Bank scandals, electric-vehicle production, carmakers spending cash like a kid with too big of an allowance, recall investigations and how the midterm elections affected legislators who deal with the auto industry. All of that and more in The Morning Shift for Wednesday, Nov. 6, 2018.
The new Wells Fargo “re-established in 2018” commercials are all nice and “We’re sorry we screwed up” and all, but its scandals extend wide and far. Just get a load of this one: Reuters reports that a new lawsuit alleges Wells Fargo executives knew how bad the bank’s auto-insurance program was for years.
Our big breakdown on the Wells Fargo insurance scandal is here, but, to be quick: The bank forced around 800,000 people to purchase insurance they didn’t need along with their car loans, pocketing millions that it’s now having to pay back. Wells Fargo called it “collateral protection insurance,” or CPI.
And, according to the allegations in the new lawsuit, it wasn’t just some little numbers error. (Duh.) Reuters reports that company executives were warned that the plan “could be overcharging customers four years before the bank scrapped the program” in September 2016.
Several executives, including then-General Counsel James Strother and chief auditor David Julian, were among the bank officials briefed in 2012 about possible flaws in the auto insurance program that was ended in 2016, according to parts of a class-action lawsuit that were unsealed on Monday.
A Wells Fargo official declined to comment on the allegations in the lawsuit but said the bank intended to repay all customers who were hurt.
“We have been reviewing customer accounts and developing a remediation plan – which we hope to finalize very soon,” said spokeswoman Natalie Brown.
But here’s the wild part, according to the Reuters report: The lawsuit claims the bank was 10 times more likely to push borrowers with damaged credit into the CPI deal than it was to do that to people with higher credit scores, and cited an internal bank presentation on the figure. Yikes.
Here’s where Wells’ repayment progress is at, via Reuters:
Wells Fargo initially estimated remediation efforts would cost $64 million, but that figure has since swelled as it determined more borrowers were owed greater amounts. In the third quarter, Wells Fargo set aside $241 million for those affected customers.
Its auto insurance abuses are part of a broader scandal over Wells Fargo’s treatment of customers. The bank revealed over two years ago that it opened millions of phony accounts in customers’ names without their permission to hit sales targets.
Let’s hope that “re-establishment” in 2018 runs deep.
Volkswagen could boost production of electric vehicles at its higher-cost plants in Germany, but not for the scenic views or fresh, diesel-y air—it’s to make sure the factories have enough workload and to avoid any clashes with powerful unions, at least, according to unnamed sources cited by Bloomberg.
The sources asked not to be named because the talks aren’t public, they said, and a Volkswagen spokesperson declined to comment on Bloomberg’s report.
Bloomberg reports that the talks are in preparation for Volkswagen’s annual investment planning that the automaker will discuss at a supervisory board meeting next week. Here’s what may go down in the future, from the story:
VW plans to boost battery-vehicle production at Zwickau in Eastern Germany beyond 100,000 vehicles annually and might add e-cars in Emden, said the people, who asked not to be identified as the talks aren’t public. VW has repeatedly idled Emden for some days because of waning demand for the mid-size Passat sedan. The plan potentially raises the bar on efforts to offer more affordable battery vehicles than Tesla Inc. without eroding profits.
The Zwickau site could be expanded to make 300,000 electric vehicles, Frankfurter Allgemeine Zeitung reported Tuesday, beyond a plan for 100,000 electric cars in 2020. The Passat, ranking fifth of VW’s best-selling vehicles last year, will cease production in Germany altogether by 2022, Hannoversche Allgemeine Zeitung said.
The story didn’t say much about the early “labor unions” claim, other than that they’re powerful at German companies, “where worker representatives make up half of the supervisory board.”
BMW had a 27-percent drop in operating profit in the third quarter, thanks in part to dumping a whole lot of cash into new-car development. We’ve known that the company’s research-and-development budgets have been on a sharp rise lately, since Automotive News Europe reported in March that BMW was dumping serious cash into R&D for electric and autonomous technology.
But BMW thought then that the extra R&D costs would pay off, and it still seems confident now. In addition to the technology, a Reuters report said the company is pouring money into development of the new X5, X7 and 8 Series. It’s about to up expenditures for the new 3 Series, too, amid global tariffs and price wars.
Here’s the company’s outlook for the near future, though, via Reuters:
“Additional measures will be needed to support our profitability targets,” Chief Financial Officer Nicolas Peter said in a call to discuss earnings, without giving details.
“Despite the difficult conditions, we are still targeting a free cash flow of three billion euros for the full year,” Peter added.
“In light of the current challenges, this will not be an easy task.”
How about this, BMW: Give the new M3 a stick, and we’ll all agree to look the other way at your earnings for the next year. Sounds like a fair deal.
The U.S. National Highway Traffic Safety Administration is done with a safety investigation into reports of sudden brake failures in Explorer Police Interceptor vehicles, Reuters reports, and it determined they don’t need to be recalled.
Here’s the deal, from Reuters:
The probe, opened in April 2015, was prompted by reported incidents of front brake hose failure in 2015 Ford Explorer Police Interceptor vehicles used by the Sacramento Police Department in its pursuit driving training program. The agency said Tuesday it had not confirmed any incidents of failures caused by overheating in vehicles outside the training program.
The probe might have opened in 2015 for the 2015 models, but that wasn’t the first time we heard about potential brake issues on the Interceptors. Issues also came up with the 2013 model, when there were reports of problems with front brake hoses. Perhaps work vehicles aren’t always as great as they sound.
Now that the 2018 elections are over, we can all start gearing up for the 2020 elections. Hooray! I will be hiding under a rock if anyone needs me.
Anyway, Automotive News called the midterms—which saw Democrats taking control of the U.S. House of Representatives but not the Senate—a “mixed bag” for those Dems interested in regulating the auto industry:
Sen. Claire McCaskill, D-Mo., who publicly scolded General Motors in 2014 for its slow response recalling vehicles with defective ignition switches linked to at least 19 deaths, lost to Missouri’s 38-year-old attorney general Josh Hawley. The incumbent was also a vocal critic of how the auto industry handled the deadly Takata airbag crisis, saying it jeopardized lives by underplaying the risk before being forced to undertake the largest recall in automotive history.
Sen. Bill Nelson, D-Fla., the ranking member of the Commerce Committee, has also pressed automakers on safety issues and been a frequent critic of NHTSA over the pace of Takata airbag inflator recalls. On Wednesday morning his race was too close to call.
More at this link, if you’re curious.
While those of us who celebrate gift-giving holidays in December are about a month away from ordering stuff on overnight shipping, the first air shipment celebrates its birthday today. According to the Michigan State University library, the first air freight delivery happened on Nov. 7, 1910—more than 100 years ago.
That day, a guy named Philip Parmelee, who learned to fly from Orville Wright, “carried a bundle of silk cloth in an hour-long flight whose details have been largely forgotten,” according to the library.
We’ve seen voters in South Carolina didn’t care much about the proposed tariffs affecting their livelihood at the BMW plant. What, if anything, changes in this volatile industry after last night?