Automotive

Automakers Are Suffering Restart Hiccups


Illustration for article titled Automakers Are Suffering Restart Hiccups

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The Morning ShiftAll your daily car news in one convenient place. Isn’t your time more important?

Suppliers are struggling, oil demand is returning, and Subaru luckily cashed in. That and much more in The Morning Shift for Monday, May 18, 2020.

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1st Gear: Cart Before Horse

As automakers plan to get U.S. production back online this week, the economic impact of the last couple of months on smaller suppliers, and mixed signals from the Mexican government may mean more parts shortages as the industry attempts to get started again.

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Here’s more on the issue from Automotive News:

On Wednesday, May 13, Mexico’s federal government indicated the auto sector would reopen on Monday, May 18, and published guidance on how to proceed. But on Thursday, May 14, it published new instructions indicating the industry could not reopen until June 1.

On Friday, May 15, the government said Mexico’s industry can begin operating before June 1, provided companies have completed the process of establishing safety protocols.

Indeed, last week, Bloomberg reported that Daimler has been forced to stop vehicle production at its U.S. plant in Vance, Ala., because it cannot get adequate parts from Mexico. The Alabama plant was the first U.S. production line to resume operations during the pandemic.

“I have a feeling that the Mexico issue is not entirely beyond us yet,” warned Dietmar Ostermann, U.S. automotive advisory leader at PwC, during last week’s Automotive News webcast.

“I know that, certainly, the larger Mexican suppliers and the facilities of larger U.S. and European and Japanese suppliers in Mexico will implement the same safety standards. But I am very doubtful that smaller Mexican supply plants and Tier 2 supply plants will have the safety processes … and testing capabilities in place.”

The constant confusion about what automakers, factories, and supplies can and can’t do, and the constantly shifting timeline make it extremely obvious our economy needs an emergency strategy for handling pandemics in the future.

Whether it was aid that went to manufacturers but not the suppliers they rely on, Tesla having to fight the county its in for being one of the few quarantine holdouts for businesses in the area, or just dealership employees not having clarity, it’s far from the biggest issue but it’s still been a mess.

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2nd Gear: New Divisions!

Instead of the global pandemic (metaphorically) uniting everyone against a common cause like you see in the movies or whatever pipe dream, U.S. legislatures are using the novel coronavirus as an excuse to take a hard line against American reliance on Chinese suppliers.

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While any action would likely be focused on medical supply chains, contemporary headaches with major automotive supply lines could be included.

Here’s more from Reuters:

Both Republicans and Democrats are crafting bills to decrease U.S. reliance on China-made products, which accounted for some 18% of overall imports in 2019.

“The whole subject of supply chains and integrity of supply chains… does have a greater place in members’ minds,” Representative Mac Thornberry, the top Republican on the House of Representatives Armed Services Committee, told reporters May 7.

The medical supply chain and defense-related goods are top of the list.

It makes sense to want to have control, and it would likely mean much needed investment or stimulus in an industry that 1st Gear reveals is going to be struggling.

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3rd Gear: Oil Demand Back

Good news if you bought a tanker full of oil for the change in your piggy bank recently, because oil demand is returning as the Chinese economy begins to recover.

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From Bloomberg:

Futures in New York climbed as much as 9.8%. Chinese oil use is at 13 million barrels a day, just shy of the levels of a year earlier, traders and executives said. The dramatic turnaround is a sign of the speed at which the market is starting to recover from an unprecedented collapse in demand that forced prices below zero last month.

[…]

“Producers are significantly throttling back output and with demand increasing the market is on a slow path toward recovery,” said Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy.

It’s not just China that’s seeing a recovery in consumption. Indian diesel sales were 75% higher during the first half of May, compared with a month earlier. U.K. road fuel use has risen this month and is increasing every week, according to Brian Madderson, chairman of the Petroleum Retailers Association.

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There are worries that Russia and OPEC may not stick to their recent production throttling agreement now that things are looking better. If they return to full production, the oil price recovery probably won’t last long, but we’ll see!

4th Gear: Subaru’s Big ‘But’

Subaru’s profit numbers look very promising. But… that’s only for January through March. The hit for Subaru is still likely to come.

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From Auto News:

Net income nearly doubled to 40.9 billion yen ($379.4 million) in the three months.

Revenue advanced 12 percent to 859.5 billion yen ($7.97 billion) in the just-ended quarter, as worldwide sales, which cover wholesale volume overseas, increased 13 percent to 262,900 units.

Nakamura said profits were buttressed by aggressive cost cutting, increased sales volume and a better mix of higher-margin profit. Incentives also came down from the previous year.

Looking ahead, however, Subaru will not be able to escape a hit from COVID-19. Subaru’s assembly plant in Japan and its factory in Indiana both came back online May 11. But the Japan plant lost 19 days of production, and the U.S. operation lost 34 days of output due to suspensions.

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The company also noted it’s taking a hit on delayed product planning as it waits for suppliers to regain certainty, but it hopes the U.S. market returns to “normal” by early next year.

5th Gear: Car Concerts

A concert, but in your car.

From Bloomberg:

Industry leader Live Nation Entertainment Inc.—which saw a 25% drop in concert revenue in the first quarter of 2020—recently announced a series of car-centric concerts called “Drive-In Live,” a multi-artist tour through four Danish cities this summer that will even turn the parking lot of the Copenhagen Airport into a drive-in venue.

Each drive-in concert will accommodate 600 cars, with tickets charged per car and up to five people welcome per vehicle. Live Nation’s President and Chief Executive Officer Michael Rapino compared this to more intimate music venues. “There are a lot of great artists that can sell out an arena, but they’ll do 10 higher-end, smaller theaters or clubs,” Rapino told his investors on an earnings call last week. “We can make the math work.”

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Reverse: ‘Lone Eagle Of Japan’

Seiji Yoshihara’s first attempt to fly across the Pacific Ocean solo comes to a catastrophic end when he crashed in the ocean (but lived).

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