The United Auto Workers union wants to avoid a government takeover as corruption charges mount, Toyota’s pretty resilient in a tough market, China will make or break Tesla and more for The Morning Shift of Thursday, Nov. 7, 2019.
1st Gear: The UAW Doesn’t Want This
It’s fair to say we’ve seen the best and worst from the UAW in recent years. The strike against General Motors was the most significant labor action in the automotive space in 50 years, and it netted them a good (if far from perfect) contract. On the other hand, UAW leadership is mired in corruption, and what started as a look at fancy pens at Fiat Chrysler has led to multiple charges and convictions of senior officials for wire fraud, embezzling and more.
One possible outcome from the latter is a consent decree. That’s when the federal government temporarily seizes operational control of the union and orders future reforms and oversight. This happened with the Teamsters union in 1989 and it’s a fate the UAW very much wants to avoid. (This also often happens with law enforcement agencies when they commit systemic civil rights violations and the like.)
Acting UAW President Rory Gamble is quoted in Bloomberg as saying the union has to root out corruption and keep it out permanently:
That has raises the specter of a government takeover much like the federal supervision consent decree by the Teamsters union 30 years ago to settle corruption and racketeering case and which was just lifted in 2015.
In an interview at the union’s temporary headquarters outside Detroit, Gamble said he has a list of new controls designed to clean house at the UAW and, if possible, avoid the fate of the Teamsters. “At this point, we have to be cognizant of that, but we still have a union to protect and maintain. I’m truly praying that we don’t have to go down that road,” he said.
“We need to make sure we never set foot down this path again,” Gamble said of the corruption within the union.
The acting president also said he has hired Deloitte LLP to conduct a forensic investigation into the union’s books. Gamble has been tapped to fill in for Gary Jones, who went on an indefinite leave of absence Saturday after being implicated in a federal probe that has shadowed his tenure as union head and which dates back at least six months before his December 2017 nomination.
“What I’ve read has turned my stomach,” Gamble said.
The Teamsters union was under its consent decree for a stunning 25 years—it only ended in 2015. That union infamously had ties to organized crime for decades, and as Politico noted at the time, it was forced to finance its own federal oversight to the tune of about $170 million over the years. It must still keep independent review officers today.
So, yes, you see why the UAW says it doesn’t want this.
2nd Gear: Another Senior UAW Official Charged
Speaking of the UAW corruption probe, here’s Automotive News on what’s happened most recently:
Federal prosecutors have charged Joe Ashton, who headed the UAW’s 2011 negotiations with General Motors and was on GM’s board for three years, with money laundering and wire fraud.
Ashton, who retired from the UAW in 2014, is the 13th person charged in the corruption scandal involving misuse of union funds. UAW President Gary Jones, reportedly implicated in the probe, began a paid leave of absence on Sunday but has not been charged with a crime. Rory Gamble, the UAW’s vice president overseeing the Ford department, was named interim president.
According to prosecutors, Ashton “conspired with Michael Grimes and Jeffery Pietrzyk to devise a scheme to defraud” UAW members and the jointly run UAW-GM Center for Human Resources. Pietrzyk and Grimes have pleaded guilty to charges related to the scandal, and the union and GM agreed in their recently-ratified contract to shut down the Center for Human Resources and sell the building, while restructuring its training center activities.
GM, for its part, says it was “not aware of this illegal activity until it was recently revealed by the government’s investigation.” At this point, it may be worth asking if anyone in upper UAW management hasn’t (allegedly) done crimes.
3rd Gear: Toyota Holds The Line
Global new car sales are down across the board and it’s entirely possible we’re looking at a bigger downturn next year, but for this quarter at least, Toyota is doing pretty well. It’s thanks to strong sales of the RAV4, naturally, but also the Corolla, which is a nice surprise given the decline of small cars pretty much everywhere.
Toyota Motor Corp.’s quarterly profit topped analysts’ estimates thanks to healthy sales of RAV4s in the U.S. and Corollas at home, keeping the Japanese automaker’s business on track amid sputtering global demand for cars.
Operating income for the fiscal second quarter that ended in September was 662 billion yen, helped by cost controls that paved the way for a 200 billion yen ($1.8 billion) share buyback. Analysts had predicted, on average profit of 604 billion yen. The shares rose 1.1% after the results, leaving the stock up 21% this year.
The maker of Prius hybrids and Tacoma trucks joins Tesla Inc., Ford Motor Co. and Volkswagen AG in reporting better-than-anticipated results, even as vehicle sales weaken across the globe. Toyota’s results contrast with other Japanese automakers, which are being hurt by a stronger yen that’s eroding income brought home. Cost controls have helped Toyota maintain profits ahead of analysts’ projections, even while it invests heavily in an industry undergoing a tectonic shift to electrification and self-driving automobiles.
“Toyota’s results leave a very good impression,” said Koji Endo, an analyst at SBI Securities. “U.S. sales were intact, they were up in Japan although southeast Asia is a bit worrying. Overall, sales are solid.”
No matter how things get, the RAV4 should be fine.
4th Gear: Carvana Grows Revenue And Its Losses
Every time I drive past one of those Carvana towers full of used cars, I always wonder if that company actually makes money. Then I promptly forget to look into it later. I’m very busy! But it turns out that, like many startups, it’s doing well on the revenue front but faces growing losses and has yet to score a profit. Via Automotive News:
The online used-vehicle retailer’s revenue in the period more than doubled to $1.095 billion, marking the 23rd-straight quarter of triple-digit top-line growth. Retail unit sales grew 83 percent to 46,413. Carvana said it expects to sell 174,000 to 176,000 retail units this year, an increase of 85 percent to 87 percent over 2018. It also projects 2019 revenue of $3.85 billion to $3.95 billion, which would be an increase of 97 percent to 102 percent from 2018.
Carvana’s net loss widened by 43 percent to $92.2 million in the third quarter, while gross profit jumped 140 percent to $137.5 million. The company grew its gross profit per unit by $694 to $2,996.
Total vehicles acquired from customers jumped 249 percent year over year. That was an acceleration from a 188 percent annual growth rate in the second quarter.
While Carvana has yet to report a profit, it has the stated goal of selling more than 2 million vehicles per year and becoming the largest and most profitable automotive retailer in the U.S.
Have you bought a car from them? Do you know anyone who has?
5th Gear: Tesla’s China Plant Must Be A Volume Leader
Of course, Tesla has faced “make or break” moments before. It seems like that happens at least once or twice a year. But its Shanghai plant is a huge, huge deal. It’s the first Chinese plant wholly owned by a U.S. automaker (not a joint venture, as these things usually go) and it’s key to Tesla becoming a massive volume player worldwide.
Musk has predicted that Tesla will make at least 1,000 cars a week in Shanghai by the end of the year — a volume the company’s original factory in California spent months trying to hit — and has hinted that a weekly rate of 3,000 is a target at some point.
With Tesla’s volatile stock price and strained finances, investors will be watching closely how the ramp-up unfolds. The multibillion-dollar investment will be a deciding factor to determine whether Tesla will be able to take on local competitors and fend off challenges by the likes of Daimler and BMW.
The Shanghai rollout will also provide clues about Tesla’s ability to truly go global. The company is planning to follow up with a production facility in a yet-to-be announced location in Europe, where it is enjoying burgeoning sales growth in several markets.
Originally just a muddy plot about a 90-minute drive away from Shanghai’s city center, Tesla’s Gigafactory now stands tall amid deserted crop fields and meadows with wild plants. Dozens of electric motorcycles and mostly gasoline-powered cars are typically parked outside — used by workers to drive in from the closest residential area about four miles away.
The plant is weeks away from starting production.
Reverse: It’s CAPTAIN Hilts
Neutral: Does The UAW Need A Consent Decree?
Do you think federal oversight will fix the UAW’s corruption problems? What needs to be done there?