Good morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know and that you better read or else.
1st Gear: A “Triple-Threat” Looms
Ah, remember yesterday? We were calmer, having friendly debates—is the death of diesel imminent; what does it mean that car sales are dropping—not thrusting ourselves into a frenzy as if we’re barreling toward a dark place.
What’s that? Oh... we are? Via Bloomberg:
Deutsche Bank AG said March’s weak sales, coming as they did amid rising interest rates and a slide in used-vehicle prices, make for a potentially slippery outlook. Industrywide deliveries last month slowed to a seasonally adjusted annual pace of 16.6 million vehicles, confounding analyst expectations that the rate would accelerate to 17.2 million. Automakers set a record in the U.S. last year, with 17.6 million vehicles sold.
“Somewhat ominously, today’s market increasingly resembles one we described in ‘A Triple Threat’ (Feb. 20, 2004),” Deutsche Bank analysts Rod Lache, Mike Levine and Robert Salmon wrote in a note on Tuesday. “In that report we highlighted the risks to the industry from rising rates, rising negative equity in vehicle loans and used vehicle-price deflation. This could lead to deteriorating affordability, delayed trade-in cycles, consumer shifts from new to used, diminishing credit availability and deteriorating mix/pricing.”
Heh, “somewhat ominously”—quite a careful phrasing there Bloomberg says one key indicator that trouble lies ahead is that “fewer cars are being taken over the road.”
While net new drivers jumped to 4 million in 2015, that may not be enough. Total vehicles in the U.S. have increased to 270 million, from 249 million at the end of 2012.
“This has led us to question whether the U.S. is broadly oversupplied, and whether trend demand in the 17 million range is fundamentally supported,” the analysts wrote. “If it is not, the oversupply should be self-correcting — the U.S. market will experience declining used-vehicle prices, pressuring new vehicle sales.”
So, yeah... about those shiny new U.S. auto factories.
2nd Gear: Mercedes Moves Into Robo Taxi Race
Every automaker has basically bought into the idea that, in order to succeed down the line, they need to start focusing on autonomous cars now. Mercedes reached the same conclusion this week, in announcing a partnership with Bosch to develop self-driving taxis. From Reuters:
The pact between the world’s largest maker of premium cars and the world’s largest automotive supplier forms a powerful counterweight to new auto industry players like ride-hailing firms Uber and Didi which are also working on self-driving cars.
Technology companies and carmakers are striving to adjust to a shifting landscape in the auto industry as consumers increasingly use smartphones to locate, hail and rent vehicles, rather than going out and buying cars.
The alliance not only marks an end to Daimler’s efforts to develop an autonomous car largely on its own, but moves the auto industry’s ambitions beyond simply developing prototype vehicles towards industrial-scale production of self-driving cars.
And that’s the thing about “mobility,” right? It’s not just about producing the vehicle that moves anymore, it’s providing the service: That’s why General Motors bought into Maven and Lyft, Ford with Chariot, Uber with... Uber. With Mercedes, you now have a jam-packed that makes the future success of services we now see as viable not as likely.
Mercedes wants its fully-autonomous car on the road, picking up passengers by 2021, which tracks with Ford’s ambitions. Now it’s just up to the automakers to make it happen.
3rd Gear: Uber/Lyft Win Reprieve In Union Battle
Where there’s mobility, there’s reigning champs Uber and Lyft. And both despise an ordinance crafted by Seattle’s city council that allowed drivers for the ride-hailing services to unionize. Uber and Lyft felt Seattle’s idea wasn’t fair to its drivers and their freedom (and every argument you can conceive other than explicitly stating “it’ll hurt our business model).
The ride-hailing business model is couched around a standard operating procedure in the so-called Gig Economy: workers aren’t your “employees,” they’re contractors. But a successful union drive could change the stakes; Uber, for one, has indicated it won’t put up with it and said it’ll leave the city if drivers go that route.
A lawsuit filed in state court by Uber against Seattle was dismissed last month, but the business-first folks over at the U.S. Chamber of Commerce stepped in to file a lawsuit of its own. Yesterday, a federal judge overseeing that case agreed to temporarily suspend the ordinance, pending the outcome of the chamber’s suite. From Bloomberg:
Saying the city’s ordinance would likely disrupt the ride-hailing companies’ businesses in “fundamental and irreparable ways,” [U.S. District Judge Robert] Lasnik ruled that it should be blocked while the case is decided.
“There can be no doubt that ride-share companies such as Uber and Lyft have, at a truly startling rate, created havoc in this industry using a business model that simply did not exist before its recent technological development.” Lasnik wrote. The judge said it was uncertain, though, whether state law allows the city’s ordinance.
The Seattle city attorney’s office will continue fighting to “defeat this legal challenge to its effort to improve the safety and reliability of for-hire transportation in the city,” spokeswoman Kimberly Mills said in a statement.
“The city is also encouraged that the court did not find merit in the challenges to the ordinance under federal labor law,” she said.
A Lyft spokesperson told Bloomberg the ordinance is a “poorly drafted law that could undermine the flexibility of drivers” options, while Uber’s general manager in the Midwest said it poses an “imminent risk” to drivers, and the people of Seattle.
Whatever the case, Lasnik stressed the ruling was only temporarily, and his opinion in no way suggested the chamber might prevail. So this’ll be interesting to follow.
4th Gear: We’ll Fill Factory Void In Mexico, Says Chinese Automaker
U.S. automakers and President Donald Trump have established a firm relationship with one another, with Trump urging them to build new domestic factories and bring jobs back to the country. Thanks to some carefully-crafted PR maneuvers, automakers have indeed changed plans to build in Mexico and relocate some business back to the U.S. That’s left some parts of our neighbor to the south without factories it expected.
So, Chinese automaker Great Wall Motor Co., wants to fill the void. From Reuters:
Chinese automaker Great Wall Motor Co Ltd... is considering building an auto plant in two Mexican states hit by U.S. President Donald Trump’s drive to make American companies invest at home, sources said.
Great Wall Motor, which describes itself as China’s largest SUV and pickup manufacturer, is interested in building a plant in Nuevo Leon in northern Mexico or the central state of San Luis Potosi, three people familiar with the matter said.
The story goes on:
Under pressure from Trump to keep jobs in the United States, Ford Motor Co (F.N) in January canceled a $1.6 billion plant in San Luis Potosi, while heating and air conditioning firm Carrier in December scaled back plans to move production to Nuevo Leon.
Great Wall Motor officials met with Mexico’s top railroad firms, Ferrocarril Mexicano (Ferromex), part of Grupo Mexico (GMEXICOB.MX), as well as Kansas City Southern de Mexico [KCSM.UL](KSU.N), to evaluate the states’ connectivity, according to a source and two documents seen by Reuters.
But Great Wall says this all hinges on one major unanswered question: U.S. trade policy. Hm.
5th Gear: Barra Still Raking In Serious Loot
Here’s a thought: Your boss says you need to take a pay cut to keep your job. One that’s worth about $6 million less. Oof. Except you’re still going to make $22.6 million in a year. That sound like you? I didn’t think so. That’s how Mary Barra rolled in 2016, though, the highest among the Big 3 CEOs. From The Detroit Free Press:
Barra, who became CEO in January 2014, is the auto industry’s first female CEO.
The value of her total compensation fell by about 21% last year. The biggest difference was that Barra did not receive any new stock options awards in 2016 compared with $11.2 million in stock options in 2015.
I just did the math, in the time it took me to write this gear, Barra would’ve earned $205. I... did not.
Neutral: A ‘Triple Threat’?
It seems clear that auto sales will taper off in 2017, but do you think we’re barreling toward another “triple threat”-type situation?