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The Days of Big Pandemic Profits are Just About Over for Car Dealers

Production issues and inflation are being blamed for a downturn in profits.

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U.S. car dealers are probably seeing the end of big profits they’ve made in the pandemic, a Department of Justice monitor says the UAW is is struggling to root out corruption and the Twitter-Elon Musk trial is getting fast-tracked. All that and more in The Morning Shift for Wednesday, July 20, 2022.

1st Gear: The Party May Soon Be Over For Car Dealers

Profit growth for car dealers here in the U.S. is looking to be losing momentum in the second quarter. That’s despite record high car prices. It’s been blamed on the auto industry’s sluggish production ramp-up as well as inflation. That’s a tough combination. Oh, and there could be a recession too. Awesome. From Reuters:

The industry’s struggles with chip shortage and supply chain disruptions have also led to a 25% drop in inventory at the start of June, which is a third of the pre-pandemic level, according to analytics firm Wards Intelligence.

Investors will be watching for comments from industry executives for warning signs on consumer behavior in a hyper-inflationary environment.

AutoNation Inc, the largest U.S. retailer, is expected to report its slowest quarterly profit growth since 2020 when it reports results on Thursday.


Even though car prices are at record highs right now, it looks as though inflation is beginning to slowly eat into sales.

Retail sales of new vehicles in June fell 18.2%, a report from auto industry consultants J.D. Power and LMC Automotive showed.

However, demand for high-end cars is strong, J.P. Morgan analysts say, and should cushion falling sales of lower- and mid-range cars.


2nd Gear: UAW Struggles To Weed Out Corruption

A new report from the United Auto Workers court-appointed Monitor revealed a months-long effort from the UAW to obstruct and interfere with its investigation. It alleges union leaders concealed evidence and excluded the monitor’s office from key International Executive Board meetings.

In March, the Department of Justice was called in to intervene over potential violation of the union’s consent decree. From Automotive News:

While the monitor’s office says it has seen some improvement in transparency since March, the report painted a harsh view of a troubled union that has been slow to respond to systemic corruption that reached its highest levels. It could also serve as a black eye for incumbent leaders, including UAW President Ray Curry, who meet before delegates next week in a constitutional convention, where they are expected to seek nominations for new terms.


A spokesperson for the UAW says the union remains committed to rebuilding trust and creating reforms within the organization.

The report revealed for the first time the name of another union official linked to an ongoing corruption probe. According to the monitor’s office, it recently entered into an agreement with former Region 5 Assistant Director Danny Trull not to contest allegations about his participation in an embezzlement scheme.


In addition to 19 open investigations, the monitor’s office says it is working with the UAW on 38 recommended reforms. It says the union has been cooperative in the talks, noting it has engaged a new internal audit service provider, implemented new financial controls around vendor relationships and provided additional resources for IT system upgrades.

The report also revealed the UAW had used union resources to buy about 1,500 personalized backpacks with the name and title of an IEB member who is currently running for IEB office, which it believes could have violated the Labor-Management Reporting & Disclosure Act of 1959. The monitor’s office also learned of “significant expenditures at conferences that were made with inadequate oversight or policy controls.”


The UAW will seemingly never get their shit together.

3rd Gear: Turbo Time For The Twitter-Musk Trial

The trial between Twitter and Elon Musk for backing out of his $44 billion takeover is now set to being in October. A Delaware judge said the social media company deserved a quick resolution to the situation.


It’s a blow for Musk, who pushed to move the trial to February in an effort to delay things and ostensibly conduct an investigation into his claims Twitter misrepresented the amount of bot accounts. From Automotive News:

The company, which had requested a September trial, says the issue is a distraction and deal terms require Musk to pay up.

Twitter had argued that delaying the trial into the next year could threaten deal financing.


Twitter wants the judge to order Musk to complete the deal for the agreed price: $54.20 per share. A lawyer for the company said Musk is balking because he was looking to “conjure an exit ramp for a deal that doesn’t have one.”

Just a little fun side note: Musk is already facing a separate five-day trial in front of the same judge that also happens to be starting in late October. It’s over his $56 billion pay package from Tesla. Looks like Elon’s going to be spending some time in Delaware this spooky season.


4th Gear: Volvo Takes A Dip

Volvo is blaming supply problems and the chip shortage for a potential dip in retail sales this year. According to the Swedish company, sales rose 8 percent in June to 60,000 vehicles. It’s the highest monthly output so far in 2022.


Despite this, the company expects deliveries to be lower or the same as 2021. Still, wholesale volumes will increase over last year. From Automotive News:

“However, due to the time lag between production and retail deliveries, those improvements are not expected to result in an increase in retail sales during the calendar year,” the company said.

Volvo sold 698,693 vehicles last year and its six-month volume was down 23 percent to 291,300.

Volvo’s quarterly operating profit rose to 10.8 billion Swedish crowns ($1.06 billion) from 4.8 billion a year ago as accounting effects from the listing of its subsidiary, performance EV maker Polestar, gave a boost. That resulted in an [operating] margin of 15.1 percent, but without the listing Volvo’s margin was 6.5 percent.


It’s tough out there for everyone, it seems.

5th Gear: Scout Gets A CEO

Scott Keogh, the CEO of Volkswagen Group of America is switching gears and becoming the first CEO of the automaker’s newest EV brand: Scout.


Pablo Di Si, who currently heads VW’s South American region will be taking Keogh’s place at VW North America. He’s been the CEO of VW in North America since November 2018, following a stint as the president of Audi of America. From Automotive News:

Keogh had given some private hints that he may be in line to lead’s Scout’s resurrection since it was announced by the German automaker in May. Keogh on Tuedsay said Scout is, right now, “a company of one person,” namely him, and that establishing such a startup is something that appeals to him.


Keogh took no questions about Scout’s future operations, but said the brand would show its first concepts in 2023 and that it would take advantage of the savings from being part of the VW Group. He did not discuss how Scout would ultimately be distributed in the U.S., which has been a bone of contention with VW dealers since the May announcement.

“It’s certainly something I want to do. And so obviously, what do you have to do? You have to bring this brand to life. You have to bring the team on board. And unfortunately I have to bring a product to the marketplace that people love,” Keogh said.


Godspeed, sir. 2023 is now less than a year away.

Reverse: Neil Armstrong Gets Out Of His Flying Car


Neutral: Racing Is Cool, Actually

I’ve never really been into motorsports. In fact, I’ve never even seen a full race on TV, let alone in person. That changed over the weekend when I watched the New York City ePrix in person. I get it now... very much so. I’ll see you at another race track real soon, because now it’s time to experience some engine noise.