Photo: AP/David Zalubowski
Photo: AP/David Zalubowski
The Morning ShiftAll your daily car news in one convenient place. Isn't your time more important?

Why Nissan dealers are selling used cars over new ones, the Big Three are struggling in China and coronavirus ain’t helping, why Lincoln is so obsessed with residual values, and Toyota and Panasonic establish a new prismatic battery company. All that and more in The Morning Shift for Monday, February 3, 2020.

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1st Gear: Why Nissan Dealers Are Selling Used Cars Instead Of New Ones

By now, it’s well established that Nissan is a bit screwed. The brand has an aging lineup, it’s been going through more drama than pretty much any automaker not named Volkswagen, and frankly, it doesn’t seem to have been managed properly over the past few years years. And over the past six months or so, our headlines on the company have included “Things Are Extremely Bad at Nissan,” “Nissan Is In Absolute Shambles,” and “Top Executive Trying To Save Nissan Decides He’d Rather Not.” It seems like a disaster over at Nissan.

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So it should be no surprise that there’s some drama at the dealer level. Automotive News reports why many Nissan salespeople are keener to move pre-owned Nissans than new ones—something that’s not good for the automaker:

But according to Smith, 40 percent of Nissan’s dealers are now losing money or just breaking even. And many are shifting their attention away from Nissan’s new cars and instead focusing on marketing higher-margin certified pre-owned and used-car sales, he said.

Declining dealer commitment to new cars is a potential time bomb for the brand. If franchised retailers skirt the sales program, they aren’t ordering as many new cars from the manufacturer — which means Nissan’s factories will have reduced production volumes, fewer vehicles will flow into Nissan service bays over time and the pool of available used cars will be smaller in the years ahead.

According to the report, the two main reasons why dealers are turning away from new cars and towards used ones are that Nissan’s cars are outdated, and dealerships are having a tough time turning a profit on the fresh-off-the-line machines thanks to a reduction in bonuses for dealers.

And though new cars, not used ones, tend to bring in new customers and yield repeat warranty repairs, dealers are apparently making a bigger profit on the old stuff:

“The dealership management, who used to be, like, ‘We gotta sell new cars, new cars, new cars,’ now says ‘Well, just make money on the cars. Who cares about the sales objectives?’ “ Dement said.

Dement is shifting his advertising budget toward selling used cars and certified pre-owned vehicles.

“I just approved all-new ad spend for February, and only 30 percent of it is targeted at new cars,” he said. “With used cars, I can advertise the vehicle how I want to,” he said. “I can control my cost, and the traffic is there. I make more money.”

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For its part, Nissan’s spokesperson mentioned that the brand is launching a number of new models, which should bring customers to showrooms.

2nd Gear: The Big Three Are Struggling In China And Coronavirus Is Making Things Worse

China was once a bright light for American automakers—a market filled with opportunity to make vast sums of cash. But things have been looking down over the past year or two. Back in December, we wrote the headline “The Future Of Vehicle Sales In China Isn’t Looking Much Brighter,” quoting a Bloomberg story predicting that 2019 sales would be down, just as 2018 sales were.

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Now, in a new story from the Detroit News, we’re hearing that 2020 is also set to be a tough sales year in China, and—in addition to trade tensions, strict emissions rules, and a reduction in consumer demand—the Coronavirus outbreak and associated plant shutdowns and travel limitations are going to factor into the struggles. From the news site:

“All of the Detroit Three have been battling the declining demand,” said Michael Dunne, CEO of Hong Kong-based advisory firm ZoZo Go LLC. “It’s no secret Ford and FCA are losing money there. That was in 2019 before the virus hit. 2020 is going to be a tough year. That difficulty has just been compounded.”

Fiat Chrysler Automobiles NV, Ford Motor Co. and General Motors Co. all have extended the Lunar New Year holiday shutdowns by a week to Feb. 9 under the government’s recommendation. They also have delayed business travel to China until further notice and are continuing to monitor the situation.

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So production is now stopped, and people in China aren’t heading to dealerships to buy cars. This isn’t good, though exactly how bad this will end up being for Ford, GM, and FCA is still unclear. Bloomberg reported last week that output across the auto sector could drop by 1.7 million cars:

Expectations were already bleak as the year began, with IHS Markit predicting a 10% drop in first quarter production. Now, the influential research firm sees a scenario in which the coronavirus spreading rapidly across the country triggers a cascade of plant closings that lasts into mid March and reduces output by more than 1.7 million cars — a decline of another 32%.

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The Detroit News reached out to automakers, but they didn’t respond with much insight into how bad it could get. Though things could get pretty bad:

Experts predict the crisis’ economic impact will outweigh that of the 2003 SARS epidemic when China’s auto market was one-sixth of what it is today. It’s unclear when consumers will return to dealer showrooms as 14 provinces and cities that account for almost 70% of the country’s economic activity have idled factories and closed businesses.

Ford’s Reid said it’s too early to determine the effects the outbreak will have on business. In a statement, FCA spokesman Mike Palese said the Italian-American automaker cannot speculate on business impact. GM’s Cain also declined to comment on the virus’ financial effects.

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The new strain of coronavirus, initially discovered in Wuhan, Hubei Province, China, is known to cause severe respiratory illness. China’s National Health Commission reported Monday that there are 17,205 “reports of confirmed cases” in the country and 361 confirmed deaths. Other cases of novel Coronavirus have been confirmed outside of China.

3rd Gear: Toyota Is Joining Panasonic To Form A Company That Sells Prismatic Battery Cells To Other Automakers

Toyota—the car company known for hybrids but also known for its hesitance to truly commit to full-EVs in the U.S.—and Panasonic, enormous supplier of cylindrical battery cells for EVs, are forming a new company called Prime Planet Energy and Solutions. The firm will sell prismatic batteries to automakers, as Reuters writes:

The new company, called Prime Planet Energy and Solutions, will develop prismatic - or square-shaped - batteries that will be available to any automaker, the two companies said in a statement on Monday.

It will begin operations on April 1 with more than 5,000 employees, with Toyota owning 51 percent and Panasonic holding the remainder, the companies said.

The venture, first announced in January 2019, reflects the aim of the Japanese companies to become bigger global players in the automotive battery industry, which is vital for the development of affordable EVs. Stricter environmental regulations worldwide are accelerating a shift toward environmentally friendlier cars.

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4th Gear: Why Lincoln Is So Obsessed With Resale Value

Lincoln has actually been dialing down the suck lately with cool cars like the suicide-door-having Continental, the nice Aviator SUV, and the good Navigator. Still, I wouldn’t have guessed that the brand could out-residual-value BMW and Mercedes, but apparently it can, per Automotive News’ report on Cox Automotive’s study:

According to figures from Cox Automotive, Lincoln’s residual values at 36 months topped those of BMW, Audi and Mercedes-Benz in January. Since 2018, Lincoln’s residuals have consistently beaten BMW — the nation’s top-selling luxury brand — and often have exceeded or been in line with Audi and Mercedes. The trend, which coincided with the brand adding more crossovers to its lineup, is likely to continue, given last week’s news that Lincoln is discontinuing the MKZ sedan and co-developing a luxury electric vehicle with startup Rivian.

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It turns out, Lincoln is pretty obsessed with maintaining its resale value, even keeping certain cars in production a bit longer to preserve its figures. From the story:

Lincoln deliberately kept the MKT in production for a few months after the introduction of the Aviator to help protect its residual values, pumping the MKT into fleets so the Aviator could go to retail customers.

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Lincoln’s strong interest in maintaining residuals has been public knowledge for a while, it turns out. Back in 2018, Automotive News wrote more about strategies Lincoln was incorporating in order to keep its brand’s residuals up:

The luxury brand, whose Town Car and Continental have long been associated with airport and hotel livery services, will continue selling to those commercial businesses, Robert Parker, Lincoln’s director of marketing, sales and service, told Automotive News. But the brand has cut deliveries to daily rental companies such as Hertz and Avis and has dialed back on providing company cars, both internally and to other businesses, as part of its commercial fleet sales, Parker said.

“Those are very deliberate efforts to really focus on residual values as our new products come out,” Parker said on the sidelines of the New York auto show. “What happens is those cars come back in six to 12 months. That’s problematic on our residual values because that’s when all the depreciation occurs. The longer they stay out, the better.”

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As the story notes, this is all about lease rates, which are based, in part, on residual value. If a car is still worth a lot at the end of its lease term, then an automaker can offer more enticing monthly payments to customers. And since leasing is such a prominent thing, especially in the luxury space these days, that’s a big deal.

5th Gear: Amazon Is Cranking Up Its Influence In The Auto Industry

Automotive News’ headline—Auto industry friend or foe? Amazon walks a thin line—is a bit odd, but the story itself highlights the tech giant’s ever-increasing presence in the auto world and the extent to which automakers are willing to partner with similar companies, so it’s still worth reading. From Automotive News:

Traditional automakers and suppliers are being cautious to avoid giving Amazon too much power as the company increasingly gets involved with in-vehicle technology, auto retailing and other aspects of their business. It’s a push-and-pull that’s happening as the technology and automotive industries face disruptive changes and size each other up as both partners and rivals.

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The story goes on, noting why partnerships between automakers and tech giants are so alluring to OEMs:

Yet many companies along the West Coast believe they can be bigger, better and faster than automotive experts in Detroit. Personal assistants are among the innovations Amazon and other technology companies are generally perceived as doing better than automakers. Tech companies tend to be more agile, attract more talent and more seamlessly integrate technology into a vehicle’s user experience. So automakers increasingly are feeling the need to rely on these tech giants.

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But some carmakers are hesitant:

“Some OEMs are developing in parallel some sort of custom solutions to put this more into their own language,” Hannah said. “BMW and Mercedes have both come out with their own virtual personal assistants, leveraging alternative partners to have an experience that’s very consistent with their brand, maybe allows more car-based functionalities such as owner’s manual commands and things very personal to their brands. Amazon and Google will allow automakers to do that as well, but I think there are a few OEMs who have hedged their bets, if you will.”

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The dynamic between auto companies and tech companies is going to change, as more partnerships sprout up, and more ambiguity exists as the differences between automakers and tech companies become murkier.

Reverse: A Classic Motorcycle Movie Debuts

From Motor1:

Sunday, February 3 2006-The World’s Fastest Indian debuts in the US. Starring Anthony Hopkins, the movie is based on the real-life story of Burt Munro. Munro was a New Zealand native who started racing motorcycles as a teenager. He set numerous motorcycle speed records throughout the 1940s and 1950s with his handbuilt Indian and Velocette bikes.

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Neutral: What Would It Take For You To Buy A New Nissan?

If I were in the market for a new mid-size truck, and I could snag a Frontier for dirt cheap, I’d be tempted. But barring that, I’m not sure what it’d take to get me to buy a new Nissan. What about you?

Sr. Technical Editor, Jalopnik. Always interested in hearing from auto engineers—email me. Cars: Willys CJ-2A ('48), Jeep J10 ('85), Jeep Cherokee ('79, '91, '92, '00), Jeep Grand Cherokee 5spd ('94).

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