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: EPA Allows VW To Sell Repaired Diesels
If you’ve been following along with the historic shitstorm that is Dieselgate, you might recall back in January that a fix was approved for Volkswagen to sell some 70,000 repaired vehicles that previously cheated emissions tests and now don’t anymore. Now, that deal seems finalized, according to Bloomberg.
The company received approval from the Environmental Protection Agency for its dealers to sell 2015 model year diesels after updating the vehicles’ emissions software, VW Group of America spokeswoman Jeannine Ginivan said.
The software update is part of a required emissions repair approved by the EPA and California Air Resources Board. The repair will also include changes to diesel engine hardware, but dealers do not have to wait until the repair parts become available early next year, Ginivan said.
“We are still finalizing the details of this program and will provide more information on its implementation at the appropriate time,” Ginivan said in a statement.
While certainly a notable move—this is happening as several VW execs are being carted off to court for criminal trial—it’s only affecting a fraction of cars. From Bloomberg:
Reviving diesel sales marks a significant milestone in VW’s efforts to recover from the scandal and rebuild its relationship with environmental regulators. It also returns a key product to dealer showrooms that attracted a cult-like customer base and accounted for about 20 percent of the VW brand’s pre-scandal sales.
Yet it’s a mostly symbolic step. The sales approval only applies to about 67,000 diesels from the 2015 model, about 12,000 of which are currently in dealer inventory, Ginivan said.
Better act quick, too: VW says no new diesel models will be sold in the U.S. through model year 2018.
2nd Gear: Ford Looks To Cutback On Longterm Auto Loans
We talked a bit yesterday about how so-called “deep subprime” loans are becoming the norm, and that loose lending standards have led to a familiar situation, albeit not one as entirely dire as a decade ago: Shitty auto loans—mostly slung to folks with credit scores below the 550 FICO range—are being bundled into securities and sold to investors.
These folks generally made their payments, but delinquencies are on the rise. Big time.
It seems Ford’s having similar issues with another sect of loans and leases, according to Bloomberg: Those that stretch on for a really long time.
The company said it’s looking to limit the growth it has in long-term auto loans and leases in Canada where, Bloomberg says, “consumers are twice as apt as U.S. buyers to stretch out payments to as long as eight years in order to afford a car.” Eight years is a goddamn long time, folks. From Bloomberg:
“It’s something that we keep a close eye on,” Mark Buzzell, chief executive officer of Ford Canada, said in an interview at the Vancouver auto show this week. “We really are trying to limit the trade cycles to shorter terms, but at the end of the day we have to stay competitive.”
In Canada, automakers are selling about 41 percent of vehicles with loans of at least six years or leases of at least five years, said Buzzell. Increasing competition among automakers seeking to capture customers has stretched them to as long as eight years in some cases. In the U.S., the average new car loan in 2015 was 5.5 years, compared with six years in Canada.
“They’ve gone about as far as they can go,” said Jason Mercer, a Toronto-based analyst at Moody’s Investors Service.
And consumers are struggling to pay for rising housing costs in cities like Toronto and Vancouver, Bloomberg says.
That’s left many with less money each month to pay for other goods, boosting the demand for credit-card loans and stretched out car payments. Canadian household debt climbed to a record 167 percent of disposable income in the fourth quarter.
This looks ... not good.
3rd Gear: Ford Recalls 570k Vehicles Over Potential Engine Fires
Speaking of Ford, the automaker issued a chunky recall yesterday for 570,000 buggies across North America and Europe due to problems that could lead to engine fires or doors to unexpectedly fly open, as The Associated Press put it. (What happens in the unlikely scenario where you’re driving and realize your engine caught on fire, and then your door flies open? Stop, tuck, and roll?)
Apparently, this isn’t helping Ford kick off 2017 in high gear. From the AP:
The recalls will hit the company’s bottom line in the first quarter of this year. Ford said in a Wednesday filing with securities regulators that the recalls will cut pretax earnings by $295 million.
The engine fire recall covers over 360,000 vehicles in North America and Europe. In North America it includes Escape SUVs from the 2014 model year, plus the 2014 and 2015 compact Fiesta ST, the 2013 and 2014 Fusion midsize car and the 2013 through 2015 Transit Connect small van.
Ford said 29 fires were reported in the U.S. and Canada, but with no injuries. A spokesperson told the AP owners can keep driving the vehicles and park them safely in garages or other structures.
The company will mail customers instructions from the owner’s manual on how to check and refill coolant. Dealers also will check coolant levels for owners. If vehicles leak coolant or overheat, they should be taken to a dealer, [spokesperson Elizabeth] Weigandt said.
If parts are available, dealers will install a coolant level sensor and a warning light on the dashboard telling owners if the coolant level is low, Weigandt said. She did not know if the company will fix coolant leaks, but said she would check.
That’s your PSA for the day.
4th Gear: Trump Wants New Auto Plants. But!
So, President Donald Trump has been hellbent on urging automakers to build new factories in the U.S. That’s been a focus for Trump, who has made a point to reach out to auto execs repeatedly during his first weeks in office.
But a story in The Detroit News points out that his call for brand spanking new facilities just doesn’t jibe with reality—and that he’ll likely have to settle for factory overhauls, such as the $1.2 billion plan Ford announced on Tuesday. Here’s why, from the News:
Analysts and even automakers say it’s doubtful auto companies will spend the $1 billion or more needed to construct new plants: U.S. auto industry sales appear to be at a peak, and most companies simply don’t need more production capacity. While Trump repeatedly has urged the auto industry to deliver, industry experts are skeptical that automakers will meet the president’s costly demand for modern U.S. manufacturing plants.
“We’re near the top of a market cycle,” said Kristin Dziczek, director of the industry, labor and economics group at the Center for Automotive Research. “Why on Earth would you overcapacitize when you’re fulfilling peak market demand with the capacity you have?”
Volvo’s building a new assembly plant in South Carolina, while Hyundai and Kia are considering new factories in the U.S., the News reports, but dropping the standard rate of $1 billion for a new facility isn’t an easy sell for U.S. automakers.
Executives have vivid memories of shedding thousands of jobs and shuttering numerous factories during the recession. GM and Chrysler went through federally induced bankruptcy cleansings to survive.
GM, Ford and Fiat Chrysler have built no new brick-and-mortar assembly plants in the United State in a decade. And Detroit’s Big Three currently have no plans to build any, company officials have said. Instead, they are choosing to improve and expand on what they’ve already got.
That’s the core point here. We’ve known for months that car sales have been cooling, and it’s not expected to drastically pick up this year. So it seems unfathomable that auto execs are suddenly going to increase capacity when, really, what good will it do for them?
5th Gear: Waymo, Uber Self-Driving Car Battle Heating Up
A hearing is scheduled for early May in the self-driving tech lawsuit between Waymo and Uber, but Uber’s trying to get the case sent to arbitration—to the dismay of tech reporters everywhere itching to see this play out in court.
Anyway, on Wednesday, Uber filed court documents that show Waymo, Google’s self-driving car project, previously filed arbitration claims against Anthony Levandowski, the former Waymo employee at the center of the suit. Levandowski is accused by Waymo of downloading 14,000 files pertaining to Google’s self-driving car designs, before abruptly leaving the company to launch Otto, a self-driving truck start-up. Last August, Otto was purchased by Uber for close to $700 million.
If Uber succeeds, that’d move the case out of the public eye. And it says that should be done, given Waymo sought arbitration on Oct. 28 for two claims against Levandowski, just two months after Uber purchased Otto. Here’s more from Reuters:
Uber is seeking to get the high-profile case sent to arbitration, arguing that Waymo’s allegations against Uber are “inextricably bound up” with Levandowski’s employment agreement with Waymo.
Uber said the revelation that Waymo itself sought arbitration bolstered its own case for arbitration.
“There should be no dispute concerning the validity of the arbitration agreements themselves in view of Waymo’s arbitration demand against Levandowski based on those agreements,” wrote Uber in its motion filed in federal court in San Francisco.
Waymo hasn’t responded, but the hearing scheduled for early May is on the Google subsidiary’s request for a preliminary injunction to prevent Uber from using the allegedly stolen files. If a judge agrees to issue the injunction, that could be disastrous for Uber.
Reverse: Obama Mandates Change
Neutral: So Will You By A VW Diesel Now?
It was an expected move, but would you sink more money into VW at this point?