The auto industry is heating back up, Tesla is reportedly in talks about incentives for a Cybertruck plant in Austin, and the UAW is trying to move on from its corruption scandal. All that and more in The Morning Shift for June 16, 2020.
General Motors is known for making comebacks. There’s an entire book about how it and the other two major American automakers did just that in the 1980s and 1990s. And of course, we know how GM went through that bankruptcy in 2009 and within just a few years seemed to be firing back on all eight cylinders. The auto industry is sinusoidal, and GM knows how to deal with slumps.
Today, GM and the auto industry at large are facing another major challenge, namely car sales that have plummeted as a result of the coronavirus. The General has issued salary reductions and furloughed workers as plants have sat dormant since March, though those factories began re-opening last month.
With statewide coronavirus restrictions beginning to lift and factories finally producing cars, GM CEO Mary Barra had lots of positive news to share in a fireside chat with journalists yesterday. From the Detroit Free Press:
“I don’t see any further need for (job) reductions,” Barra said. “I am really proud of the team across the globe. We’ve had cost-cutting actions and we’re on a good path now from what we started and built on since 2018.”
Despite the pandemic, Barra said GM is on track to be at full production by month’s end. She will continue to visit plants to check on safety as the company frantically works to restock inventory of its hot-selling pickups and SUVs.
Barra described how 2020 has been a “tragic” year thus far due to coronavirus and police killing George Floyd, mentioning that GM would be announcing members of an “Inclusion Advisor Board” (whose goal is to make GM “the most inclusive company in the world”) within the next two weeks.
Barra also discussed vehicle production ramp-up plans. From the Freep:
“We feel we’ll be running the plants, with a few exceptions, at rates that were similar to pre-COVID by the end of the month.”
GM is watching market demand on some vehicles and will adjust production accordingly, she said. Barra said GM’s emphasis is to rebuild full-size pickup inventory first as well as the launch of the redesigned 2021 full-sized SUVs.
All full-size truck plants are running on three shifts, she said, “which should get those constrained products into dealers’ hands as soon as we can.”
But it’s not just about getting current vehicles built; Barra assured journalists that there are new offerings in the pipeline:
“We have a very robust product portfolio and there are other vehicles coming but I won’t get in front of our product development team and name them,” Barra said.
Autoblog quotes Barra as saying she thinks GM’s outlook in China—whose auto demand seems to be ballooning right now—looks good. And just in general, she gave a tone of positivity, it seems. From the news site:
“We’re cautiously optimistic” about U.S. new vehicle demand, Chief Executive Officer Mary Barra said at a virtual press event hosted by the Automotive Press Association. “We’re hopeful that we’ll have a recovery because that’s good for everybody.”
Indeed, what’s good for GM, well, you know how that goes.
Now that we’ve discussed the biggest American car company, let’s look at the biggest one from Japan: Toyota. Per Automotive News, the company’s dealers saw their best sales weekend since March.
The news site quotes Toyota North America’s head of sales Bob Carter:
Speaking to reporters on a conference call, Carter said the automaker is seeing several signs that retail demand is strong, including a more than 50 percent jump in quality Internet leads from the automaker’s Tier One Website.
“We’re seeing the retail consumer be very, very resilient,” Carter said. “We’re running about 82 to 85 percent of the same retail level that we did last year. What is not recovering that we’re seeing is the commercial and fleet buyers.”
The story goes on to mention how Toyota has had to build more higher-optioned Camrys and Corollas to sell to customers rather to rental fleets, which aren’t buying in the volumes they used to.
Toyota apparently has concerns about meeting the rising demand due to supply-chain restrictions and government rules put in place to help protect people from the coronavirus. From Automotive News:
“We’re in this situation, both Toyota and industrywide, of a little bit of industry imbalance,” he said. “The reason I say that is that we’re optimistic, but the sales volumes that you see reported by us in the industry are going to be a little bit lumpy for the next few weeks as we start filling our supply chains up.”
“I can say that we’re not going full-out, we’re not there yet, in part because of the governmental restrictions,” said Reynolds. “But we are hopeful that as those restrictions ameliorate that we’ll be able to meet demand in the coming months.”
It doesn’t help automakers if they can build loads of cars, but nobody has money to buy them. Yes, it appears that demand is returning, but is it sustainable? That’s going to depend upon how well the U.S. economy can get back onto its feet.
An upcoming report from the Department of Commerce gives us a bit of insight into that by detailing how consumer spending has been trending. From Reuters:
The monthly report, due to be released by the Commerce Department on Tuesday, is expected to show overall receipts at U.S. retailers jumped 8.0% last month, according to a Reuters poll of economists. That would exceed the previous record increase of 6.7% in October 2001 as Americans resumed spending following what was then a record pullback in the aftermath of the September 11, 2001, attacks on the United States.
While certainly an eye-catching bounce, it would retrace only about a quarter of the sales drop registered in the record back-to-back declines in the two previous months when widespread stay-at-home orders were imposed to stop the spread of COVID-19, the respiratory illness caused by the novel coronavirus. Sales in April fell 16.4% after tumbling 8.3% in March.
The story also discusses job growth in May, which followed an awful recession earlier this year resulting from COVID-19. From the story:
“Given the bounce in job growth in May and the fact that some state economies started to re-open in the second half of the month, it’s reasonable to expect that spending partially rebounded in May,” NatWest economists Michelle Girard and Kevin Cummins wrote in a note to clients.
The likely sales rebound was probably led by strong auto sales as the relaxing of lockdowns across the country allowed car dealership showrooms to reopen. May’s sales rate climbed above 12 million vehicles per year after dropping below 9 million in April, according to Wards Intelligence.
So we’ve got job growth and increased spending—things are moving in the right direction, even if the coronavirus curve isn’t quite dropping as quickly as we’d like.
Back in March, Elon Musk tweeted that Tesla was on the hunt in “central USA” for a location to build its upcoming electric pickup, the Cybertruck. Here’s that tweet:
In May, the website devoted to electric cars, Electrek, said that—per an unnamed source—Tesla planned to build the pickup and the Model Y in Austin, Texas.
Now, the Austin American-Statesman writes that Tesla and Travis County—where Austin is located—are talking about an inventive package for the Palo Alto-based automaker. From the newspaper:
Tesla is negotiating terms of a possible incentives deal with Travis County that could bring the electric car maker’s next U.S. assembly plant — and thousands of jobs — to Austin, the American-Statesman has learned.
The Travis County Commissioners Court is scheduled to discuss the potential incentives deal in an executive session on Tuesday, according to people with knowledge of the proceedings. A vote is expected in the coming weeks.
There’s not a whole lot more information on what that incentive deal might involve, though the newspaper does include a quote from the United Auto Workers Union, which is apparently advising caution when it comes to any incentives for Tesla:
“You have to look strongly at the track record of a company and their commitment not just to public dollars, but to the community investment and actual return on jobs created,” said Cindy Estrada, UAW vice president. “Tesla has a track record of collecting public subsidies from several states but not delivering on their promises. That is why it is important this time for Tesla to commit to community assurances for Travis County before getting subsidies.
The article also quotes an Austin economist, who says Tesla choosing Austin would be “a great win for Texas and Austin.”
5th Gear: June 30 Is The Big Meeting Between The UAW President And The Head Of The Attorney’s Office
Back in March, we wrote about a Detroit News story announcing a meeting between the president of the UAW and the “head of the Detroit-based U.S. Attorney’s Office.” It’s first such meeting in history, the news site claims, and the main purpose behind it is to figure out ways to reform a union that has been fraught with corruption. Some powerful members of the union have been charged with embezzlement and accused of being involved in schemes that used membership dues to buy lavish, over-the-top luxury goods.
In its more recent story, the Detroit News has announced that the meeting will happen on June 30, mentioning that the collaboration may be a way to avoid the Department of Justice taking control of the UAW. From the story:
U.S. Attorney Matthew Schneider and United Auto Workers President Rory Gamble will hold an unprecedented meeting June 30 amid an ongoing federal corruption investigation as part of a broader attempt to avoid a government takeover.
Gamble offered to meet earlier this spring in the earliest days of the COVID-19 outbreak. Legal experts viewed his offer as a belated attempt to reform the UAW and to avert a possible Justice Department takeover through a civil racketeering lawsuit.
Here’s the statement from UAW president Rory Gamble:
“Today’s joint announcement of our upcoming meeting is another step toward building on the many reforms we have already enacted,” Gamble said in a statement. “I look forward to discussing with U.S. Attorney Schneider the many reforms we have already put in place and furthering our efforts on other ongoing reforms for the UAW and our members. I firmly believe we both have the same goal.”
At 9:30 in the morning on June 16, 1903, Henry Ford and other prospective stockholders in the Ford Motor Company meet in Detroit to sign the official paperwork required to create a new corporation.
Twelve stockholders were listed on the forms, which were signed, notarized and sent to the office of Michigan’s secretary of state. The company was officially incorporated the following day, when the secretary of state’s office received the articles of association.
If you’ve been on the market, tell me: What’s it been like? Have you been steered towards certified pre-owned cars? I ask because, per that Automotive News story, Toyota has been pushing CPO vehicles in the wake of reduced inventory.