General Motors reported a much stronger than expected fourth-quarter profit, lifting full-year results to record levels for the second straight year.
The largest US automaker also said Tuesday it is buying a $650 million equity stake in Lithium Americas, which will give it access to the raw material needed to build batteries to power 1 million electric vehicles a year in the first phase of production.
For the quarter, GM earned adjusted earnings of $3 billion, or $2.12 a share, up from $1.35 a share a year earlier and far better than forecasts of $1.69 a share from analysts surveyed by Refinitiv. That lifted full-year adjusted income to $11 billion, up from the $10.4 billion it earned in 2021, which had been its previous record.
The company said it expects strong earnings in 2023, though it expects it to slip a bit from the just posted levels, coming in at between $8.7 billion to $10.1 billion. But company CFO Paul Jacobson said its automotive business is expected to remain strong, with much of the decline likely to be at GM Financial. That’s due to the hit it will take from higher interest rates and the sinking value of used cars, as well as the higher interest rates resulting in an accounting hit to pension earnings.
“Actually that [guidance] is a strong statement about where we see things going, stronger than others” he told journalists on a call Tuesday.
Jacobson told journalists that GM does not expect to follow Tesla and Ford in cutting the prices for its electric vehicles.
“I don’t think there’s any surprise there’s increasing competition in the EV space,” he said. “Our customers are saying we’re priced well based on the demand that we’re seeing.”
The company’s investment in Lithium Americas is part of the company’s efforts to lock-up the supply of raw materials it will need to convert from traditional gasoline powered cars to electric vehicles. The Lithium Americas deal will not supply any lithium to the company until 2026, but Jacobson told media that “we’ve already achieved all the lithium we need through 2025.”
GM expects to build 70,000 EVs this year, a small fraction of its overall vehicle output. It sold 5.9 million vehicles in 2022, down about 6% from 2021 due to the shortage of parts needed to build all the vehicles for which there was demand.
“We continue to face some supply chain and logistics issues, but overall, things remain trending in the right direction,” said Jacobson.
But the company expects to be rapidly increasing its EV supply and offerings, with a new battery plant that opened last year, two more under construction and a fourth planned soon. GM has a target to build 400,000 EVs through the middle of 2024, and 1 million annually by 2025.
CEO Mary Barra predicted there will be more deals like the Lithium Americas one to be announced soon.
“We continue to pursue strategic supply agreements and partnerships to further secure our long-term needs,” she told investors.
GM said it will reduce its staff in 2023, part of its effort to cut $2 billion in costs over the next two years. But unlike a number of major companies that have announced layoffs in recent months, company officials stressed GM would not be shrinking through layoffs. Instead the reduction would be handled through attrition.
GM did not disclose how many jobs might be trimmed, with Jacobson saying the company would end this year “slightly lower” in headcount.
GM has 167,000 employees globally, with 124,000 in North America. That includes more than 42,000 members of the United Auto Workers union. Those workers will get profit sharing bonuses of an average of $12,750 for the year, up nearly 25% from the $10,250 they received a year earlier.
Shares of GM
(GM) soared more than 5% in pre-market trading on the results.
One year after losing the title it held for nearly a century as the top car seller in America, General Motors is back on top.
GM
(GM) reported Wednesday US sales of 2.3 million vehicles. Strong fourth quarter sales, up 41% from a year ago, allowed it to end the year with sales up nearly 3% from the 2.2 million US vehicles it sold in 2021, when it suffered a 13% decline.
Meanwhile Toyota
(TM), which had captured the top sales spot in 2021, had its full-year sales fall nearly 10% to 2.1 million, despite posting a 13% increase in fourth quarter sales.
In each of the last two years, industry-wide auto sales were limited by a shortage of parts, primarily computer chips, needed to build the cars and trucks consumers wanted. Total US new vehicle sales are expected to be down to just less than 14 million vehicles when the final sales results are reported across the industry later this week.
That would be the lowest sales total since the country was just climbing out of the Great Recession more than a decade go. Sales bottomed out at 10.5 million in 2009, the year GM and Chrysler declared bankruptcy and received federal bailouts, and had only climbed back to 12.7 million by 2011, the last year the industry sales fell below 14 million.
Sales had been 17 million in 2019, the year before the pandemic upended both the economy and supply chains.
Most forecasts say the supply chain problems are getting better, and that should allow automakers to increase production in 2023. They point to the better sales that took place in the fourth quarter than earlier in the year as a proof of that, even with higher car prices and rising interest rates making it more expensive for buyers than in the past.
That in turn has led them to forecast a modest increase in sales this year to just north of 14 million vehicles once again.
But many experts caution that their forecast of increased sales depend on the US economy not falling into recession, and instead simply experiencing slower growth. And uncertainty about what will happen to the economy is making the outlook for car sales far more uncertain than in years previous, they say.
“I’ve been forecasting the car market for decades now. This next year is the most challenging,” said Charlie Chesbrough, chief economist for Cox Automotive. “Normally we an idea which way it is headed. But this year it could be up or down.”
There are a number of factors supporting new car sales in the coming year, even if the economy stumbles. One is the fact that car rental companies have not be able to buy the supply of new cars they need in the last two years, as automakers limited the supply of cars available for lower priced fleet sales, selling all or virtually all the cars they had to consumers instead.
“Rental companies have been running at half of the purchases that they’re accustomed to,” said Ivan Drury, director of insights at Edmunds.
And Drury said if automakers start to see weakness in consumer demand, they can bring back incentives, including lower rate financing, that they haven’t had to offer in recent years when there was more demand than supply.
“The incentives recently have been virtually nothing,” he said.
So far demand is still strong, as there is pent-up demand from potential buyers who have delayed purchases because they couldn’t find the vehicle they wanted. But both Drury and Chesbrough say the higher average prices and higher interest rates are already driving buyers out of the market.
A turn in the economy, especially if historically low unemployment rates start to rise, could quickly result in lower new car sales.
The U.S.’s largest auto makers confronted another challenging year in 2022 with supply-chain snarls and poorly stocked dealership lots denting sales results and concerns mounting about an economic downturn.
The Detroit auto maker also retook its U.S. sales crown from
Toyota Motor Corp.
TM -0.65%
, outselling its Japanese rival by about 165,630 vehicles last year.
Toyota had overtaken GM in 2021 as the U.S.’s top-selling auto maker, an upending of the traditional pecking order that was largely due to parts shortages that both car companies viewed as temporary.
Toyota said its U.S. sales were down 9.6% in 2022, and
Hyundai Motor Corp.
closed last year with a 2% decline.
Most other car companies report throughout the day Wednesday.
Ford
plans to report 2022 sales results Thursday.
Industrywide, U.S. auto sales are projected to total 13.7 million vehicles in 2022, the lowest figure in more than a decade and an 8% decrease from the prior year, according to a joint forecast by J.D. Power and LMC Automotive. Sales are expected to remain well below prepandemic levels of roughly 17 million.
WSJ toured Rivian’s and Ford’s electric-vehicle factories to see how they are pushing to meet demand. Illustration: Adam Falk/The Wall Street Journal
The drop-off marks a reversal for a sector that started the year hoping historically low interest rates and an end to parts shortages would fuel a rebound in sales. Instead, vehicles continued to be in short supply as car makers mostly waited for scarce computer chips. Russia’s invasion of Ukraine, a key supplier of auto parts, added to the supply-chain troubles.
A prolonged shortage of semiconductors created pent-up demand for new vehicles, which meant that cars and trucks went to waiting buyers almost as soon as they hit the dealer lot. The lack of availability left buyers paying top dollar for the rides they could secure, pushing the average price paid for a vehicle in December to a near record high of $46,382, according to J.D. Power.
The record high prices buoyed auto maker profits last year despite shrinking sales volume and insulated the industry from a broader decline in consumer spending.
Now, while some supply constraints are easing, auto executives are confronting other obstacles, such as rising interest rates and soaring materials costs. Inventory levels are bouncing back, putting pressure on car companies to resist the kinds of profit-damaging discounts that have been historically used to counter slowing demand.
Photos: The EV Rivals Aiming for Tesla’s Crown in China
Some analysts caution that it is still too early to tell if rising prices are pushing buyers away. Heavy snowfall in large parts of the northern U.S. weighed on December sales, making it hard to see the impact of higher prices, JPMorgan analysts wrote in a note to clients.
Still, there are early signs that demand might be slowing, even for the hottest car makers.
Tesla Inc.
reported Monday that it fell short of its growth projections last year, in part because of Covid-related shutdowns at its Shanghai factory and changes in the way it manufactures and distributes vehicles.
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Analysts have pointed to decreased wait times for Tesla vehicles as a sign of softening demand. Tesla offered a rare discount on some of its vehicles if buyers agreed to take delivery before the end of 2022.
Electric-vehicle sales accounted for 3% of the U.S. retail market in 2021 and nearly 6% in 2022, according to J.D. Power.
Executives have been investing billions of dollars on new models and factories, in the belief that sales will continue to expand rapidly over the next decade.
But rising prices for raw materials used in lithium-ion batteries pushed up EV prices throughout 2022, and some executives warned of a looming battery shortage.
General Motors cut its EV sales target for 2023 because of a slower-than-expected increase of battery production.
The semiconductor shortage, while easing for some other sectors, such as smartphones and personal computers, remains a challenge for autos, in part because car companies typically use inexpensive, commodity silicon for vehicles. Toyota, citing a lack of chips, cut its production outlook for the current fiscal year through March.
Falling used-car values are also discouraging to potential buyers, who have trade-ins and are looking to use them to offset the higher cost of a new vehicle.
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That bodes poorly for sales this year, as retailers worry that buyers who were unable to buy a car as a result of shortages will now be priced out of the market, according to a survey of dealers conducted by Cox Automotive.
The research site Edmunds expects new-car sales to hit 14.8 million in 2023, a marginal increase from last year but well below prepandemic levels. A combination of rising rates, inflation and economic turmoil could push vehicles out of reach for many buyers, Edmunds said.
WASHINGTON—The Senate Finance Committee has opened an inquiry into whether auto makers including
Tesla Inc.
and
General Motors Co.
are using parts and materials made with forced labor in China’s Xinjiang region.
In a letter sent Thursday, the committee asked the chief executives of eight car manufacturers to provide detailed information on their supply chains to help determine any links to Xinjiang, where the U.S. government has alleged the use of forced labor involving the Uyghur ethnic minority and others.
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The U.S. bans most imports from the region under the Uyghur Forced Labor Prevention Act. The letter to car companies cited a recent report from the U.K.’s Sheffield Hallam University that found evidence that global auto makers were using metals, batteries, wiring and wheels made in Xinjiang, or sourcing from companies that used Uyghur workers elsewhere in China.
According to that report, some car manufacturers “are unwittingly sourcing metals from the Uyghur region.” It said some of the greatest exposure comes from steel and aluminum parts as metals producers shift work to Xinjiang to take advantage of Chinese government subsidies and other incentives.
The U.S. ban on products linked to Xinjiang has already caused disruptions in the import of solar panels made there.
China has called Washington’s claim baseless. It disputes claims by human-rights groups that it mistreats Uyghurs by confining them in internment camps, with Beijing saying its efforts are aimed at fighting terrorism and providing vocational education.
Besides
Tesla
and GM, the letter signed by Finance Committee Chairman
Ron Wyden
(D., Ore.), was sent to
Ford Motor Co.
,
Mercedes-Benz Group AG
,
Honda Motor Co.
,
Toyota Motor Corp.
,
Volkswagen AG
and
Stellantis
NV, whose brands include Chrysler and Jeep.
GM said its policy prohibits any form of forced or involuntary labor, abusive treatment of employees or corrupt business practices in its supply chain.
“We actively monitor our global supply chain and conduct extensive due diligence, particularly where we identify or are made aware of potential violations of the law, our agreements, or our policies,“ the company said.
A Volkswagen spokesman said the company investigates any alleged violation of its policy, saying “serious violations such as forced labor could result in termination of the contract with the supplier.” A Stellantis spokesperson said the company is reviewing the letter and the claims made in the Sheffield Hallam study.
Other companies didn’t immediately provide comments.
“I recognize automobiles contain numerous parts sourced across the world and are subject to complex supply chains. However, this recognition cannot cause the United States to compromise its fundamental commitment to upholding human rights and U.S. law,” Mr. Wyden wrote.
The information requested includes supply-chain mapping and analysis of raw materials, mining, processing and parts manufacturing to determine links to Xinjiang, including manufacturing conducted in third countries such as Mexico and Canada.
General Motors says its policy prohibits forced or involuntary labor, abusive treatment of employees or corrupt business practices in its supply chain.
Photo:
mandel ngan/Agence France-Presse/Getty Images
The lawmakers are also asking the auto makers if they had ever terminated, or threatened to terminate, relations with suppliers over possible links to Xinjiang, and if so, provide details of the cases.
The committee’s action comes as the Biden administration and bipartisan lawmakers increase their focus on alleged forced-labor practices in China as a key component of their confrontation with Beijing over its economic policy. The United Auto Workers has called on the auto industry to “shift its entire supply chain out of the region.”
The State Department has said more than one million Uyghurs and other minorities are held in as many as 1,200 state-run internment camps in Xinjiang. Chinese authorities “use threats of physical violence” and other methods to force detainees to work in adjacent or off-site factories, according to the department.
The U.S. Customs and Border Protection investigated 2,398 entries with a total value of $466 million during the fiscal year ended September, up from 1,469 entries in the previous year and 314 cases in fiscal 2000.
Analysts expect the CBP’s enforcement activity to further increase this year, with a strong bipartisan push for a tougher stance on the forced-labor issue.
The researchers at Sheffield Hallam University found that more than 96 mining, processing, or manufacturing companies relevant to the auto sector are operating in Xinjiang. The researchers used publicly available sources, including corporate annual reports, websites, government directives, state media and customs records.
Around two-thirds of Ford’s dealer network in the U.S. has signed up for the company’s electric-vehicle certification program, the price of batteries for electric cars is on the rise for the first time in over 10 years, and United Airlines is looking at Delta’s pilots’ contract as the template. These stories and more in The Morning Shift for Tuesday, December 6, 2022.
1st Gear: Most Ford Dealers are in on EV Certification
Ford says that nearly two-thirds of its U.S. dealer network are on board with the company’s pricy electric-vehicle certification program. The automaker’s CEO, Jim Farley, says 1,920 dealers have signed on.
He added that 1,659 went the “Certified Elite” route. That program requires investing as much as $1.2 million at the dealership. A further 261 dealers went with the cheaper “Certified” status. That program only requires dealers to spend up to $500,000 for EV enhancements. However, that level caps EV sales at 25 per year. From Automotive News:
Ford has about 3,000 dealerships in the U.S. The company said those that didn’t sign up by last week’s deadline will not be allowed to sell EVs beyond 2023 but will have another opportunity to do so in 2025.
Farley has said Ford’s retailer need to evolve to better compete with EV startups like Tesla and others that sell directly to customers.
“The future of the franchise system hangs in the balance here,” Farley said. “The No. 1 EV player in the U.S. bet against the dealers. We wanted to make the opposite choice.”
The announcement comes as opposition to the program grows. Last week, dealers in New York filed a lawsuit challenging the program as illegal, while a separate group of dealers in Illinois filed a protest with the state’s motor vehicle board. Also last week, U.S. Sen. Richard Blumenthal, D-Conn., and Connecticut state lawmakers voiced their displeasure over what they say are excessive costs that potentially violate state franchise laws.
Ford has consistently said it believes the program does not violate any state laws.
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“We want to work with our dealers, but there are certain things our customers want that are nonnegotiable,” Farley said to the crowd at the Automotive News Congress in Detroit.
He added that he does not regret rolling out the program.
“There’s always a better way,” Farley continued. “But I don’t think we made, really, any big mistakes.”
2nd Gear: EV Battery Prices on the Rise
The price of lithium-ion batteries is on the rise for the first time in over 10 years. The increase comes from surging prices raw material costs, and it will ultimately have a negative impact on the automotive industry’s push for EVs to get cheaper. From Financial Times:
Soaring prices of battery metals such as lithium, cobalt and nickel and higher component costs pushed battery pack prices up to $151 per kilowatt hour, a 7 per cent rise compared with a year ago and the first increase since BloombergNEF began its annual survey in 2010.
The company expects prices to rise further to $152 per kWh next year. In 2010, prices were $1,160 per kWh on average.
That’s bad news for the automotive industry. FT reports the industry has viewed $100 per kWH battery pack as the number where EVs become competitive with ICE vehicles from a price perspective.
However, lithium prices have increased 10-fold since the start of 2021 and nickel is up 75 per cent, while cobalt prices have been more than double their 2020 average this year.
As a result, BloombergNEF forecasts that the $100 per kWh level will be reached by 2026, two years later than previously expected. This will “negatively impact the ability for automakers to produce and sell mass-market EVs in areas without subsidies”, it said.
It added that the higher costs could also be problematic for the economics of battery energy storage projects that are vital to stabilising the grid as intermittent renewable power grows.
The rise in battery pack prices would have been even higher if car companies and cell manufacturers in the Chinese market had not switched to cheaper lithium iron phosphate (LFP) batteries, which do not use cobalt and nickel but have a shorter range.
Right now, there’s a lot of uncertainty about whether or not battery material prices will actually ease. Skyrocketing demand and manufacturing issues are only exacerbating the problem for battery makers and consumers.
3rd Gear: United Looking to Delta’s Contract as a Blueprint
United Airlines’ CEO Scott Kirby says a possible deal between Delta and its pilots union could be used as a template for similar agreements. From Reuters:
“It’s a rich contract but I think the really good news is it means we’ll all get deals done essentially on the same terms and can move forward,” Kirby told Reuters on the sidelines of an event in Washington late Monday. Delta struck a tentative deal Friday to give pilots a 34% cumulative pay increase in a new four-year contract.
Kirby says the Delta agreement will push pilot wages up across carriers and be passed onto consumers in the form of higher airplane ticket prices.
“The biggest news for an investor perspective is cost convergence in the industry means that what is different now is all the low cost carriers are going to have come up to these much higher pay rates,” Kirby said. “This is going to wind up like oil prices — it’s going to be a pass through.”
Delta’s contract reportedly also offers a lump-sum one-time payment, reduced healthcare insurance premiums, better 401(k) parameters as well as improved paid time off.
Kirby added that demand is still very strong for flight tickets, which he says are cheaper today than they have been over the past 15 years.
Its union estimates the proposed deal represents more than $7.2 billion of cumulative value increases over the next four years.
American Airlines and United have promised “industry-leading” contracts to their pilots.
Reuters reports that last month American Airlines pilots turned down a proposed 19 percent pay hike over the next two years that would cost the company about $2 billion. United pilots had previously turned down an offer that would give them about a 14.5 percent wage cumulative increase.
4th Gear: Works Strike at Pennsylvania Auto Parts Supplier
About 270 workers at an Autoneum AG plant in Bloomsburg, Pennsylvania have gone on strike at the global automotive insulation supplier, and soon ripples could be felt throughout the rest of the automotive industry.
Workers walked off the job last Thursday after negotiations between the company and the union stalled after the latest contract offer was rejected by the workers. From Automotive News:
Autoneum, based in Winterthur, Switzerland, focuses on internal and external sound and heat insulation systems. The supplier works with almost every major automaker, including General Motors, Ford Motor Co. and Stellantis, according to its website.
For the Bloomsburg plant, its exact list of customers is unclear. However, the plant received awards from Toyota in 2011, Ford in 2014 and GM in 2021. Autoneum did not respond to calls from Automotive News’ seeking comment on the strike.
Brian Heverly, president of Local 1700 Workers United, told FOX 56 that the rank-and-file turned down Autoneum’s third and final contract offer.
Among worker complaints is the supplier’s insistence that workers pay 5 percent more of their healthcare costs outside of usual yearly increases.
Local 1700 Vice President Dave Schaffer, an employee at the plant 44 years, told FOX 56 that the workers didn’t want to strike, but felt compelled to given the circumstances.
The last strike at this plant was reportedly back in 1968, a year known for nothing else but that strike.
A spokesperson for General Motors told the outlet that the automaker is aware of what’s going on, but they don’t see the strike having an immediate impact on GM operations.
5th Gear: GM’s BrightDrop Starts Production in Canada
General Motors has started production of its BrightDrop electric delivery vehicle at its CAMI Assembly plant in Ontario. That makes it the first EV factory in Canada as a whole.
Last month, GM said the startup will be worth about $1 billion in revenue in 2023. The company is expected to hit $5 billion in revenue by the middle of the 2020s, and it could be as high as $10 billion by 2030.
“Starting volume production is really important; this is a very important product for GM,” Sam Abuelsamid, principal research analyst leading Guidehouse Insights, told The Detroit News. “This finally starts to get them back into a more competitive offering in the van segment and with electrification, so … it has the potential to be a really strong business for GM.”
GM launched production this week of the larger Zevo 600 electric delivery vans at CAMI. The delivery vans were being manufactured at small scale at a Michigan supplier plant until the CAMI facility was ready for production. Production of the Zevo 400, a smaller model than the Zevo 600, will start in late 2023. BrightDrop expects to make 30,000 next year and scale to 50,000 by 2025.
[…]
GM formed BrightDrop in 2021. The business is focused on providing emissions-free products for delivery companies. Its products include the Zevo electric delivery vans, Trace eCarts for easier package delivery and the BrightDrop Core software platform.
The automaker invested more than $800 million to convert CAMI for high-volume EV production. The plant was revamped in just seven months — the quickest retooling of a GM plant ever.
[…]
BrightDrop also on Monday announced it’s entering the Canadian market with the addition of DHL Express Canada logistics company as a customer. DHL will add its first Zevo vans to its fleet early next year. The company is also piloting BrightDrop’s Trace eCarts and software platform in Toronto.
BrightDrop has also received requests for electric delivery vans from FedEx Corp., Walmart Inc., Hertz Global Holdings Inc. and Verizon Communications Inc.
All in all, BrightDrop has 25,000 production reservations and expressions of interest for its EV delivery vans. So far, the company has delivered 150 Zevo vans to FedEx out of the 2,500 the shipping company has ordered.
Reverse: Washington
Neutral: Boeing 747, Over and Out
On The Radio: Darlene Love – “Christmas (Baby Please Come Home)“
Darlene Love – Christmas (Baby Please Come Home) (Official Audio)
This is the best Christmas song, and I will not hear otherwise.
plans to fold its biggest businesses into three divisions, undertaking one of the biggest reshuffles in the Wall Street firm’s history.
Goldman will combine its flagship investment-banking and trading businesses into one unit, while merging asset and wealth management into another, people familiar with the matter said. Marcus, Goldman’s consumer-banking arm, will be part of the asset- and wealth-management unit, the people said.
A third division will house transaction banking, the bank’s portfolio of financial-technology platforms, specialty lender GreenSky, and its ventures with
Apple Inc.
and
General Motors Co.
, the people said.
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The reorganization could be announced within days, the people said. Goldman is scheduled to report third-quarter earnings Tuesday.
It is unclear how the makeover will shake up Goldman’s senior leadership team, though at least a few executives will have new roles, the people said.
Marc Nachmann,
the firm’s co-head of trading, will slide over to help run the combined asset- and wealth-management arm, they said.
The reorganization is the latest step in Chief Executive
David Solomon’s
push to shift Goldman’s center of gravity toward businesses that generate steady fees in any environment. It also reflects the firm’s struggle to overcome skepticism, from investors and even among some of its own executives, over its ambitions for consumer banking.
The firm’s trading and investment-banking acumen has been Goldman’s calling card for decades, churning out massive profits when the markets favored risk-takers and bold deals. But investors often discounted those successes, reasoning that they are harder to sustain when market conditions turn. And in recent years, Goldman has sought to sharpen its trading arm’s focus on client service.
Following the changes, Goldman’s organizational chart will look more like its peers.
A slide presentation from Goldman’s 2020 investor day offered a glimpse of what a combined banking-and-trading business would look relative to peers. At Goldman, the merged group would have delivered a return on equity of 9.2% in 2019, besting
Morgan Stanley
and
Bank of America Corp.
but below what
JPMorgan Chase
& Co. and
Citigroup Inc.
earned that year.
Bloomberg News earlier reported that Goldman had planned to restructure its consumer-banking arm and was considering combining its asset- and wealth-management businesses.
Goldman’s shares have struggled to keep pace with its rivals, at least by one measure. The firm traded at 0.9 times book value as of June, according to FactSet. That compared with 1.4 times at Morgan Stanley and 1.3 times at JPMorgan.
Goldman has sought to narrow the gap by beefing up the businesses that command higher valuations on Wall Street. Managing wealthy people’s money and overseeing funds for pensions and other deep-pocketed institutions is more profitable than other financial services, and it usually doesn’t put the firm’s balance sheet at risk. And many investors view traditional consumer banking—taking deposits and making loans—as more predictable.
Goldman has invested heavily in building its own consumer bank, and folding the unit into its asset- and wealth-management arm should create more opportunities to offer banking services to wealthy individuals.
Earlier this year, the bank said it aimed to bring in $10 billion in asset and wealth-management fees by 2024.
Auto executives for months have expressed confidence there will be eager buyers for all the vehicles they can build. A worsening economic picture is putting that theory to the test.
The U.S. auto industry is expected to report flat new-car sales for the third-quarter, despite earlier predictions that this year’s depressed selling pace would accelerate in the second half, analysts predict. Most auto makers are scheduled to report third-quarter sales results Monday.
Tight supplies continue to be the big problem, car executives and dealers say, as a shortage of computer chips and other supply-chain snags continue to dog vehicle output and curb sales.
Still, there are signs the backlog of demand built up over the last 18 months could deteriorate as consumers feel the pinch of higher interest rates, analysts say.
“It seems likely that much of the pent-up demand from limited supply is quickly disappearing as high interest rates eat away at vehicle buyers’ willingness and ability to purchase,” said
Charlie Chesbrough,
senior economist with research firm Cox Automotive.
Car companies and dealers say that most new vehicles that get shipped from the factory are quickly snapped up by buyers.
Photo:
Brandon Bell/Getty Images
The firm last week lowered its 2022 U.S. sales forecast, to 13.7 million new vehicles, which would be down 9% from last year. In the five years leading up to the pandemic-plagued year of 2020, the industry sold more than 17 million vehicles annually.
So far, though, car companies and dealers say that most new vehicles that get shipped from the factory are quickly snapped up by buyers.
“There is still really strong consumer demand, and huge replacement demand,” said
Duncan Aldred,
head of
General Motors Co.
GM -3.52%
’s Buick and GMC brands, during an interview at the Detroit auto show last month. “I think that will probably overcome a lot of the economic headwinds.”
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Are you planning to buy a car this year, or are higher interest rates making you rethink your plan? Join the conversation below.
Auto makers and dealers continue to pull in strong profits, as the tight supplies keep prices at or near record highs. The average price paid by U.S. car buyers in the third quarter hit $45,971, up 10% from a year earlier and the most for any quarter on record, according to research firm J.D. Power.
But there are signs that rising interest rates are starting to strain car buyers, which could pressure pricing. The average interest rate paid on a new vehicle purchase hit 5.7% in September, up from around 4% a year earlier, J.D. Power said.
This past week,
CarMax Inc.
KMX 1.32%
shares sank after the used-car retailer flagged that high prices, paired with high broader inflation and rising interest rates, have slowed demand. The company’s profit fell 50% in its most recent quarter and its sales leveled off at 2% growth, both worse than analysts expected.
“This points to some deterioration in per unit pricing and profitability in the coming quarters, as rising interest rates and economic conditions affect demand,” said
Thomas King,
president of the data and analytics division at J.D. Power.
There are 20 electric vehicles that will qualify for the $7,500 EV tax credit through the end of the year, the U.S. and Mexico are ending a labor probe at a Mexican Stellantis plant, and Warren Buffet doesn’t seem to0 worried about the car market. All that and more in The Morning Shift for Wednesday (my dudes), August 17, 2022.
1st Gear: The 20 Qualifiers
President Biden signed the sweeping tax, climate and health care bill on Tuesday, and the administration now says about 20 models will still qualify for the up to $7,500 EV tax credit through the end of 2022.
That being said, the law immediately ends credits for almost three quarters of the 72 models that were previously eligible. That’s because, in order to qualify, the EVs must now be assembled in North America.
The number of eligible vehicles is likely to change come January 1, 2023, when new restrictions on battery and mineral sources and pricing caps come into play. The Alliance for Automotive Innovation, an industry trade group, says it’ll make all or nearly all EVs ineligible. From Automotive News:
The automaker group said it will work with the administration “as they issue critical guidance and new regulations – so the EV tax credit is as available and beneficial to consumers as possible.”
Currently eligible vehicles are 2022 model year EV or plug-in hybrid electric versions of the Audi Q5; BMW X5 and 3-Series Plug-in; Ford Mach-E, F-Series, Escape PHEV and Transit Van; Chrysler Pacifica PHEV, Jeep Grand Cherokee PHEV and Wrangler PHEV; Lincoln Aviator PHEV and Corsair Plug-in; Lucid Air; Nissan Leaf; Volvo S60; and Rivian, R1S and R1T. The 2023 Nissan Leaf, BMW 3-Series and Mercedes EQS are also eligible.
Some models are built both in North America and overseas and consumers should check vehicle identification numbers to ensure eligibility, the Treasury Department said.
…
Buyers can still qualify if they had binding written contracts before Biden’s signing and some automakers had been urging customers to make portions of deposits non-refundable to qualify.
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Uniqlo Summer Sale
Basics you don’t wanna miss Uniqlo’s summer sales are not to be missed. The whole sale is killer to stock up on the basics Uniqlo is known for—subtle colors, classic silhouettes, and a dress up-or-down vibe.
The law also makes General Motors and Tesla vehicles eligible for tax credits starting on January 1. They had previously lost the credits after hitting the old 200,000-vehicle per manufacturer cap. However, it’s not clear if any of the vehicles they make would qualify under the new restrictions.
2nd Gear: U.S. and Mexican Labor Probe Ends
The U.S. and Mexican governments have resolved a labor dispute with a Mexican Stellantis manufacturing plant.
The agreement at Teksid Hierro de Mexico is the fourth labor probe to end under the 2020 United States-Mexico-Canada Agreement (USMCA). It was one of Mexico’s longest-running labor conflicts.
U.S. labor officials said workers at the plant, which makes parts for heavy vheicles including Cummins, Volvo and Mack, were previously denied their rights to choose their union and do collective bargaining. From Reuters:
Reuters reported last week that Teksid, which employs some 1,500 people, expected to close the case without going to a dispute panel after the company recognized an independent union, a move workers attributed to U.S. pressure under the USMCA.
Workers since 2014 had fought to establish a union known as The Miners at the Teksid plant in the northern state of Coahuila, and accused the company of colluding with a powerful rival union to block their efforts.
…
The USMCA resolution “will help end eight years of rights violations against Teksid workers,” U.S. Labor Secretary Marty Walsh said in a statement.
As part of the agreement, the unit of Italian-French carmaker Stellantis in July agreed to re-hire, with back pay, 36 workers who said they had been fired in retaliation for supporting the union, which also represents metalworkers and miners.
Stellantis says it is “diligently cooperating” with governmental officials during the process. The company says it respects collective bargaining rights and will comply with local laws.
3rd Gear: Buffett Ain’t Worried
Warren Buffett doesn’t seem to think the good times are over for car dealers just yet. New filings show Berkshire Hathaway tripled its stake an Ally Financial, a long-time automotive financial company, to $1 billion in the second quarter of 2022.
The world’s most famous investor seems to believe lending margins will remain strong and default rates will stay low. From Financial Times:
In the two pandemic years, shares in Ally rallied 57 per cent. The stock was buoyed by consumers flush with cash flocking to buy used vehicles. Auto manufacturers were unable to meet demand for new cars.
Ally shares, have fallen by a quarter so far in 2022. Wall Street is worried about the finances of the US consumer as well as a normalisation in the auto market. Ally says those worries remain overstated, a view that now has the implicit endorsement of a legendary investor.
Between the end of the 2019 and the start of 2022, the Manheim Used Vehicle Value Index increased by a vertiginous 70 per cent. Higher used car prices supported bigger loans at a time when there were virtually no concerns about immediate credit losses.
Net interest revenue increased substantially in the current quarter, compared with 2021. However, Ally was forced to accrue credit loss provisions so big that pre-tax income fell 40 per cent year on year. The company insists those provisions are simply a natural reversion to ordinary levels.
The move is a vote of confidence not only in auto loans, but in consumer spending power as a whole. If Warren’s not worried about our ability to confidently spend money, why should we be?
4th Gear: BMW’s Battery Switch Up
China’s EVE Energy CO Ltd is going to start supplying BMW with large cylindrical batteries for the company’s electric cars in Europe. It’s reported BMW is following in Tesla’s footsteps by adopting the new technology. Vehicles with the new batteries are due to hit the market in 2025.
Earlier this year, Tesla starting manufacturing its new large-format 4680 cylindrical battery. 4680 means 46 millimeters in diameter and 80 millimeters in length. Tesla says it expects the new battery to lower production costs and improve range compared to the current-generation 2170 cylindrical batteries.
EVE’s batteries are expected to be a similar size to Teslas. From Reuters:
EVE, a supplier to BMW in China, did not directly address Reuters queries when asked for comment. BMW said it plans to release some battery-related news in early September but declined further comment.
The shift by BMW, which currently uses prismatic batteries, underscores growing momentum for larger-format cylindrical batteries. Prismatic batteries, which are rectangular in shape, have become the most common form of auto battery in the past two years as they can be more densely packed, saving on costs. But proponents of cylindrical batteries argue the newer larger format cells have become more cost-effective due to improvements in energy density.
China’s CATL (300750.SZ), the world’s largest battery maker, is also due to start supplying cylindrical batteries to BMW from 2025.
Expectations are high that these batteries will also be large-sized cells. CATL did not respond to a request for comment on planned dimensions.
Right now, it’s not clear exactly how many batteries BMW plans to get from EVE and CATL.
5th Gear: Out Of Power
Toyota has suspended operations at one of its plants in China after local authorities issued an order to conserve electricity. The manufacturing facility will be shuttered until Saturday, according to a spokesperson for the company.
Sichuan province, where the plant is located, is rationing industrial electricity consumption during its worst heatwave in 60 years. It’s caused producers of fertilizers, lithium and other metals to suspend plant operations or curb output. From Reuters:
Industrial users across 19 out of 21 cities in the province were ordered to suspend production from Aug. 15 until Aug. 20 to prioritise residential power supply, according to a notice issued on Sunday by the Department of Economy and Information Technology of Sichuan.
…
“We’re monitoring the situation every day and following the guidance from the government,” the Toyota spokesperson said.
Toyota wouldn’t say just how much vehicle output would be impacted by the suspension.
Reverse: Up!
This is transportation content if I’ve ever seen it.
Neutral: I’m A Gossip Girl Now
I just signed the lease on an apartment on the Upper East Side of Manhattan. Call me Blair Waldorf, because I’m very fancy. Unfortunately, this will continue my issue of not being able to have my car in the same state I live in. You win some, you lose some. What can ya do, ya know? It’s going to be a fun time. Buh bye, Lower Manhattan.
joined forces with labor leaders to oust Chief Executive Officer
Herbert Diess,
who was in the midst of a push to turn the German auto company into a top maker of electric vehicles.
Mr. Diess will be succeeded by
Oliver Blume,
CEO of VW’s sports-car maker Porsche AG and long an ally of the Porsche-Piëch family that controls a majority of VW voting rights. Mr. Blume will retain his job running Porsche, which is slated for an initial public offering this autumn.
The departing chief executive had repeatedly clashed with unions, which hold half the seats on the German equivalent of the company’s board of directors. Until now he had retained the support of the family, heirs to the VW Beetle inventor, Ferdinand Porsche.
Mr. Diess was informed around midday Thursday that the company’s core shareholders and labor representatives had decided to fire him. The broader supervisory board learned of the decision at a meeting at around 4:30 p.m. Friday local time, according to a person familiar with the proceeding.
The sudden ouster comes after renewed internal strife over the slow progress developing core software for the company’s new generation of electric vehicles. The delays have caused the launches of some models to be pushed back, raising doubts among the Porsche-Piëch family about Mr. Diess’s ability to deliver on his promises, people familiar with the situation said.
Herbert Diess is leaving VW as it struggles in developing core software for its new generation of electric vehicles.
Photo:
Ralph Orlowski/Reuters
VW’s leadership crisis has plunged the company’s electric-vehicle strategy into uncertainty and has raised questions about the company’s governance, which is dominated by a triumvirate of family shareholders, the German state of Lower Saxony and the country’s biggest trade union.
“The hope of the supervisory board must be for new group CEO Blume to have more success in guiding the software strategy of the group,” Daniel Roeska, analyst at Bernstein Research, said in a note to clients. “However, it will take months to come up with a new plan, and creating unrest as the group is heading into a challenging 2023 is the wrong time, in our view.”
Mr. Diess couldn’t be reached to comment. Mr. Diess has said that before joining VW, he had turned down a job offer from
Elon Musk,
which has fueled speculation that he could join
Tesla Inc.
if he left VW.
Auto-industry CEOs around the world are wrestling with how best to transition to new technologies—much of which isn’t core to their companies’ expertise and requires different thinking, cost structures and skill sets.
Car executives are under pressure to get ahead of new rivals, many of them in Silicon Valley, which have deeper pockets and are unencumbered by a capital-intensive legacy business focused on making gasoline-powered vehicles.
In Detroit, the leadership at
General Motors Co.
and
Ford Motor Co.
have outlined bold moves in recent years to transform their operations, including the creation of new supply chains for batteries and the hiring of new kinds of talent. Ford this year took the unusual step of splitting its gas-engine and EV operations into two separate divisions, a move that executives have said will help it be more agile in its shift to new technologies.
Meanwhile, investors are aggressively betting on the EV space, trying to figure out who will be the next Tesla.
With gas prices on a wild ride, many consumers are exploring whether buying an electric vehicle could save them money in the long run. WSJ’s George Downs breaks down four factors to consider when buying a new car. Photo composite: George Downs
Mr. Diess has defined the industry’s challenge as shifting from banging metal into cars to developing the skills, resources and vision to create software-defined cars, vehicles that in many ways have more in common with an iPhone than a conventional car. His attempt to catch up with Tesla was hampered by difficulties turning VW into a developer of software, which is the heart of modern electric vehicles and future self-driving cars.
In recent weeks, people familiar with the company said it had rebooted its plan to develop a unified operating system for its cars after trouble delivering the code led VW’s Audi and Porsche brands to postpone the launch of new premium electric models.
It couldn’t be determined whether Mr. Blume would continue to pursue Mr. Diess’s strategy of keeping core software development in-house or whether he would turn to
Alphabet Inc.’s
Google or
Apple Inc.
as some rivals have.
In March, Mr. Blume said he and his management team met senior Apple executives for a meeting at which they discussed a range of potential projects. Mr. Blume disclosed no further details, and it couldn’t be determined what was discussed.
Ferdinand Dudenhöffer,
director of Center for Automotive Research in Duisburg, Germany, said it was to be expected that Mr. Blume would present a new software strategy for the company.
“This big issue of the software-defined car is a huge challenge for conventional auto makers,” Mr. Dudenhöffer said. “Either auto makers will become tech companies like Google, Apple and Microsoft, or they will become dependent on the tech giants.”
Mr. Diess survived several challenges to his position. In December, following a clash with labor representatives, directors stripped him of some of his responsibilities and reshuffled his management team. But this week’s move to push him out came suddenly and wasn’t linked to any single incident, people familiar with the decision said.
At the supervisory-board meeting on Friday afternoon,
Hans Dieter Pötsch,
chairman of the supervisory board and a key ally of the Porsche heirs, presented a deal reached previously with top officials of the IG Metall trade union in a smaller meeting.
The families and union leaders agreed to remove Mr. Diess in the belief that Mr. Blume, 54 years old, who became CEO of Porsche in 2015, would lead with more consensus among management and VW stakeholders, people familiar with the decision said. Mr. Blume, an engineer by training, has long been a favorite of the Porsche-Piëch families and union leaders as a successor to Mr. Diess. But Mr. Blume has repeatedly said he was happy at Porsche.
Once the controlling families decided Mr. Diess had to go, they approached Mr. Blume, people familiar with the family said, and urged him to take the job. Mr. Blume agreed, they said.
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“Blume is seen as someone with a more congenial personality and management style,” one of the people said. “He speaks to his colleagues on the executive board differently and has had success at Porsche.”
According to the people with knowledge of the decision, the Porsche-Piëch family concluded that Mr. Diess’s personality led to repeated conflict within the company and that he didn’t appear to have the software problems under control. While not the only issue that weighed on the family’s mind, the software troubles began to affect new models and eroded the confidence that Mr. Diess could get the issues under control.
Hours before his ousting, Mr. Diess, who will step down on Sept. 1, posted a holiday message to workers ahead of the summer breaks.
“After a really stressful first half of 2022 many of us are looking forward to a well-deserved summer break,” he wrote on LinkedIn. “Enjoy the break—we are in good shape for the second half.”
Mr. Diess joined VW in 2015 from
Bayerische Motoren Werke AG
, initially as chief of the VW brand. In that role, he began to lay the groundwork for VW’s electric-vehicle strategy, a plan that has seen VW’s brands, including Porsche, Audi, Seat, Škoda, Lamborghini and Bentley, develop core electric models with a plan to shift fully to EVs this decade.
Under Mr. Diess’s leadership, VW embarked on a plan to build battery cell manufacturing companies around the world to power its new generation of EVs. It recently announced that it would create a new company in the U.S. under the Scout brand to build rugged, off-road electric trucks and SUVs. The move is part of a focus to rebalance the company’s heavy reliance on the Chinese market, where it makes 40% of sales.
While union leaders have acknowledged Mr. Diess’s strategic vision and his achievement in transforming VW’s culture for the EV age, they have questioned his ability to execute, as highlighted by the software problems.
Daniela Cavallo,
the head of VW’s works council, has said Mr. Diess had failed to involve employees in key decisions. She criticized him on his warning to the supervisory board last year that 30,000 jobs at its flagship plant were at stake if VW failed to accelerate its EV shift.
In a statement, Ms. Cavallo said the VW group “wants to emerge strengthened from the historical change in the world of mobility in a leading position. However, it is also our aim that, despite the great challenges, job security and profitability remain equal corporate goals in the coming years.”
Mr. Blume joined Volkswagen in 1994 and has held management positions for the brands Audi, Seat, Volkswagen and Porsche.
“Oliver Blume has proven his operational and strategic skills in various positions within the group and in several brands and has managed Porsche AG from a financial, technological and cultural standpoint with great success for seven years running,” Mr. Pötsch said. VW said Mr. Blume would continue as chief executive of Porsche after a possible IPO.
—Christina Rogers contributed to this article.
Write to William Boston at william.boston@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com
U.S. auto-safety regulators have escalated their investigation into emergency-scene crashes involving
Tesla Inc.’s
TSLA 1.26%
Autopilot, a critical step for determining whether to order a safety recall.
The National Highway Traffic Safety Administration said in a notice published Thursday that it was expanding a probe begun last August into a series of crashes in which Tesla vehicles using Autopilot struck first-responder vehicles stopped for roadway emergencies.
The agency said it was upgrading its earlier investigation to an engineering analysis after identifying new crashes involving Autopilot and emergency-response vehicles.
NHTSA also said it has expanded its examination of Autopilot to include a wider range of crashes, not only those at emergency scenes. The agency said it would further assess how drivers interact with Autopilot and the degree to which it might reduce motorists’ attentiveness.
Forensic data available for 11 of the crashes showed that drivers failed to take evasive action in the two to five seconds before the collision, the agency said.
The investigation covers an estimated 830,000 Tesla vehicles made from 2014 to 2021, including the Model 3, Model S, Model X and Model Y.
NHTSA said in its filing that it has identified 15 injuries and one fatality related to the crashes.
Tesla didn’t immediately respond to a request for comment. The electric-car maker’s stock was up 2.5% in midday trading Thursday, following news of a strong bounceback in production at its plant in China.
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Autopilot, Tesla’s name for the advanced driver-assistance technology used in its vehicles, is designed to help drivers with tasks such as steering and keeping a safe distance from other vehicles. Tesla instructs drivers using the system to pay attention to the road and keep their hands on the wheel.
The electric-car maker has long maintained that driving with Autopilot engaged is safer than doing so without it. Tesla points to internal data showing that crashes were less common when drivers were using Autopilot. Some researchers have criticized Tesla’s methodology.
In opening its initial probe last year, NHTSA said that it had identified 11 crashes since early 2018 in which a Tesla vehicle using Autopilot struck one or more vehicles involved in an emergency-response situation. In its latest filing, the agency said it discovered six additional crashes involving Teslas and first-responder vehicles where Autopilot was in use.
U.S. safety regulators are probing crashes involving Teslas, suspecting the company’s Autopilot system might be involved. WSJ’s Robert Wall reports on how some motorists may mistakenly think Autopilot is a self-driving feature that doesn’t require their attention. (Video from 3/18/21)
The expanded probe of Autopilot is the latest sign that U.S. auto-safety regulators are getting more aggressive in scrutinizing advanced vehicle technologies that automate some or all of the driving tasks.
NHTSA is getting ready to release new crash data this month that will give the public its first detailed look at the frequency and severity of incidents involving what are known as automated driving or advanced driver-assistance features, The Wall Street Journal has reported.
More than 100 companies are subject to an agency order requiring them to report crashes in which such systems were in use. Among those included are operators of autonomous-car fleets, like
Alphabet Inc.’s
Waymo and
General Motors Co.
’s Cruise LLC.
The technology under scrutiny includes lane-keeping assistance and cruise-control systems that keep a fixed distance behind a leading car, as well as higher-tech systems such as features that can guide a car along highways with minimal driver input.
Autopilot has become a particular focus for U.S. regulators in recent years, prompted by incidents in which drivers have misused the technology, overriding safety functions to operate a vehicle without their hands on the wheel, for example. Some critics also said the term Autopilot risks giving drivers an inflated sense of the system’s capabilities.
NHTSA said in its latest filing that driver use or misuse of Autopilot doesn’t necessarily preclude the agency from determining whether the technology is defective.
“This is particularly the case if the driver behavior in question is foreseeable in light of the system’s design or operation,” NHTSA said. Auto makers are legally required to initiate a recall if a safety defect is discovered in their vehicles.
Separately, NHTSA has opened a broader investigation into several dozen crashes where advanced driver-assistance features are suspected to have played a role. While the probe covers vehicles made by any car company, incidents involving Teslas represent most of the cases under examination, including several with fatalities.