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The Coronavirus Epidemic Is Quickly Re-Shaping China's Auto Industry

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Sales are way down as people stay home and factories stay shut, Tesla mows down a forest, and GM shuts down a plant and still somehow ends up on top. This is The Morning Shift for February 21, 2020.

1st Gear: Still No End In Sight

Car sales in China are down 92 percent during the first half of February, the Detroit News reports. Nissan and Honda are pushing back the re-opening of factories. Toyota is re-starting production, but only partially. Daimler has booted its plant in Beijing back up, but is warning that it may soon run into serious supply chain issues.


China isn’t just the world’s factory for electronics and clothing and toys and pipes, but it’s also the starting point for a lot of the automotive industry, too. Even the stuff that you think is built somewhere else. Here’s Reuters:

The virus, which has killed more than 2,200 in mainland China, has wreaked havoc on the global automotive supply chain, stalling production at plants there and leaving automakers scrambling to source the roughly 30,000 parts each car needs.

“Wuhan is a city which produces virtually every type of component used in vehicles,” said Takeshi Miyao, managing director of consultancy Carnorama.

“So not only are vehicle assembly plants in the city unable to source parts, vehicle plants all over the world which source parts from Wuhan are being affected.”


Jaguar Land Rover has gone so far as to attempt flying parts in suitcases, Reuters notes, though even that strategy will run out of steam, soon. And the epidemic that began in December may have lasting effects (beyond, the incalculable human toll, of course) for the car industry. As automakers seek out new suppliers, they may stick with them, diverting business permanently.

Chinese automaker Geely has taken such a hit to its traditional dealership model that it’s now turning to selling cars completely online. Here’s Geely spokesman Ash Sutcliffe:

If the “never leave your house unless you’re driving a car” model works well for Geely, it could change how car companies do business permanently.

2nd Gear: Tesla Gets Approval To Chop Down A Forest

Tesla, the American car company, is looking to build a factory outside of Berlin, in Germany, for its zero-emissions electric cars. The best place to build one, apparently, was not a big piece of empty ground. No, someone had placed an entire forest, inconveniently right where Tesla wanted to build its factory. So the forest had to go.


Germans who like forests tried to stop it, but Bloomberg reports that Tesla has cleared a final legal hurdle, and will soon be able to finally demolish that selfish forest, once and for all:

Tesla Inc. has overcome a legal roadblock standing in the way of Elon Musk’s plan to build an electric-car factory in Germany.

A Berlin-Brandenburg court on Thursday ruled that Tesla can resume cutting down trees at a forest site in the small town of Gruenheide to make way for its first assembly plant in Europe.

That puts the U.S. carmaker on track to start construction before the start of a crucial breeding period for local wildlife in March. The court found that local authorities didn’t violate laws when they allowed work on the factory to start, throwing out a complaint by Gruene Liga Brandenburg, an environmental group that claimed Tesla and local authorities were sidestepping regulations to rush the project.


This is an extremely bad look, in general! But one especially bad for a company that’s pretty much predicated on being environmentally friendly!

Of course, Tesla CEO Elon Musk has a defense:


Trees are not trees when they are cardboard. The forest will soon be cleared up.

3rd Gear: The Number Of Dealerships Is Declining

Selling more cars than ever is great for the automotive industry, but it’s going to have to do it with fewer dealerships. Here’s Automotive News:

The number of U.S. new-vehicle dealerships fell from 18,294 in 2018 to 18,195 at the start of 2020, marking the first decline since 2013, according to the annual Automotive Franchise Activity Report.

U.S. dealership throughput, the average number of new-vehicles sales per dealership, also fell, to 940 in 2019, a decrease of eight units from 2018, according to the report produced by research firm Urban Science.


The drop is mostly due to California, so it’s a bit early to tell if this is the beginning of a big wave or just a weird statistical blip.

4th Gear: Pirelli Pivots To Wealths

Rich people are the only people who have money nowadays, and businesses like customers who have money. Accordingly, Pirelli is pivoting to focus more on rich people, the Financial Times says:

The Italian manufacturer announced plans to expand its focus on the premium market alongside annual results on Wednesday. Pirelli, whose tyres are used by companies including Ferrari, Porsche and BMW, reported revenues of €5.32bn in 2019, a 2.5 per cent rise on the previous year.

The Milan-listed company expects demand in the prestige sector, defined as tyres with a diameter of 18 inches or more, to grow 6 per cent a year until 2022. Demand for standard tyres, measuring 17 inches or less, is expected to grow about 1 per cent annually over the same period.


The important spin on this is not that Pirelli is pivoting making tires for Wealths, but that Pirelli is pivoting to making tires for fools.

Smart people know that big-diameter tires are ruining cars. Bring back big sidewalls.


5th Gear: Union Official Sentenced To Even More Time Than Prosecutors Asked For

A United Auto Workers official was sentenced to 28 months in prison after pleading guilty to taking bribes, four more months than prosecutors had requested, reports:

Michael Grimes, a former Flint United Auto Workers official who admitted to accepting more than $1.5 million in bribes from vendors has been sentenced to 28 months in prison, more than federal prosecutors had even requested.

Grimes, 66, was sentenced by U.S. District Judge Bernard A. Friedman on the formal charges of conspiracy to commit honest services wire fraud and conspiracy to commit money laundering, exceeding the recommendation of 24 months by government attorneys and the one year and one day recommended by his attorney.


It definitely sounds like a weird scheme, mostly involving tchotchkes and knick-knacks:

Grimes, who has lived in Grand Blanc and more recently Ft. Myers, Fla., pleaded guilty in September to conspiring with other union officials to take kickbacks and bribes from vendors who sold the UAW trinkets and larger items like wristwatches and jackets distributed to members over a period of nearly 12 years.



Reverse: Cars Are Way Older Than You Think

Sir Charles Dance began a steam carriage service between Cheltenham and Gloucester, England - running four times daily, for a number of months - using vehicles designed by Sir Goldsworthy Gurney.


Neutral: What Car Will You Buy For The Apocalypse?

There’s a lot to think about here. Armor? Fuel source? Suitable living accommodations?