Dealerships are struggling to keep cars on their lots. The Big Three have a “brain drain” problem. Cadillac is making changes to dealerships to prepare for EVs. Oil companies are cutting back on exploration as demand plummets. That and more in The Morning Shift for Monday, August 17, 2020.
Even though most car plants in the U.S. are back up and running, the reality is that managing a car factory during a pandemic isn’t that easy, and expecting to reliably maintain pre-COVID levels of output just isn’t reasonable.
While vehicle demand isn’t what it used to be, it is apparently outweighing supply by quite a bit, leading to “the lowest nationwide inventory level since November 2011" according to Automotive News. This is, in large part, a result of manufacturing bottlenecks:
Most automakers and suppliers are struggling to keep workers healthy and lines running at speed. Executives from Ford Motor Co. and General Motors warned this month that absenteeism was an issue in their plants and that production had not yet returned to pre-COVID-19 levels. BMW and Honda have both retrained some staff to fill in for absent workers and keep assembly lines running, while Kia said supplier constraints were holding up output of the popular Telluride crossover, according to a report last week by Bloomberg.
Nissan said it also had shortages in some models and trims, including the Rogue crossover and Frontier pickup. Mercedes-Benz told Automotive News it was “currently facing some limitations regarding new-car inventory, particularly on certain models such as the GLE.” The German luxury maker said it was working to minimize the impact on customers and dealers.
At Toyota Motor North America, “We have good days and not-so-good days,” said Randy Pflughaupt, group vice president of supply chain management.
But it’s not just production struggles causing this lack of supply; the problem is also a result of the model-year changeover. From Automotive News:
Inventory struggles are in no way only caused by slowed production, said Michelle Krebs, executive analyst at Autotrader.
While inventory levels in August are usually tighter because of model-year changeovers, the COVID-19- related production shutdowns have delayed the rollout of new model-year vehicles.
According to Cox, only 0.5 percent of current inventory are 2021 models, compared with 9 percent of inventory for 2020 models at the same point last year.
The article mentions how the president of Southeast Toyota Distributors, Ed Sheehy, implored dealers to take cars as plants were shutting down, as he suspected demand would return:
...when it comes to the supply of certain popular models, such as the Toyota Tacoma, Kia Telluride and Hyundai Palisade, the stocks available to sell are depleted and likely costing sales as a result — just as Sheehy predicted at the end of March.
“Please, do not turn down your allocations. I implore you to accept everything you have earned because the day will come in the not-too-distant future when you will want every one of these vehicles and more,” Sheehy prophetically warned his dealer customers in a video as auto plants and dealerships were shuttering.
What a fascinating flip from dealers saddled with too many cars that nobody wanted to buy to now having too few cars to keep up with demand.
When the world learned that General Motors’ CFO Dhivya Suryadevara was leaving the company to pursue an opportunity at San Francisco-based digital payments company Stripe, a number of my friends in the auto industry began talking about “Brain Drain,” particularly the movement of talent from Detroit to Silicon Valley.
Some of the discussion in my friend group was inspired by the article “Departure of GM CFO Dhivya Suryadevara highlights ongoing ‘brain drain’ problem for auto industry” by CNBC. Here’s a short nugget from that story:
Morgan Stanley analyst Adam Jonas this week called the competition for talent, or “brain drain,” the “biggest challenge facing” the Detroit automakers.
“While we did not anticipate this departure, we have published on our concerns about the ability of legacy auto makers to retain top talent and to attract it,” he wrote Tuesday in an investor note.
Now there’s a new article that builds on this discussion, this time from Automotive News. It’s titled “GM CFO’s exit latest in Detroit vs. Silicon Valley tug-of-war for talent,” and though it makes a lot of the same points as the CNBC article (namely that Detroit is losing talent to Silicon Valley), it also points out that Suryadevara’s success could lead talent to seek opportunities in Detroit. From the story:
But Suryadevara’s move to Stripe, an online payment processor that has become one of the world’s most valuable startups, also validates the auto industry’s growing bench of coveted talent.
“What you’re seeing is talent being developed and then being sought after. That’s kind of a good problem to have. Maybe now after her doing well there, it will be easier to recruit,” said Mike Ramsey, an analyst at Gartner. “It’s a recognition that there is talent [in Detroit] instead of it being the other way around.”
The discussion about “brain drain” from Michigan to California is a complex one, but here are some points that my industry friends have made: The tech industry pays more; the tech industry is faster paced with regards to innovation; the Big Three tend to offer slower upward mobility, and living in Detroit can be, well, cold and suburban.
Cadillac is leading General Motors’ electric vehicle onslaught, starting with the recently-revealed Lyriq crossover. To electrify its premium brand, though, GM has a lot of work to do, particularly at the dealership level, as Automotive News points out in a recent story.
Equipping service centers to fix EVs, building charging stations, and—perhaps most importantly—educating customers on the merits of an electric Cadillac while keeping them aware of how ownership differs from a traditional ICE car are among the main challenges. From the story:
Over the next two years, Cadillac dealers will install charging stations on-site and go through training to sell and repair EVs, said David Butler, chairman of the Cadillac National Dealer Council and executive manager of the Suburban Collection, a Michigan-based dealership group.
“It’s a different model from the ICE vehicles. For instance, in fixed operations, you don’t have an engine to tear apart anymore in [electric vehicles]. There’s going to be some changes there,” he said.
Dealerships’ service bays will need unique lifts to accommodate the batteries and special tools for EV service work, Malishenko said.
Many dealers fear that EV sales will yield little returns after they invest in charging and fixed operations equipment, along with an EV training program.
“At some point, that’s a pretty significant investment by the stores,” Malishenko said. “It doesn’t seem reasonable, at least early on, that they all do it. But I guess time will tell, how they roll it out market to market.”
Bloomberg has a story out about how resource-rich locations previously thought as ripe for oil extraction are actually being left alone as demand for oil sinks as a result of the coronavirus and stricter limitations on carbon emissions.
As the coronavirus ravages economies and cripples demand, European oil majors have made some uncomfortable admissions in recent months: oil and gas worth billions of dollars might never be pumped out of the ground.
With the crisis also hastening a global shift to cleaner energy, fossil fuels will likely be cheaper than expected in the coming decades, while emitting the carbon they contain will get more expensive. These two simple assumptions mean that tapping some fields no longer makes economic sense. BP Plc said on Aug. 4 that it would no longer do any exploration in new countries.
The story continues:
BP said in June it would evaluate its portfolio of discoveries and leave some undeveloped. Chief of Staff Dominic Emery already hinted last year at what kind of resources might never “ see the light of day.” Complicated projects could be shelved in favor of fields that are quicker to develop, such as U.S. shale, he said.
The pressure to curb emissions may also prompt companies to leave the most carbon-intensive reserves in the ground, as France’s Total SE acknowledged last month when it took an $8 billion writedown on carbon-heavy assets.
The list of projects most at risk includes deepwater discoveries off Brazil, Angola and in the Gulf of Mexico, said Parul Chopra, vice president for upstream research at Rystad. Canadian oil-sands projects such as the expansion of the Sunrise development in Alberta are also in doubt, he said.
Over the years, we’ve seen car dealerships that specialized in Jeeps, but these days, they’re fairly rare, as Jeeps often share lots with Rams and Dodges. But apparently Jeep dealerships are gaining some traction now, with Automotive News writing:
After spending a decade consolidating its brands under one dealership roof, Fiat Chrysler Automobiles has been seeking exclusivity in recent years for its highly profitable Jeep brand in certain markets. The automaker is looking to grow Jeep by creating unique shopping experiences for some of its most critical buyers, who continue to drive the brand forward despite an ongoing health crisis.
The story continues:
“I think they appreciate the fact that it’s specialized [and] makes them feel better about doing business,” said Mike Downey, vice president of Fort Collins Jeep in Colorado, another new standalone dealership. “It just sends a message that we’re all about Jeep — we’re into Jeeps, just like the customers are. I think it gives them a little more confidence in us.”
Per the news site, there were only 14 standalone Jeep dealerships at the end of 2019, though there are apparently “59 locations that either are standalone Jeep stores or have dedicated Jeep showrooms.” That’s not a lot, but FCA apparently still sees value in the idea, particularly as new models prepare to hit the showroom floor, with Auto News writing:
The automaker hopes having Jeep-centered retail environments, staffed by people who know the ins and outs of the lineup, can help the brand grow by appealing to a wider range of customers. FCA is looking to put more of a focus on Jeep as it prepares for a product offensive that includes the premium Wagoneer and Grand Wagoneer, along with a redesigned Grand Cherokee.
On August 14, 1945, the Toyota Motor Co., Ltd. Koromo Plant was hit by an air raid and a quarter of the plant was destroyed. Then on the following day, August 15, while efforts were being made to repair the damage from the bombing, the Emperor’s announcement of the end of the war was broadcast.
On the next day, August 16, Vice President Hisayoshi Akai forcefully declared his belief to a gathering of executives that, “Trucks will be important tools for Japan’s reconstruction. Toyota has a responsibility to make and supply them. Therefore, we should restart with truck production”. In response, the executives resolved to restart truck production, and plant production was resumed on August 17.
Do the Big Three have an issue keeping talent, and if so, why? I think living in Detroit can be a bit tough for many, and I know many friends who just couldn’t handle the cold, gloomy weather and endless suburban sprawl. Still others, like I, have stayed because of the addictive car culture and great automotive opportunities. But there’s more to this discussion than just the location; there’s the way the Big Three operate relative to newer, “leaner” companies. Considering all of this, do you think the Big Three have a Brain Drain problem?