The United Auto Workers gather the troops in Detroit as the General Motors strike approaches its second month, Dyson’s electric car effort was further along than we thought, Faraday Future’s founder is headed for bankruptcy and more on The Morning Shift of Tuesday, Oct. 15, 2019.
1st Gear: Strike Movement This Week?
Thirty days. Today marks a full month since UAW employees went on strike against GM, and while it’s the most significant American labor action in the automotive space in half a century, it is taking its toll on everyone and everything it touches—the workers, GM’s bottom line, the suppliers and related industries, Michigan’s economy and more.
So the UAW has called a meeting Thursday of its GM council in Detroit, which as Automotive News writes “is typically called to discuss a tentative agreement once one is reached before taking it to rank-and-file members for a nationwide vote.” But there is no tentative agreement as of Monday night, so it could be the announcement of a forthcoming deal or a temperature check:
The meeting would offer the union’s leaders a chance to provide a face-to-face update on negotiations with local presidents as the work stoppage enters its fifth week.
Spokesmen for the UAW and GM declined to comment.
The two sides last week traded jabs in public comments that accused each other of stalling the talks. GM submitted its most recent proposal to the union last week, which included a commitment to invest $7.7 billion in U.S. plants, a person with knowledge of the talks told Automotive News. The union presented its counterproposal on Friday, but has declined to provide details.
GM has not commented on the UAW counteroffer.
So what remains to be done? The Detroit Free Press has a good rundown, and it centers on three things:
In-progression workers: The union wants to shorten the timeline for workers hired after 2007 to make a wage closer to those hired before 2007. Presently, these so-called in-progression workers are hired at $17 and hour, which can rise to $28 in eight years. The union would like that lowered to four years or, ideally, one pay level for all workers. GM would like the progressive wage growth to be between four to eight years, people close to the talks say. This was a top agenda item with “a lot of discussion” around in-progression throughout the weekend, a person close to the talks said.
Retirement plans: The union wants the formulas for pensions and 401(k) plans updated. Workers hired before 2007 get a pension. Those hired after 2007 get a 401(k) contribution from the company. A person familiar with the plans said neither formula has been adjusted for inflation in those 12 years.
Product allocation: In November, GM said it would indefinitely idle four of its U.S. plants: Detroit-Hamtramck, Lordstown Assembly in Ohio and transmission plants in Warren and Baltimore. GM has proposed solutions for Detroit-Hamtramck and Lordstown. Detroit-Hamtramck would get an electric pickup to build. Lordstown would get a battery cell manufacturing facility built near it and the idled plant could be sold to an entity backed by electric-pickup maker Workhorse. But it was unclear whether either of those solutions have been agreed upon.
Meanwhile, people close to the talks said the UAW has pushed for GM to commit to building future gasoline-powered vehicles in U.S. plants versus assigning them to plants in Mexico. GM has resisted this, arguing that cheaper labor costs in Mexico force it do some production there to remain competitive. A manufacturing worker in Mexico is hired in at $1.90 an hour. The UAW worries that U.S. electric vehicle production means fewer jobs than traditional vehicle production.
The UAW may be in it for the long haul, but you know everyone, at this point, wants this wrapped up and done.
Update: Now GM CEO Mary Barra is joining negotiations as well, a sign that things are moving along very quickly.
2nd Gear: Dyson’s Electric Car Was Pretty Far Along
British inventor and vacuum cleaner magnate James Dyson had ambitious plans for launching an all-new electric car (or cars.) But those plans came to a screeching halt last week as he and the company conceded the investment needs were too great, and the path to profitability too uncertain, to continue. Making cars is hard, as we say around here.
But Wired UK, in a new deep-dive story, reveals Dyson’s car was actually moving along very quickly—they even had a driveable prototype and ambitious plans for what was next.
Yet Dyson had come agonizingly close to unveiling its creation. The company that upended the world of vacuum cleaners and hand dryers had finally produced a driveable prototype of its revolutionary electric vehicle, meant to go up against Tesla and BMW – an incredible development, given just months previously much of the car’s design hadn’t gone much further than sketches on computer-aided design software, and battery and motor testing was ongoing.
The factory to build the cars was planned; the global supply chain was set up; dealership liaison was planned out. There was a fully-developed car in terms of concept, with rolling prototypes built and gliding around the test track. While the owner’s manual wasn’t written, it wasn’t far off, says one staff member.
In the space of 12 months great leaps had been made in the development of the vehicle – necessary ones, given the car was meant to be on roads by 2021 – but every step forward was met with a setback. And setbacks cost money. Ultimately, Dyson couldn’t make the sums add up.
Be that as it may, building a brand new electric car from the ground up—and getting it on sale in just over a year now—does sound overly ambitious. But Dyson is an ambitious guy, and while he had to be dragged “kicking and screaming” into revealing the project’s existence in the first place, he had great faith in it:
The company’s founder, James Dyson, was in a bind. Traditional automotive companies needed to embrace the electric vehicle production in order to survive: they had no choice but to gamble. Startups such as Tesla looking to enter the industry were venture-backed and steeped in the high-risk, high-reward culture of Silicon Valley. Dyson already had a successful company, and couldn’t bet the income from vacuum cleaner sales on the potential of electric vehicles. He had a legacy to protect.
And yet he wanted to forge ahead with the project, economics be damned. In many ways, this was a personal quest for validation, and an attempt to prove the car industry wrong.
[...] While the company reportedly set aside some £2.5 billion for the electric vehicle project, that pales into comparison with the £50 billion-plus Volkswagen is spending on producing its own electric vehicle – and it has pre-existing experience designing and manufacturing cars. Volkswagen has even recognised that amount isn’t enough, partnering with Ford to share costs and collaborate on ideas. “I think Dyson hugely underestimated what it costs,” Bailey adds.
That story is definitely worth a read in full.
3rd Gear: Faraday Future Founder Files For Bankruptcy
The world of electric car startups is fraught with risk and failure, but nobody really wrote the playbook on What Not To Do like Faraday Future. From downright insane claims out of the gate to a shaky ownership and financing model, FF wanted to be a Tesla competitor but could never get its shit together long enough to make a real attempt.
At the heart of it all was FF’s founder and onetime quasi-CEO, the Chinese billionaire and tech magnate Jia Yueting. Now, after years of financial struggles, he’s filing for bankruptcy in the U.S.
In a proposed debt-restructuring plan filed in federal court in Wilmington, Del., Jia will use his ownership stake in Los Angeles-based Faraday Future to set up a creditor trust to repay his debts.
Jia faces $2.3 billion in claims, according to the plan. In a statement on Faraday’s website, the company said Jia’s debts were owed to creditors in China.
The plan is also designed to help Faraday put together “equity financing efforts and prepare for an IPO,” according to the statement. The company’s statement also said Jia’s filing will not affect its normal business operations.
Jia’s bankruptcy filing is the least surprising news of the day, or maybe any day, but the fact that FF is still in it and eventually trying to IPO is amazing to me.
4th Gear: Tesla Is Tanking The Used Luxury Car Market
Tesla and Elon Musk get blamed for a lot of stuff—sometimes fairly, sometimes not—but this is a new one on me. Lately, the Model 3 is being cited as a reason used German luxury cars aren’t holding their value very well. Here’s Automotive News:
According to data from industry sources, a growing abundance of used luxury-class vehicles is eroding values for their 3-year-old vehicles. The supply of used premium vehicles is up 20 percent since 2006, compared with a 2 percent increase in the overall used-vehicle market, according to J.D. Power.
Robust demand for Tesla’s performance electric cars, particularly the Model 3, is accelerating the slide in German luxury used-car prices, a new report by finance company Capital One says. That could pressure profitability at BMW and Mercedes-Benz just as they embark on pricey electrification plans.
Residual values for the German luxe leaders have fallen 6 percentage points since 2015, compared with a 4-point decline in residuals for the overall luxury sector, according to Edmunds.
The market is “becoming flooded” with more affordable cars from Mercedes, Audi, BMW and others — without a corresponding increase in demand, Capital One said.
“German brand customers are closely aligned with Tesla buyers,” Caldwell said. “The demographic shares a sensibility for performance, design and brand consciousness.”The Model 3's performance specs and technology-first design propelled it to the top-selling luxury model in the second quarter of this year, according to Kelley Blue Book.
It’s being called The Tesla Effect. Instead of buying used Benzes or BMWs or whatever, buyers are going straight to a new Model 3.
I think that’s part of it, as well as the fact that there are more luxury brands than ever before—in recent years alone Americans have expanded options from Alfa Romeo, Genesis and more. Oversupply of the German cars is a huge factor too.
5th Gear: Where Are The Ford Police Cars?
Unless you’re the cops, in which case you can’t get enough cars, specifically from Ford. And other cars are affected too. One more from the Freep:
Manufacturing issues at Ford’s Chicago Assembly Plant have led to delay and disruption of 2020 Police Interceptor delivery, in addition to 2020 Ford Explorers and Lincoln Aviators, Ford Motor Co. confirmed to the Detroit Free Press.
U.S police agencies had placed orders for more than 15,000 Police Interceptor Utility vehicles as of Sept. 4, according to the Ford website. At an estimated $38,000 apiece, that’s $570 million worth of orders.
First responders are calling around to each other and to Ford seeking answers.
“I had a 20- or 30-minute phone call. (The Ford rep) said, ‘I’m gonna tell you right off. This is a brand new vehicle coming out of a plant that was basically stripped to the concrete floors, they brought in new machinery and equipment and new tooling,’” said a police officer in Southern California who orders vehicles. “And that’s where the delays are coming from. Things didn’t materialize as fast as they thought they would.’”
The recently retooled Ford Chicago plant has had a lot of issues this year, the story notes, with some cars being shipped to Michigan for “for post-production troubleshooting” before they went on sale.
Reverse: Makes Sense
Neutral: Could Dyson Have Pulled It Off?
What would that have taken? Besides, of course, hundreds of dump trucks filled with cash.