The real reason SUVs and crossovers are performing so well, Americans can barely afford new cars, Faraday Future is still a mess and more today on The Morning Shift for Monday, Oct. 8, 2018.
1st Gear: Why Crossovers Are Winning
Don’t get it twisted. The real reason SUVs and crossovers are performing so well isn’t as much about cargo space, all-wheel drive for bad weather or our desire to own vehicles that project an image of rugged, outdoorsy individuality: it’s just that for an aging and increasingly unfit population, they’re just easier to get in and out of.
This is no great revelation if you’ve been following car buying trends the past few years. But this story in The Detroit Free Press really drives the point home, talking about what a critical factor ease of entry and exit has become to car design.
And it adds that as automakers want their products to look sexy, youthful and dynamic, so this isn’t really something they like to talk about:
Easy entrance and exit will become more and more important as the population ages and huge groups like Gen X move into their 50s and 60s.
“Seat height is key,” Knudsen said. “People like to be able to slide in, not lift themselves up or down.”
Automakers don’t talk about this much. It’s a truism that people want cars that make them look younger, not reminders they’re less limber at 60 than 40. Nonetheless, the incoming tide of small SUVs will fit aging drivers and people with limited mobility like a glove.
“Front-seat access is the No. 1 factor in comfort and safe driving,” said Sherry Kolodziejczak, national coordinator for driving safety at the American Association of Retired Persons, which represents 38 million people over 50. “The small SUVs tend to have wider door openings and lower sills to step over. Step-in height is really, really important,” not just for the elderly, but for many people recovering from injury or surgery, said Kolodziejczak, a professional occupational therapist.
The ideal seat height is about 21 to 27 inches above the ground, Knudsen said. Other factors include the size of the door opening, from top to bottom and front to rear. Nobody wants to bump their head getting in and out of their vehicle.
“Getting into a sports car is a controlled fall into the seat and a climb out,” Smythe said. “A pickup is the reverse.”
It’s an interesting game to play, when you think about it. No automaker wants to be seen as the old people brand—Cadillac and Buick still suffer from that “the car you got from grandma after she died” image today—but they have to make things to accommodate the needs of an increasingly aged population.
2nd Gear: Too Bad Nobody Can Afford Anything
But as we’ve noted over and over again, the problem with these new cars is that they’re so damn expensive. The average new car transaction price is around $34,000, the highest it’s ever been, although most Americans’ wages haven’t risen in any meaningful way since the 1970s.
It’s made a lot of folks turn to leasing for a cheaper payment, but often that’s not much better, Automotive News reports:
September U.S. sales fell for most major automakers from the post-Hurricane Harvey bump a year ago. But another factor is emerging as a headwind to sales: affordability for some new-vehicle shoppers.
As vehicle transaction prices and interest rates keep rising and automakers reduce incentives, analysts and dealers are signaling that the resulting higher prices for consumers could be hitting a critical point, if they haven’t already.
“We’ve seen more of a shift to leasing because leasing payments tend to be less than buy or purchase monthly payments,” said Wes Lutz, chairman of the National Automobile Dealers Association and owner of Extreme Dodge-Chrysler-Jeep-Ram in Jackson, Mich.
But higher prices are hitting leases, too. Jonathan Banks, vice president of vehicle valuations and analytics at J.D. Power, said customers who leased at the ideal time — three years ago, when interest rates were lower and residual values were higher — are returning to the market at the worst time.
“There’s a lot of consumers that are kind of screwed,” Banks said. “You come back to market, you’re paying $299 or whatever for your Fusion or Camry, and now they want $399. That’s a big deal.”
It’s everything, too, not just pickup trucks. Anyway, automakers are optimistic regardless:
While noting that affordability seems to be talked about “on an almost daily basis,” Jack Hollis, Toyota Division general manager, said key economic factors such as job growth and consumer confidence remain high. More discretionary income seems to be available to buyers, he said, and Toyota has a range of models at a variety of prices.
“Affordability is in the eye of the beholder,” Hollis said during a call with reporters after Toyota Motor Sales posted a 10 percent decline in September, led by a 25 percent plunge in car sales.
Just don’t be poor and you won’t have a problem! I suppose.
3rd Gear: Could Cost Be China’s Value Proposition?
Yet that situation could give China’s automakers the edge they need to really break into the much-coveted U.S. market. China’s car market is huge, its homegrown industry is expanding rapidly, and it’s going to be the biggest driver for electric car development.
For now, though, the American market remains elusive for a variety of reasons, including quality, brand awareness, lack of a global strategy and a need for consolidation, reports Automotive News:
More than a third of American consumers say they won’t consider buying a Chinese brand vehicle, according to a poll published in July by Autolist.com.
“Chinese brands have long coveted the lucrative U.S., and several have made promises in the past only to have their plans evaporate due to low brand awareness, poor build quality and failure to meet U.S. safety standards,” Autolist said. “Their best chance for grabbing consumers’ attention — and sales — will be to compete on price.”
GAC thinks its GS8 is up to snuff. The vehicle boasts such near-luxury trappings as multifunction leather seats, three-zone climate control, a panoramic sunroof and a negative-ion air purifier, not to mention seamless mobile-phone connectivity and wireless gadget charging.
Under the hood is an engine with a turbocharger from BorgWarner and a six-speed automatic transmission from Aisin Seiki, all encased in a high-tensile steel body. Of course, it offers four-wheel drive, replete with six driving modes to handle various types of terrain, and a comprehensive airbag system.
Government-backed GAC counts giants Toyota, Honda, Fiat and Mitsubishi among its joint-venture teammates. But GAC’s Li says his company has grown beyond being the junior partner.
“Increasingly, GAC can export our own technologies to the joint venture,” Li said. “We are prepared to enter the North American market.”
And while the Chinese automakers are perhaps most at risk if a trade war happens with the United States, they may get around that by going straight to U.S. production:
Like the Japanese and Koreans before them, they will duck duties by making vehicles and auto parts in the U.S., said Michael Dunne, CEO of ZoZo Go, an investment advisory firm focused on China’s autonomous and electrified vehicle markets. Chinese EV startup Faraday Future, for example, plans to build its first car at a refurbished tire factory in California.
“How many Americans know that there are already more than 100 Chinese automotive suppliers and tech companies operating in the United States?” Dunne said. “If the Chinese were a one-trick pony — export from China or bust — then the tariffs would be a show stopper. But Chinese companies are already eyeing North American production.”
Anyway, that article is a great overview of where China’s auto industry is at in late 2018 and where it’s going. Worth a read in full.
4th Gear: Faraday Future Remains Screwed
Speaking of China, let’s check in with Faraday Future, the perplexing Chinese-backed electric startup that once promised to revolutionize transportation itself and has been dogged by scandals, cost overruns, production issues, allegations of malfeasance and a “debt blacklist” in China for its founder. Turns out things are still bad and weird.
The latest comes to us from The Verge, which reports that $800 million of a Hail Mary investment late last year from Chinese real estate group Evergrande was burned through by July.
Also burning: FF’s first and only preproduction vehicle, in a late September blaze that wasn’t reported to authorities. And suppliers and vendors are pissed because they aren’t getting paid, again:
The fire happened hours after the company showed off the car at a “Futurist Day” event for its employees and families. The full extent of the damage is not clear, as the company has made employees sign non-disclosure agreements specifically related to the fire, the former employees say. But it’s viewed as a major setback ahead of the start of production later this year.
The more pressing trouble, though, may be that some of Faraday Future’s suppliers and vendors have not been paid for weeks. The stopped payments were a direct result of Jia having spent the first $800 million installment by July, which came from Evergrande through a complex structure of offshore companies, the former employees and sources close to the company say.
Emails reviewed by The Verge that date back to the beginning of August show Faraday Future representatives trying to explain this as “delays” in payment processing. Others show repeated promises that checks were being issued, but awaiting signature, or held by the company’s “treasury department” for over a month, which two former employees who worked closely with Faraday Future’s finances say was the same stall tactic used in 2017 when the company was nearly out of money.
Other than that, everything’s fine there!
5th Gear: Ford Set to Cut Jobs in Restructuring as Wall Street Demands Answers
Regular Morning Shift customers know it’s been a tough year at Ford. New CEO Jim Hackett knows investors aren’t happy with its lackluster stock price, and he and the company are under great pressure by Wall Street to show how it’s prepared for the electrified, mobility-centric future. But nobody has any idea what Ford’s doing, and it doesn’t really want to say.
So as part of positioning itself for whatever’s next, the automaker will begin trimming and reorganizing its workforce, the Detroit News reports:
The reductions are expected to fall under the $11 billion restructuring the company announced last quarter. Ford announced the start of the reorganization internally Thursday.
“The net result will be a flatter organization,” Robinson said. “The more layers we have, it really impedes our ability to move fast.”
Details are thin, but the internal announcement made public Friday illustrates the game the 115-year-old automaker is playing with Wall Street analysts and investors. They want answers Ford isn’t ready to give, according to Kristin Dziczek, vice president of Industry, labor and economics at the Center for Automotive Research in Ann Arbor.
“This is just getting their ship in order,” she said. “Wall Street has no patience for waiting for anything. Any delay in getting more details is probably too much in their eyes. (Ford) doesn’t want to say exactly what they’re doing, but they also don’t want to make it look like they’re sitting doing nothing.”
[...] Over the next five years, the automaker plans to trim $12 billion from what it expected to spend on materials for products; $7 billion from its product development and engineering processes; $5 billion from marketing and incentive spending; and $1.3 billion on manufacturing costs.
All of that serves to give the automaker more for its money as it launches a slew of new products through 2023.
Reverse: “The First Automobile Driver on the American Road”
Neutral: Can China Succeed In America With The Budget Cars?
If another recession happens and the cheap, easy credit market we’ve had over the past few years dries up, one could see a real opening for Chinese automakers. Or do they have a lot more work to do first before they can appeal to American buyers on a mass scale?