This Is How The Decline Of The US Auto Industry Begins — Honda Shifts Focus To China

Conventional wisdom holds that everything we do means we can’t be doing something else. If you are working, you can’t be at the beach. If you devote your free time to being in a garage band, you can’t climb Mt. Everest. And if you are a global car maker like Honda, you must choose whether your priority is making cars for Europeans, Americans, or Chinese customers.

Is America Still Primary?

For decades, Honda has regarded America as its primary market. The way its cars look, the features they offer, the colors they come in, and how they drive down the road have all been determined by the tastes of American customers. But things are changing and one of those things is profit margins. In the US, Honda’s gross profit per vehicle is abut 4.9%. That’s good, but in China, is profit margin last year was an eye popping 9.6%.

Let’s say you are a senior manager at Honda. Which market is going to get the majority of  your attention? “China has a high priority, and I think we will likely put more emphasis on listening to Chinese customer voices going forward,” said Kotaru Shimizu, general manager for sales at Dongfeng Honda Automobile Co., one of Honda’s two joint ventures in China. “The rise of China does throw the conventional wisdom of global resource allocation to the wind,” said James Chao, managing director for the Asia Pacific region at IHS Markit, “especially for global automakers who are only now experiencing the success of the China market and who have traditionally centered their strategic product decisions out of the U.S.”

A Clash Of  Cultures

That clash of culture has already played out within Honda. When the company was designing the current Civic — one of the most successful and long running models in automotive history — designers for the Chinese market wanted a traditional three box sedan. American customers prefer a more two box/fastback/hatchback look. Ultimately, the American preference won out but by the time the next generation Civic gets penned, the priorities might be reversed.

Honda sold 1.64 million vehicles in the US last year. 1.34 million of them were manufactured in America. By contrast, it sold 1.26 million vehicles in China last year. But here is the critical difference. The US market for new cars is expected to fall by almost 3% while growth in China is forecast to exceed 24%. Once again, faced with those statistics, which market would you concentrate your energy on if you were guiding a large multinational corporation?

Alcohol Was Involved

China and Japan have not always had the closest of relationships. The Rape Of Nanking is long in the past but not entirely forgotten. But there is no barrier so high that it cannot be conquered by the application of sufficient quantities of alcohol. Honda CEO Takahiro Hachigo  was vice president of overall operations in China for many years, where he was in charge of leading purchasing, production and r&d. From 2013 to 2016 he was in charge of Honda’s Chinese business before being tapped to lead the company.

Hachigo developed a fondness for Chinese classical literature and schmoozing with his Chinese counterparts. He has fond memories of the time he spent there. “It wasn’t much of a surprise, but I surely did drink a lot,” Hachigo recalled of the evening rituals with Chinese business partners. “I had drinks with them over and over again. Then I started getting along with them. They got drunk and hugged me.” Sometimes business is about more than just money and keeping one’s nose to the grindstone.

Different Strokes For Different Folks

Chinese car buyers have different priorities than Americans do. “American customers value practicality,” said Dongfeng Honda’s Shimizu, who spent several years working in the U.S. “They drive to work every day. So cars are an essential tool for American people.” In China by contrast the car is still primarily a status symbol. Chinese customers are drawn to vehicles such as the Avancier, a for sale in China only Honda model that comes with fake hood vents and wild fender creasing.

In the US, we can see some of that influence already in the cars sold here. Take a close look at the latest Civic and Prius Prime models. Both are swathed in precisely those scoops, clashing character lines, and angles that go off in odd patterns. Before you criticize the trend, remember America’s love affair with tail fins, which influenced the styling of cars built worldwide for years afterward.

“Chinese customers are firstly trend-conscious,” “Automobiles are still seen as an asset, not as a tool. They’d like to show off something,” Shimizu says. They also demand higher quality and more features like more sound insulation and better smartphone connectivity than American buyers. Atsushi Fujimoto, president of Dongfeng Honda says, “They assume that foreign carmakers sell lower quality models in China than those sold in North America. On the contrary, we tell them that we spend more money on making cars for China than those North American models.”

More Chinese Imports?

Despite the bluster and blather favored by America’s #FakePresident, more cars for the American market imported from China are likely. Already, Volvo is bringing in some Chinese made models as is Cadillac with its PHEV CT6 sedan. Ford will shift production of its Focus there soon. It takes more than tweeting to govern, apparently.

Some of the models Honda manufacturers specifically for Chinese customers may also cross the Pacific to US showrooms, especially since many of them are small crossover cute utes that American customers seem to crave. “Smaller SUVs and perhaps even sedans could be led by designers in China,” IHS’s Chao said. “If Honda feels that the small SUV segment has a lot more growth potential in China — it does, I think — then they will allocate more resources towards this effort.”

“We may be making a China-only model, but if this sells well in other regions, we should do so,” Fujimoto says. “Our cars will spread globally instead of saying U.S.-only or China-only models.” CEO Hachigo compares Honda’s strategy to serving up ramen noodles that have the same basic ingredients but using recipes tweaked to local tastes. “We tell them to use this kind of noodle and let them decide the flavor,” he says.

China Pushes For Electric Cars

China is also driving the electric car market forward while US manufacturers drag their feet. “I think electrification will likely get moving faster here than in the U.S.,” said Mitsuru Horikoshi, head of Honda’s China r&d center in Guangzhou, which oversees product development and design for both of Honda’s local joint ventures. “We are working on it now.” In fact, Honda’s first all electric car is widely expected to debut in China in 2018, long before a US equivalent arrives. \

The push for electrics is strongly supported by the Chinese government. Many manufacturers say the government’s demands are impossibly high, but their complaints have fallen on deaf ears in Beijing. In a market with a 24% annual growth rate, the car makers have little choice but to comply, no matter how costly or painful the process may be. And if electrics become commonplace in China, there will be enormous pressure on the companies to amortize the costs by selling them in other markets as well.

China Is Catching Up — Fast

Honda is quick to point out that is is not giving up on the US market. “How long do I think it will take for China to overtake the U.S. market? It won’t be so easy,” Hachigo told reporters after a June tour of Honda’s factories, r&d center, design studio and retail network in China. “It remains an important market to us. Just because China grows more doesn’t necessarily mean that North American models will decline.” That may be so, but they may start to look more like they were designed in China because they will be. \

Source: Automotive News

Imbalance Between Demand For Trucks, SUVs, and Sedans Leads To Layoffs In Auto Industry

Sales of sedans continue to plummet in the US as customers opt for more and more light trucks and SUVs. Through the first five months of this year, sales of sedans fell 11 percent and truck sales rose 4.7 percent. That means manufacturers in the auto industry are slashing the number of sedans produced and increasing truck and SUV production, leading to layoffs at the factories where those sedans are made.

Ford just made a corporate decision to stop building its Focus small sedan in America and shift production to China by 2019. The workers who built the Focus will transition to building SUVs instead.

Workers at GM’s Lordstown factory are feeling the pain. Lordstown is where the slow selling Chevy Cruze. Those falling sales caused the company to cancel the third shift on January 20 — the day Donald Trump was inaugurated. “This is about economics, not what Trump says,” said Robert Morales, president of United Auto Workers Local 1714 which represents workers at GM’s Lordstown stamping plant. “Even if Trump went out and bought 10,000 Cruzes a month, he wouldn’t get the third shift back here.”

The auto industry has been responsible for much of America’s productivity gains for the past several years. Mark Muro, of the Brookings Institution, has pulled together information that shows the industry was responsible for most of new US manufacturing jobs in 2015 and 2016.

In the first quarter of 2017, the auto industry accounted for only 2 percent of the 45,000 manufacturing jobs created. “There’s no argument with the idea that auto has been pulling the manufacturing sled up the mountain for the last three or four years,” Muro said. “If you take auto out, you’re left with a very tepid outlook indeed.” The Federal Reserve last week said factory output fell 0.4 percent in May, caused in part by a 2 percent drop in motor vehicles and parts production.

GM will close the Lordstown factory for 5 weeks this summer — three more than usual — in order to reduce dealer inventories of the Chevy Cruze. Some workers may transition to GM’s SUV assembly plant in Arlington, Texas but that means uprooting families, pulling kids out of school, and selling homes — decisions not taken lightly.

At Lordstown, the union and workers are trying to raise their game. The factory recently won an award for local innovation for developing a new part that helps the Chevy Cruze run better. When GM goes looking for factories to build new products, they hope their initiative will help swing new work their way. “We’re working hard to make the best product we can,” said Glenn Johnson, president of UAW Local 1112 at Lordstown, “so we can raise our hands and say to GM ‘look at what we can do.”

The solution is higher gas prices, but with the price of crude oil down and looking to go lower, that’s not likely to happen any time soon. If Congress had any leadership capability at all, it would simply raise the federal gasoline tax to $1.00 a gallon, let the chips fall where they may. $2 dollar a gallon gasoline is just ludicrous if the US has any realistic intention of addressing carbon emissions from the transportation sector. Little chance of that actually happening, though.

Source: Reuters via Autoblog

KPMG Auto Industry Survey Sheds Light On EV Attitudes

KPMG surveyed nearly 1,000 auto industry executives and 2,400 vehicle owners to learn what they think about the future of the automobile. Their findings may surprise some and disturb others. Perhaps the most unexpected finding is that 62% agree battery electric vehicles will fail due to infrastructure challenges. Fully 78% agree that fuel cell electric vehicles will be the real breakthrough for electric mobility.

That’s certainly a shocker for those of us here in the Gas2 community, where most believe electric cars are poised to become competitive with conventional cars within the next 5 years or so. We have long felt that industry executives — like Ford’s Mark Fields — simply don’t “get it,” when it comes to electric cars. A comment posted by a reader at Green Car Congress sums up the prevailing attitude of electric car advocates nicely.

“I read this study not as an indication of the trends, but insight into the mentality, and blind spots, of auto executives.The view that hydrogen refueling infrastructure will prevail over electric charging infrastructure seems especially detached from all available facts, and ignorant of the successful players.” Amen to that.

Here are some of the other significant findings of the KPMG 2017 survey:

• 53% say that diesel is dead for use in light duty vehicles.
• 76% say the internal combustion engine will continue to play a major role in passenger cars for the foreseeable future.
• 27% believe BMW is the current leader in autonomous driving technology versus 9% for Tesla.
• 59% agree half of consumers will not want to own their own vehicle by 2025.
• 76% believe on connected car will generate as much or more revenue for the manufacturer as 10 conventional cars.

That last point is critical. “The game has changed for automakers, as cars have evolved into rolling computers and consumers have been quick to embrace autonomy, connectivity and mobility-on-demand. A car is no longer defined by its utility, it is defined by the experience it provides to the driver and passenger — and that opens a tremendous pipeline for new revenue streams and business services that KPMG projects could top $1 trillion in the next decade or so.” That’s according to Gary Silberg, head of automotive research for KPMG.

Think of it as the Amazon experience applied to automobiles. Data collection is more valuable than profits from actual sales. 80% of executives agree that data will be the fuel for future business models. 83% believe they will make money as a result of collecting such data. That means every manufacturer needs its own ecosystem/operating system (OS) in order to keep from having that revenue stream diluted by sharing it with third parties. That may be why Apple and other tech companies are finding it hard to find companies that want to use their dedicated electronic systems. The companies want to keep all that lovely money all to themselves.

Here’s another interesting tidbit. 83% of executives think it is likely there will be a major business model disruption in the automotive industry in the near future. Does that mean more direct to customer sales, which Tesla is advocating? Possibly. The survey did not ask the obvious follow up question.

The entire survey results make interesting reading. One thing that we as consumers can learn from them is that auto industry executives seem to be blissfully unaware that most EV charging takes place at home overnight. Yes, there are challenges for people who live in condos and apartment buildings, but to suggest they are so insurmountable that hydrogen powered cars will be more in demand seems foolish if not downright silly.

If we thought car companies were out of touch with reality before, now we know the truth. They are. Thanks, KPMG.

Source: CleanTechnica

U.S. auto sales break record in 2015

The U.S. auto industry set a sales record in 2015 as solid December gains by the biggest automakers pushed the annual tally above the 17,402,486 mark set in 2000.

Automakers chalked up 17,470,659 light-vehicle sales last year, an increase of 5.7 percent over 2014, according to the Automotive News Data Center. The December increase of 8.9 percent was one of the year’s strongest, while the seasonally adjusted annual sales rate came in at 17.3 million, the lowest since September.

Among the largest automakers, Nissan Motor Co. was the biggest gainer, with a 19 percent jump from December 2014 levels. FCA US climbed 13 percent. Volume rose 11 percent at Toyota Motor Corp. and 10 percent at Honda Motor Co. Ford Motor Co. volume increased 8.3 percent while General Motors deliveries rose 5.7 percent.

Heading into today, most analysts had forecast a seasonally adjusted annual sales rate above 18 million and a 12-month total of 17.5 million light vehicles. GM and FCA said today the SAAR would come in slightly below 18 million.

U.S. sales continue to be driven by low gasoline prices, pent-up demand, widespread credit availability, an increase in leasing and employment gains.

Trucks, SUVs and crossovers continued to set the pace, jumping 19 percent in December and 13 percent in 2015. Car demand remains weak, falling 3.8 percent last month and 2.3 percent for the year.

“2015 was a standout year for the auto industry,” Bill Fay, group vice president and general manager for the Toyota division, said in a statement. “Best-ever light truck sales helped the Toyota division earn the retail sales crown for the fourth consecutive year.”

Volume rose 12 percent at the Toyota brand, 3.8 percent at Lexus and 44 percent at Scion last month.

Even with steep discounts, U.S. car sales remained weak in 2015.

Photo credit: DAVID PHILLIPS

Lexus passed Mercedes-Benz, but BMW held on in December to top the luxury segment in 2015 for its fourth sales crown in five years. The race was tight until the end. BMW finished 2015 with luxury sales of 346,023, followed by Lexus with 344,601 and Mercedes with 343,088, which excludes Sprinter deliveries. All three luxury brands, along with Audi and Porsche, set annual U.S. sales records last year.

Deliveries at Honda Motor Co. rose 9.9 percent with the Honda brand up 12 percent and Acura off 5.5 percent. The Honda brand, riding a wave of new or redesigned crossovers, set an annual record with 2015 deliveries of 1,409,386, up 2.6 percent.

Subaru's U.S. sales advanced 13 percent last month, helping the brand to another annual milestone of 582,675 cars and light trucks sold, up 13 percent.

Among smaller automakers, December sales rose 18 percent at Mazda on strong truck volume, and 21 percent at Mitsubishi. Volvo saw volume surge 90 percent in December and 24 percent for the year.

Enhanced year-end discounts and five sales weekends in December put a solid cap on a sixth consecutive year of growth. There were also two extra selling days last month compared with December 2014.

Company results

Nissan’s December boosted the automaker’s gain for the year to 7.1 percent. The Nissan brand advanced 18 percent last month, helping set an annual sales record of 1,351,420. Infiniti volume rose 26 percent in December.

Fiat Chrysler, behind another stellar showing at the Jeep brand and more-generous holiday deals, extended its streak of gains to 69 consecutive months.

Deliveries increased 42 percent at Jeep, 4 percent at Ram, 6 percent at Dodge and 1 percent at Fiat, but volume slipped 21 percent at the Chrysler brand.

Overall, FCA's U.S. truck sales jumped 22 percent while car demand slid 19 percent.

Jeep set an annual U.S. sales record with 865,028 deliveries. The Ram brand also posted its best sales year since it was spun off from Dodge in 2009.

Fiat Chrysler’s U.S. incentives averaged $3,553 last month, or 12 percent higher than December 2014, TrueCar estimated.

Ford deliveries were aided by an 8.1 percent gain at the Ford division and a 12 percent increase at Lincoln.

GM’s 5.7 percent increase included an 8 percent rise in retail sales. Volume rose 1.7 percent at Buick, 2.1 percent at Chevrolet, 13 percent at GMC and 29 percent at Cadillac.

The Jeep Cherokee midsize SUV, Compass compact crossover and Renegade subcompact crossover recorded their best-ever monthly sales, while the Wrangler midsize SUV, pictured, and Patriot compact crossover set December volume records. Photo credit: DAVID PHILLIPS

Leasing surge

On Monday, Edmunds projected that leases will account for a record 29 percent of all new U.S. retail sales in 2015. That is up 2 percentage points from 27 percent in 2014 and compares with a leasing rate of 16.6 percent just 10 years ago.

The growth in leasing is being spurred by higher vehicle and transaction prices. The average new-vehicle transaction price in 2015 was $33,188, up 2.5 percent from $32,386 in 2014, Edmunds says.

Overall, average industry incentives per vehicle rose 3.9 percent from December 2014 to $3,063 last month, TrueCar estimates.

Year-end deals and red-tag sales were plentiful across the U.S. last month:

• Kia dangled offers of no payments for five months, with the first two monthly payments -- capped at $1,000 total -- paid for by the company. That’s on top of 0 percent financing for up to 66 months.

• Average savings of $3,014, or nearly 15 percent, on a 2016 Jeep Compass Sport with all-wheel drive, according to TrueCar.

• Zero percent financing on a 2015 GMC Sierra 1500 for up to 72 months.

• A 2015 Volkswagen Tiguan available with zero percent financing for up to 60 months.

• Hyundai’s 2015 Genesis, with awd, was available for lease for $370 a month for 36 months and no down payment.

Among major automakers, FCA, Nissan and Hyundai/Kia gained U.S. market share last year while GM, Ford, Toyota, Honda and the VW Group lost ground.

Brand records

Of the 14 auto brands that set U.S. sales records in 2014, four -- Jeep, Land Rover, Porsche and Subaru -- established new records in 2015 before December. Hyundai and Kia also set all-time highs for U.S. deliveries in 2015.

The final sales tally for 2015 marks the longest streak of annual gains since the 1920s and caps a spectacular comeback for the industry. The sharp downturn of 2008-09 -- sales slumped to a three-decade low of 10.4 million in 2009 -- roiled the industry and saw two U.S. automakers, General Motors and Chrysler Group, seek bankruptcy protection under government supervision.

“It’s truly remarkable that the auto industry is finishing off its best year ever just six years after the depths of the Great Recession,” analyst Jessica Caldwell of Edmunds.com said. “Low-APR offers and tumbling gas prices are making it easy for shoppers to buy or lease a new car, but don’t overlook the products themselves. If you’re buying a new car today, you’re getting a safer, more fuel- efficient and more technologically packed vehicle than ever before.”