AAH #642 - IRA Snafu: The U.S. is Losing Its Tool and Die Industry

I'll online after hours. It brought to you by Bridgedone Tires Solutions for your

Journey. Hello Gary, John, how are you. I'm doing good?

And boy, we got a lot to talk about on today's show. We

do. First we should point out that today is Opening Day in Detroit,

Opening day baseball in Detroit, which is almost a holiday and almost a holy day. Well that too, and and and I just wanted to here's a

point that goes to the resilience of Detroit. Okay, so this this,

this applies to everybody, including the automakers that So I was looking to I'm not a big baseball guy, but I was looking at some stats. And

in twenty nineteen, the Detroit Tigers set a record. Now what this what

might this record be? John? In twenty nine teen, they set a

record, Boy, I'm gonna say for the longest game played. No,

maybe that's in there somewhere, but they came in dead last of all the teams in Major League Baseball. The Detroit Tigers came in fifty three point five

games behind. Yeah. Out the closest one was Baltimore at forty nine,

and in the National League it was Miami at forty. But see despite the

fact that the Detroit Tigers finished so far behind. Even today in twenty twenty

three, people are there cheering them on. Yeah they are, and the

good news for them is that the snow is not blowing sideways. It's actually

not a half bad spring day. It's a decent day. So all right,

I'll with the show. Let's bring in our guest today. We've got

Lorie Harbor from Harbor Results and Dan Karney from Design News. Good to have

you guys on the show. Glad to be here. Yeah, thanks for

having us. Look, as I said, there's there's lots to talk about

in the show. You know, Toyota making a major pivot, reports coming

out of Japan of how it's going to now get more into evs. There

was some interesting stuff that came out of the New York show. You know,

there's great to probably be a labor war in Detroit this fall with the UAW going where things are going like they are. But Laurie, we got

you right now. We ought to get into some of the things that you'd

like to talk about because you're really documenting big problems in the tool and die industry in the US, And I know Gary wanted to set things up before that too well. So, so basically, Laurie, um so to provide

the audience with a sense of where you're coming from, UM tell us about what Harbor Results does and who you work with. And I think that that

will, you know, provide some color to you know, the conversation as we're looking at the struggles of the auto industry is going through. I mean,

as last week's guests kept saying, over and over again, it's not normal, it's not normal. And I think that you have an excellent point

of view on that. Yeah, definitely not a normal scenario these days.

You know. After years of studying OEM efficiency with my father Jim Herber,

I started my own business focus on the supply base, so not just tier ones, but the tier twos and the people who support it. So we

did do a lot in the tool and dye industry over the last ten to twelve years. And tool and die being those people who are making stamping dyes

that stamp out all the class A surface and underbodied parts of the vehicle and then molds people who are making you know, instrument panels and facias, grills, headlamps, things of that nature, along with dyes that make die casting tools, right, so the powertrain, the blocks that, it's that type of thing. So a lot of these are small and mid sized companies,

so under fifty million in revenue, I guess you'd probably call that more small than midsize. A lot of family owned, third and fourth generation companies that

have been started and have grown through the years. And these used to be

some of the best jobs in the world, right, very very good paying jobs, very good skill and frankly, you can't make a car without a toolmaker, can't make a stamp part, you can't make a die cash, you can't make a mold right, or a plastic part. So it's very

critical to the industry and we've been studying it and benchmarking it. We've seen

some great improvement over the years. But it's a tough space because you don't

sell pieces and parts. You sell a one off. You know, they

would call it a snowflake, right, every no tools the same, So you make one and you ship it somewhere and then we make lots and lots of parts off of it. So it tends to ebb and flow with product

development, and product development has been very interesting in the last call it ten to fifteen years, you know, coming out of Great Recession. We launched

a ton of new products up to twenty twenty, and then we kind of said let's go after this beeB market. So we had a little bit of

a dip and the industry was slow in twenty and twenty one, not because of COVID, but because there just wasn't a lot of product launch. Now

you've got this onslaught of new products coming in twenty you know, and they're coming in more of twenty five, twenty six, twenty seven. But a

toolmaker sees that eighteen to twenty four months before they actually go to start a production, So next year and in twenty five and in twenty six, lots of new tool volume. That said, we've lost about ten good tool suppliers

over the last six months, and not little shops, but fifty million plus moldmakers and die makers that have just said I don't want to do it anymore.

Too much pressure from China, too much pressure on cost. That's been

the issue that we're seeing. So we're in a lot of restructurings right now.

Not to mention production suppliers, tier ones, stampers, molders, people are strained right now. It's you know, PPP, and federal funding is

gone. And now banks are saying we have a banking crisis too, right

So so banks are saying, I need to I need to get my I need to get hole on my loans. So it's a tough market right now.

And and yet it's got a great future for the balance of the decade.

Well, you say it's got a great balance, but because of all these EV product launches that are coming like a tidal wave. But as you

know, you need a whole lot less tooling than these evs than you do an ice vehicle. So what are your tooling people telling you about that?

I mean, does does the tidal wave of launches offset that? Or are

they worried about after the tidal wave what happens? What are they telling you?

It's a mix right now because you're at it, you're at a tipping point. Although I have a lot of new battery electric product coming that has

probably forty percent less tooling is basically the math that we've looked at um.

I also have a ton of new ice product coming, all new T two xx, all new F series pickup truck, all new RAM, all new jeep wrangler or you know, wagoneer. So they're all turning over for what

might be the last full all new ice product on some of those vehicles.

But when those trucks come into the market, they were launched in tooling in twenty seventeen. So now twenty four to twenty five is that eight year redo.

It's it's hundreds of thousands of tools. So the demand in the next

three years is a lot of ice product in addition to it, So you almost have more tooling than you might have ten years from now when we're just turning over battery electric product. Then why are we losing tooling companies? Tremendous

strain on price? Right, So when we look at China, they are

they are outbidding our North American toolmakers thirty to forty percent lower, so they're making they're pricing them out of the marketplace. And if you're an OEM who

has to launch BEV and ICE product, lots of new models, lots of new tooling, that makes my budget more constrained, right, my capital budget more constrained. So there now, they went to China years ago. You

remember, John, we talked about this years ago when we did work with Jim Harbor. Right, we'd sent dyes to China and we started making body

sides and door panels, shipping them over here and running in gm Ford and Chrysler plants. And now you know, we had COVID hit where we couldn't

get tools out of China for a while. But that move twenty years ago

sort of decimated our industry. It reduced the number of tools suppliers dramatically.

COVID comes. Now they all want to move those tools back. Well,

we don't have people, we don't have skilled trades. Nobody wanted to go

into that tooling market. We had about a fifteen year gap of young people

not wanting to go into tooling, so our capacities dropped tremendously. So now

they want they want to reshore it, but they wanted to target pricing of China, and that's just not doable. You know, material cost alan is

more than what these these Chinese are discounting tools add so hey, look it's this has got national security implications. What you're saying, absolutely, absolutely,

it's one of the reasons that Trump put the tools with the three oh one tariffs. Every die in every mold that comes out of China today has a

twenty five percent teriff on it. But if the China toolmaker drops the price

for on a set of line dies that cost you a million bucks, that's a substantial amount of money, especially when you add it up over thousands of tools. Right. But the national security risk is designs that have been replicated

in China that have been sent over from suppliers here. It's a massive issue

and we've been doing a lot of lobbying to try to maintain this this tool industry. My concern is fast forward five to ten years. I bought a

set of dies out of China. Who's going to fix them a break?

If I don't know how many tools suppliers left, I can't stand them back to China for repair. So, Laurie, what is the extent to which

OEMs are at all involved in making their own tooling or is it all done by suppliers. It's changed quite a bit. Back in the eighties when we

were looking at the stamping press rooms at OEMs they were making, GM and Ford were making a lot of their tools in Deerborn and Flint and in other places that they have stamping facilities. GM now has a tool shop and Flint

still, but they have their main facilities in Brazil and Korea for dyes only, so they'll they'll make tools in Korea, ship them over here and productionize them in their stamping plants. But any but it's primarily that what I'm going

to call the top thirty parts right exterior surface class A underbody critical dimensional integrity.

All the other stuff is coming from vendors, So they would General Motors would source a tier one who would then be responsible to source, you know, a set of dyes or a set of molds for a facial or something from those suppliers anywhere around the world. So it's a much smaller percentage that's

made by the OM specifically, and in fact, General Motors I'm sorry, Ford does very few in Dearborn anymore, and Chrysler Stilantis close their Mount Eliot facility in Detroit and only has autode out in Grand Rapids. How does that

compare to say, like the Japanese European Korean companies Honda, Nissan and Toyota all have their own die shops here in America and also in Japan, and again focus primarily on those critical body integrity pieces, the things that Honda and Toyota have always preached to us about the integrity and standardization of their platforms, so they'll make those, but they're leveraging China just like all the other OEMs for the other parts that run at their kuritz Wu suppliers. Hondai does,

Akia does a lot in Korea in their own facilities, and then you know, facilities they've purchased that they own, is what they would you call their privately owned suppliers, but also leveraging their Korean base and China base. So

and the Germans do a lot in Germany as well. Right they still have

built big tool shops in Stuttgart and others for BMW for those primary Class A surface and then outsource the other stuff. You know. What you're talking about

there reminds me of how the automakers got caught in the chip shortage. You

know, they didn't buy chips. It was their tier ones that bought chips,

and so they didn't have good visibility into their chip supply chain. Today

they do because they got decimated when the chip shortage hurt hit. Sounds like

they are exposing themselves to the same vulnerability with tools. At least the domestics

absolutely, and when you think about the material cost of a car being sixty seventy percent of the vehicle, that's a lot of stuff they're buying from vendors that those vendors then source tools. Now many of them that have created tool

groups that are for vendors within their purchasing departments, so they are trying to get more visibility. That's actually how we got into tooling. We worked for

one of the major OEM's assessing their vendor tool suppliers, and then they're telling their vendors, here's five guys you can pick from. And the tier ones

don't always love that, right because they like to have some control over their tooling. But it's definitely a vulnerable position, and particularly as I said before,

what happens when we don't have anybody who wants to fix them and a lot of people don't want to fix them when they get them built in China today anyways, they they don't want to touch them. Too much risk and

what regard well, they didn't design the tool, they didn't build the tool.

A lot of tools that are coming over from China are used with different steel specs than what we would typically use in the US or Canada, and so they get them here and they're not up to standards and they can't get them productionized. So then finger pointing about whose fault or whose responsibility it is,

and frankly, it hurts the OEMs more because the shops over here are getting a premium for fix and China tools. You know, So you ask

a company like Rivan, for example, they sent a bunch of tools over to China for their first build or their first vehicle. They brought them back

here and most of them had to be completely redone because they didn't end up to the spec and they didn't have the experience in Rivan to be able to manage and follow those tools. So how much did I really pay for those

tools if I had to redo a lot of them? You know, we

often talk about total life cycle of the program. If I bought a set

of cheap tools but I ran higher scrap and didn't get the right cycle time and had allowed a lot of downtime on my press, did I really save or did or did the total life cycle cost me more? It doesn't matter

because the purchasing buyer who made that decision is now onto a new job, and I mean, that's how it works. You know, they go for

the cheapest stuff. And you know we had say and even Row on this,

as you know, a few weeks ago, and that's one of his famous sayings is just because you have the cheapest parts doesn't mean you have the cheapest overall design. Or just because you have the cheapest parts doesn't mean you

have the lowest cost. Right. I completely agree. It's it's that constant

battle between purchasing and engineering and being able to manage the material cost will not necessarily look a buyer doesn't care what happens in the plant in terms of throughput in efficiency, and that's the challenge. Yeah, jeez, Dan, does

it surprise you what Laurie's saying about the diminishing number of people that are capable of contributing materially to the build of vehicles. It doesn't It unfortunately, I

think is in keeping with a lot of large scale trends across industries between the United States and China. And a thing that I'm curious about, a trend

that will affect this, and maybe Laurie has some things that she can say about it is the move toward megacastings or giggacast things where there's going to be the need for this new capability to create these large scale castings, and there'll be fewer of them per vehicle, but there should be a pretty substantial investment in the creation of those. I would think absolutely true that that's part of

the biggest concern for the dock industry. Right when you take something like a

thousand plus stamped parts out of a vehicle by replacing it with three giga castings, that not only eliminates my need to buy multiple dyes, but all my automation suppliers to create wealth cells to put these things together. Now, don't

get me wrong, test is brilliant and the capital savings that that does.

Just imagining the body shop, I haven't had the fortune of being able to see it, so I wish I could, But the savings from a capital perspective are dramatic. But that will definitely hurt our dye industry. Now on

the flip side, who's going to make all these tools for these giga castings.

The one of three very critical troubled industries today is die cast If you ask any Tier one, any OEM where their biggest pain point is right now, it's tier one die casters and tier two die casters, so financial trouble.

There's not a lot of them. You know, there's a couple hundred

of them, and there's probably thirty year or so that are what i'd call a tier one. You're like a Kneemac or someone like that. So when

you start to think of the giga casting, you have to ask yourself, what do companies do with their own current transmission and engine plants? Do we

convert them into those kind of giga casting plants like a you know, a GM Toledo, Right do I get rid of you know when you talk about union negotiations, which you're right, is going to be very heated. But

if I start to go to giga casting, what do I do with Toledo if I don't need transmissions? So I think some of this, like Tessa,

will start to become more vertically integrated. I think the OEMs will repurpose

some of these facilities. But we don't have a lot of toolmakers who can

make tools of that size of those giga castings. I've seen those in person

and they're pretty big tools. And you know, a die cast tool has

to be rebuilt every hundred shots because it's you know, you're pouring course metal through it, aluminum through it. You have to remanufacture those things, and

on those giga castings it might be more than one hundred thousand shots. Now

that's the cheaper portion of the tool, but it still has some more costs associated with it. You looked into this Cadillac Celestic, you know, the

hand built three hundred thousand dollars plus car that they're coming out with on they're using giga castings made in Lavonia, Michigan of all places too. But what

really caught my attention, and this is what I wanted to ask you about, is there three D printing the sand course. And I thought that was

brilliant, And I just wonder if this is going to help for the shortage of tool and dye makers that we have, at least when it comes to giga castings. If you can start three D printing this stuff. Absolutely,

it's a great technology to start with. As they you know, again three

D printing is low volume anyways, right, So we're starting to see the real application of that as we go into this high mixed, low volume world.

And actually I have a couple of toolmakers who are doing some of the machining on some of those castings for low volume. One of my clients in

Canada gets a carbon fiber for the Alpha Romeo and he's machining that and it's their whole front end, right. So there's definitely opportunities in that space to

take on more of the R and D and the three D printing of those things. There's some new companies that are starting up to look at three D

printing of molds and castings in a way that provides more for this low volume market. So there's there's huge opportunities within that. So it explains something here.

So Okay, you said earlier that die casting is sort of not as solid as the industry might like it to be. So Elon comes in and

says, okay, we're gonna have giga castings, and you know, he goes to Europe and he gets the technology and he begins to do that.

Okay, so now we're going to have this coming back here and more companies are going to be wanting to do it. Does the skill set reside here

to do that and our companies in the US sufficiently familiar with what the requirements are to make these giant tools to deal with the giga castings versus you know, smaller things, you know, breadbox sized things that they've been used to making over the years. I would argue that we're losing the skill the die

casting industry. If I walked around any of the plants we do a lot

of work for the North American Diecasting Association. You walk around those plants,

and the skill is aging. If you, I mean, think about the

new generation of worker. If you've been in the diecast plant, there couldn't

be a worse environment. It's hot as hell, it's dirty, it's smoggy.

You just can't eliminate some of the smog associated with melting the aluminum and then heating this core and cavity together. So, you know, plastics processing,

diecasting, and I'm pretty sure where my kid would choose, right, So you have this aging population of people that want to even work in a diecasting facility. Now, the new technology that interest put into that machine makes

it, you know, a cleaner process. It's you know, the tools,

the tools are massive. You've seen the pictures at Tesla, So skill

wise to build those tools we don't have. We don't have. I can't

think of a die cast toolmaker in the US that has the tonnage capability to lift the tool after they machine it on the block, right, So there's they have that in Europe and a little bit more of that skill in Europe, but we would absolutely have to develop that here and right now most of those tools are coming from from Asia, and now there are some There are definitely some diecast tool builders that make tools for Tesla right now, not quite of that size, but we need to grow more of that skill. And

it's been a troubled space. There's been a lot of private equity in and

out of it and consolidation of companies over time, and right now they're feeling the pain the turnaround. Folks are doing a lot of work in diecasting right

now. Is interest position do you think to dominate these megacastings? Well,

I think they do right now, but there's definitely two or three companies that are now starting to look at their own version of the nine thousand plus ton die cast machine. But right now, to the best of my knowledge,

they're pretty much owning that market space because they really invented that machine and did it with the design assistance of Tesla. So are you saying that shops in

the United States may not even have the machine tools, the boring mills and what have you in order to make these massive tools that will be required by Cadillac and whomever else going forward. Absolutely, I mean a nine thousand ton

tool requires an incredibly large bed of a of a gunment, a gun drill, or a boring mill. Right, So there's definitely some very large access

machinery. You know that DMG and Makino have produced with very large surfaces,

or if you go into the aerospace world, right, if you go to aerospace, you see some of these very large bridge mills that can do this type of work. But it's not it's not the common, right, it's

not the norm. Most of our toolmakers have a traditional size of a gantry

mill that would do a facial tool, which are large today too, But those die cast tools are very different in terms of the actual core and cavity and the frame in which they sit in. So there's been some investment in

some machine but it's not thousands of machines. The capacity is going to be

limited. Speaking of the size of those machines, we're talking about repurposing some

existing facilities, how many of those are even going to be able to handle machines of this size without having a giant excavation to pour a new foundation that's deeper and heavier. Well, that's exactly it. And if you're a toolmaker

with the strain I'm talking about, I got to have some guarantee to even walk into this business if I'm going to buy a machine like that, right because the difficulty right now is that there's very little extra cash flow. Remember

we've talked in the past that payment terms and tooling are horrible. You sign

up for a deal today on p PAP terms and I'm that product's not launching until you know twenty twenty six. I could go twenty four to thirty six

month was out before I see any payment. So I'm investing in the casting

or the you know, the steel, the P twenty steel to make that tool, and I'm investing in all the labor and everything that goes into that design engineering. So I'm if I'm buying a press or a gantry mill that

costs me seven or eight million dollars that I've got to capitalize over time.

I got to know them in to get some work. And that's just not

cash that many of these tool shops are sitting on today. The number one

issue at a toolmaker is their line of credit. It's typically more some cases

as high as their revenue. So, Laurie, is that an American practice

that the car companies do not pay the tool and die people until production starts?

How do they do it in Europe or Asia? It's the same PEPAP

terms. There are some OEMs that will stray to a like an eighty twenty

scenario where but it's still about the timing of it right. Ideally, what

you want to be able to get as a toolmaker is thirty percent down its signed a purchase order, so I can buy the steel another thirty percent halfway through thirty percent when I deliver the tool for you, and then hold ten percent out for PEPAP because I don't have any control over PEPAP. The tier

one does. Right, But what's titi he explain PEPAP for those who don't

know. Yeah, so this essentially this is when the vehicle goes through you

know, their product evaluation and make sure that every part on the vehicle is certified at the spects that are required from an engineering standpoint. So if I

make a bump or facia tool, and I sell that to a tier one, that tool to a tier one. That tier one's got to go through

all of the steps and the stage gates at the OEM and be able to diminish produce a production ready part that meets all the specs and all the quality standards. That's a checklist, you know, on the OEM's launch of a

vehicle. Once they have everything PEPAP, then they can launch the vehicle officially

for saleable product. But the toolmaker has no control over that. They deliver

a part that's to spec for the tools diagram, and then it goes into that tier one's press and maybe run slightly differently, right so that those payment terms vary BYOEM. There has been a lot of modification over the years.

At times OEMs have paid better or worse. It tends to be a supply

and demand thing, but your tier one also has as a say in it, because if the OM writes the purchase or of the tier one, that tier one can arguably do whatever payment terms they want. Even if the OEM

pays them progressively in that thirty thirty thirty, that tier one might say, no, I'm going to pay you a forty percent at halfway through and the rest of final So it just depends there's there's two players in the game, right, So, Laurie, we've talked about gig castings and body sides and things like that, but the industry also is involved in making tools that make little things like this this cap that I'm holding up. And if we look

at interiors of evs in particular, now a lot of the buttons and switches and things like that are going away. Is that another factor that is affecting

this industry absolutely, as you it's one of the big areas that we've removed the number of tools in our forecast from because as you go to an iPad, I mean you look at a Tessa vehicle, I mean there's one knob on that door right now, go into your you know, going to my Chevy Tahoe, I've got you know, twenty five buttons on my door and then all the buttons on the instrument panel and everything that goes with that.

So, yes, I can do things on the screen, but I can also do it with buttons, right, And so what I think Test has done such a great job of is, you know, this is the vehicle I make you either like it or you don't. If you don't like the

screen, then don't buy the car. Whereas in as you look at,

you know, like a Maki, they kind of started to do both.

They took some buttons away but put some back in because they're believing that their traditional buyer still wants buttons. The Moki volume knob is one of my favorite

features on there. Yeah, so you'll see, you will definitely at least

see the smaller mode builders that make you know that that cap you're holding probably runs sixteen up in a sixteen cavity tool and runs in a two hundred ton press. Those toolmakers are very affected and a lot of that stuff was in

China already, though in fairness, we were making a lot of those smaller tools in China already. Interesting, Hey, look we're just about halfway through.

Why don't we take a quick commercial break come back with a lot of news to talk about as well here, so we'll pick that up when we come back. How do you bridge? Don't hire stop Shorter? On what

roads? Is there hydrotrack technology? But you don't have to know how the

science works, just where the brain is. What really matters is they're bridges

down. All right, we're back, and as I said, there's a

lot of news today. I know one story that really caught my eye is

we've got reported in Reuters and look, we've been building up to this, but they really made it a kind of official today. Toyota is going to

do a major pivot on EVS. You know, up to now it's been

saying hybrids are the answer and we'll get to evs at some point. But

now that Akio Toyota is out of the picture no longer CEO, they kicked them upstairs. As I say, this, new guy Sato sounds like he's

going to put them on a full court press. Dan, I don't know

if you've been following it, what do you think to me, this is big news that Toyota seems to be going in a new direction. I don't

know how much time you've spent speaking with Soto in the past. I've always

enjoyed talking to him. He's really savvy, He's an engineer, and I

think he's exactly the kind of person that they need at this point to try to get things moving since I think they've fallen a bit behind. Yeah,

so the aforementioned show with Sandy Monroe. I mean, Sandy said quite unambiguously

that he believes that Toyota is going to just go mad and catch upped everybody.

The thing that I sort of wonder about is, though, so I was looking at market caps this afternoon. Okay, So, so Toyota's market

cap is two hundred and twenty nine billion dollars. Now, admittedly, Tesla's

at five hundred and eighty two billion, which is significantly more, but let's put them to the side. So then you look at Forward, they're they're

four hundred, They're forty nine point four six billion. GM is forty eight

point four two billion, in Stallantis is fifty point six five billion. What

does Toyota don't worry about They're doing just fine, just fine. Oh,

come on, two hundred and twenty nine billion market cap. That that's market

cap. But you know, here's one thing that I found that I was

astonished to find. You know, the number one seller in the in the

world, Toyota lost money in North America last year. That is the first

time, for the first time, first time, and in fact, the floor fell out from under them in twenty twenty one. I got the numbers

right here. They made a four point one billion dollar profit, which is

a very good profit. Last year they lost five hundred and fifty eight million

dollars. What the hell happened? Do you know who Toyota's demographic is?

Baby boomers? I think, yeah, you're right, Dan, No,

you're absolutely right. But here's the thing. Their revenue went up last year

in North America, but they went to a four and a half billion dollars swing from a four billion plus profit to a more than half a billion dollar loss. So I don't think things are going well for Toyota, certainly not

in North America. I contacted the company to say what's going on. They

said, oh, our raw material costs went up, and we're investing in our digital transformation. And I thought, well, so is everybody else.

But we haven't seen a I mean, it's a collapse of profitability, which I found stunning. Well, and they've also told me that it's mixed related.

Right, we don't We don't sell seventy thousand dollars or you know, f when fifties and our trucks don't command the same kind of pricing in our mix is still largely carved. So what, Laurie, They were making four

billion, and that evaporated overnight. It was the first quarter of last year,

all of a sudden. So, so, John, are you suggesting

are you suggesting all of this loss is predicated on they're not having evs in the market. No, no, no, no, no, I don't

say that at all. Something else is going on inside the company. I

don't know. And only in North America. They're fine. In Japan,

they're okay. In Europe, they're doing okay in China too. Something happened

in North America and had happened big. I think the rise of Hunday and

Kia is what happened to them. That's that's a factor in it. I've

also heard that this plant that they're sharing with uh moz dot um where is that Mississippi? I can't remember, off the top of Alabama, Alabama?

Right, Um, they didn't get very much product out of that plant.

I'm looking at the numbers now. They sold uh combined Mazda and Toyota under

twenty thousand units for the first quarter. I mean that plant should be making

you know what, three times that easily, And so I don't know if that's part of it too, But I'm telling you something like big time wrong and Toyota North America starting last year. Yeah, I think Sandy said it

on your show too. I mean, I agree with them. I think

there's going to be a major restructuring in that business. We saw a lot

of complexity come into you know, those were some of the most efficient assembly plants in the world here in North America, and we've seen a lot of complexity. We've seen them stray from some of their very good standardized processing that

allowed for that efficiency. You walk through some of those plants now and they're

not nearly in the same vein as what we even saw in the n eighties and the nineties. So there's definitely some step backwards that has happened with the

change of complexity, and I think that the restructuring that Sandy talked about is apt going to happen. Today's announcement was I think just the start of what

you're going to see more of from them. Well, it wasn't an announcement.

I mean, Reuters is breaking the story. Toyota has not come out

and said this, but look, I've talked with two fairly senior level Toyota executives based in North America, and they strongly hinted big changes are coming, you know, with their strategy that has been all in on hybrids, and yeah, we'll get to EVS, but we're going to do a bunch of compliance stuff before we really get serious. And now Sato seems to be saying,

now we're getting serious right now. Isn't Toyota still doing a lot of

research and development though on the hydrogen side of things? Is are they throwing

that away for EVS or I don't think so, because you know, look, the most the car companies that are most heavily invested in hydrogen are in Japan and Korea because there are massive subsidies to do so. Both of them

import most of their energy, i e. Oil, and they see hydrogen

as a as a great fuel for the future because they're not going to have to import that and they'll be able to manufacture it right in their home country.

So there's massive subsidies in Japan and Korea to do anything hydrogen. That

makes sense, all right. So here's something that I found in the quarterly

earnings report, even more astonishing than the alleged collapse of Toyota Jeep Compass down five percent, Wrangler down seventeen percent, Gladiator down twenty four percent, Grand Cherokee down twenty seven percent, Renegade down fifty nine percent. Wagon You're down

fifty nine percent. Wagon You're down fifty nine percent, and Cherokee up thirty

one percent. That's thirty one vehicle is up. What the hell is happening

there? It might be called Broncho that's going to have some effect on Wrangler,

but not some of the other models. Well, yeah, no,

Bronco Sport too. I think that's been hurting Cherokee and Renegade. I think

Jeep has been on the trajectory of the fad of Harley Davidson in the nineties, everybody wanted a Harley. Harley stores grew up everywhere. They commanded a

huge price. People built custom ones because you couldn't get a factory one,

so they built their own. All the TV shows started up. Wranglers were

following that same direction, and eventually the market's oversaturated, the fad goes away.

They also have the highest inventory by brand right now, if one hundred and twenty days of inventory back on the lots for Jeep, the Jeep brand specifically, it's the second highest in the market today. Whoa. What you're

saying there is fascinating because one of the you know, GM had a really good month, really good first quarter, and because they've gotten more inventory back.

But if Jeep has got that much inventory and sales are down, like Gary is saying, yeah, what the hell is going on? And in

sentence you can get it. You can get that. You know that Grand

Wagoneer is one hundred and twenty sticker price, but you can get in sentence under under one hundred. Now, whoa. Well, you know, another

interesting thing is is that so the aforementioned Cherokee, that is the one that is up is built at the Belviteer plant. What did they announce about the

Velveteer plant right closing? Well, then sales are up because it's a blowout

sale. I mean, seriously, Gary, what do you think is going

on given the fact that the Wagoneer and Grand Wagoneer and Grand Cherokee are are fresh vehicles. Okay, I just wonder whether the brand extension is not working

out so well and that's affecting them right across the board. And then you

add to it, as as you suggest, John, the the whole issue of Bronco being in there and people now saying, oh, I've got another fresh opportunity here to get my off roading um filled. So you know it's

got to be something. But I mean, that's that's those numbers are the

you know, across the board, the biggest that I've seen from any OBM.

Right again, the Kia and Hunday sales are coming from somebody. Yeah,

good point. But Gary, one thing that in what you were just

saying there is, you know, like I said, GM sales are up because it's getting inventory. FCA sales are down despite and elect Glory saying having

some of the highest in the highest inventory in the business. So one of

their interesting thing about that from a supplier standpoint, So, I've had more calls in the last three months from suppliers of the GEP Grand Cherokee die casters and molders, big tier ones by the way, who are telling me, I don't know how to forecast this year because still LANTIS is forecast for the Grand Cherokee is up forty percent over last year. And if you look at

HS or AFS or LMC, they're all down at the levels that we would think that they should be at. So suppliers are being told by Silantis planned

for forty percent more. Forecasts are saying, no, it's about flat.

So how do they plan because if they shut the plant down, we know what's going to happen to them, right, So it's it's going to be a tough forecasting year again when people are putting that kind of you know, merit and thinking they're going to grow sales that high, especially at the prices that I just bought a Grand Cherokee eighty grant eighty grand. That's a that's

an expensive car. So, Lurie, you know I talked about at the

top of the show. We got to talk about the UAW here too,

and I'd love to hear what you know any of your sources are saying.

I'd love to get your input too on this Dand because I'm predicting a war, we've got a union radical who has been able to get elected as president of the company. He's referring to gm Ford and Stellantis as the enemy.

They're talking about how we have to punch these guys in the face. I

mean, I don't need any more proof than that to say there is going to be a strike this fall. And in fact, some of The chatter

that's out there is that instead of picking one of the companies like they normally do and bargain with them and then the other two fallen in line with that, the talk now is maybe they're going to try to shut all three down and target critical component areas like engines, transmission stampings and just bring these companies to their knees. So are any of your supplier friends out there taking that

into consideration when they plan with their volumes are going to be for the year.

I wish. I don't know that these guys think about some of those

things that affect him, especially down at the tier two level. They don't

think about that type of thing. But I'm here in the same thing.

You are a three pronged approach to attack all three of them at the same time and paralyze their volume. Absolute war because what are the profits that these

companies been through COVID. They've been so tremendously high and until this year we

didn't see a boatload of UAW sharing right in the profit sharing piece of it, and they've been what do you mean the FCA or the Stalanta Sky's just got all time record profit sharing. I mean big thousand, right, But

prior to this in twenty and twenty one, we didn't do that. Yet

they made a lot of money in those years. Now it's in the contract

and it's it's it's a pretty easy formula. They get a thousand dollars.

You know, I can't remember the formula off the top of my head.

But they made good money throughout COVID. I get it. But the OEMs

have made so much money on higher price vehicles and no incentives, but they've been pouring it into R and D for for battery electric product. I mean,

that was the whole reason for Ford to announce the split in their earnings, right. But but nonetheless, I think it's a war on wages and

price. It's a war on hours. The big thing that we're hearing is

this concern about overtime and hours due to the lack of people, you know, the challenge to not have as many people in the plants, so they're asking people to work overtime. Not that they don't love the overtime pay,

but you know, people have a balance in that, so there. I

think it's going to be an absolute war, and I know the oms are gearing up heavily with data. They're asking for data and information to support a

lot of those activities already. What does that mean? I mean the data,

what are they accumulating? Just just wanting to understand how others are doing

it right when you're sitting withinside a Ford Motor company. Yes, they're sharing

a little bit between GM Ford and Chrysler, But how what are the Japanese paying? How have they increased wages and their plants in the South? You

know what are we seeing in other UAW Tier one related companies and in other non UAW but union facilities. So just trying to gather intel. It doesn't

always point to a valuable thing for them, but they're just trying to gather as much wage data as they can. Right now, You've got plants in

Detroit and Ohio and others for UAW, plants that are losing people to other industries that are paying high wages. Remember when they put in the Tier two

wage of fourteen I don't remember exactly what it was, fourteen bucks an hour, and you have in some plants, not many anymore, but in some plants people making less than they could make an Amazon right now that wants to pay twenty five or I've got a YANGFEG plant near me in Michigan. That's

starting wage for a plastic injection molder who's never ran a machine ever is twenty seven bucks an hour. So if I want to work in a UAW,

if you know, if I see the UAW and the benefits that come with that, I may choose that position or choose something like delivering an Amazon package if I don't want to work that hard kind of thing. So it's a

new competition for So I think you're going to see a lot of pressure on wages and hours, and maybe not so much benefits of healthcare, but certainly within the wage side of things right now, Will that wage data be of much value with a negotiating partner who's determined to punch you in the face and have a work Probably not. Probably not right. I mean, that's that's

the challenge. The other thing you have to remember, too, is all

these plants that are being launched for battery electric vehicle also require fewer people to put together, right, and no contract can change that. Right. And

you know, John, your point about you know what you've been saying about TESSELA and the revolution of this assembly line and the amount of people that that will take. That the change in the amount of people that will take again,

that's not tomorrow in a GM plant, but as we move forward in the future, labor is is the hardest commodity to get today right and still a lot of the younger generation not using manufacturing as a field of work, regardless of the wages. And so as you look at that and you look

at the complexities of high mix and low volume and an assembly plant that requires in some cases more people on a on a F series line, but not on a you know, on a Tesla line or on a Machi line because the lack of the quantity of parts. So if we change our assembly process,

that could read fewer folks. And that's that's part of what I think

the UAW also has in their in their concern pool is are we going to have fewer people just because we're getting more efficient and because we have fewer parts in the car? Well, well, Laurie, I'm just wondering. So

if we look at what car sales were in a Gela was it last week we heard from LMC that there Jeff Schuster was saying they're they're thinking maybe twenty three will be a fifteen year, right, fifteen million it's sold. But

you know, if you look at the installed manufacturing at Print, you know we're capable of making seventeen million, right, oh, way more, way more than that. Actually, let's let's just okay for arguments, just for

argument's sake, Well, we'll make it easy. Two million will be basically

not not being manufactured. Um, So, I mean, how do you

deal with that situation? I mean, forget forget Tesla, forget everybody else.

I mean, right now, I mean if you just look take a snapshot of what the industry is and what it's like to be for the remainder of the year, I mean, there's a lot of stuff not being built that could be right, right, And we're opening new plants and we're actually shrinking utilization, right, So, I know, we closed Belvedere, right, but we've we reopened spring Hill, and you know, we took over Cammy and we're building you know, forwards Memphis Blue Oval facilities. So we're

adding more capacity to convert to battery electric product and that's shrinking some of the utilization of these facilities, which is part of the challenge round as we get more efficient in terms of hours per vehicle, and then we reduce the demand because we're making this conversion. Now I have more plants with a separate group

of people, all of which are not necessarily filling capacity. So it's a

it's gonna it's this transitional timeframe or decade of how we get to battery electric, how the infrastructure allows people to want to buy them, and the cost to buy them, and when that ramp up and down appears. So,

I mean, are we going to are we going to move you aw people down in Memphis for Ford's plant? Are we going to hire a new good

question? Obviously, So you know you're talking about as we become more efficient.

Now, arguably your dad was the guy who basically defined what efficiency would be in manufacturing operations. And so over the years, I mean, as

we've watched this, there have been ebbs and flows in efficiency, and there have been consistent differences between OEMs and then even within OEMs specific plants being more or less efficient. So why do you think there'll be a greater efficiency overall

in the industry that would have an impact on labor Well, I mean the actual reality of it is is that many of the plants have gotten less efficient because of complexity. You know, as we've gone to high mix and low

volume, it has created so much complexity of the plants that we're not making.

You know, the days when we kicked out tourists and sables in Atlanta for sixteen hours a vehicle, that doesn't happen. Today, they're much closer

to twenty eight and thirty hours a vehicle in terms of the level of complexity.

But everyone is because that everybody has added that level of complexity. But

we're still improving processes and doing things within our body shops and our paint shops to drive out and eliminate waste. We're still very focused on lean manufacturing these

facilities. So we're moving people, we're redirecting people into different areas of the

but I'm also dropping demand in some of these facilities. I mean, imagine

last year, I should say in twenty one and twenty two, twenty and twenty one, when we had to shut plants down, or we had to slow tac Timetown because we didn't have parts to make the cars, and we were managing them in different ways. We were open on Sundays, closed another

day. You know, we just we had different unique patterns, but we

still had all the labor and all the costs because we didn't necessarily send people home. So there's a transitional period on this labor side, and I think

the UAW is thinking, I'm signing a contract for the next four years.

I've got to get positioned now for what the change in this future looks like, because it's nothing we've ever seen before. This recession we're walking into is

nothing like we've ever seen before. Right, Yeah, Hey, as we

got to change topics a little bit. Although it's it's a nice seguay here

because fresh new products solves a lot of problems, or it usually does.

Dan, I'm just curious. We saw a much diminished New York Auto Show

this week. I'm just wondering if there was any new product that came out

of there that caught you your eye, or any other new product that you're aware of that's caught your eye. Yeah, I think the v y EV

nine looks very promising. I think that'll be a sweet spot of the market

once it matures and families are ready to go full ev on their on their family crossovers. Why why do you think that one could really resonate with them?

Well, their ice model is doing really well right now. It's their

design is doing well. Everyone likes the way the Kia's look and the Hunda

Kia Group seems to be firing on all cylinders. To use an improper metaphor

for an ev you know, it's to that point. I added up the

Kia and Hyundai sales for the first quarter and it came to UM three hundred and eighty two thousand and change. And it's actually ahead of Stilantis, which

is at three sixty seven and change. O Gary, that's stunning, So

I was, I was quite surprised about that. And they just announced the

Hunday Group is number three worldwide last year. Right, that's right behind Toyota

and Volkswagen. Right. You know, John, there's another another number that

I've got to say, because you've been highly critical of this vehicle and I think it deserves some props. The the the Volkswagen I D four, I

agree. No, they had decent sales, so so they the i D

four had nine thousand, seven hundred and fifty eight units sold in the first quarter. The mock e five thousand, four hundred and seven right, So

I no, I agree, just got to give it up to them.

Yeah, no, I agree, although you know Chevy bolt damn near twenty thousand. Yeah, but but here's part of the thing too. You know,

in in a normal situation, we could say, oh, yeah, you know, Volkswagen is kicking Forward's ass. But a lot of it right

now is who's got availability of what? So, you know, one thing

we also have to keep an eye on here is who's got what amount of inventory because with the exception of Jeep, that seems to be affecting everybody else.

But why two years after its introduction, are we still constrained on Moki?

Well, look, we're the industry is still pretty much constrained on almost everything. You know. It's we all talk about the chip shortage and that's

well known, but it's more than just chips. There's there's shortages and they

they they pop up every now and then they get that smoothed out, and then something else turns out to be a shortage, and so so you know, there's also the situations with like talking about why there is not numbers that would be expected, the Ford Lightning having to go out of production because of battery fires, which is something which you know is not typical of this industry, right, I mean you never heard of a line being shut down because the gasoline started spontaneously combusting in tanks. So you know, Ford head to

grapple with that as well, so that we got to sort of take that into account. But they were bragging so much about how they were number two

to Tesla in EV sales. We got to give it up to General Motors.

Now they're number two, right for this quarter. Yeah, it's going

to be fascinating to see how these things ramp up, and it look the winner is going to be the one who gets the parts to build the cars.

Want some ID four trivia John Let's hear it best selling ivy in Ireland last month, and Dan Kearney would know, yeah, hey, look, props to them. You know, I wish Volkswagen a lot of success in

what they're doing. I was surprised just because it's kind of big for that

market. Yeah yeah, I thought, I mean a smaller one. I

just got out of test driving at I D four again. I think it's

a decent car, but I wasn't wowed by it. I am wowed by

the Hundai and Kia evs. I think they're off to the races in fact,

you know, because their buyers are more likely to cross shop with Toyota and Honda. I think Toyota and Honda better be really careful here, because

boy, Hundy and Kia and Genesis, I'll throw them. And I just

got out of GV seventy electric and really impressive vehicle. So yeah, that

the Hyundai group is doing a pretty damn good job with its evs right now.

Yeah. I just drove the Ionic six last week and it was it's

an impressive piece of technology. M So what do you guys make of um

Tesla's sales going up four point four percent, even though they had price cuts which were more severe than four point four percent. I feel like Tesla.

I feel like Tesla can't do anything wrong. I don't know. I know

they've done a lot wrong, don't get me wrong, but it's a to me, it's a marketing engine. It's like Apple, you know. It's

like there's so much interest in the in the product and in the brand, and especially among the younger generation. I mean, right, we probably all

have kids who are looking at a teslacle I got. I don't really want

to have one of these, so I'm actually shocked by I actually learned a ton on your show with Sandy because I was I didn't have in my head that Tesla was going to outpace GM by the end of the decade. That's

that's that was those wild moments for me. Well that that's what Tesla says

that yet remains to be seen. But Gary, the point that you raise

is a really good one. Tesla cut prices pretty significantly, and yet there's

sales only went up four percent in the quarter, which makes me wander if they had not cut prices, would sales have gone down? And what would

that have done to the stock? So, yeah, this is going to

be something that we really got to keep an eye on, is why did sales go up so little with such significant price cuts? Was it the Reuters

report today about the in car video? Did you see that? Yeah?

I don't think that's it. And if the viewers haven't seen that, there's

especially in Europe, concerns of private What am I trying to say, privacy issues with Tesla car cameras capturing people walking by street scenes and things like that, and big privacy issue. But that came out today. You know,

it's the last three months where sales only went up four percent despite all the cuts. That's just an example though of the ongoing issues with Tesla concerned me

tremendously. I wouldn't buy one because of it. You know, they say

in the Reuters report that Tesla employees passed around this video of the car running down a child. Thing. Yeah. So, Laurie, since we have

here, I want to ask you a question. You mentioned Rivian before.

We've seen that Lucid is having problems ramping its vehicles, Faraday Future is not doing some I mean, so is it really really difficult for startup companies to build vehicles? I mean, and you know the easy answer to that is

yes. But I mean, what's behind this? Well, it's different at

each company, right, I mean, Rivian has just had a tremendous amount of execution problems within the facility itself. They had some supplier challenges as well,

But you go into the facility there, it's so completely different than what I would see in a traditional GM or FORWARD facility in terms of how they chose to execute on certain things and the complexity that they originally had in them.

The you know what you were allowed to order as opposed to know you know, originally there was no standardization of the product that you could really spec your own. They've had super big challenges getting those presses, those old Mitsubishi

presses that they purchased. Remember they bought that plant and all the equipment for

what was at sixteen million bucks, right, and those presses were from like the Diamond Star days, the Mitzabishi christ or joint venture. So getting them

to you know, getting them retrofitted, getting them to run with a lot of these original Chinese tools that were produced and not built for that press line of that kind of technology. So they've had to offload some of that stamping

to their suppliers at least temporarily so that they could run them. So they've

tried to get different people to run their tool shop over the year or their press room over the years, and then just executing at the assembly. They

had a lot of people that were hired that I interfaced within the early part of their their startup that they were fresh out of college, they had no automotive experience whatsoever. They had a purchasing spoke at an OSA event, and

I think my kid was older and had he had no experience whatsoever in terms of what to purchase and buy, so we got into some tooling discussions and things of that nature. It was foreign to them, right, So there's

been a series of misfits in some of those cases. I think Lucid's is

a little bit different, had a little bit more funding challenges initially, and now they've got some good backing, you know, from the Saudis, and I think things are starting to move a little bit faster. Every one of

these has its own different level. I mean, I was in the old

Lordstown facility and that's a challenge of execution. So everyone's different. And I

don't know that you can put a sweeping statement across what their challenges have been.

Well, what's that? Will they make it? Rivan or I think

Rivan and Lucid for sure. I'm very positive about those guys. I struggle

when I get much further beyond that, even with a Canoe or those those I worry more about. I don't think Amazon's gonna let Rivy and suffer with

the kind of investment they have there. Good point. Hey, look we're

at the top of the hour. Time to wrap this up. I want

to thank both of you for coming on here. Dan great getting your insights,

Laura yours as well, glad to be here having me well good and Gary. I'll be on vacation next week, so I cannot wait. As

much as I love doing this show, I cannot wait to get away for a while, all right, But there will be a show. We're gonna

have Ken Morris from General Motors, who is deeply involved in their electrification programs and autonomy and other things. And Lindsey Brooke will be on and Pete Bigelow

from Automotive News, so it'll be a great show. So John will be

vacationing, will be working hard because as I said at the top of the show, and Detroit will resilient real good. Thanks everybody for having tuned in.

Autoline After Hours is brought to you by Bridgestone Tires Solutions for your journey.

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AAH #642 - IRA Snafu: The U.S. is Losing Its Tool and Die Industry

Chevrolet Tahoe

Jeep Wrangler

Jeep Gladiator

Jeep Grand Cherokee

Jeep Renegade

Jeep Compass

Ford Bronco Sport

Jeep Wagoneer

Jeep Grand Wagoneer

Volkswagen I

Ford F-150 Lightning

Hyundai Genesis

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