EVERYTHING MUST GO at Fiat Chrysler dealers, Ram may have a plan to build a mid-size truck with help from PSA, GM recalls a shitload of cars, and Amazon is buying vans. All that and more in the Morning Shift for December 20, 2019.
1st Gear: Fiat Chrysler Is Having A Huge Fire Sale On cars
Fiat Chrysler Is Building Too Many Damn Cars we wrote last month after Bloomberg reported lofty inventories of vehicles that Fiat Chrysler dealers didn’t order. The result, Bloomberg wrote, was the re-establishment of a “sales bank” of unrequested cars. And now, with Christmas coming up, Fiat Chrysler is allegedly pushing dealers to kill off that sales bank in the next few days in what means Bloomberg calls a “sales blitz.” From the news site:
The Italian-American automaker is offering its most aggressive discounts since the financial crisis to sell certain 2019 model-year cars under its Dodge, Jeep and Ram brands, internal marketing documents show. In a conference call last week, sales staff were asked to work overtime to press the company’s network of 2,400 dealers to take more vehicles and shrink the unassigned inventory to zero before Christmas.
For Fiat Chrysler, now in a merger deal with France’s PSA Group, the sales blitz marks a costly scramble after it accumulated a stock of as many as 70,000 unassigned cars for the month of December. The company says the build-up is the result of a year-old system to streamline manufacturing by using data analytics to forecast demand, which can cause supply to wax and wane. But it’s also leading to internal strains, with some employees expressing frustration that the cars produced don’t match market preferences, according to the conference call and people with knowledge of the matter.
Per Bloomberg, Fiat Chrysler’s “excess inventory” sat at 40,000 in the third quarter before dropping to 5,000. Then, as “a person with knowledge of the matter” told the news site, it jumped to 60,000 in November and 70,000 in December. This week, it’s apparently at 25,800 cars.
Bloomberg mentions an internal Fiat Chrysler email describing the incentives being pushed to help sell the excess vehicles:
In the internal marketing email last month, the company outlined new incentives to move “bank units.” Fiat Chrysler has been offering employee pricing that it’s touted as the most aggressive since 2008, shaving 5% off what the dealer pays, plus applying additional rebates to certain vehicles.
If you’re wondering what a sales bank is, I’ll quote former Chrysler chief Lee Iacocca’s self-titled autobiography, which states:
I was horrified to discover that we didn’t have dealer orders to build these cars...This inventory was known as Chrysler’s sales bank, which was nothing more than an excuse to keep the plants running when we didn’t have dealer orders for the cars.
At regular intervals the Manufacturing Division would tell the Sales Division how many and what types of vehicles they were going to produce. Then it would be up to the Sales Division to try to sell them. This was completely ass backwards in my book. The company had recruited bright young college graduates who were sitting in hotel rooms day after day with their fingers stuck in a telephone, trying to peddle iron out of sales banks to the dealers.
Something had to be done about all those cars, so at the end of every month the zone offices used to “move the iron” by running a fire sale... And the dealers got used to it. They soon learned that if they waited until the last week of the month, somebody from the zone office would call them and try to package ten cars for a special price.
Bloomberg says FCA “disputes that it’s operating a sales bank,” and instead says the high inventory is a “temporary side effect of the predictive analytics system, which saved the company 400 million euros ($445 million) through the third quarter, and trimmed 140,000 units from its total inventory.”
In any case, it seems like there may be some smoking hot deals to be had.
2nd Gear: GM Recalls A Shitload Of Cars
General Motors is recalling over 800,000 vehicles for two separate reasons, one having to do with a fire risk and another having to do with a brake problem. The brake recall affects 332,560 Chevy Silverado 1500s, 821 Cadillac CT6s, and 130,614 GM Sierra 1500s, all from 2019 model years, for a combined total of roughly 460,000 vehicles.
NHTSA’s Safety Recall Report describes the issue that could disable the ABS system, stating:
On November 15, 2019, GM’s EBCM supplier informed GM that, while analyzing data in connection with a related GM product investigation, it identified a software error that could, under a very precise sequence of operational events, cause the EBCM in certain vehicles to enter a mode that disables the vehicle’s ESC and ABS for a single ignition cycle. In this mode, vehicle’s diagnostic systems will not illuminate the vehicle’s ESC and ABS telltale lamps. On December 5, 2019, GM’s Safety and Field Action Decision Authority decided to conduct a noncompliance recall.
The recall remedy will involve dealers reflashing the electronic brake control module.
GM also issued another recall involving 242,655 Chevrolet Silverado 1500 and 107,716 GMC Sierra 1500s, all from 2019 and 2020 model years, for a combined total of about 350,000 trucks. The issue has to do with glue loosening a nut between the battery cable and the alternator. From the Safety Recall Report on NHTSA’s website:
On August 20, 2019, GM’s Canadian Brand Quality Manager submitted a report of a stall on a 2019 GMC Sierra to GM’s Speak Up For Safety (SUFS) program. Analysis of that vehicle showed that it was missing the nut that secures the B+ cable to the alternator stud. GM opened an investigation on September 10, 2019. An initial review of warranty claims, which was completed on September 26, 2019, revealed additional relevant field cases and at least one additional stall case....However, closer analysis of the torque curves and a material analysis of the ring terminals showed that glue contamination on the terminal was heating during vehicle operation and causing a soft joint. On November 13, 2019, to help identify vehicles that may have had contaminated terminals, GM conducted a torque-curve study that compared nuts without contamination to those with contamination. Based on that comparison, GM was able to establish a torquecurve signature for potentially contaminated components, and GM used those torque-curve signatures to identify the suspect population from manufacturing records...On December 5, 2019, GM’s Safety and Field Action Decision Authority decided to conduct a safety recall.
The remedy will involve dealers using a black light to inspect where the battery cable attaches to the alternator. If there’s glue, dealers will clean it, and if arcing has caused damage to the alternator, nut, or cable, dealers will replace the parts as necessary.
3rd Gear: FCA-PSA Merger Could Yield A Midsize Truck Platform For A New Dakota:
As Fiat Chrysler and France’s PSA Group finalize their merger, we’ll be hearing lots of talk about “synergies,” and while that can sometimes sound a bit boring, what isn’t boring is the potential return of a mid-size Ram truck. (Technically, it wouldn’t be a “return,” since the Dakota that bowed out in 2011 was a Dodge and not a Ram, but you get the idea).
The Detroit News quotes Fiat Chrysler CEO Mike Manley, writing:
“One area that Ram has long been missing a product is in the midsize market or metric-ton truck,” Manley said. “There is fabulous opportunity, I think, in the merger for PSA and FCA once it is fully fueled.”
This comes after Manley mentioned that the company was running into issues filling the mid-size truck hole in its portfolio. From the news site:
Fiat Chrysler has been working on developing a midsize truck, Manley said in May. A Ram team was “focused on solving a metric ton midsize truck solution for us because it’s a big part of the portfolio and growth we want to achieve,” he said.
The company was struggling with being able to build a low-cost vehicle that still is applicable in the market, he said at the time: “I want that problem solved, frankly, because it’s a clear hole in our portfolio. ... Trust me, they’re focused on it. We need to get it fixed soon.”
It appears that the “fix” may have been the PSA merger.
4th Gear: Amazon Is Buying Vans And Automakers Are Loving It
Especially in the last year or so, Amazon has been ramping up the use of its own delivery service instead of relying on traditional shipping providers, and that means the Seattle-based company has had to buy vehicles. This, Bloomberg writes, has been great news for cargo van-making automakers. From the site:
Amazon has built up a fleet of 30,000 last-mile delivery trucks and vans since creating its own delivery network in 2018, and currently handles about half of its own deliveries. That’s good news for manufacturers of increasingly ubiquitous gray vans with the blue swoosh, which include Daimler’s Mercedes-Benz, Fiat Chrysler Automobiles and Ford Motor Co.
Automakers are loath to break out their sales to a single customer like Amazon, but Fiat Chrysler — which sells Ram ProMaster vans to Amazon, UPS and the USPS — delivered more than 51,000 vans through September. That was up 25 percent from a year earlier and put its vans on pace for the best year since at least 2014.
Ford, which sells Transit cargo vans to Amazon, had record van sales in the third quarter. Deliveries of Sprinter vans at Mercedes-Benz are up 2.9 percent this year, after a 9.1 percent gain in 2018. The German automaker announced last year that Amazon had ordered 20,000 Sprinter vans built at its new plant in North Charleston, S.C.
And the dealers are loving it, too:
The rise of Amazon’s branded fleet has also been a boon for auto dealers who repair and service these vehicles. “We’re seeing a lot of increase in servicing activity due to Amazon and other retailers,” said Steve Germain, owner of a dealer group with Mercedes and Ford stores in Florida, Michigan and Ohio. “It’s important for them to get back in service as soon as possible, so it’s great business for us.”
5th Gear: New North American Trade Deal Makes It Past The House
The Trump administration has been in the process of replacing the North American Free Trade Agreement for some time now, but on Thursday, the House of Representatives approved the U.S.-Mexico-Canada Agreement by a landslide 385 to 41 vote. Reuters describes the implication of the agreement on the automotive sector, writing:
But the biggest changes require increased North American content in cars and trucks built in the region, to 75% from 62.5% in NAFTA, with new mandates to use North American steel and aluminum.
In addition, 40% to 45% of vehicle content must come from high-wage areas paying more than $16 an hour - namely the United States and Canada. Some vehicles assembled in Mexico mainly with components from Mexico and outside the region may not qualify for U.S. tariff-free access.
Reverse: Studebaker Shuts Down Vehicle Production At Its Famous South Bend, Indiana Plant
On December 9, 1963, Studebaker announced the end of car and truck manufacturing in South Bend, Indiana, and the consolidation of all vehicle manufacturing in its Hamilton, Ontario, Canada plant. At that point, the company dropped the Avanti, the Gran Turismo Hawk, and all pickups and trucks in order to focus on sedans, coupes and station wagons. Only 4,643 Avantis, both 1963 and 1964 models, had been produced by the time Studebaker closed the South bend factory on December 20, 1963.
Neutral: Are You Going To Buy A Car Over The Holidays?
I always found the whole “Buy a car as a Christmas/other holiday gift, throw a bow on it” concept that comes around every winter a bit odd. Have you done it or do you have plans to? Or are you buying one just to take advantage of these crazy deals?