Comments by "Steve Valley" (@stevevalley7835) on "The Electric Viking"
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I not only live in the US, but in metro Detroit, so goings on at the big three are local news.
The North American market is a global oddity, due to the popularity of cars so huge, and expensive, they are irrelevant in much of the rest of the world. GM and Ford have progressively withdrawn from most markets around the world. Both companies have withdrawn from India. GM withdrew from the EU, while Ford's market share in the EU has shrunk from 10-12% in the late 90s, to only 3.3% in 2024. Ford's EU share will take another hit this year, as it discontinues the Focus, which accounts for 20% of Ford Europe's volume. Over the last ten years GM's share in China has fallen from 15%, to 6.8%, and the company has written off much of it's Chinese operation. Ford's share in China is only about 1%. Ford withdrew from all of South America.
I foresee the future US market looking, not so much like the Russian market today, but the Soviet Union market of the 1960s: a handful of companies that have withdrawn from the rest of the world, hiding behind tariff walls, producing huge, expensive, but poor quality, ICE powered vehicles that are irrelevant in the rest of the world.
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Mercedes, BMW, and VW each have one assembly plant in the US. I have not looked at the content labels on a US built Merc or BMW, but would suspect that many of the internal components, engine, transmission, and such, are imported. In VW's case, the engines are imported from Mexico. Stellantis only imports a handful of Alfas, Masers, and Fiat 500es. Ford imports nothing from Europe.
Based on what happened when Trump was last in office, and imposed a protectionist tariff on Korean built laundry washers, US made cars will see their prices increased to match the tariff inflated prices of imports, so there will be no net loss of competitiveness for imports, unless Trump also imposes a limit on the number of cars imported, before the tariff is stepped up to a wholly impossible level. Trump's washing machine tariff had two steps: 20% and 50%. Once the 50% level was reached, Korean washers were no longer available.
The other variable is the incoming Trump administration is openly, proudly, anti-EV.. My theory is Musk has lost interest in Tesla, beyond using Tesla owners as beta testers for his AI systems.
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After rolling around the news of Ford's investment in the EU in my mind, I came to the same conclusion: Ford it getting itself off the hook, so the EU operation can collapse. In addition to the sales drop in 2024, Ford will drop the Focus this year, which, iirc, accounts for 20% of Ford's EU sales, so that would drop Ford's market share under 3%. The two EVs Ford builds in Cologne are on a VW platform, so I would not be surprised if there are licensing fees paid to VW, adding to the car's cost.
While Ford attempts to sell cars in many countries, their production base is rapidly shrinking. They closed all of their plants in India, Brazil, and Australia. Germany is clearly up for the chop. Their Chinese operations are far weaker than GM's, and GM already wrote down their Chinese operations.
As Ford retreats to being a North American company only, and only selling the largest, most expensive, trucks and SUVs in that market. recall than 100 years ago, half of the cars in service in the world were Fords.
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@someuser7501 I envisioned a GM, several years ago, where the only Americans employed by the company were the honchos at the HQ in Detroit. All vehicles would be entirely designed and built in China.
Of course, now we have a government that is eager to erect tariff barriers. So, now, the plan would be to offshore all the engineering, because foreign engineers are cheaper than Americans, transmit the design information to the US over the same fibre that brings us all those telemarketing calls, to duck tariffs on physical goods, then build here.
Thing is, with the US going all in on ICE, the skill set to design ICE powertrains, and the huge vehicles that the industry wants to sell in the US, will atrophy in places like China and India. The engineering will probably become a primary application of AI, or become entirely static, like US automotive engineering was from the 50s, into the 70s, before safety and emissions regs forced changes.
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I laffed, a couple years ago, when the VAG CFO was talking about how they will take the VW brand "upmarket". That seems to be the ambition at a lot of companies: push prices and profit margins higher and higher. Wags have said "VW has always thought it was more high end than it really is". There are a couple UK based T-Roc reviews on youtube, where the reviewer comments on the cheap, hard, plastic, interior, but notes that, in spite of the cheap materials, VW wants over 30,000 Pounds for the things.
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I have seen UK market road tests of the T-Roc, that make the same point: it is very expensive, for what it is.
Here in the US, Stellantis and Ford are working the same business plan: increase price, while reducing quality. Globally, VW's warranty claims expense is only exceeded by Ford's. In the US last year, the average transaction price, across the industry, was about $48,000. Stellantis' ATP was over $53,000, and the company bragged it was the highest ATP in the US. And Stellantis takes that much money off of people without a "luxury" brand like Cadillac or Lexus. They just price Jeeps like they were Range Rovers.
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@ZweiZwolf The US fuel consumption reg used to be based on a sales weighted average of all models built, which forced manufacturers to produce smaller, more economical, more affordable, vehicles, in addition to the larger models. The fuel consumption reg was 'reformed" around 2006. The new system assignes a "target" consumption number based on the vehicle's footprint: the product of the wheelbase and track. I read the reg when it was published. The reg plainly stated that the equation used to calculate the fuel consumption target was skewed to provide targets for large vehicles that were easier to attain, while the targets for smaller vehicles were made harder to attain, and the formula favored trucks over cars. This "reform" removed the need for manufacturers to make smaller cars at all, so the move to gigantism was expedited. Automakers make a larger profit margin on more expensive cars, so price soared, as well as size, in pursuit of higher profits from shrinking volume. Did you hear the howler from Ford CEO Farley recently? He declared Ford will be "the Porsche of off-road". What is Porsche know for? High prices, and exceptionally fat gross margins. Thing is, unlike Porsche, Ford is not a cult. People will not pay Porsche prices for the shoddy stuff Ford turns out.
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All the foreign automakers are losing big gobs of market share in China. Jeep has already withdrawn. Ford is looking at China more as an export hub, rather than competing in the domestic Chinese market.
VAG started losing focus in the 90s. Ferdinand Piech went into "empire building" mode, adding armloads of halo products, Bugatti, Bentley, Ducati, and Lamborghini to the product portfolio. Marchionne said that Bugatti was the biggest waste of capital he had ever seen. He also added Skoda and Seat, offering the same products, in the same markets, as the VW brand, while adding extra overhead.
I had hopes that the diesel scandal would force VAG to clean up it's product portfolio. The head of the union made the same observation. Why is VAG wasting so much money on redundant and vanity products? But no, VAG kept all the nonsense, and kept bleeding.
So now, VAG declares a "crisis", and dumps on the staff in the plants. Right out of the McKinsey playbook. Not a word about VAG going all in on gimmicks, that don't work every well, while the basic reliability of their cars goes in the tank.
And I say all this as a VW owner, a now 10 year old VW, from a time when VW executed much better on reliability and useability.
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During VAG's last crisis, over diesel emissions, the company whined about the cost, and threatened factory headcount reductions. The head of the union, made a very good point: why not VAG get rid of redundant divisions and vanity projects instead? Skoda and SEAT compete in the same segment as VW, so they are paying for three sets of administrative overhead, when there could be only one. Then there is the money they pour into vanity projects like Bugatti and Lamborghini. Sergio Marchionne publicly said Bugatti is the biggest waste of capital he had ever seen. Did VAG clean house? Nope.
VAG has followed the same playbook at Stellantis, and Ford, with the same result. They all cut quality, and raised price, to fatten up their operating margins. VW's global warranty claims expense is now only exceeded by Ford's. They could charge premium prices, after the plague, by working the "shortage" narrative. But now, they have 100 days supply, or more, of cars sitting in storage lots, so the "shortage" narrative no longer works and customers are rejecting the high prices.
So what is VAG's response? Same thing that their first choice was in their last crisis: take money away from the employees.
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My thoughts? Farley is an idiot. I will explain. In spite of Trump openly campaigning on putting tariffs on Canadian and Mexican cars, Farley is crying that he wants steep tariffs on Toyotas and Hyundais, not Fords, regardless of where they are built. As you said, the models Ford builds in Mexico are the Bronco Sport, Maverick, and Mach-E. Farley said, publicly, a couple years ago, he wants to get out of the two row SUV market, where the Bronco Sport and US built Escape are, because, he complains, there is too much competition in that segment, so he can't charge as high a price, with as fat a profit margin, as he wants. So, cutting Bronco Sport and Maverick production off from the US, would give Ford an excuse to shift prospects into the larger Bronco, or Ranger pickup, which are more expensive. Farley committed some $5.6B for "Blue Oval City", a greenfield battery and assembly plant to build electric F-150s. Why F-150s? That is Ford's most profitable product. A few days ago, he claimed to have just discovered that F-150s have poor aerodynamics, and people with F-150s carry heavy loads, pull trailers, and take long trips, which puts a lot of demand on the battery. A battery that could meet that demand would be large, heavy, and expensive. So, now, Farley claims that, for large EVs, "the economics are unresolvable". Seems likely he is preparing shareholders for a multi-billion dollar writeoff of "Blue Oval City". Last, and most absurd, Farley insists Ford "will be the Porsche of off-road", meaning he wants to raise prices, a lot. Farley is a buffoon.
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The Nissan plants in Mexico appear to build the low priced sedans, Sentra and Versa, for the US, as well as other models for Latin America. The larger, more profitable, models, are built in their three plants in the US. So the Trump tariffs would not be devastating to Nissan.
The thinking in another forum I read is that MITI would not allow Nissan to be completely owned by a non-Japanese company. If that is the case, the most likely scenario is the non-Japanese operations being sold off, with US operations most likely going to Hyundai, non-US operations going to a Chinese company, and the Japanese operations staying with the rump Nissan, in Japanese hands.
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@dylanthomas12321 my term for running a company for financial manipulation is "Welchism", after Jack Welch, who ran GE into the ground. If you haven't noticed, Boeing, once a leading US manufacturer, after 20 years of Welchist management, had driven equity Billions of dollars into the red, while their reputation for sound engineering is in tatters. Welchist management put all their profits, and more, into stock buybacks, while cutting corners in engineering and product quality. By the standards I was educated to, Boeing has been bankrupt for a number of years now, because they owe more than they own. They just haven't defaulted on any of their mountain of debt, yet.
Have you noticed how high VW's warranty claims expense is? Like at Boeing, shoddy quality is a sign of Welchist management. In 2022, VW's global warranty expense was 3.9% of sales. For context, Ford, which is pilloried in the US for high warranty claims, has a claim expense of 2.9%; Hyundai, with it's repeated issues with defective engines, pays out 2.8%. BMW 1.7%, Renault 1.3%. Honda 1.2% Toyota 0.7% So, does VW improve quality to reduce it's warranty claims expense? I don't hear one word about that. All I hear from VW is how they want to raise prices even more, while taking from the line workers in the plants.
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My first thought is the incoming US administration is blatantly, proudly, EV-hostile. Then add the challenge of building out EV infrastructure in Central And South America, and the western hemisphere may be the last bastion of ICE vehicles.
Mexico has a free trade agreement with the EU. A couple weeks ago, a free trade agreement was reached between the EU, and several South American countries, including Brazil, which has a well developed car industry. The EU nations have not yet ratified the agreement. I can see the western hemisphere becoming the supplier of ICE vehicles to the EU.
If VW was moving production to Mexico, I would expect the first candidate to be the EU market Tayron, which is presently built in Wolfsburg, as the US market gen 3 Tiguan, is the Tayron, built in Puebla. It would be relatively simple to simply stop building the Tayron in Wolfsburg, and import the model from Mexico. That being said, I would be perfectly fine with the Golf being built in Puebla as well.
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