Illustration for article titled What Chinas Stock Meltdown Means For Automakers (And You)
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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: Big Trouble In Actual China

After years of surging economic growth, including becoming the largest car market on earth, China is experiencing a massive plummet in stock prices that has erased some $3.5 trillion. This is bad, bad news for automakers because it means a drop in car sales.


How bad are we talking here? See this report in The Detroit Free Press:

For the last 20 years China has been the industry’s promised land. A population of 1.4 billion, a growing middle class and projections that sales (19.7 million in 2014) could reach 75 million annually by 2030 created a “what could go wrong?” attitude.

Yes, what could go wrong?

Earlier this week, GM said sales of 246,066 from its joint ventures in China increased a negligible 0.4% in June from a year earlier, despite reducing prices by up to 20% on about 40 models. Ford on Wednesday reported sales fell 3% to 83,506 vehicles in June.

“Growth in auto sales is going to slow, in part because of income inequality,” said Linda Lim, professor at the University of Michigan’s Ross School of Business who has studied China’s stunning economic growth over the past quarter century. “In the beginning (automakers) could tap the people who can afford to buy. Demand from that group is fairly saturated.


Shares are down at GM, Jaguar Land Rover and other automakers on the heels of the drop.

2nd Gear: What Beijing Is Doing To Avert A Crisis

So what’s the Chinese government doing to try and settle things down? From The Wall Street Journal:

The latest drastic step by Beijing is a six-month ban on stock sales by controlling shareholders and executives who own more than 5% of a company’s shares. Any violation of the rule, announced Wednesday night, would be “treated seriously,” China’s securities regulator said.


UPDATE: As of this morning, the Chinese market appears to be rebounding, seeing some of the biggest gains in years. More from the WSJ:

The Shanghai Composite rose 5.8% to 3709.33, after losses in eight of the last 10 trading days. The smaller Shenzhen market rose 3.8%. Still, both indexes have lost around a third of their value in the past month. The small-cap ChiNext board, which has shed some 38% from its June highs, rose 3%.


We’re not out of the woods yet, but this is an interesting development.

3rd Gear: The Flintstones VS. The Jetsons

America’s automotive safety regulator, the the National Highway Traffic Safety Administration, is attempting to flex its muscle a lot more than has been previously seen in this Age of the Giant Recall. We saw this recently at the public flogging of Fiat Chrysler over how that company handled their recalls. NHTSA kind of has to do this on the heels of the scathing audit that called them out as woefully inept and ineffectual.


What’s the answer to beefing up against automakers who break the rules? They want more funding, of course, a point Transportation Secretary Anthony Foxx makes with this great metaphor in The Detroit News:

“NHTSA is going to have to keep up... We have the Jetsons coming into us and we have Flintstones’ resources,” Foxx said, referring to the fact that the agency’s defects investigation budget has fallen by 23 percent over the last decade after adjusting for inflation. “We’ve got to figure out a way to true those two things up.”


But while the White House has proposed tripling NHTSA’s budget, Congress is skeptical given the agency’s current failures with what they have. Still, Foxx said the audit has caused them to clean house. The News reports numerous senior NHTSA staffers have left or retired recently.

4th Gear: Also, More Recalls

You read about this in today’s Asian news roundup, The Drift, but in case you didn’t: Honda is recalling 4.5 million more cars globally over defective Takata airbags. They include the CR-V and Fit, but not in North America. Via Reuters:

Honda Motor Co said on Thursday it is recalling about 4.5 million more cars globally to replace air bag inflators made by supplier Takata Corp, the latest move in the Japanese automaker’s efforts to deal with a safety scare that has seen firms around the world recall tens of millions of cars. Of the 4.5 million, 1.63 million are being recalled in Japan, Honda said.


5th Gear: Do Buyers Understand What ‘More Debt’ Means?

With the average new vehicle cost around $33,340 these days, and readily available credit, plus incomes for middle class people that haven’t risen in any meaningful way in decades, you have people getting into longer term car loans to secure new cars. The 84 and even 96 month car loans aren’t out of the ordinary these days.


According to Forbes, this is “nothing but good news as far as the car business is concerned,” but what about for the actual buyers?

“Longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank,” says Melinda Zabritski, Experian’s senior director of automotive finance. “However, it’s critical for consumers to understand that if they take a long-term loan, they could face negative equity should they choose to trade it in after only a few years.”


This is going to end badly.


Reverse: And Nearly All Of Them Broke Down Along The Way

The Fiat 500 Club Italia, an organization formed in appreciation of the iconic 500–“Cinquecento” in Italian–car produced by the automaker Fiat (Fabbrica Italiana Automobili Torino), holds what the Guinness Book of World Records will call the world’s largest parade of Fiat cars on July 9, 2006, between Villanova d’Albenga and Garlenda, Italy.


Neutral: How Bad Will Things Get In China?

If the goose isn’t so golden anymore, what effect will this have on product planning and future growth for carmakers? Even with the gains we’ve seen this morning, a ton of money has evaporated in recent weeks.


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