Audi has a mess on its hands in China, Volkswagen has a mess on its hands in Russia, and the mess on everybody’s hands — the chip shortage — is actually getting cleaned up these days. All that and more in this edition of The Morning Shift for Monday, March 20, 2023.
1st Gear: Audi’s Anxious About China
If you’ve been following China’s auto industry at all, you likely know that sales of domestic-brand cars — particularly EVs — are booming in that nation, while foreign automakers have tanked fast. Audi is hoping to address this problem as swiftly as possible, though as chief executive Markus Duesmann notes, the deck’s pretty much stacked against it. Blame current energy prices — a result of the ongoing conflict in Ukraine — along with Audi’s lack of urgency to compete within the market. From Bloomberg:
“The transition to electric vehicles in China is naturally a challenge for us,” Duesmann said in an interview at Audi’s headquarters in Ingolstadt. “We haven’t participated in the growth in the electric vehicle market as much as we’d have liked.”
The shift to cleaner technologies presents more than one dilemma for Germany. The war in Ukraine exposed the country’s reliance on cheap Russian gas for its energy needs, and the shift to renewable power has been slow. There’s also raw materials needed for batteries, which mainly come from China.
That means Germany’s automakers need to overhaul their product range and their manufacturing system at the same time.
“Energy costs will be decisive for us, for Germany and for Europe,” said Duesmann. “Energy costs play an enormous role in the production of a car. The raw material costs play a huge role.”
For years, Germany gratefully sold cars, chemicals and machinery to the Asian superpower, but more recently the tables have turned and the trade deficit is growing.
“China was moving very fast before, and then we as a society weren’t watching closely for three years and they’ve kept moving,” said Duesmann. “It’s like when you’re watching a marathon race and you turn away for 30 seconds and then the competition is somewhere else completely when you look back. That’s how it is with China.”
The Volkswagen Group’s ongoing software concerns haven’t helped things. In-car software is of course crucial to EVs, and a prime selling point for new cars in the Chinese market. Volkswagen’s last CEO, Herbert Diess, lost his job over a failure to stamp out software issues (among other things), and Porsche’s decision to reject the Group’s common software platform, break away and develop its own with an outside partner wasn’t exactly confidence inspiring. Now, Volkswagen and Audi need to make up all that ground in record time:
For a time, Audi was overseeing an initiative to develop a common operating system across Volkswagen’s 12 brands, and customers have grappled with unnerving glitches and trips to the garage instead of receiving over-the-air updates like Tesla.
New software-led common vehicle underpinnings have been postponed by several years with significant delays for key new models like the Audi Q6 e-tron and electric Porsche Macan. Volkswagen this week revealed a jump in planned spending, partly driven by a push to improve its lineup in China.
“China is the new benchmark for us regarding development time,” Duesmann said.
These are all reasonable goals to set, but meeting them is another thing entirely.
2nd Gear: Mercedes Is Investing in its Factories
Mercedes-Benz will spend billions of dollars to bring a number of its plants around the globe, particularly in Germany and China, up to date while reducing waste, Reuters reported Sunday via German publication Automobilwoche:
“We are investing a three-digit million amount per plant for the run up,” production manager Joerg Burzer was quoted as saying by the magazine, adding that these investments will be at the plants in Beijing, Rastatt in Germany and Kecskemet in Hungary.
The carmaker will start work on the Rastatt plant over the coming months and will produce the first model of the compact vehicle platform MMA from 2024. The number of models produced there will be cut to four from seven, Burzer said.
In addition, Mercedes will invest a low single-digit billion dollar sum in modernising the painting systems at its Sindelfingen, Bremen and Rastatt plants in Germany.
The report said the modernisation aims to cut energy and water consumption, and the painting system’s reliance on gas, as opposed to carbon-free energy.
Mercedes is also considering expanding its U.S. plant in Tuscaloosa, where it can benefit from government subsidies under last year’s Inflation Reduction Act, Automobilwoche said.
Production boss Joerg Burzer was quick to point out that, despite this news, the automaker may have to adjust these plans again should regulations change around the world. I don’t envy that position of having to make a 10-year decision based on fickle lawmakers.
3rd Gear: The Chip Shortage Is Really Improving
I know we’re told from week to week that semiconductor supply chain challenges are easing up, but AutoForecast Solutions has recently been able to put numbers to that claim. Globally, automakers cut an encouragingly low number of cars from their production schedules due to a lack of silicon last week. Per Automotive News:
Automakers cut remarkably fewer vehicles from their production schedules worldwide last week because of the microchip shortage — just 2,400 vehicles, one of the lowest weekly totals in months, according to the latest estimate by AutoForecast Solutions.
All of the new reductions occurred at European factories, with plants around the rest of the globe getting a reprieve from the supply problems that have ravaged factory and supply chain planning since early 2021.
Automakers are still coping with other supply chain problems, but they are less frequently blaming them on the semiconductor shortage, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions.
“More than two years into this problem, it reflects poorly on a manufacturer or supplier who has not secured sourcing of chips,” Fiorani wrote in an email.
Still, roughly 715,000 fewer cars have been built this year against targets due to trouble in securing chips, and analysts expect that number to grow by about 2 million before the year is out.
4th Gear: Drama in the UAW Election
Incumbent United Auto Workers president Ray Curry is protesting the legitimacy of the union’s current election — one he’s due to lose if things remain as they are, with challenger Shawn Fain leading the runoff after neither leading candidate was able to secure a majority in initial voting. Once again, Auto News:
UAW President Ray Curry, who trails as the final votes are being counted in the union’s first direct election of leadership, has filed a protest saying thousands of members were disenfranchised and that the winner of one regional director race was ineligible.
Curry’s team, in a statement Friday, said there are “a number of significant issues that have come to light recently that call the election into question and require immediate investigation.” Curry trails challenger Shawn Fain in a runoff that has been unsettled for two weeks while officials work to verify more than 1,600 challenged ballots.
Fain has all but claimed victory in the race, which is being overseen by the federal monitor that was a condition of the UAW’s corruption settlement with the Department of Justice. The monitor has not released an update on the vote count, but Fain’s camp, which has observers in the room where the tally is happening, said he leads by 505 votes with fewer than 600 challenged ballots left.
“By now the writing is on the wall: Change is coming to the UAW,” Fain said in a statement late Thursday.
Curry, meanwhile, argues that “tens of thousands of ballots” were returned to the union as undeliverable and questioned whether the monitor’s office made “all reasonable efforts” to ensure those members could vote.
As Auto News notes, Curry’s campaign did not challenge the results immediately after the first round of voting, nor did it complain in the two weeks leading up to the runoff tabulation. Curry was elected president in June 2021.
5th Gear: VW Can’t Seem to Leave Russia
Volkswagen, like all automakers headquartered outside of Russia, is really eager to get out of Russia. Unfortunately, a dispute between itself and local partner GAZ has slammed the brakes on Volkswagen’s exit. VW terminated the agreement last summer, which GAZ argued was a breach of their contract. A Russian court has responded by freezing the German carmaker’s assets in the country. From Reuters:
Russian auto manufacturer GAZ, which was contracted to produce Volkswagen vehicles at its factory in Nizhny Novgorod, sought to halt to any sale as part of a lawsuit against the German carmaker for what GAZ says is a breach of contract after Volkswagen terminated the production agreement in August.
In court filings, GAZ said Volkswagen’s attempts to exit the Russian market put its own interests at risk and it is seeking 15.6 billion roubles ($201.3 million) in damages over the terminated contract.
A Russian court on Monday agreed to freeze all of Volkswagen’s assets in Russia while the dispute with GAZ plays out, court documents showed, further hitting VW’s attempts to wind down its Russian operations. [...]
Russia mandates that companies from “unfriendly” countries - those which have hit Russia with sanctions - are required to win approval from a government commission for the sale of any Russian assets.
Foreign investors have feared Russia could move to nationalise strategic assets since the restrictions on sales were brought in.
Last July President Vladimir Putin issued a decree to seize full control of the Sakhlain-2 gas and oil project in Russia’s far east, effectively taking almost 50% of the project from Shell and two Japanese trading companies.
It’s hard to imagine this one playing out in Volkswagen’s favor anytime soon. This is why Nissan sold everything to its name in the country for one single euro.
Reverse: Farewell, Fiero
It was on this day in 1988 — 35 years ago — that 365 Days of Motoring tells us the final Fiero rolled out of General Motors’ Pontiac, Michigan plant. That event also marked the end of the facility itself. Here’s a snippet from a Los Angeles Times story from earlier that same month:
GM cited slow sales of the car for its decision to close the Pontiac, Mich., factory.
Production of the little two-seater will end in August. At that time, GM said, it would indefinitely idle the Fiero assembly plant, where 1,241 workers were already on layoff.
Pontiac general manager Michael Losh said GM decided to drop the car “based upon a realistic assessment” of the two-seater sports car market. He said there appeared to be no prospect for sales growth.
Analysts note that the car was first priced at $8,500, representing an inexpensive, sporty product. But the segment became overcrowded, and its current selling price of about $14,000 is out of reach for some customers.
In addition, Losh cited rising insurance rates that industry officials maintain are preventing many younger car buyers from purchasing sports cars.
Neutral: Integra Type S
I suppose Acura was always going to just make an Integra version of the Civic Type-R and call it the Type-S, but once again, the big question mark is how Acura will differentiate its offering. Look, the Integra was never really more than a snazzier Civic, but the key to that is that it looked prettier than the Civic. The Civic Type-R is definitely the looker between the pair these days, so I’m very skeptical.