Automotive

Nobody Wants To Sell You Affordable Cars


Image for article titled Nobody Wants To Sell You Affordable Cars

Photo: GM

Carmakers last year saw profits swell amidst the global pandemic as they cut production down to only their most expensive, profitable vehicles. Now they’re afraid to go back to the cheap stuff. All that and more in The Morning Shift for February 2, 2022.

Advertisement

1st Gear: Switching Back To Lower-Cost Models Will Cut Into Corporate Profits For 2022

I’m going to single out GM here because it just posted its financials, but this is an industry-wide issue.

The main news is that GM announced it expects to be raking in less cash this year even as it ramps up production. That’s because more production will mean more production of cheaper models that don’t have as high of a profit margin as the expensive stuff. From Bloomberg:

General Motors Co. is seeing signs of an easing in the semiconductor shortage that curbed vehicle output last year, but cautioned that a shift to producing lower-margin models and rises in materials prices will cap profit this year.

Like most automakers, GM dealt with the unprecedented supply crunch by prioritizing its most profitable vehicles at the expense of higher-volume models with lower margins. The manufacturer was hit among the hardest in the fourth quarter, when a 43% drop in domestic sales forced the company to relinquish its crown as top U.S. automaker for the first time since 1931.

As GM shifts production to higher-volume and less profitable models, the company expects a 25% production increase in the first quarter and gains of as much as 30% for the year, Chief Financial Officer Paul Jacobson told reporters. The lower margins, together with rising input costs, will restrain profits, he added.

To some degree, GM is trying to head this issue off at the pass, and has already killed the $13,600 Spark.

2nd Gear: GM Workers Winning

GM did make $10 billion in net income last year, as the Detroit News points out, which means, also per the Detroit News, GM hourly workers will be pulling in up to $10,250 in profit-sharing:

Come their Feb. 25 paychecks, approximately 42,500 U.S. hourly workers at General Motors Co. will receive up to $10,250 in profit-sharing based on the Detroit automaker’s strong 2021 financial results, the company announced Tuesday.

Advertisement

Workers who were idled a great deal last year may not be getting the full payout, however:

Despite GM’s strong financial results, workers at the company’s Fairfax Assembly plant in Kansas don’t know how much they’ll end up getting, and some are concerned it will be substantially less than $10,250. Extended downtime at the plant due to the chip shortage means many workers there were unable to meet the hours needed to be eligible for full profit-sharing payments. GM and the UAW said Tuesday they’re in discussions on the issue but did not offer details.

Advertisement

We’ll keep an eye on these negotiations.

3rd Gear: Ferrari Winning

The rich keep getting richer, and Ferrari is riding that wave, per Reuters:

Shipments grew 22% to 11,155 cars last year compared to COVID-hit 2020 and were up 10% on pre-pandemic 2019, the company said on Wednesday.

All regions saw double-digit growth, supported by strong sales of 8-cylinder models, including the F8 family as well as the Roma grand tourer and the hybrid SF90 Stradale. Shipments of more powerful but also more polluting 12-cylinder models fell.

[…]

The Italian company guided for adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of 1.65-1.70 billion euros this year, up from 1.53 billion euros ($1.73 billion) in 2021.

Advertisement

I am saddened that rich people are not doing the right thing and opting for 12 cylinders of sonorous fury.

4th Gear: Big Oil Winning

I remember the summer of 2020, when it was a hot topic for no one to want to “go back to normal,” or however people phrased it. We wanted to come out of the pandemic with universal healthcare, with climate justice, with some kind of positive change out of all the death and misery.

Advertisement

Anyway, here we are in 2022 and Big Oil is back, baby! From the Financial Times:

Big Oil’s profits are back after a year of humiliating losses, boosting the share prices and a bit of the swagger of US supermajors that have fended off questions over their long-term prospects.

ExxonMobil and Chevron in the past week reported combined net annual profits of nearly $38.6bn in 2021, a huge swing from combined losses of $27.6bn in the first year of the pandemic.

[…]

The profits were the highest since 2014, when crude oil prices last traded above $100 a barrel. This time, however, the majors are planning less capital spending on new production than in years past. 

Advertisement

5th Gear: VW’s Semi Truck Division Scania Not Winning

Scania did not successfully dodge a nearly billion-dollar fine over price-fixing in Europe, as Bloomberg reports:

Volkswagen AG’s Scania unit lost its fight against a 880.5 million-euro ($994 million) fine from European Union regulators for fixing truck prices.

The EU General Court in Luxembourg upheld the European Commission’s 2017 decision in a ruling on Wednesday. The judgment can be appealed one more time to the bloc’s top court.

Scaniawas fined for colluding over 14 years with five other truck manufacturers on truck pricing and on how to pass on the costs of new technologies to meet stricter emission rules, the European Commission said at the time. The penalty is the EU’s second-highest ever for one company in a price-fixing case, topped only by a 1.01 billion-euro penalty for Daimler AG in the same cartel.

Advertisement

I do love any story that flies in the face of the American stereotype of Germans as efficient, dutiful, and always following the rules.

Reverse: Not Yet Demolished

Advertisement

Neutral: How Are You?

Last night I finally got some snow grilling done on my porch, my current winter ritual. This has replaced my previous winter ritual, doing donuts on top of a parking garage.

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Most Popular

To Top