Never Stop Driving #124: Auto Industry Turmoil
Welcome back from the Thanksgiving holiday! I hope you all got the chance to relax with family and friends. Before the weekend was over, I knew I’d be writing about the auto industry because last Sunday, Stellantis announced that its CEO, Carlos Tavares, suddenly resigned.
I was not surprised because back in September, I chronicled Tavares’s struggles that included declining sales, angry dealers, and a disengaged and sometimes hostile workforce. Since then, things have gone, umm, crazy.
For starters, we now have a car company CEO, Elon Musk, with a major role in the federal government. Historically, private-company executives who joined the government typically resigned their positions to avoid potential conflicts of interest. Those were quaint days. The Wall Street Journal reported that some of Musk’s rivals, like ChatGPT founder Sam Altman, fear retribution. I asked ChatGPT what to make of the situation and it safely replied, “The intertwining of business interests and government roles can raise concerns about transparency, ethics, and fair decision-making.”
I’m veering into politics here, only to point out the uncertainty that faces the auto industry. Musk says he’ll roll back needless regulations, a reform few would argue against, but does that include the ones that encouraged the adoption of EVs such as those made by his company, Tesla? (Haha.) And what does that mean for the traditional car companies that invested in EVs based on those regulations?
We’ve seen plenty of retreats and more are coming. General Motors this week sold its stake in a battery plant. Meanwhile, The Financial Times reported that Nissan might collapse in the next year, VW workers are striking in Germany, and EV maker Rivian, which hemorrhages money, just got a $6.6 billion loan to build a factory in Georgia.
There are so many cross currents, I sometimes have sympathy for the CEOs who have to navigate them. When discussing this, my colleague Joe DeMatio reminded me that Tavares was paid $39.5 million in 2023. I’ll hold my tears.
Coincidentally, DeMatio and I had a scheduled lunch this week with Bob Lutz. I’m an unabashed Lutz worshipper for a myriad of reasons including his poignant and insightful comments about his favorite topic: cars. “Bob,” I asked, “help us make sense of what’s going on.” Here are excerpts from our chat:
On deposed Stellantis CEO Carlos Tavares:
“He looks like a bean counter, but I gather he’s quite a car enthusiast and a good racer. He didn’t seem to recognize the reality of the cooling [American] market. The buying public is not stupid and when they see that a Ram pickup is three to four grand more than a Chevy Silverado, Ram sales will decline. He might have suffered from what I call ‘CEO disease,’ which is when they get carried away with their own importance. You know, ‘I hereby ordain that such and such a thing shall happen.’ These guys think that if they issue an order it’s gonna happen, and of course their intimate circle never gives them the bad news, never contradicts them.
“At some point, the board of directors starts talking among themselves. I’m a board member of several companies and I’ve been part of the process of replacing CEOs. It can happen relatively quickly when the noise from the shareholders and big institutional investors like pension funds becomes big enough. There’s a curious phenomenon and I’ve never been able to explain it, but sometimes just changing the top guy, or woman, even if the new person is no better, improves the situation. It’s like your luck changes with the change of leader, or maybe the dissatisfied [employees] come out of the woodwork and say, thank God. you finally got rid of that a—hole.”
On the global car industry:
“The time it takes a car company to take a new car from concept to production is about three and a half years and that hasn’t changed for decades, except in China. There they work the white-collar engineers, designers, and product planners like factory workers, three shifts a day, seven days a week, pumping out new products in half the time.”
On European car companies:
“They’re in terminal trouble: The Chinese-market profits are imploding, and they can’t make money selling EVs, which they’re mandated to build.” (Larry here: new or changing tariffs could further impact the European Union, which presently imposes a 10% tariff on U.S. cars. A good read here.)
“The European governments are gonna have to figure out that their fuel economy regulations are killing their own industry.”
On Jaguar, which is in the middle of relaunching and showed a new concept car this week:
“The idea was good, to break out of the run-of-the-mill, dog-eat-dog, Mercedes-BMW-Audi-Cadillac-Infiniti-Lexus [segment]. Breaking out of that and going up into the stratosphere like Cadillac is doing with the Celestiq. But the Jag [Type 00] concept has nothing. It’s just boring. It could have been done in five minutes by any gifted 16-year-old who knows how to sketch cars. The ad campaign did them no favors, either.”
Thank you, Bob!
For the rest of your weekend, don’t miss the latest from Hagerty Media:
- Football player Jason Kelce enlists students to modify his pickup.
- A British couple drove across the U.S. in a 1937 Lagonda… and remained married.
- Speaking of V-12s, check out this Ferrari on sale on Hagerty Marketplace.
- It’s like unearthing King Tut’s tomb: The latest Barn Find Hunter uncovers a Porsche Turbo
Have a great weekend!
Larry
P.S.: Your feedback and comments are welcome.
Please share this newsletter with your car-obsessed friends and encourage them to sign up for the free weekly email. The easy-to-complete form is here. And if you’d like to support the efforts of Hagerty Media and receive the award-winning Hagerty Drivers Club magazine, please consider joining the Hagerty Drivers Club.
I think it’s hard to feel sorry for the CEOs of the car companies when they make 10s of million dollars every year but yes you’re right it’s hard to plan for future products when the regulations keep changing. Thanks have a great weekend
Those millions are pocket change compared to billions in development programs, labor costs and even retirement programs.
Most CEO were just regular people that give their lives to a company. The move around the world often. Hated by most and end up divorced 3 times and miss their kids growing up.
Then we see sports figures making 5 times more and few complain there.
Anyone can be a CEO if you get the education and put in the time but few are willing to give up their lives for a company 24/7. True the poor ones are over paid but that is what the job pays to get the good ones snd the bad are generslly bounced.
What most face Today is an impossible task.
GM is doing ok with the EV line and duel ICE like the EV Blazer and ICE Blazer. They can move where the market is forced. Most don’t have the capital to do this.
The auto industry has been getting greedy since the COVID thing changed the world…First, they convince us that $40k for a truck is a bargain…Then they raise the bar to $60k…There are a few people that can afford this, but, for the rest of us, we are buying used, which are still overpriced..Do you want to help save the automakers? Build vehicles we can afford..
The dealers got greedy and automakers could not touch them.
Auto makers have been faced with increased regulations, increase labor costs and increased material cost while losing the easy Chinese sales.
In the mean time everyone’s wages have slowed due to Covid and fell behind in many places.
Carlos comes off as another pompous European telling North Americans what they are doing wrong and pusning euro-ideals.
The Stellantis board of directors allowing this to happen puts them all in the same category.
As a life long Mopar owner, I am not looking forward to Chrysler’s impending doom and likely sale to a Chinese or Indian investment firm.
But then again, I owe them nothing and they owe me the same. Nothing lasts forever. Sometimes you have to let things go.
Bingo. Out of touch was CT’s problem. Sergio had Alfa on a roll with the best chassis in the business. a 2nd gen 4C would have been a no brainer for the true Alfisti. Anyone with a clue knows all Maserati products, no matter how good they have become, have to overcome their depreciation history. Keep the prices competitive and low so they don’t drop like stones as they drive out the door. I can give examples with depreciation hits in the 40++% zone within a model year!!! That means you were 20-25% overpriced from day 1. basic math.
Daimler ransacked Chrysler and Sergio finished them off. Sweater boy pumped money into Alfa and Maserati. Both of them can’t even support Fiat.
The money should have gone back too Chrysler to provide the needed volume and cash to support FCA. Had that happened they may have not sold out.
New better Chrysler based CSV models would have been much better than Fiat based.
I’m not a Carlos fan but he was left with a bag of nothing to work with. The high powered cars were cool but were never going to save the company.
It will be interesting to see how Musk navigates his DOGE role while looking out for his own companies’ interests. I can see a situation where he may recommend that EV mandates and subsidies are a waste of tax payer dollars but Tesla actually benefits from it. Tesla is the established leader in the EV marketplace and should be able to sell their vehicles with or without government subsidies. Their competition may not fare so well but that’s how a free marketplace works. The consumer dictates what sells, not the government.
I expect he knows the EV thing is off the table for him. Trump was elected to not force EV products and that is what he will try to do.
Much like Bobby Kennedy. He will be kept off the oil and pipelines.
EV is not going away but the present admin will slow it down yo help spread costs and give more development time so people will want to buy them not be forced into a poorer more expensive car.
The environment has much more worse things vs cars right now as ICE is pretty clean now.
Greed after COVID is simply trying to rebalance the books afterward. Businesses can’t just close down operations for two plus years without any ramifications. Do I, or anyone else like the price increases…no, but I do understand why they are happening. I also believe that the high end market products will suffer first as even the wealthy will at least for a few seconds question why they should spend X number of dollars on something. We will sometimes rationalize away things, then make that purchase anyway, but as one moves down the income scale, it becomes more of a challenge. Hence the slow sales and increasing inventories.
In the past, when this has occurred, prices are cut to move inventory, but lately, margins have been tight even with the price increases, so price cutting is under much more scrutiny than it’s ever been. I think it will be an inevitability regardless, but this has become the conundrum.
The other issue with the world market is that old perceptions that separated US and European market products is continuing to narrow. It’s to the point now where luxury, quality, reliability etc., have become such a fine line, that the old “slam dunk” just isn’t the case in most categories anymore. Educated consumers are discovering this and their flexing their dollar muscles. It has truly become a world market, and one every manufacturer has to cope. If they don’t, their survival will be greatly in question.
For nearly $40M/year, bluntly put, I could get some serious shit accomplished. Unimpressed would be an understatement when people fail at this level of remuneration.
What is stopping you?
Some CEO folks started on the assembly line.
Larry, thanks for an insightful column. I’ve been watching Stellantis. Up here in New England, I see more rusted RAM trucks than other brands, so I’m not surprised at any sales drop. And I agree about the Jaguar: it’s sort of like the Tesla truck, in that any 16-yr old could have drawn it. Not as ugly as the Cybertruck, but not attractive, either.
How is it that Akio Toyoda was the only CEO brave enough to publicly counter the “prevailing wisdom” that a rapid switch to EVs was desirable and inevitable. It seems we have a number of high salaried executives with low level intelligence and/or common sense.
Let’s remember that I’m no business expert when I say this: Toyota is strong financial health, which gives it more opportunities hedge bets, rather than having to choose one path.
Well Toyota has the Capital and they have the tech so they can push back.
It is not smarts but who can afford what and most can’t afford to Resist.
It’s a chicken and an egg question. Is Toyota able to hedge their bets because they have lots of cash or do they have lots of cash because they hedge their bets. Toyota has a vehicle in every single category from sports cars (3) to body on frame trucks and SUVs to sedans to the currently popular crossovers. They even have fuel cell vehicles. The big 3 abandoned most of those segments. The big 3 guessed and got lucky on trucks, but guessed wrong and got left behind on hybrids.
If you have some humility and accept that you can’t predict the future, then you need to be prepared when consumer tastes change (could be due to an Arab oil embargo, a presidential election changing tax policy, or who knows what news story). Combine incremental rather than revolutionary design changes, continuous incremental improvement for decades, the best build quality in the world and an offering in every segment imaginable and you have a winning strategy.
It’s expensive to be in every segment – some products will loose money (fuel cells and probably sports cars), but you’re buying insurance since you can’t predict the future. This is likely the difference between a US listed public company and a Japanese one. In the US the market demands the highest returns possible and every quarter must be better than the last. Any poor performing segment gets the axe and all your proverbial eggs are in the truck and EV baskets (if you’re GM for sure – Mary Barra’s crystal ball is broken and it’s a roll of the dice if her bets will pay off. Currently it appears they were wrong to bet everything on EVs while flushing their lead in plug in hybrids down the toilet)
I appreciate the bit of politics here. Many of us are conflicted by our passion for driving and the toll it takes on the environment. And regardless of what side of the isle one is on, a piece like this gets us thinking about the interplay between politics and economic power. I hope the European makers do hold on…maybe some of those high MPG European wagons could find there way here, preferably with a stick! And for day to day use, my plug-in hybrid minivan rocks!
Larry, any updates you can share with us regarding the Dino final stages i.e. interior completion?
Thanks James. I think I’m picking it up next week. Fingers crossed!
The Jag? I’ve drawn that 1,000 times since I was 13 (I’m now 65)… Tavares? I’d do the job (better) for $500k a year (saving $39m) and I’d guarantee not to close Alfa (and not make it an EV-only white elephant)…
Perhaps we have just had too many companies serving the North American market for the last 30 years? The 1950s reduced us to the big 3 with most of the market (hence the nickname) the independents that made an effort at national sales and everything else was niche/boutique. Mercedes were imported by Studebaker dealers…
1960s we lose Studebaker, AMC consolidates the rest but it isn’t the soundest corporate bet. VW sales and other non-USA brands get a beach-head but aren’t taken that seriously (an advantage the Japanese companies leveraged in the 70s).
The point being, of course GM, Ford and Chrysler were in a good place when they had 85-90% of the market. AMC having part of the other 15% wasn’t enough.
Being simplistic… maybe this all works out better if 4 companies with about 25% share were serving the NA market?
That is sort of on point.
We don’t have too many companies but we have a very competitive market that is shrinking in size.
Case in point with GM and Chrysler There was too many models and brands.
To continue to grow mfgs went to China but now lost those sales. Then they were forced into EV development at a speeded up rate. Then Covid hit.
Today the mfgs need generally one or two divisions no more. On volume one upscale lower volume.
Next companies will get back to reskinning cars to stretch out platform live and save money. Mix metals process is being used more as the high cost ofAluminum kills profits like in the Ford trucks.
Chrysler has not been secure for a long time. Since they were run by the Germans. Ford has had leadership troubles and is in debt yet and it hurts their development and quality. Profits are down.
Even the global companies are in very bad shape. Toyota has always sat on a lot of money but they have had cuts hurting quslity.
VW going the more division route is now in trouble after Diesel gate and labor issues.
Hyundai is surviving as they sell appealing cars cheaper. But try to get one of their bad engines replaced. Even last night the showed a police chase and the Hyundai blew up.
Parts in general are an issue. Bumpers for new models taking 3 months to get or longer? I needed a quarter glass for a Acadia and they are on back order with no arrival date and have been for a while. Junk yards are raising parts prices as they own the market. Note I did get a glass and they are on glass shop guy was shocked. He said the Chinese panels are do hit miss he was afraid of the job till he saw it was factory.
So in a way you sre right too many for the market but economics are playing a major role.
We must block Chinese cars or all will be lost. They will subsidize prices to under cut or prices and take out out industry and the other automakers. People may be pro American but they will buy what they can afford.
Everyone hates Walmart but everyone shops there.
There are some serious red flags for the industry here. It seems regulators continue to be out of touch with their demands on the commercial sector. Much like your comment about CEOs not having good critical feedback countries and regulators are making the same arrogant mistakes. Making policy and EV/emissions targets that are making car prices unaffordable for the everyday person. When is someone going to put up a fight for the little guy or the every day person. Some of these global targets are completely misaligned with keeping Europe and North America relevant in the global markets. If we don’t realign and balance emissions targets with global economic relevance we are in serious trouble.