AAH #651 - How Much Money Will Legacy Auto Lose on EVs?

I don't line after hours. This brought to you by Bridgtone Tires Solutions for

your Journey. Mister v John, how are you hey? You're not at

home? Where are you? I am in Austin, Texas to attend a

reveal of two Lexi this evening, which I cannot disclose, although I think they're rather known by everyone, but I will hold the embargo. Is this

the Electric Ones? I can't say anything, John, I'm I'm queueing to

the I'm queueing to the requirements. You know, it's interesting. I recently

had to sign, you know, an embargo agreement with someone that basically, in the embargo agreement it said that even if somebody else breaks the embargo, you cannot break the embargo, which really seemed odd to me. And now

that is pretty odd. I mean, you know, the practice in the

past was always like I'm not going to be the first to break the embargo, but I'm not going to be the third. Yeah, So they're taking

that into account now. And before we start the show, we should big

day in automotive history of today, seventy fifth anniversary of what company? Porsche

of Porsche. Yeah, oh you say Porsche, I say porschew whatever.

Wow. I used to say Porsche, but then I heard that Ferdinand pronounced

his last name porshow so I started saying it that way. Okay, so

you're right, I'm wrong, But it's their anniversary. Let's get our guests

in here. We got a couple of terrific guests on today's show, Phoebe

wall Howard from The Free Press and Chris Cruise from Boy you name It, He's done it. He's worked at Chrysler General Motors, Ford. What you

were involved with Delphi? Right to Chris, you ran on Star as well,

I mean ran the whole shebang, and it's great to have you on in the show here with us day. Oh, it's great to be here.

You hear that way. There's like no one who hasn't fired me at

this point. This is you know, I'm getting into. I'm getting into

kind of like Lutch territory here, but without the good looks. Phoebe,

tell the world what you do at the Free I cover the automotive industry, primarily Ford Motor Company, and that's everything from products and features to investigative reporting.

So both good news and sometimes very bad news. So so, Phoebe

let's let's start out with you. And I know this will this will cause

Chris's juices to get flowing here actually the smoke coming out of his ears already.

No, No, maybe that I haven't haven't spoken enough focus transmission.

So for Ford announced this morning that people can go to their local Ford store and order a Lightning x LT and get it by September. So it seems

as though the long waiting list has been contracted. What's going on there,

That's that's what happens when you triple capacity at the rouge. So you know,

they they for it, first had the first line for the lightning and then doubled it and then tripled it. And I say that because so many

readers asked why you would not build large from the start, And I just don't think they anticipated the demand they had. But that's what it is.

It's a it's a surge in capacity in terms of space and how they're doing everything, and so people, Yeah, the lightning weight will subside, and I think a lot of folks will be happy about that. Yeah, I

don't think it was they didn't anticipate the demand as much. They didn't.

They did not, but you know, you gotta get the chips, you gotta get the batteries. There were software issues that had to be ironed out,

and blah blah blah blah blah. It sounds like they got it ironed

out. It sounds like they got it out. Yeah, Chris, Chris,

is there another possible reason this may be the case. No, I

think it was a whole bunch of factors. You know. I do think

there was the surprise and the demand. You know. I think originally my

recollection was we were talking about twenty five thousand units to start, and I hope that that wouldn't tip the bank over. And then you know, big

push, and then they're updating Rouge and adding capacity, and then Louisville City starts going. So I think it's a great problem to have for Ford,

and I think F one fifty cash A is going to give them a great upper leg, even even on GM. I think in the in the truck

space for at least the near term, in the pickups, Chris, have you're driven the lightning? What do you think of it? You know,

I haven't been able to drive a lightning because when I was there again because of the COVID and everything else, we were not in in the offices, and I've been about a year out. I've talked to a lot of people

who have UM and uh, you know, you hear nothing but great things.

I think pickups so are gonna eventually, you know, run up against physics, you know, in terms of being real work vehicles for people towing things. But I think and the in between. You know, most people

are using their pickup trucks like they use sedans or luxury car So I think that's going to give Forward a lot of runway, at least for a while.

Yeah, I mean, it looks like that truck is pulling in customers who ate have never bought a Forward before and b have never been in a full sized pickup that just seem to be enthralled by the idea of an electric truck. And they're not your typical pickup buyer. Yeah, it is strange.

Well, they're also talking about in California the number of families they've never viewed families in California have never viewed pickups as family vehicles, and that's what they're doing now. So that's a whole new target market that I think surprised

Forward. But in terms of hauling and towing. I think, you know,

super Duty is setting records because you know, you have to have gasoline powered trucks to do the big heavy stuff. In the near term, it

doesn't matter what the company is. General Motors announced this morning that you know,

they're doing a huge investment in gasoline powered trucks. I think that's that's

the ATM for these companies. You have got to produce these gasoline power trucks.

And it wasn't shocking, but it was interesting that Ford sold fifty two thousand Super Duties in October and ninety nine thousand in November. So the prices,

you know, people say how much. It's between fifty thousand and one

hundred thousand dollars per truck. And so they have six months of orders that

they're trying to fill just on super Duty that will pay for those lightnings because the profit margin for lightning just isn't there. So your point, phoebe So

General Motors announced over a billion dollar investment in the Flint Assembly in Metal center for heavy duty trucks, specifically heavy duty trucks with ice engines, and they also announced over five hundred million dollar investment in Arlington Texas assembly plant for full size SUVs, which again are going to be ice vehicles. So it doesn't

this seem rather unusual. No, I think the appetite I tell people people

are so nervous when I go to public talks. It doesn't matter the age,

but people are really nervous about having their ice vehicles taken away. And

I just don't think that's happening anytime in the near term. The transition is

there to go electric, but I don't think there's pressure, and I think people are easing into it. But these folks are really investing in ice vehicles

because I think there's still the profit margins are just unbelievable. It's printing money,

printing money. Yeah, yeah, so you're great, so curse I'll

start with you. But Phoebe, I'd love to get your input too.

Do you think that will change in the sense that I mean, the hybrid Lightning, for example, is a hell of a good work truck. So

is the electric one. Really if you want to use it as that if

you don't have to drive long distances and tow stuff. But you know,

having essentially an on site generator in your truck, you know where you can even run laser welder off it. I mean, you know, it's not

like it's running a camp stover something like that. You're able to do some

real work with them. Yeah. Point the hybrids for that reason, I

think will become in the ice category. You're going to see them really start

to dominate. So hybrids in Texas are absolutely huge. I think when you

know someone with a hybrid, it just sells more of them. I know

some construction workers and contractors who own multiple f one fifties, multiple super Duties.

One of them just bought two Teslas and he's waiting for the lightning, so he's ready. You know, he and his wife love their Tesla's.

They've only ever owned American cars. They're big Ford people, but they wanted

to get an electric car immediately, and they could get the Tesla the fastest, which was very interesting. But he, you know, they're ready to

move the fleet into electric. That surprised me because he does so much construction

work and he has a team he just snow plowing and everything else. So

I also talk to a rancher out in northern California has only owned one fifties and Super Duties and he already placed his order for the lightning, so they're waiting, and I think the more people see them. Although the funniest thing

is when people have lightnings and makis and they take them to the grocery store.

What keeps happening is when they're loading the groceries in the front. People

run over to help them as if they need aid, and they think the engine's broken and they make all these friends and who want to help them, and they say, no, I'm just loading groceries. This is an electric

vehicle, and it ends up frankly selling cars. I mean when people see

the space and the access, but the stories are really funny, really funny.

Yeah. So the question to everybody then, are automakers who do not

put fronts and their electrics making a big mistake? Well, I think so.

I mean, I think that's I think Beebie's right. That is a

big selling point. And I think the fronts, you know, kind of

give you another edge of utility that you give up on the other side with range and things that probably make them more usable. And I know it's a

big deal for Teslia owners and I think there's data on the Mokis appeal being driven by that as well. So and I think, you know, some

are being more innovative with that space than others. It's kind of surprising when

it's not there, to be honest, some of the them dies some things that have not gone in that direction. Well. The other thing too,

in terms of the space, is that people are trying to figure out You hear a lot about batteries and range and what Ford is studying. They won't

reveal the data right now, but it's very interesting they're studying. It is

really how much range people need. That you think you need a lot,

but do you really And so they're really studying the habits that people are putting.

You know, they're using huge batteries, they're planning for huge capacity.

And when I interviewed folks in Norway when Ford announced they're going to be selling Lightnings in Norway, the Norwegian said, you know, Americans just need to calm down and have like a cup of coffee, relax a little bit.

That we're so tightly wound we have to have everything done in five minutes and uh. And they said it's it's going to be fine. But I thought

that was interesting that the trend a number of people at Ford think is is you're not going to need five hundred miles. You just won't need that,

I think if you get the infrastructure. But again there's been so much talk

about the network, and you know Ford's coup. I think that was a

major coup getting Tesla to go with them, which I think was Elon being very very smart and trying to want to think placate the government that he's a player, but to signing up with somebody big enough to benefit them financially, but not so big they're going to tip a competitive hand. I don't think

they'd ever do that with with GM or say dime work, particularly with some of that reaching other markets. But that I do think this issue of range

anxiety will be a function of people not getting stuck, because I don't think it's about range. It's when people need the range and they can't get it.

And there are Gary and I were just talking Rowan Atkinson of all people, mister Bean has wrote an article in The Guardian in the in the past week, you know, talking about how he's disappointed with the electric vehicle experience, and you know, gives a list of reasons for that. But I

do think that when people get stuck or stranded just once or twice in a key place, and they're sitting on a seventy thousand dollar car that they can't do what they want with YouTube floated with people saying Sayonara, So I think you don't want to see a GM diesel thing repeat either, So I think pacing this would be wise for for all involved. And then Phoebe, I

mean, no offense to the Norwegians, but I mean if we look at the size of Norway versus the size of I don't know, Texas, you know, there's there's a lot of you know, distance there, and you know, the infrastructures as Chris is intimating, like certainly in the UK where mister Bean would be driving around, um isn't there, And you know, presumably a lot of people are finding it's insufficient here, and you know, with the exception of supercharger not doing particularly well. So to Chris and Phoebe,

I mean, so Electrify America has Volkswagon behind it, right, it has all that money that that Volkswagen had to pay to the government for Diesel Gate, right, So how come this hasn't been pulled off in a way that you know, you would think would be very gramatic, very precise, and capable. It won't be pulled off until someone has a restaurant chain or

something like Starbucks and they pair up. And that's what we're waiting for.

It can't be motivated by charging. It's it's the most non sexy, on

the interesting thing in the world. But once you have a company that says,

let's pair it up, let's put Subway, sandwiches or Starbucks with every single one. Because you don't go to a charger where people aren't spending a

lot of time and money. And that's where people, you know, gas

stations, people gas station owners are now, let's put in charging stations because they're going to buy all my stuff. Right, they're not buying gas,

but they'll like chips and everything else. So that's a very real consideration.

Is who's going to invest what's near these I think that's a really big issue.

And the other thing is I've reminded people, if you live in California, by the way, and you have a power outage, you can't pump gas. This is not an electricity issue. This is electricity effects gas and

charging your vehicle. So that's one of the reasons in fact, why California

has timed blackouts. People don't realize that you're told that you will have no

power between seven and nine pm, plan accordingly, you go and you gas up your car, you charge up your car, you do. I mean,

that's why those states do that. You plan ahead. But it affects

gasoline power too. We couldn't put gas in our vehicles. We had blackouts

every summer, day after day after day. I just was a good friend

of mine, Patty Poppy, who's she used to be the CEO for can stumers now she's CEO for PG and E, and she was talking exactly about that issue. And they're actually looking at it in the reverse. They really

see electric vehicles as their off ramp to peak shaving into capacity moderation and along with solar in those areas that would benefit from that. And you know that

you're going to see I think an entire sub economy that's gonna develop on this.

So again, it'll overcome eventually. I think inertia people would have on

a reason not to buy an EV, but I think that takes time to develop. One thing I want to jump back on real quick. You guys

brought up the margins on the ice vehicles. And this is huge because Phoebe's

right, if you could the way that the auto industry looks at this is on a per model basis, and they look at that contribution margin, so they basically have a zero plane, and then they look at each model and then they look at how much that model contributs deposited margin when you fully factor all the fixed costs out of the picture. And so each car line has

to carry a certain amount of that fixed cost. And if you look at

what happens with vehicles like an F one fifty that's loaded, or an F two fifty, or an F three fifty, or an Escalade or a Silverado super duty. Basically, the auto industry, if you look at a company

like GM or four at about two thirds of that of those little lines are at or below zero, are just above zero. And then you look at

those lines for the vehicles on the end, and it's just massive. And

the dirty little secret of the auto industry is that the variable cost, or the cost of the stuff to build those cars is actually doesn't vary very much at all. In other words, the material cost to say an Escape being

sold at thirty thousand dollars or thirty two thousand dollars and the cost of that F two fifty being sold at close to one hundred thousand dollars. There might

only be you know, you know, comparatively little cost differential, maybe ten thousand dollars more stuff on the F one fifty or the F two fifty, but it prices you know, three times higher. So the incentive for the

automakers to overproduce or to produce as much as they can those vehicles is overwhelming.

And the only thing that's tempered that has been supply chain. So now

that the supply chain's loosening and you're going to see, you know, the demand is there, which is like a double best scenario because usually we just stuff the dealer channel and you just keep building until the dealers couldn't take anymore and deal with a cost of sales later. But that factor that Phoebe just

pointed out is going to be a massive driver for profitability for those companies in the short term. Chris, what do you think of I mean, both

GM and Ford or targeting. I think they're they're saying low single digit EBIT

returns on their evs six to eight percent mid decade, you know, twenty twenty twenty six. Much of that predicated, of course on software services that

they're going to offer OTA for you know, Blue Cruise or Super Crews and the like. Also, you know there's some government money in there as well.

There's probably I'm guessing they haven't talked about those ZEV credits that they can sell or or not have to pay, you know, finds themselves just pay for what do you think do you think that's realistic? Six to eight percent

ebit by the middle of the middle of the day it would be if on a couple counts. One is how we're accounting it, because I mean Farley

did another really interesting thing and separating out category accounting for his division. So

which is another thing I want to get you to talk about, which is which is gives you a lot of understanding of just the delta between those cars and ice engines. And so when you look at the variable cost picture,

the picture of the stuff the auto companies in the traditional sense and the traditional automakers absorb massive amounts of fixed costs. So when you look at retiring bene

pensions, gross infrastructure of the building buildings and everything that they carry, dealer margins all the dealer, logistics, and storing all those things that go into that soup. Their cost factor to start before they put a single bent piece

of metal in place is massively higher than it would be for say Tesla or any other startup, So their ability to absorb the high variable cost of electric vehicle componentaries. And remember you're talking about very expensive batteries and all the materials

that go into that. You're talking a tremendous amount of precious metals. So

you have all that cabling, all of that metal that's needed on the vehicles, so you have a lower piece cost, you have easier assembly, all that kind of stuff, but still on a variable cost basis. And I've

seen the numbers and I'm sure they're improving, but you are a long, long long way away from seeing that cost picture equalize. And I don't see

any pathway where the oees get rid of those structural costs anytime soon. So

you have to speculate if they're going to really make it. You know,

I don't see the traditional corporate structures that exist today being the way to do that. You would have to fun encumber yourself from those high fixed costs and

legacies to be able to compete with companies like Tesla. So I think that

there's a massive amount of potential restructuring to be contemplated. It's in the not

too distant future. So so, Chris, break this down for a person

who wants to try to understand this better. So we'll go back to your

example of building an escape versus building an F two fifty. So you're saying

that there's like a ten thousand dollars cost toible, but just for the other, for the demonstration of the idea. Yeah, yeah, okay, so

ten grand difference there. What would then be the difference to build a lightning

or a moche it would be it would be infinitely higher. You'd be talking

five five plus figures easily on a variable cost basis differential to an icing engine.

Remember to put one hundred kilo lots of battery on a car at one hundred dollars a kilo lot is about a ten thousand dollars burden right there.

Okay, So a fully packaged engine and transmission, you know, at costs kind of running into plants, would be substantially lower than that. And again,

what are really though, Chris, I wonder about this when you look at the whole fueling system. You know, catalytic converters, mufflers, typically

dual exhaust in those things. You know, upgraded transmission V eight engines or

do even diesels with the full package. I mean, I'll bet you you're

talking more like eight grand in a package, a total package like that.

You know. I think you're right in terms of especially when you get to

higher sophistication in terms of controls and size and things. But remember you're pricing

for it, so you're getting the price potential back on those things people are going to be able to and again it's still not going to compare or you still got all the other things that everybody keeps forgetting that the electric motors and all the other components and computer chips and again just signal and power distribution on the car. I worked for a Delphi. I can tell you the architecture

on an electric vehicle is infinitely more complex and costly, although that's getting better and better because you have flexibility in how you design architecture on electric vehicle that you don't have with an ice engine. You can integrate systems much more more

smoothly, and I think ultimately yes, it's going to get the currents are going to come down, and as you get more volume and scale, you will and that's what's benefiting the ice engines right now. You have volume and

scale, and you have a developed supply base, and you just have a hundred years of iterative, you know, squeezing up every dime. Remember every

component on that car has been every year they're they're scraping a penny here, two pennies there. You just don't have that experience yet working as it will

eventually on evs well. But one thing to consider too, I think that

there are a couple of things to consider. One in terms of you guys

talking about straight sales and profits, but you know, when you look at Ford specifically in other companies, but if you're looking at warranty and recall costs, right, Ford is forfeiting two and three billion dollars a year, So that's you know, self inflicted wounds and so those could be going right into your pocket. That's one. Two. I think subscription costs. I mean,

we're going to be talking about selling electric vehicles, but the revenue generated off subscriptions will be huge. I think these companies are looking at franchise deals.

I think they're looking at all sorts of stuff like that. Creatively,

we haven't even touched it, and that's where the money is going to come from. I don't think it's going to be counting vehicles. But I would

also argue that Tesla will be under much more scrutiny with increased competition then it has been people. I mean, people have sort of forfeited Tesla dominates,

and I don't think Tesla has any idea what's coming with the competition that's headed.

I think the one question of phoebe on that is where you know, all of the all things are equal at that level, everybody's going to try to do subscriptions. Everybody's going to get downstream revenue, and that is a

game changer for the OES. I mean, up till now, everybody else

profits after a car's built, everybody but the OES. I mean, it's

it's the worst possible financial model you would ever developed. And I mean that's

what Tesla was able to sort of reverse engineering going in. But there you're

still dealing with the legacy cost and the high infrastructure costs issues of those companies.

For instance, I spent we spent many days inside of Tesla when I was at Delphi, we'd have leadership summits there and you would hear they're lamenting of the supply base that they have to deal with in the traditional OWE space and their inflexibility and their inability to do things. But what you found out

was from Tesla that you know, they they're working on a level of engineering base that's probably about one tenth of what's going on inside the other companies.

So even the cultures inside EOS in terms of how to get things done, how you do engineering, how you iterate, how you move from point to point. P the Tesla guys because they would be frustrated with us because we

couldn't move at their speed. And all those guys were x GM guys.

Let me ask you this, though, but if Tesla produces three vehicles, that's all you get. You know, S three, X and Y that's

it. I mean GM is not producing four vehicles. Ford is not producing

Ford vehicle four vehicles. GM is not producing right, So if you've only

produced four vehicles, you are going to slash costs. I mean, it's

such, it's such, it's I don't think it's a fair comparison. Doesn't

mean one is good or bad. But to say one has so many more

costs, I mean, you have huge choices. And in fact, I

think one of the mysteries for Elon Musk right now is the idea he can't figure out why you know, stuff isn't selling faster. And I think because

people young people have seen the Tesla. It's the same Tesla. You know,

you can do talk over the air off dates all day long, but you know twenty some things and thirty some things. They want to see new

stuff. They want to see a new shape, they want to see new

colors, they want to see new designs, and it's the same old, same old. And I don't know if if you know Tesla can make that

go in the future, can it or do the others scale back to that level? But but Phoebe, isn't there something still about the certain panache of

owning a Tesla versus owning afford or owning that I don't think Since Twitter, I think if Elon Musk had not engaged in Twitter the way he has, I think that you know the number of people that I know who aren't even political, but they can't stand the affiliation and would never buy one. Who

would have been candidates. So I think he hurt himself more than he knows,

and I think and you don't recover from that. So I think his

Twitter endeavor has hurt his Tesla, which a number of the Tesla investors have acknowledged. I mean, it's really hurt him in the brand. It's the

brand. But given given the fact that Tesla has this much of the market

and all the rest have this much of the market, he can lose a lot and still be doing. Okay, we'll see, I mean, these

are all these are all new people you want, all these new buyers.

We'll see where they go. But the point I think they on Tesla that

DBMA is really important. They've only got four models, right, so that

they're all on a common based architect for two two different two different based architectures, and they've just completely again if you the vehicle looks the same, but that vehicle has changed almost completely underneath over time as they've made you know, they've gotten very smart on manufacturing very fast, and so whether or not they can vary their products enough to stay competitive as others get their game on, I think is a legitimate sort of threat to them, for sure. At

the point I was making on The cost isn't so much just architectures and numbers and engineers and things. It's just the inherent costs. It's just the dealers

along and Farley talked about this constantly. If you look at what happened when

we COVID had had this this odd benefit of draining the dealer lots. Because

you make money when you build the car, not when you sell it, there was always an incentive to stuff the channel and that's why we had all the rebates and all of that. And I worked at the biggest dad agency

network in the world selling Forward's at WPP, and you know what was global Team Blue or Team Detroit basically became dismantled on the back of not needing to market those dealer cars anymore because they drained the lots. So I think,

you know, but that whole infrastructure, floor plan, transportation, rentals, dealers, training, salespeople, that's all costs that those guys are not dealing with. And that's the stuff that I think fundamentally has to change. If

there's gonna if the other always are gonna are gonna compete, and I just I just got to wonder, I mean, is that why Ford was split into three distinct companies. You know you and that's you know, you know,

sort of the easiest game to play right now, you can have everybody saw that when it was done. But it question is not if, it's

when do those business does get spun off as independent companies. Do you think

that will happen? Chris? I mean, one of the things I wondered

is if Ford wanted to not have to use franchise dealers as you know, legally in the United States, if you're a legacy automaker and you've used the franchise dealer network, I mean, you're handcuffed to it. There's no way

of breaking away from it. Farley's talking about with their evs with Ford model

E, you know, the new business unit that does only electrics of having a direct sales model or awfully damn close to it. Now, I think

they'll still want dealers because you've got to go pick up your car someplace.

Now, maybe the dealer can deliver it to you, but you know, as you're shipping stuff out by rails and trucks, it's so much easier just to go to one dealership and drop off a bunch of cars, and that will help lower your costs. But you know, Farley's talking that there might

be at least a two thousand dollars cost disadvantage to Ford and other legacies versus the test law legacy model. Could it be that they would spin off Forward

Model E as a standalone company that is not beholden to the prior company's legal binding to the franchise system. Phoebe shaking her head. For those who to

the podcasts, I just think it's cutting off your food supply. I mean

I think you have to be tied to ice. You have to be tied

to ice. I mean, oh yeah, you only talking electrics. I'm

only talking about you do some thing. I don't think electrics can be spun

off because your entire infusion of money evaporates. I mean, you've got you've

got to the money is all being made by the ice products. I don't

think that's the only thing that would keep it from splitting off is you've got to have access. Well, I don't know you could. You could,

you could find a way to restructure. I use the word restructure. Um,

I don't know that you does necessarily fully spin, but you could restructure a legally restructure of business that you still own, and I think that's you know, there's going to be a sort of an evolutionary squeeze on a dealer network, I mean dealer business, and I know many dealers the consolidation going on already in dealer networks. You talk to dealer families, of which you've

got we've all got friends in that space are selling out or doing There's going to be a continued compression of the dealer model. I still think it's an

advantage for the os to have sales points that they can deal with. And

I don't think you're but as those dealers shrink, their political influence shrinks.

You know, during the bankruptcy at GM, it was fascinating, you know, when the government came in and basically sat everybody down in a room and look at the GM executives and said, you guys are gonna shut up and do what we tell you. And they looked at the UAW and said,

you guys are going to shut up and do what we tell you. And

then they looked at the dealer networks and said you're going to shut up and do what we tell you. Well, guess who didn't shut up and didn't

do anything the government told them. Okay, the dealers stuck it to the

government when the kind I mean there was some restructure, but not even remotely close to what the original plans called for, and the dealers political might was on display. So I would say, as dealers, it's a dealer networks

continue to reshape and lose some of that influence and franchise laws often and things happen with the other competitive sets where you can't really defend franchise. I think

Forward and others would have more room to maneuver. But I think you know,

the you know it'll it will equalize, and I still think you know that it's a very big market to grow into. But but the economics,

going back to the margins questions, you know, there's a reason that that Tesla has such superior margins right now. Whether they can sustain that in a

competitive markets probably questionable. But but there's a long way to go for the

oees to get to that. But but Chris, you know, we keep

talking about it as though there haven't been traditional oees putting electric vehicles in the market in the last several years, while Tesla has continued to dominate. You

know, you can buy Mercedes, you can buy an Audie you you know, you can buy a forward, you know. And on it goes,

and these guys just keep on keeping on and then one sort of strikes me and this goes to you, phoebe that Okay, So you know, one of the things about Tesla has been that they've never advertised. Okay, look

at all the money that traditional OEMs pour into advertising. You know. I

defy you to watch any sports on a Sunday afternoon and not see like a automobile ad during every break. Right. So if advertising works and suddenly they

say, hm, we haven't done this before, let's advertise, their share may even go up. I don't know. I just again, I think

Tesla is such a well known entity that you know it. I mean,

people know what it is, and that's why it creates such space for Volkswagen, for general motors and for the competitors. I mean, if you know,

if Tesla's been at the party all these years, you know, you know what the conversation is going to be, in the experience is going to be. But you've got new people coming to the party, and I don't

know, I just think I think it's going to be Like I said, I think it's very rude awakening for Tesla. Nothing against Tesla. I know

people who drive them, they love them, But I just think the market.

I think it's going to be just a big shake up. I really

do, as soon as they get online. I mean, we just we

haven't seen the volume that we could. But when you see other vehicles by

other automakers, I mean, crowds gather around and they talk about them.

And I think General Motors also is advertising so much. And every time you

go to the movie theater you see General Motors. But I think all the

companies, you know, Tesla just announced it's going to start advertising and and so we'll see what that looks like. But I think they're all sort of

segmented. You know, they've got segments they're going after. Now. I

think it's changing. It's Jim Farley at Ford saying we no longer want to

be all things to all people. You know, he wants to create high

margin vehicles and if you're a family or you're a business owner, then we want you as a customer. I think that's where they're they're thinking. Would

you say so, Chris, Yeah, I do. I think that's right.

And I think over time, you know, they have have equity in their brands that are just going to pay off for them. And I think

there's also the issue of you know, people don't want the unknown. You

know, everybody who's an early adopter gets excited about Tesla. But you know,

there's two issues that are facing everybody. One it's the market is exceedingly

rational at its mass level. In other words, you know, it is

price sensitive. We see that in the marketplace now. Prices have now risen

to a point where they're squeezing people. And that we saw have a big

expansion and use car prices as a result. And I think things are going

to moderate. But you know, can they keep margins high, keep keep

the volumes just right, resist the urge to stuff the channels and go back to bad habits. I mean, that'll be the test of this next cycle

as the supply chain loosens. But again, those vehicle development programs cost a

ton of money, and you are subsidizing the other side of the house with the higher margin vehicles. And the other thing that happens too if you just

talk about environmentally, you know, what's the regulatory play here? Will you

see some move based on the US market to do more mandating of or acceleration by Fiat of those vehicles. It's harder to see that than it's happening in

say China and Europe. But that's the other hard thing for the global automakers

right now, there's a dislocation in how you do product development. You've got

a much bigger incentive to build these cars in other parts of the world than you do necessarily in the home market. And so you know it's going to

play well for the European brands. I think in the short term it's going

to put more pressure on some of the domestics. Hey, I've been so

sucked into this conversation. I missed the point though we've passed a half hour

point. We got to give a shout out to Bridgestone, our great sponsor.

Here, how do bridge Stone tire 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 Bridgestone. I picked

for that. Bridgetone. Okay, quick question, Chris GM versus Ford GM

is in a race to everybody's in a race to scale. When it comes

to evs except for Tesla and BYD in China by the way too. But

they're taking two different approaches. GM has got a common platform, it's going

to drop everything on top Farley is saying, no way, I'm not playing the top hat game. We're going to have target you know, rifle shot

targets of specific segments of the market, and we're not going to use a common platform. We're going to optimize each one of those products for its specific

mission. What do you think? I actually both strategies sound rational to me.

I wonder what your viewpoints are. Yeah, I think it's a it's

a it's a hard call because I think of just what Phoebe said about how do you create margin driven vehicles that you know you can you know, amortize those costs more equitably, and logic tells you that common fewer parts or a better way to amortize than having multiple platforms. I just think it's kind of

surprising how GM has stumbled keeping up on the race. I mean, I

think Ford really kind of shocked everyone with how quickly they got Machi into the market. And I will tell you the making the Machi a Mustang, which

was such a controversial move. I was there at that time, and I

saw the previous program before it became the Mustang program, and I will tell you it, Varleby gets credit for one of the most master strokes. And

again, you know, there's probably different people that would claim that decision, but to my recollection, Jim had a big, big hand and making that Mustang call. It just shows you the power of brand and being able to

play specifically the niches and do it credibly. So that's why I go back

to F one fifty is such a leg up. I have a hard time

looking at that Silverado and thinking, if I'm a truck person, yeah I want I want the Silverado over the F one fifty. I think the F

one fifty just looks like a much more compelling offer. So where were you?

I was just gonna ask Chris why he thinks GM has stumbled. It

has been a mystery though, why do you think that is in terms of getting these vehicles out? All right? This is where I'm gonna probably get

into trouble because when I came to Ford out of GM, thirteen years at GM, and I came to Ford right during the Alamalala years, and my boss at Delphi. When I went to Delphi after being an my first Senate

forward between twenty eleven and twenty fourteen, he had asked me the question, like, what's what's the difference between the two companies? And I you'd think

two major players in the same geographic area and the same business would have typically the same cultures. And it was shocking to me that it ford. You

know, to me is you've got to know more of their systems and things.

You know, they didn't have nearly the engineering brute force that GM did, or let's say the depth of R and D acumen that you could see a GM. So I kind of told Kevin Clark, I said, it's

kind of like four. It's a bunch of C players that Allen makes believe

are a bunch of A players and where they just overperform their game. I

mean, they just punch above their weight. And GM had this just this

bevy of capability, but just they were a bunch of A players that acted like C players and they couldn't get out of the way. And I think

some of that maybe you know, GM's you know, ability to get all the parts to meld together and to get from point A to point B.

You know, I think are still hurting them to some degree. And I

have a huge regard for GM, love that company dearly, and probably if I had to identify with any one part of my career would be definitely I'm a GM guy. But I think the four they just, you know,

they have a weird culture and but they they punch above their weight. I

mean, the the warranty stuff at Ford's really a huge, huge issue and I think would kind of be indicative of that. But but GM's and ability

to get out the gate on EV's, you know, and even the Blazer seems behind from what I don't know exactly when they were promising, but it just seems like, you know, they've been hyping things a lot longer to stay in the game on a pr level and not really producing, and it just doesn't seem to make a lot of sense. You think they'd have more

capability than anybody in the industry. You know, that's interesting what you're saying

there, Chris. My way of describing the difference between GM and Ford is

GM is very engineering and process oriented. Ford is very marketing oriented, and

so you know, Maki becomes a mustang brilliant marketing move. Yeah, the

first EV that they really stick out there is a lightning and it's an ice based one. And I felt all along that doing ice based EV's big mistake.

They did a hell of a good job with that lightning, And again I think it's because it's a marketing driven organization. It's a great insight.

I would disagreed. And also I think the appoint fifty, even though it

was on a common architecture, it was an excellent execution. I think that's

the other thing that surprised everybody about Machi. It was just a really really

good car. You know, it wasn't as if it came out and just

you know, underwhelmed everybody. I mean, they really delivered a great experience.

And you know, if you talk about the problems with Tesla's, I mean there's just they're soulless. I mean, if you really like sitting,

you know this idea that it's this sparse environment that's really you know, some sort of a modern aesthetic. No, it's just they're so they're trimming every

possible cost they can, and people don't like sitting in a soulless, blank environment. Eventually you get into a Mochi and you're like, Wow, this

looks great. It's got textures and mobs and looks great and drive as well.

So yeah, I think that's But I the GM thing's a mystery to me, John, I don't. I don't. Maybe they're gonna, you

know, rebound strongly and they're gonna come on strong, but they're also making curious moves like killing Apple Car playing things like, you know, giving people the more reasons not to buy them. I just don't get at all.

So Phoebe, when you when you talk to people at Ford, I mean, did they ever talk about what they see going on at General Motors.

No, they don't, um And part of it has to do because lately, I would say, in the last year to two years exactly, Chris just talked about the icons and it's very marketing lingo, but I believe it connects with the public. So they're so focused on their icons. I don't

know that they see their competitor across town is having that level, the Mustang, the one fifty, the Bronco. I mean, I think Bronco obviously

is not an EV but I think it's not you know, it's well and it's it's competition with Jeep has just been unbelievable. And so I don't hear

Ford people on the record or off the record really focused on General Motors at all at all. They're doing their own thing and they're just trying to shape

the market themselves. Would you say, yeah, I would agree with that,

and I would just that was the other part I would say about being a forward versus GM. I mean, there's a lot of hubris in that

company. They are very focused on what they do well in that respect.

I mean that in the positive sense, not the negative sense. I mean

they understand what they do really really well, and they just do that.

And I think Broncho f one fifty Mustang centering the business and the expansion into evs on your two best name plates really really smart. I mean, GM,

to be honest, probably had one of the best EV executions and values in the marketplace for years with the Bolt. I mean they were in early.

It's very efficient package. They got LG to basically pay for the development

of that car back in the day, so on a variable cost basis.

It was actually not a disaster. And you know it, but it's a

Bolt. I mean, it's just it just look at it. I mean,

it's not going to carry that kind of emotional appeal, and it was kind of hamstrung because of that. And if you look at the existing space

even between Ford and GM, and then in the regular sense, I think John, you had said, you know, Cadillac, I was there in ninety eight when we did art and science and rebooted the brand, and you went to Lamar with us in two thousand and all. No, I never

did. I never got invited. And it still pisses me off about that,

John. But but the point being, you know, they've been doing

Cadillac now for you know, twenty up years, and they've got cars that are world class, world beaters, and they're still not really you know, hitting the mark, and it's still an escalad brand. And you know,

Fords like that in the reverse sense. They put all the volume into the

vehicles that are those icons, and they've written that into the EB market and I think it's brilliant. So we should we should talk we should talk about

the third company in town. I mean, we we've not talked about Stilantis

at all, except for for Phoebe your mention of Jeep. So I mean,

so, what's your sense of what's going on there. Um. Part

of what Ford's doing well and Jeep has always done well and they'll have to build on this is that it is striking to be the number of people who view their cars as their community. For it is building at it just an

incredible speed because people will spend money to be part of that community. Right,

that's another revenue stream. So with cheap you've got that. Stilantis,

they're putting a lot of good people. They're moving people around. Let me

just say it like that. Stilantis is moving a lot of people around,

and I think they're poised to make some surprises. I mean, John,

would you say they're getting ready to reveal some interesting stuff. I'm waiting to

drive the electric Fiat. That that's I'm waiting. I loved the gas powered

one. Everyone told me it was terrible. Don't say that out loud,

but I'm looking forward to driving the ev Fiat. I think it's going to

be fantastic. Yeah, it look Stilantis is on the ice side. They're

doing brilliantly. I mean there are margins at the end of last year.

Even Stephen Wood teslas for Stilantis North America on Talk and not not the global group. And you know Stantis North America. They're hall in the mail.

I mean, they're like forty percent of the size of the company, but sixty percent of the profits more or less. And so I think they're doing

terrific, But now they've got to prove that they can do it on the electric side. One good indication is their PHAs the minivan Pacific and the jeep

Wrangler pehabs. They're off to the races with those things. In fact,

they're doing better than Toyota with PHEVs. And I just heard somebody say that

they expect the Wrangler p have to go to fifty percent of sales. You

know, they topped out I think last year twenty five to twenty eight percent, which was a total shock to me. And now this talk of going

to fifty percent is they seem to have found something that really works with their customers. But now they've they've got to prove that they can do it on

pure battery electrics. But the question too, though, is every time an

executive at Stalantis has an opportunity to speak, he or she talks about how evs really aren't the future. It's too costly and we're not that excited about

it, Well I don't. They may as well put the news around their

necks because there's no question where this industry is going and the races. You

know, as I said earlier, the race is on now to hit scale, and whoever wins that race amongst the legacies is going to have a big advantage over everybody else. And and it's more than just that, right,

you know, it's you know, following the Tesla model of how you do product development, go back to first principles. Do a software defined car,

develop it with digital twins, have centralized zonal architecture for your electronics, have a dedicated EV plant. Have a direct sales model or at least some sort

of sales model that gets rid of most, if not all, the inventory.

I mean that that's where the real challenge is right now. And so

if I hear legacies going, you know, electrics, you know, we don't have to worry about it. I h you know, they're they're whistling

past the graveyard, John. But isn't isn't the I mean, consumers don't

care about digital twins or any of them. No, no, no,

you're right there. And so so the question becomes, how are consumers convinced

that this is what they want to spend their money on, because I think that's the big challenge. And look, everything that I just listed there is

how you take cost out of the vehicle. It's how you provide new and

innovative features with over the year updates and and and are able to do design changes on the flies where you go from stampings to giga castings as just one example, where you are able to pioneer an entirely new assembly process. And

if you're not ready to work at that speed, if Tesla doesn't kill you, the Chinese will well. BYD I think is like the pac Man of

the industry right now. I think they're moving right. When you say by

D is the one to watch, absolutely, I mean it's put Tesla in a really tough position in China, and they're coming this way, you know.

I mean, they know what they're doing and they're coming this way.

And you know, but the Chinese are also benefiting again from state sponsor capitalism, right so they have a huge amount of investment coming from the government.

They've got a regulatory structure to incentivize a market to go in that direction.

They're investing in the infrastructure, and they have the pure will to assert it and make everybody do it. And you know, that's those conditions are never

going to be existent in this market. And I still think that the reality,

like my mentioned before we got out of the air, My wife's back home in Nebraska this week. I can tell you her her father in law,

who's or my father in law. Her father, who drives a pickup

truck all over the Midwest delivering furniture, has a you know, one hundred and eighty thousand mile two fifty truck with a duely trailer, is never going to be driving an EV vehicle, and the whole proposition is absurd to him.

And I think that's that reality is always going to be in this market to a certain extent, and I do think it's always electric vehicles are going to win when they're simply a better value proposition and a better experience to drive, and anybody who's driven them and and has that experience is overwhelmed. I

mean, my best buddy drives a Tesla Platt and I just cannot get enough of being in that car. Right, So that's what drives the market.

It's it's it's not a mystery. And I don't think people care about as

long as they can get where they want to go and it makes them happy to drive it, that's what they're going to spend on them. Yeah,

what appreciate your Your father in law is a perfect example. Those are going

to be the last people that go to EV if they ever go. But

you know, I was just up at the Maca Island Policy Conference and uh rejeeb Zal, who is a battery startup company. He's the CEO x Ford

guy, I believe. Um. He's got a company called one Hour Next

Energy and he's got a battery that will do six hundred miles plus. It's

it's kind of two chemistries in one battery, one for short range, one for long range. And that's what he's preaching is that twenty five, twenty

twenty six, six hundred miles is going to be very come, very common.

And he says that's going to get rid of not just range anxiety, it's going to get rid of charging anxiety, because you know, every six hundred miles or so, you plug in overnight and bada boom baa day you're done, or you go to a fast charger once every couple of weeks and deal with that. So, I mean, this whole ev thing's not sitting

still. It's moving forward, all right. But but Chris, let me

ask you, okay, when you were at Delphi, Okay, if you guys came up with a new technology, how long did it take for a it to be certified for use and how long did it take for it to be implemented? Because I mean I read every day and as you all do,

about these new batteries, new chemistries. Knew this, knew that.

But I mean, I just don't think the oms are gonna go, wow, this is great, let's just stick it in. Well, it takes

a long time, and it also takes a lot of testing and validation and all those things. So when you're talking about something it's going to get six

hundred miles and somebody's you know, Series B financing package for their startup, versus where that's going to actually end in the car, you know, it takes a long time to get there, and eventually the market will get there.

It'll just be an iterative generational thing. I mean, I laugh.

You know that we fought the California Air Resources Board tooth and nail for thirty years going back to ninety six and the ZA mandate and just you know, talked about what a horrific oppression that we were living under. And I wrote

most of the press releases for GM doing that and made a good career move on it. But the reality is the engineers just want to solve problems,

and so you give a problem for an engineer to solve, they just want to go solve it. And that is what AND's ironic. I was kind

of cracking up. I mean, we should all thank the California Air Resources

Board that you know, I can buy a minivan that does they were the sixty and seven seconds. If it wasn't for the regulations for emissions controls,

we wouldn't have cars that drive absolutely spectacularly. So I repent of all of

my venom at the regulators. It's somebody who loves to drive, because in

the end game, that's what happens. And I think that's where the ingenuity

and the market driven forces and the market sort of orientating around regulations are going to get us there. I just don't think it's going to be quite as

fast as the true believers think it'll happen. And I do believe there's going

to be that gap for certain parts of the market where a hybrid or some other technology maybe hydrogen I see type technology or will solve hydrogen storage down the line, that you'll have that ability, and maybe even you'll see infrastructure moves where over long haul electrics become more usable because we've got highway infrastructure, we don't have to charge anything. It's either going to be you're connected to a

grid somehow through some technology or wireless technology. Or remember street cars have been

running around on electric motors since the you know, the the late nineteenth century.

So it's not like we can't um do this. You know, there's

there's ways that it will happen. But I just believe it's going to happen

when the when the consumer market wants it, not not when somebody you know decides it's going to solve, you know, some other problem. I would

remind people that the consumer market wanted pet rocks and bottled water, so you know, you're willing to pay a dollar for a bottle of water, but not the three cents out of your tap. So I you know, I

don't agree I have done well. Chris, Chris, where you at GM

when Saturn existed. I sure was, so, you know, I was

thinking about you know, so Sophoebe was talking about, you know, the sense of community and remember that there was the Saturn Home Company coming and people would go down there and people will get married in spring Hill and um, you know, and John was talking about innovative manufacturing processes and be able to switch things really quickly. And remember they had the birdcake structure and they're saying,

oh, you know, this is injection molding. We don't need to

have expensive tools. Will change all the time, which of course they never

did. And then there was even the different dealership model where it was basically

fixed pricing and you'd go in and they give you a thing of popcorn and say, hey, look around at your at your leisure, and all of that disappeared. So I guess I wonder, like, is this industry capable

of changing? Ordon need to have these new entrants that have a whole different

model to make a successful run at it. I think, Look, I

remember distinctly in twenty o nine being in on the top floor of the Rent then with Bob Lutt and Ed Whittaker and who is the AT and T designated CEO and some of the government overlords about all the things we were going to need to do to get into the to the game on technology and and sort of reinvent ourselves, and all the reasons that we couldn't do that, And it was Tesla alone at that point. They were you know, they were

still selling I think the lotus, you know, the roadsters were just coming out at that point, and I just remember Lutch pounding the table say, if if Elon Musk can can string a bunch of laptop batteries together and make a car work, it's impossible that we couldn't do it better. And so

the competitive forces drive decisions in the car companies. It's the it's the beauty

of markets and it's ultimately what got the industry moving was was Tesla. It

was and Tesla benefited massively from the ZEV mandate because they fueled their business on all of those credits. They could sell um by always it couldn't move that

fast, so it's gonna be they have to do it. That's when going

back to the restructuring question, it just inherently, you know, I don't believe it can be done until you fundamentally restructure the companies from a capital stamp point, but more a cultural standpoint. And I'll tell you the other thing

I learned at Delphi, which was a company that was completely rebuilt, has nothing to do with the company that the GM ofted. And it was put

together by a bunch of private equity guys who are just absolutely smart as you could get. And but they were driven like nobody's business to do what they

do and they didn't exist in a world that good enough was good enough.

And that's why that company, now active, is one of the most profitable and is the Wall Street Darling and the automotive category, and they are delivering massively in a way that everybody said they couldn't on such lean staffs, and we can't. And I hated it too when I was there. Couldn't believe

what they would ask us to do. But the auto industry needs a cultural

change. It's just that's where I worry the most. It's not in the

DNA of the engineering cultures in those companies to be the kind of cutthroat innovators that are coming at them from the other startup us and they keep trying to hire people to infuse that and I don't know if that'll do it. Hey,

we're gonna have to do a whole other show. Have you guys back

on. We're at the top of the hour here, so I want to

wrap it up. But I think that's the perfect note to end it on.

But it also was setting us up to do another show too, because I love what you're talking about there, Chris. I'm up with you one

hundred percent. Culture change. It's going to take a culture change, and

you know, the hardest thing to change is culture and people's behavior. It's

just difficult. But anyway, Phoebe Wahoward, thank you so much for coming

on. We're gonna get you back on. We're gonna get Chris back on.

At some point we let we'll let the dust settle here, but we're gonna do another show on this. It's just too good of a topic.

That a pleasure of Thanks. Good to see you, Chris, good to

see and Gary. So please that you're able to call in from Austin.

That's it. You did it last week from Macanasso. I had to do

from Austin. I know that, you know, even though I want to

get back in the studio, that's one of the advantages of doing this virtually.

We're good you see you guys, and thanks everybody for having tuned in.

Thanks so much. By now Autoline after Hours is brought to you by

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