1st Gear: Do Automakers Need More U.S. Factories?
President Trump met with the CEOs of General Motors, Ford and Fiat Chrysler yesterday and had what all involved called a productive meeting on how to drum up U.S. manufacturing. As I’ve said here before, repeatedly, that’s a good thing—it’s hard to be opposed to more U.S. jobs. But the question is how best to do that, and the nuances of the international auto industry often escape Trump.
However, given that record sales figures can’t continue forever, Bloomberg reports, the current climate may be a tough one for boosting manufacturing:
Car sales have gained for seven-straight years after the U.S. auto bailouts and the financial crisis, a streak that’s close to running out of gas. That’s a recipe for trouble facing companies wary of undoing the painful but necessary steps they took to shut dozens of factories across the country, before and during a more than $70 billion government bailout.
New assembly plants cost General Motors, Ford Motor Co. or Fiat Chrysler Automobiles about $1 billion — the sort of investment companies look to avoid making as a market peaks. And while factories boost jobs, economic gains from building them are being undercut by automation and pressure to compete with lower-wage countries including Mexico.
“This is the nightmare scenario for auto companies, which are being asked to make huge capital investments right before a slowdown in sales,” said Dan Luria, an analyst who has advised the UAW. “It seems like hardly the time to spend billions on new plants.”
There’s the question of overcapacity, as this other Bloomberg story notes. Basically, U.S. automakers regularly invest in domestic manufacturing, and “more factories” may not necessarily be the answer.
“The last thing the auto industry needs is more capacity,” Marina Whitman, a University of Michigan professor and former GM chief economist. “There’s overcapacity worldwide in the auto industry and it makes it tough for auto producers in America. They have to make some tough decisions.”
Trump pledged to ease off on environmental rules and taxes, which would blunt any impact of his plans to renegotiate U.S. trade policy with its neighbors. After spending roughly a year and a half attacking Ford in particular for building cars in Mexico, the president has stood firm in his opposition to auto imports.
I invite our readers who work in the industry, and there are many of them, to weigh in on this question of overcapacity.
2nd Gear: Why Only The ‘Big Three’?
You know, this commentary from Forbes on yesterday’s meeting is pretty on point: why did Trump only meet with the CEOs of FCA, Ford and GM? Why not the U.S. CEOs or executives of the many other car companies who produce cars in the U.S., like Honda, BMW, Hyundai/Kia or Toyota?
Why was FCA in attendance and not the other foreign automakers? FCA is controlled by Italian automaker Fiat and incorporated in The Netherlands. It is as if President Trump was channeling a 1975 version of the auto industry.
Where were parts suppliers, which have outsourced more than 50% of their manufacturing in the last 20 years to foreign countries with cheaper labor? Those companies have done exactly what Trump himself has long done with his businesses –choosing to make Trump goods in Mexico, China, Indonesia –wherever he could get the best price and lowest costs. He sourced steel for his hotels from Asia, not Pennsylvania and West Virginia. Parts makers sourced where it made the most business sense based on U.S. policy.
That story also points out how the U.S.’ most “American” vehicle, based on parts sourcing and local manufacturing, is the Toyota Camry, built in Senate Majority leader Mitch McConnell’s state of Kentucky. Yet another reason I think Congress could lobby against Trump’s tough tariff talk on the “foreign” automakers. Wouldn’t that conceivably hurt these automakers who have a heavy presence in their districts?
3rd Gear: Toyota Goes In On Indiana
Speaking of! Toyota “announced” (meaning they were probably gonna do this anyway) a $600 million investment at its Princeton, Indiana plant to increase production of the Highlander crossover and prep for its next-generation model, reports Automotive News. A smart move considering the crossover boom, and also one that could help fend off any criticism that Toyota is somehow... un-American.
The project won’t begin until the fall of 2019. The early announcement Tuesday is intended to signal the company’s commitment to U.S. production amid threats from President Donald Trump to slap tariffs on vehicle imports, particularly from Mexico. Trump had singled out Toyota’s investments in Mexico in a critical Twitter message weeks before his inauguration.
“This announcement shows Toyota’s commitment to continued U.S. investment,” the company said in a statement. “This expansion is part of Toyota’s localization strategy to build vehicles where they are sold.”
The investment will create 400 jobs as the Princeton plant and increase its annual capacity for Highlanders by 40,000 units, Toyota said. The Sienna minivan and the Sequoia large SUV are also made at the plant.
As the story notes, Toyota sold 191,379 Highlanders in the U.S. last year, all of which were built here.
4th Gear: Tough Road Ahead For Hyundai
Regular Morning Shift readers will be familiar with the plight of Hyundai and Kia, struggling in both the U.S. and other markets for lack of gigantic, gas-guzzling crossovers and pickup trucks. Small crossovers are catching on in other markets, and in the U.S. it’s have seven seats or GTFO. So their outlook doesn’t look too great this year. Via Reuters:
On the call, Hyundai Motor said it expects a “challenging business environment” in the U.S. market this year.
Earlier in the day, the company reported a fourth-quarter net profit of 1 trillion won ($858.07 million), down 39 percent from a year ago and the lowest since the first quarter of 2012. Analysts polled by Thomson Reuters I/B/E/S had on an average expected a 1.5 trillion won profit.
Shares in the company ended down 3.1 percent after the results, their biggest daily drop since Nov. 10, 2016.
“It is quite disappointing in terms of their outlook,” said Kim Jin-woo, analyst at Korea Investment & Securities. “They did not say what investors wanted to hear.”
A shame, because both brands’ cars are generally excellent these days. Maybe the Santa Cruz will help, if it happens.
5th Gear: Millennials!
Millennials! (Ugh.) They’re buying cars! Specifically the Honda Civic car, the Chevy Silverado and the RAV4. Via The Detroit Free Press:
Millennial shoppers — defined by their 21st Century choosiness — differ from their predecessors in a lot of ways, particularly when it comes to buying cars.
The 25-to-39-year-old age group favor buying new cars, an AutoList.com survey found, and they are more likely to consider the environmental impacts of a car than members of Generation X, those people ranging in age from 40 to 54. Gen Xers, the study found, prefer price, reliability and brand when buying a car.
[...] The survey also broke down the two generations’ favorite vehicles and found millennials prefer smaller, cheaper vehicles. For cars, millennials like the Honda Civic while members of Generation X prefer the slightly pricier Honda Accord. When it comes to trucks, millennials like the Chevrolet Silverado 1500 and Generation X opts for the Ford F-150. The most common SUV for millennials is the Honda CR-V as opposed to the Gen X’s Toyota RAV4.
I for one am shocked the no. 1 millennial car is not a used Boxster or an E30.
Yes or no? Or should we just build more factories here, no matter what?