BMW's New CEO Has to Catch Up to Tesla

Illustration for article titled BMW's New CEO Has to Catch Up to Tesla
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BMW’s search for a new CEO, a lawsuit alleging that Wells Fargo is denying auto loans to DACA recipients, tariffs in the RV industry, tariffs at Volvo, and the big reason why the mid-engine Corvette arrives tonight. All of this and more in The Morning Shift for Thursday, July 18, 2019.


1st Gear: BMW’s Close to Picking a New CEO, Apparently

We all recently learned that Harald Krüger is out as BMW CEO, mainly, it seems, because he was reluctant to fully transition to the electric market. BMW touted “flexible architecture” under Krüger in order to avoid standstills at factories, but the slow transition to EVs hasn’t served the company well.

So, Krüger is stepping down, and Reuters reports that his likely replacement is lined up in the form of Oliver Zipse, who Reuters reports joined BMW in 1991 and is on the BMW AG board of management.

The big ask? A quick and clean shift to electric and autonomous cars, because BMW is behind and needs to catch up. From Reuters:

Zipse has emerged as favorite because BMW’s efficient production network, which he expanded in Hungary, China and the United States, has helped the company deliver industry-leading profit margins despite its relatively small scale. [...]

“Tesla has a lead of three to four years in areas like software and electronics. The millennials are much more focused on these things. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.

BMW had an early lead in premium electric vehicles but throttled back its ambitions after the i3, an expensive city car, failed to sell in large numbers, leading Tesla (TSLA.O) to overtake BMW in electric car sales.

The Reuters story said Krüger not pushing those EVs with low margins led to engineers leaving, putting the company even more behind. But the idea seems to be that Zipse could turn that around, no matter how big of a task it may be at this point.

2nd Gear: Wells Fargo Denies DACA Recipients Auto Loans, Lawsuit Alleges

A lawsuit seeking class-action status filed in San Francisco federal court alleges that Wells Fargo denies auto loans to non-U.S. citizens who would otherwise qualify, according to a new story from the San Francisco Chronicle. The lawsuit is specifically about people here under the Deferred Action for Childhood Arrivals program, or DACA, which provides immigrants who came to the U.S. before age 16 with temporary deportation protection, an authorization to work, and the ability to apply for a social-security number.


The Chronicle reports that the lawsuit alleges discrimination of DACA recipients by Wells Fargo, and it wouldn’t be the first lawsuit against the company alleging discriminatory practices.

The lawsuit alleges that Eduardo Peña, who came from Mexico as a child and lives in Illinois as a tax manager, was denied a car loan by Wells Fargo and wasn’t provided with an “accurate written explanation” for it. From the story:

After applying online for an auto loan last November, the suit said, he was contacted by a Wells Fargo representative, who asked him for his Social Security card and work permit.

Peña provided both documents, but the representative told him he was ineligible because his DACA status would expire before the loan was due, the suit said. He explained that his status would be renewed, but was told again that his application would be denied. The bank later conducted a thorough credit check and gave Peña a high score, but still rejected him, the suit said.


Ah, Wells Fargo. Is the news ever good with y’all?

3rd Gear: Even the RV Industry Is Being Hit by Tariffs

The U.S. and China aren’t exactly getting along when it comes to trade, which means tariffs, which means nobody wins—especially not the customer, whom those tariffs almost certainly fall back on. But within our automotive scope, car tariffs aren’t the only thing going on. RVs are getting hit with them, too.


Reuters, in a story from Thursday, described the scene at U.S. RV manufacturer Renegade RV, which included letters of “bad news” from most of the company’s 350 suppliers. Renegade’s materials manager, Carrie Gray, told Reuters that “75 percent of them [are] demanding tariff-related price increases.”

From the story:

About 85% of the recreational vehicles sold in the United States are built in and around Elkhart County, making it a popular stop for politicians to tout their visions for U.S. manufacturing – including President Donald Trump, who staged a rally here last May.

And yet this uniquely American manufacturing sector has been caught in the crossfire of Trump’s trade war, according to interviews with industry insiders and economists, along with data showing a steep sales decline amid rising costs and consumer prices. The industry has taken hits from U.S. tariffs on steel and aluminum and other duties on scores of Chinese-made RV parts, from plumbing fixtures to electronic components to vinyl seat covers.

Shipments of RVs to dealers have fallen 22% percent in the first five months of this year, compared to the same period last year, after slipping 4% in 2018, according to the Recreational Vehicle Industry Association.


The story said the RV industry shows how even “American” manufacturers are hurt by tariffs due to globalized supply chains, and said because of tariff-related price increases, sales have slowed. That’s led to reductions in hours and workers at places like Renegade.

Reuters has more on the story here.

4th Gear: Volvo’s Cutting Costs in Response to Trade Tensions, Too

But, because it’s hard to go a day without discussing tariffs and passenger cars, let’s go ahead and do that, too. Volvo’s car division is the topic this time, and Reuters reports that it’s cutting costs as the trade war eats into its profits.


The plan is to cut fixed costs by $214 million at Volvo, Reuters reports, which include staff and wage cuts.

Volvo has rejigged its global production plans in an effort to reduce the impact of tariffs and has begun a review of costs, which CEO Hakan Samuelsson told Reuters had led to hourly wage cuts and the elimination of 750 roles, mainly consultants.

He said this would lead to 1 billion crowns in savings from July, with the remainder of its promised savings expected to come from measures to be completed by the first half of 2020.

Second-quarter operating profit fell 38.1% to 2.6 billion, a worse quarter-on-quarter drop than first quarter.


Volvo, thankfully, told Reuters that it now “expect[s] volume growth and cost measures to result in a ‘strengthened’ second half compared to the final half of last year.” The same can’t be said for the folks who lost jobs and took wage cuts.

5th Gear: A Reminder About Why the Mid-Engine Corvette Is Coming

Boomers are mad about the mid-engine Corvette, because change is hard and moving the engine from the front will make it look like one of those European spaceship cars. But you know what, boomers? Let’s look at some of the things that might justify moving the engine around, just for a thought exercise.


Bloomberg has a great example of why a mid-engine version of the Corvette might make sense, actually. Here it is, emphasis ours:

As Baby Boomers have gotten older, they’ve been leaving sports cars for sport utility vehicles with more space and creature comforts. Corvette sales have fallen every year since 2014, including a 25% drop last year to less than 19,000 units. Sales are down another 10% this year as GM prepares to bring out the newest-generation car.

Big profits are at stake. Credit Suisse analyst Dan Levy estimates that the Corvette brings in $24,000 in variable profit per car, which accounted for about 3% of GM’s North American operating earnings last year.

GM’s biggest challenge may have less to do with appealing to existing owners than with getting a new generation of sports-car enthusiasts to take a look. To do that, Chevy will have to overcome less-than-ideal generalizations about who buys Corvettes.


So, for once, millennials aren’t killing everything. This time, it’s the traditional Corvette market—the older folks—that’s letting itself down, because companies care about where they can make money, not where they can see falling sales just for the sake of tradition.

Maybe abandoning the Corvette for that SUV wasn’t your best idea, senior.

Reverse: “Just Got in From New York. Where Am I?”

On July 18, 1938, United Press International reported that pilot Douglas Corrigan had landed in Ireland after setting off from New York 28 hours earlier in a $900 plane. But there’s more to the story than that, via History—Corrigan, who’d just flown from California to New York, wanted to do a transatlantic flight.


The aviation authorities “deemed it a suicide flight,” History writes, and denied him, saying he could instead go back to the West Coast. He left on July 17 going west, but didn’t stay that way. From History:

However, a few minutes later, he made a 180-degree turn and vanished into a cloudbank to the puzzlement of a few onlookers.

Twenty-eight hours later, Corrigan landed his plane in Dublin, Ireland, stepped out of his plane, and exclaimed, “Just got in from New York. Where am I?” He claimed that he lost his direction in the clouds and that his compass had malfunctioned. The authorities didn’t buy the story and suspended his license, but Corrigan stuck to it to the amusement of the public on both sides of the Atlantic. By the time “Wrong Way” Corrigan and his crated plane returned to New York by ship, his license suspension had been lifted, he was a national celebrity, and a mob of autograph seekers met him on the gangway.


You go, dude. You go.

Neutral: What Are You Expecting From the Mid-Engine Corvette Tonight?

Oh, come on. You know it’s the most obvious question.

Staff writer, Jalopnik


Credit Suisse analyst Dan Levy estimates that the Corvette brings in $24,000 in variable profit per car, which accounted for about 3% of GM’s North American operating earnings last year.

GM’s biggest challenge may have less to do with appealing to existing owners than with getting a new generation of sports-car enthusiasts to take a look.

I think I have a solution: Turn the front engine Vette into an entry level sports car, and make the mid engine one into the top performer.

Looks like there’s plenty of profit that can be trimmed, and there are cheaper engines and cheaper materials that can be used to bring the price down. Make the base engine a 300ish hp V6, bring over some cloth buckets from the Camaro line, and do some other cost cutting things to bring the base price down close or under the $30k range.

300 hp american sports car for the price of a mildly optioned BR-Z?  If that doesn’t get the attention of “the youts”, then i don’t know what will.