LIVING ON A THIN LINE.
Sunday, September 8, 2024 at 08:58AM Editor's Note: This week, as we mark another somber anniversary of September 11, Peter discusses the perilous position that the auto industry finds itself in once again, this time brought about by the severe miscalculation and headlong rush to all EVs, all the time. In "On The Table," we take a look at the new 2025 Dodge Durango SRT Hellcat Hammerhead special-edition. And we preview Audi's extensive freshening of the 2025 Audi A3 and S3, along with the return of one of Aston Martin's most legendary names, Vanquish. We also have a special treatise from our Economics Correspondent, Tom Bartkiewicz. And our AE Song of the Week is "Living On A Thin Line" by The Kinks. In "Fumes," we have the third installment of Peter's new series, "The Racing Machines." And in "The Line," we'll have results for MotoGP from San Marino and whatever else interests us. Onward. -WG
By Peter M. DeLorenzo
Detroit. On the anniversary of one of this country’s darkest hours, and amid the somber – and profoundly sad – realization that too many people have forgotten about the events of that horrible day, the auto industry finds itself at a crossroads yet again. For some who are new to this business, this situation is hard to comprehend, as in, “How can this be? Weren’t we just reveling in the immense profits like, five minutes ago?” Why yes, but there is nothing more “yesterday’s news” than what happened in this business last quarter, last week or even five minutes ago.
The reason the auto industry once again finds itself on the proverbial edge is that the premature, “all-in,” en masse move to EVs has proven to be a monumental miscalculation. The result? Crushing hits to these companies’ bottom lines. We already know about the massive, multi-billion-dollar charges piling up at Ford, and to a lesser extent at GM, but this week the news that Volkswagen is teetering on the brink was a wake-up call for the entire industry.
Last week was pivotal for the German automaker. According to a report form CNBC: “Volkswagen’s management went toe-to-toe with workers on Wednesday, outlining the need to take ‘joint responsibility’ in a bid to turn things around at the crisis-stricken German automotive giant. The showdown came shortly after the carmaker signaled that it was no longer able to rule out closing plants in its home country of Germany — a measure that was previously considered to be off the table.”
The CNBC report continued: “Oliver Blume, CEO of Volkswagen Group, said on Wednesday that the current situation at the company ‘affects us all emotionally, including me personally.’ Blume said the automotive industry had ‘changed massively’ in recent years. ‘Together, we will implement appropriate measures to become more profitable. We are leading VW back to where the brand belongs — that is the responsibility of all of us,’ he added.”
But VW’s CFO and COO of the Volkswagen Group, Arno Antlitz, was even more blunt when speaking to employees: “We have been spending more money at the brand than we earn for some time now. That doesn’t go well in the long term.” (Cue Johnny Carson: “I did not know that.” -WG.) Annual vehicle sales in Europe have gone down compared to the period before the Covid-19 pandemic and are set to stay lower against that baseline, Antlitz explained. He said he expects around 2 million fewer cars to be sold every year in the future in the European market, compared to the pre-pandemic period. What does this mean? Antlitz estimates that Volkswagen holds around a quarter of the European market share, meaning that the decline translates into a 500,000-yearly shortfall in the company’s vehicle sales, equivalent to the combined sales typically achieved by two of its plants. Which is why VW management is about to go to battle against the most powerful auto union in the world – IG Metall – to close two plants: Osnabrueck in Lower Saxony and Dresden in Saxony, according to CNBC, a move that was unthinkable in the past.
As AE’s financial guru, Tom Bartkiewicz, explained to me last week: “I can’t begin to describe how serious the economic situation is in Germany. The German economy is collapsing.” And this coming from someone not prone to hyperbole.
It is important to point out that politicians – especially in Europe – were directly responsible for accelerating auto companies’ plans for the “Grand Transition” to EVs, not unlike certain politicians in this country who think that the transition to EVs would be like “flipping a switch.” That these politicians both here and abroad are guilty of knee-jerk reactions is stating the obvious, and the fact that they shirk responsibility and accountability for their actions now is borderline criminal.
But that’s neither here or there at this point. Needless to say, the time for questioning the whys and wherefores of this wildly premature industry move to EVs has long since passed. Now, it’s up to auto company operatives to bob and weave financially and deal with the chaos that politicians have left in their wake.
Not that auto industry honchos are blameless in all of this. After all, Ford’s Farley and GM’s Barra left their companies exposed to the vagaries and predictable missteps that were part and parcel of the “Grand Transition.” And it cost both of their companies dearly. As in billions of dollars dearly. Meanwhile, Honda and Toyota, two companies that never abandoned their hybrid strategies, are sitting in the catbird’s seat at this juncture.
It’s no secret that that the auto industry is a relentless high-wire act, with companies teetering between chaos and prosperity every single day. The “Grand Transition” to EVs has exposed just how much of a ragged edge these companies have to operate on.
As Ray Davies so eloquently put it (See our AE Song of the Week – WG): It’s living on a thin line.
Now another century nearly gone (no, no)
What are we gonna leave for the young?
What we couldn't do, what we wouldn't do
It's a crime, but does it matter?
Does it matter much? does it matter much to you?
Does it ever really matter? Yes, it really, really matters
Living on a thin line (living on a thin line), ooh
Tell me now, what are we supposed to do?
Living on a thin line (living on a thin line), ooh
Tell me now, what are we supposed to do?
And that’s the High-Octane Truth for this week.