As car sales tank, the companies that make the parts that make up a car are realizing that, well, they’re probably going to make no money at all. And that’s the best case. That and more in The Morning Shift for April 2, 2020.
Continental is one of the largest auto parts suppliers in the world, but as coronavirus tanks auto sales and suspends auto production, things are looking grim. How grim? Honestly, Continental thinks it could be doing pretty well all things considered, as the Financial Times reports:
Continental, one of the world’s biggest car part makers, expects profit margins at its auto division to fall to zero as it warned smaller suppliers were in danger of going out of business.
The Hanover-based car tyre and technology company, which scrapped its outlook for the year, revealed the unit had earned next to nothing on sales of almost €6bn in the first three months of the fiscal year.
The company, which supplies most major manufacturers, including neighbouring Volkswagen, said it was experiencing “material changes and disruptions in a significant portion” of its business.
It also announced that 30,000 of its 60,000 staff in Germany had been in effect furloughed and that 40 per cent of its almost 250 sites worldwide had temporarily shut down.
Basically, Continental is lucky it’s not smaller. As even the entire German economy expects to drop, things look bad for the little guys.
When we last reported on the clusterfuck of the Saudi Arabia-Russia oil price war heating up just as coronavirus started shutting down global travel and the economy in general, I was obsessed with attempting to understand the nuances of each side.
Now, I am less convinced that is important, as it becomes increasingly clear none of this made much sense at any point, as the FT also reports:
Riyadh had pushed for a deal to deepen and prolong production curbs ahead of a March meeting of oil ministers, but it was met with reluctance from Moscow. This prompted Saudi Arabia to pursue a “pump at will” strategy to shock the market, dramatically cutting prices for its crude and raising production to record levels.
“I think that they will work it out over the next few days . . . Both know what they have to do,” Mr Trump told a White House press conference on Wednesday, without giving any further details.
On Thursday, however, the Kremlin rejected Mr Trump’s remarks. Talks with Saudi Arabia “have not begun” and “are not planned”, Dmitry Peskov, spokesman for Russian president Vladimir Putin, told reporters.
“So far, no one has started talking about any specific or even abstract deals in exchange for Opec+,” he said, adding that “no one is happy with this [oil market] situation”.
The FT goes on to note that “there is little sign of a strategy shift just yet” as Saudi Arabia continues to raise production. Who exactly wants this oil is unclear.
If you want a detailed breakdown of how car sales in the U.S. have absolutely plummeted, check in our detailed brand-by-brand breakdown yesterday, but the word “catastrophe” should probably key you in on the scale at hand.
A sensible response would be to focus on health and re-focusing out country and economy to survive without us having to buy RAV4s by the hundreds of thousands. A less sensible solution would be to, uh, yell at Japan.
Which one are we doing? The Japan Times reports:
The United States urged Japan on Tuesday to open its agricultural and automotive markets further to narrow the trade imbalance between the two countries.
“The United States continues to engage closely with the Japanese government to urge removal of a broad range of barriers to U.S. exports,” the Office of the U.S. Trade Representative said in an annual report detailing foreign trade barriers.
“A variety of nontariff barriers impede access to Japan’s automotive market, and overall sales of U.S.-made vehicles and automotive parts in Japan remain low,” the report said, referring to a sector that accounts for about 80 percent of the U.S. trade deficit with Japan.
These nontariff barriers include unique standards and testing protocols and hindrances to the development of distribution and service networks, the report said.
I have every hope that we Americans will be able to use this global crisis as a means of getting Japan to finally drive on the correct side of the road.
The real endpoint of the “we must continue to buy cars or our economy will collapse” is putting our lives on the line for car sales, which is exactly what’s going down in that hub of good sense and reason, Florida. Today I get to cite the Florida Automobile Dealers Association, which is a fun one:
Governor DeSantis issued a new Executive Order today which clarifies that new and used automobile dealerships are “ESSENTIAL.” The order goes into effect Friday morning, April 3rd, at 12:01 am.
The order establishes that “new and used automobile dealerships” are essential retail and commercial businesses which may remain open per adoption of the Miami-Dade Order on March 19, 2020, and the following Addendum 07-20.
Section 2 of the Governor’s Order 20-89 adopted in today’s order states “No county or local authority may restrict or prohibit any ‘essential’ service from performing a function allowed under this Order.”
All dealers should adhere to strict CDC guidelines for cleanliness and sanitation as well as adhere to all CDC distancing guidelines to protect customers and employees.
I just wish the Cadillac XLR was alive to see this.
Speaking of! Any casual observer could tell you that Cadillac’s new product offensive is painfully weak, and has been for years, with nothing all that cutting edge or desirable, short of the limited rollout of SuperCruise and the Escalade, respectively. Things look bad for the American luxury brand that’s not particularly luxurious.
It is within this context that I absolutely adore this free-spirited article from the Detroit Free Press speculating that, hey, maybe we should blame COVID-19 instead of GM:
Cadillac ended 2019 with sales inching up by 1% to 156,246 vehicles sold, led largely by its new XT4 and XT6 SUVs.
Things were on track. Then the coronavirus pandemic hit.
New-car sales across the industry have dipped amid the uncertainty the pandemic has brought to the market. Cadillac canceled plans for vehicle reveals and launches in April because of the rapidly spreading coronavirus.
Now its plan for a broader revival could be derailed.
“There is no question that the pandemic has put immense pressure on the industry and most future plans,” said Jeff Schuster, president of Americas Operations and Global Vehicle Forecasts at LMC Automotive. “That certainly includes the revival of Cadillac through product.”
Please enjoy the article, which breaks up its discussion of Cadillac’s bright upcoming products with pictures of the painfully dull CT4 and XT4.
We think of internal combustion engines’ dawn as starting with Otto in Germany in 1876, but it was April 2nd, 1872 that Brayton patented his design here in the States, as Gas Engine Magazine recounts:
Students of gas-powered engines know that Nicolaus Otto (1832-1891) is credited as the father of the 4-cycle engine that still serves us today, powering just about every kind of motorized machine imaginable. Introduced in 1876 as the Otto Silent engine, Otto’s engine was a revolution in the making, and its introduction heralded a new age in mechanical power.
Lesser known, however, is the engine scheme designed by one George Bailey Brayton (1839-1892) of Boston, Massachusetts, in 1872. Writing in American Gasoline Engines Since 1872, engine historian C.H. Wendel claims that Brayton’s engine was the “first commercially successful engine of purely American design.”
A 2-stroke engine, Brayton’s patented design hinged on the use of a charging cylinder to pull in and compress the fuel/air charge. The compressed charge was stored in a receiver and then admitted into the combustion chamber. The combined charging cylinder and power cylinder worked simultaneously; a charge being pulled in as the power cylinder dropped to the bottom of its stroke, then compressed as the power cylinder rose on its power stroke.
If we imagined that all major world automakers went out of business, how would you rebuild in your more perfect new world?