Good morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know.
1st Gear: GM Can’t Win
By all accounts the news of General Motors’ doubling Q3 profit to a post-bankruptcy high of $2.77 billion should have been a huge win for the automaker. It even beat Wall Street analysts’ predictions by a big margin. Except it wasn’t, and GM’s stock closed yesterday with the biggest drop since Aug. 2, reports Bloomberg.
What the hell is happening? Well, investors and analysts remain convinced that the industry has hit “peak auto,” and that it will never quite return to its heyday, despite GM’s profit and sales gains. From the report:
“Investors must think this is as good as it gets and that it’s peak auto,” said David Whiston, a Morningstar Inc. analyst who has a buy rating on the stock. “It’s frustrating because GM doesn’t deserve to be down this much.”
[...] Talk of a possible plateau has kept automakers underperforming the S&P 500 index, and shares declined broadly in the industry today. GM had dropped 3 percent and Ford Motor Co. 13 percent this year through Monday, compared with a 5.3 percent rise for the benchmark index. Ford, which reports Thursday, said last month that financial results will decline in 2017. Fiat Chrysler Automobiles NV’s shares also slipped today after the company raised its 2016 profit forecast for the second time this year.
GM, it seems, cannot win.
2nd Gear: Hyundai Continues To Struggle
Meanwhile, here is an automaker who is actually in trouble: Hyundai, whose Q3 profits were down 29 percent amid dropping sales and a big labor battle. In the U.S., Hyundai’s lineup has struggled from lack of SUVs and trucks during the big-car boom. Via Bloomberg:
Operating profit declined 29 percent to 1.07 trillion won ($943 million) in the three months ended Sept. 30, the Seoul-based company said Wednesday. That compares with the 1.22 trillion won average of 23 analysts’ estimates compiled by Bloomberg. Net income fell for a 11th consecutive quarter, also missing analysts estimates.
South Korea’s biggest automaker in September suffered its first full-scale strike in 12 years after a series of partial stoppages that started in July, before the union and management reached an agreement on wages this month. The disruption led to a production loss of about 140,000 cars valued at about 3 trillion won, while a stronger Korean won eroded overseas earnings.
“It may not be easy to achieve sales target this year,” Choi Byung-chul, Hyundai’s executive vice president, said on a conference call Wednesday, referring to the deteriorating global conditions and impact of the labor strikes at home. “We will put all our efforts to overcome the situation in the fourth quarter.”
A strong Korean won at the moment isn’t helping things either.
3rd Gear: Watson Connected
Watson, IBM’s AI system, is coming to an OnStar near you. The goal is to make your car more like your smartphone, whether you like it or not. Via Reuters:
The feature, called OnStar Go, is set to debut early next year in more than 2 million GM vehicles with 4G service, IBM and GM said in a joint statement Tuesday.
IBM’s Watson, which beat two previous winners of the quiz show “Jeopardy!” in 2011, will sift through data in order to recognize a driver’s habits, allowing third-party marketers to deliver targeted offers, whether nearby coffee shops, reminders about shopping-list items, or paying for fuel from their dashboards.
Carmakers have been adding connected services into their vehicles to duplicate the convenience of smartphones, which can suggest nearby restaurant offers, or point the way to a gas station.
4th Gear: Huge Toyota Takata Recall
Somehow there are still cars with un-fixed Takata airbags! This new one covers 5.8 million Toyotas in Europe, Japan and China, Reuters says:
Automakers worldwide are ramping up the industry’s biggest-ever recall after parts supplier Takata, under pressure from U.S. authorities, agreed earlier this year to declare more of its air bags as defective in the United States and other countries.
The air bag inflators in question use a chemical compound which can explode with excessive force after prolonged exposure to hot conditions, and have been linked to at least 16 deaths globally, mainly in the United States.
Toyota’s latest recall includes the Corolla, one of the world’s best-selling models, and the Vitz or Yaris subcompact hatchback model. It covers driver-side and passenger-side airbags installed in cars produced between May 2000 and November 2001, and April 2006 and December 2014, the company said in an email.
5th Gear: Fiat Chrysler Becomes A Truck Company
And speaking of profits—specifically profit margins—Fiat Chrysler wants to ramp those up to the levels of its competitors, particularly by retooling many of its plants to focus on Jeep and truck production, which is what keeps the lights on over there these days. Here’s what CEO Sergio Marchionne told the Detroit Free Press:
Marchionne said he expects production of the Cherokee should begin in Belvidere by next fall, freeing the company to retool one plant in Toledo for the new Jeep Wrangler while it continues to build the older model at the same plant. The automaker is spending $1 billion to retool those plants.
Marchionne also said he expects the company will at at least have started to retool the Sterling Heights plant to make way for a new version of the Ram 1500 and plans to invest $1.49 billion at that plant.
“The completion of this new industrial footprint in the U.S. will require the start-up of the Wrangler in Toledo, the start-up of the new Ram 1500 and the reintroduction of the Cherokee in Belvidere,” Marchionne said. “And so I think the full benefit will be visible then. It is my sincere expectation that we will be able to achieve double digit margins in (North America).”
But even as FCA becomes even more of a truck and SUV manufacturer to boost its profits Wall Street analysts pressed Marchionne on the use of incentives and discounts of as much as 20% on Ram pickups that threaten to cut into those profits.
Reverse: Outlaw Sammy
Neutral: How Does GM Convince Wall Street?
You can build good new cars until you’re blue in the face, but if investors aren’t happy then you’re screwed. How does the General turn this around?