Hyundai Is In Crisis In China

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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.

This past weekend I believe I gained roughly 12 pounds eating a combination of various meats, which included, in no particular order, a hot dog, a hamburger, at least one cheeseburger, a cheese steak, a cheese dog, and some Italian salami. I have no regrets.


1st Gear: Hyundai Is Having A Lot Of Problems In China

The South Korean carmaker first entered the Chinese market in 2002, eventually soaring to become, along with Kia, the number-three brand in the country. But late last month, Hyundai briefly halted production in China amid ongoing tensions between China and South Korea over a U.S. missile defense system. Now, Reuters has some more details on what’s troubling the automaker, namely that they’re beefing with their Chinese partner over how Hyundai might source parts, both now and far into the future.


From Reuters:

Last month, Hyundai suspended production at its four China plants for a week after a French supplier refused to provide fuel tanks when its bills went unpaid. On Tuesday, Hyundai suspended production at one of its plants in China after a German firm went unpaid.

Hyundai and BAIC - whose Beijing Hyundai joint venture is a 50:50 partnership - are divided over how to solve the issue of suppliers and tougher competition. Hyundai wants to protect its South Korean supply chain, while BAIC favors shifting to cheaper Chinese suppliers to cut costs, the people said.

“BAIC wants to solve this aggressively and is ... asking Hyundai to change its sourcing strategy significantly and immediately,” said the head of a Hyundai supplier based in Seoul, adding the idea was to source more locally from cheaper suppliers in China.

Hyundai wants to solve this more gradually “over perhaps 5-10 years and do so in phases,” the person said.

BAIC declined to comment.

A Hyundai Motor spokesperson told Reuters: “Hyundai Motor and Kia Motors have been continuously trying to source competitive parts in China.”


Hyundai’s sales are down 41 percent in China from January to July, and 64 percent from April to June, compared to a year ago. Those numbers are bad. Good luck, Hyundai.

2nd Gear: More Trouble, This Time For Kei Cars In Japan 

Kei cars—the boxy, fuel-efficient, breed of automobile that is hugely popular in Japan, but also horrible to drive—aren’t seen much outside of Japan, and, since a government crackdown on the cars began in 2014, they are becoming less common there as well. The government had previously raised taxes on the cars to help settle its national debt, bringing kei-car taxes more in line with the taxes on other automobiles but also, inevitably, leading to a huge decrease in kei-car sales. According to Agence France-Presse, around 500,000 fewer kei cars were sold last year compared to 2014, with the taxes unsettling fans and ordinary drivers alike.


From AFP:

[The increase of taxes] was a nasty shock for many kei drivers, the majority of whom are women and those in rural areas where the little vehicles are indispensable for getting around on the cheap.

“I don’t see a bright future for kei cars,” said Yoshiaki Kawano, analyst at IHS Markit consultancy, who added that a consumption tax rise planned for 2019 could also dent kei sales.

“It’s an ageing society and rural areas are losing residents - where kei cars are most popular,” he added.


Still, AFP reports, there’s some hope:

Producers are trying to boost keis’ appeal by putting more style and cutting-edge features into what have long been bare-bones vehicles.

“A decade ago, kei cars’ functions were very limited - they had a nerdy image,” said Abe Shuhei, who works in Daihatsu’s sales planning division.

“But, bit by bit, people are starting to buy them now by choice because they’re energy efficient, safe and stylish.”


3rd Gear: How Hurricane Harvey Will Affect Car Sales

There’s a lot more important things to be thinking about in the wake of a Category 4 hurricane that devastated Texas and killed at least 63 people, but, still, money never sleeps. Auto industry analysts have begun to talk about the effect the storm will have on car sales. It won’t be entirely surprising, they say: in the short-term, car sales will suffer, but in the long-term you can expect an increase as people buy new cars to replace those Harvey destroyed.


From the Detroit Free-Press:

Going into [August], the industry was expected to post its first year-over-year increase this year. But as Harvey ravaged the Texas gulf coast, regional auto sales came to a standstill, hampering overall U.S. vehicle sales for the month.

“Harvey will also depress one of the most critical selling periods of the year, spanning the August sales month close and Labor Day weekend,” LMC Automotive said in a report. “In 2016, these 11 days alone accounted for 4.1% of retail sales, or 580,000 units, nationally.”

But the impact on auto sales — both new and used — is expected to rebound quickly, perhaps even before the end of September.

“We expect the recovery in vehicle sales to be quick,” said Jonathan Smoke, chief economist for Cox Automotive. “People need transportation to get their lives back in order, and in Houston, that transportation is the automobile.”

Kelley Blue Book slightly boosted its outlook for sales for the year, expecting buyers to start arriving at dealerships with checks from their insurance companies. Its analysts believe the industry is now on track to top 17 million new vehicles sold for the third straight year.


You can’t separate an American with insurance money and their new car.

4th Gear: In The Meantime, Rental Car Companies Are Rushing Vehicles To Texas

Insurance checks don’t come overnight. Most victims of Harvey won’t be getting new wheels any time soon, which means that a lot of them, in the meantime, will be seeking out rentals. Good luck with that, though; rental car companies suffered their own massive losses in Harvey’s wake. Demand is far, far outpacing supply, leading rental car companies to ship thousands of cars in from elsewhere.


Enterprise Holdings, which includes Alamo, Enterprise, and National, is planning to move around 21,000 vehicles into southeast Texas, USA Today reports. Avis told the newspaper that they had similar plans. None of which really helps things for people who need cars now.

From USA Today:

Jim Gwin, whose 2015 Ford Edge suffered electrical damage from water that leaked through his windshield, said it took his insurance company three days to locate a rental car for him.

Gwin, who is a Hertz Gold member, hoped that his customer loyalty might have helped speed up getting him into a car.

“But when you’re dealing with an insurance claim, everybody’s just a meatball,” Gwin said after picking up his rental Friday. Though, he added, “for what everybody else is going through, this is a really a small pain. I can’t really complain.”


Rental car agencies with locations in Southeast Texas are dealing with their own losses, since many vehicles that were rented before the storm are not going to make it back.

“We’re anticipating we lost several thousand vehicles,’’ said Martini, though she added that the company is still assessing it.


5th Gear: GM Is Beefing With Its Dealers

GM dealers have always had to disclose to GM if they take on service contracts that include non-GM parts or accessories, but now GM is forcing them to make those disclosures in a standardized form, and dealerships aren’t very excited about it. That’s in part because of the penalties GM is threatening should dealerships not comply, which include fines and, possibly, the termination of your franchise.


From Automotive News:

Under GM’s franchise agreement, dealers for several yearshave been required to disclose when a service contract, part or accessory is a non-GM product. But now they must use the standardized form to make the disclosure, Alan Batey, president of GM North America, told dealers in a letter dated Aug.10.

GM says the move is intended, in part, to make clear to consumers the limits of its responsibility and liability for non-GM products. But opponents see it as an attempt to promote GM products at the expense of competitors’. Given the size of the accessories, parts and service contract markets, the stakes are huge.

Dealers whose stores ignore the new disclosure form could berequired to pay $500 per incident. They could become ineligible to buy other GM dealerships or to benefit from GM’s incentive programs, including the Essential Brand Elements program. Ultimately, the dealer could face possible franchise termination.


This dispute seems both a little silly and a pretty obvious ploy to have GM’s parts and accessories favored at dealerships even more than they are now. It’s almost as if GM is in this for the money.

Reverse: When The New York Times Published A Glowing Review Of On The Road

On The Road, the 1957 novel by Jack Kerouac that would go on to become an American classic, was first published on this day 60 years ago. That same day, a regional newspaper known as The New York Times published its review. It’s fair to say that the review, by Gilbert Millstein, called it, right in the review’s lead:

On The Road is the second novel by Jack Kerouac, and its publication is a historic occasion in so far as the exposure of an authentic work of art is of any great moment in an age in which the attention is fragmented and the sensibilities are blunted by the superlatives of fashion (multiplied a millionfold by the speed and pound of communications.)


That latter part, especially, sounds very familiar in the current context.


Neutral: The Slow Demise Of The Kei Car

Will you miss the spartan style of the kei car? Or in this world of high-tech transport has the boxy automobile out-lived its usefulness?