably in 18-24 months. I’m glad my car and truck are paid off.

Our economy is like “ebb and flow”. We are due for a reset. I’m sure the current administration will blame it on the previous. Yadda yadda yadda.