AAH #657 - Tesla's Owner Loyalty Blows The Rest Of The Industry Away

Other line after hours. This brought to you by Bridgetone Tires Solutions for your

Journey, Gary, I bet everybody watching is wondering, Hey, is that a split screener? Are those two guys sitting together? This is This is

like the first time in three years that we've been physically together, physically together, that's right. This is this is thanks to a power outage. So

power outage at Gary's house, and we've got if the internet connection here.

Actually the connections fine, but the signal is not very strong. So hopefully

we'll be able to get through the show. And I really want to because

we got a couple of great guests that are coming on right now with us, Tom Libby from SMP Global Mobility, who is an absolute expert on things like loyalty, as well as our friend Joe White from Reuters, who heads up the coverage of Detroit, and it's out a magnificent newsletter that I recommend that people sign up for us. And Gary's talking about car ownership loyalty because

I've got my dog lying down on the floor here behind us, and she's very very loyal too, But that's not what Tom's going to talk about.

You. You guys did this study and you found that brand loyalty has been

going down for the last fourteen months running. How is that to be the

case? Well, um, actually it started to go down um a lot,

uh with when the inventory situation started during the during twenty twenty, with the pandemic, um it was it was pretty much level. But then starting

in twenty one, early twenty one, late twenty it started to go down.

And and uh, it went down and down and down. It was

in the fifty five range across the industry and then it went down to it actually kept going down, and it actually went down to between forty nine and fifty and that that occurred about last fall approximate group. And when you say

that, you mean people who would have been loyal to a brand went out and bought a car from some other brand. Yeah. Well, what I'm

saying is if it's fifty percent, that means of all the households to come back to market and acquire a new vehicle, and whatever time period you pick, fifty percent get the same brand, which means fifty percent don't. And

so when it was fifty five percent, you know you had more than half of the people getting the same brand and then when it went down to forty nine percent, that means that more than half of the households to get a new vehicle or switching brands, which is pretty amazing. But anyway, so

it was down in the forty nine range last fall and then it began to come up. But the problem is that it stopped coming up, and so

it went from the forty nine to the well fifties and then it's stalled and it's been between fifteen fifty one ever since. UM, I think the main,

the main driver of these the chronic loyalty is, without a doubt, is the inventory situation. Historically, Historically there's a there's a strong correlation,

it's over point eight between inventory and brand loyalty. And it's very it's very

intuitive. I mean, when a household comes back to marketing or they want

to get such a suction, they go to the dealer, they don't have one, They're going to go to the dealer down the street who may have a different brand, but have the vehicle they want. So UM, that's

the inventory is is still driving it now. It's still low. UM inventory

though, inventory even though people say you know it is coming back, inventory is still low and for several brands. Actually it's very low. So UM.

Anyway, long answer to your question, Gary, that's sort of the background of why it's low. Tom, I'm interested if you can. If

you can, I mean, I think you can probably isolate the Tesla effect in this UM because Tessa, in that same period that you're talking about, Tesla went from being you know, relatively scarce and to actually quite a fair number of Teslas around you. They're they're much easier to buy than they were,

say a year or two ago. Yeah, I'm just curious what what

would impact Tesla has had on the on the on the disloyalty of consumers.

No, that's that's a good question. Um. Tesla as time goes on

from many perspectives, it's just very difficult to categorize Tesla. I mean,

it's so unique in so many ways. It's loyalty now is um it's in

the high sixties, remember the industries at fifty and UM, so it has been Uh, it has not gone the way I just described. It basically

started going up about shortly after the Model Y came out, and you had a lot of Model three households coming back and getting a mode of why anyway?

So, um no, Tesla has got has followed its own paths, and it now is not only in the upper it's about in the sixty six sixty seven percent range. It's higher than any it's higher, substantially higher than

any brand in the industry. Uh So it's it's uh again, it's it's

on its own program. And it's difficult. First, there's no benchmark,

you know, there's nothing, you know, you can compare a Toyota with a Ford or cheval Way. How are they doing? But who do who

do you compare Tesla too? I mean, so, so it's offering its

own program. But I hope that answers your question. That's followed a different

pan. Well. One of the things that I found that was that was

somebody interesting speaking of Tesla that when you guys looked at the luxury brands and of all of them, that Cadillac and Lincoln had the lowest defection rates to Tesla. And I was wondering, you know, how do you guys interpret

that? I mean, it was, you know, it stood out the

difference between those two and everyone else. I mean, Mercedes is losing,

BMW's losing, accurate go on and on and on. But those two,

you know, are pretty pretty well positioned. Now that's an interesting question.

And actually if you look at the mainstream brands that are going to Tesla, the ones that are going to Tesla at the lowest rate or the legacy domestic brand. So it very much fits a pattern that if you if you think

about the buyer profile of a Tesco buyer sort of overall a general profile versus a Cadillac or a Buick buyer, the profiles are quite different. I mean,

the Tesco owner is much much higher, Asian, much younger, much higher household income. So we find that in the mainstream brands, the brands

are losing the most the Tesla and they're losing a lot, frankly our Toyota and Honda, and it weighed on at the other end of the range at the very low end are Ford and Chevrolet and Buick and so and so forth.

And it's the same thing with the Again, if you think about the Cadillac profile, I mean, Cadillac buyer in general is older and is so that that in itself just does not fit with it with the Tesco buyer.

And so it's pretty I think it makes pretty much sense. Um, that's

my that's our take on it, Tom, go ahead, n Yeah.

Do you think it's also because of the limited lineup of evs in Toyota and Hondas or lineup. I mean, if you're somebody who decide, boy,

I really want to get an electric vehicle, you have one choice from the Toyota brand and zero from Honda. Do you think that's it? And and

do you think when they come out with electrics that might reverse it? I

think that's a valid point, John, But I would I would say yes.

But on the other hand, I have a brand that goes against that trend, which is Volkswagen. Volkswagen. Um, it's also a brand that

loses a lot to test the relative to the other mainstream brands, yet it has it has the ID four. But I think I'm sorry, go ahead,

John, excuse me, go ahead, No, I'm just another point of that. I'm you mentioned Volkswagen. I'm curious about the some of the

other German brands because the buyer profile you're talking about, you know, affluent, younger, is also the buyer profile that BMW UH is somewhat lesser stem Mercedes, but certainly affluent for them. Right, maybe not quite as young

Audie. How are they doing against Tesla in that regard? No, that

the interesting question again. Um you know, I think one way to look

at Tesla based on their portfolio is it's it's really two different brands. I

mean, if you if you just look at the S and the X Mercedes benz is, you know, with the EQS and the EQUSSUV. Mercedes is

holding its own and so its Porsche with the Tychon, which is impressive.

I mean they've been able to actually competing against the models. They do a

pretty good job. The challenge is the Model Free in the Model Why,

which a lot of people really don't think should be classified as luxury vehicles.

It's completely different in landscape, I mean, very very high volume and so and Mercedes and UM in that category of the lower priced luxury vehicles. Frankly,

the Why and the three particularly the Why are are just leaving everybody in the dust. And to mention one statistic, you may not you may be

where up in case or not. In February, March, April and May.

Every one of those four months, the number one model retail to individual consumers in the US was the Model Why. So it beat the F series,

the RAV four, the Silverado. So that speaks to the popularity of

the model y. So whether it's Mercedes or Toyota or Ford, the mottel

y is just what, Yeah, you froze up on a stair, John Finish that thought the bottle y against that, I'm sorry, I'm sorry.

The mottel y has such high volume. It's pulling from everywhere. It's pulling

from your luxury brands, and it's also pulling from mainstream brand. So to

answer the question about how Mercedes and Audie and so on are doing again with the high end, they're doing all right, but when you get down to that middle and lower price, they just they just can't compete with the Why and the three at all. Well, I thought it wasn't you know,

speaking of vehicles like that and the brands, an interesting statistic was if you guys looked at where people who have defected from Tesla go and Mercedes comes out on top, but it's only three point two percent. Go to Mercedes,

two point eight, go to BMW two point eight, go to Ford, two point six, go to Rivian. And so I'm wondering, you know,

there's been a lot of discussion of okay, when other brands have models that they can put up against Tesla, that people will go to them.

So I mean Mercedes now has several evs. You know, Ford has the

Lightning and the Mache BMW has several and yet the numbers are laughably slowly low.

How do you well a couple of things. First of all, you

know, we have a metric called the conquest affection ratio conquests coming in and the numerator defections going out in the denominator. So obviously you want to be

above one, and the industry overall obviously is one, because conquests actually equal defections if you all across the entire industry. But anyway, um uh,

Tesla's ratio right now is somewhere between four and five. That means that for

every four coming into Tesla, one goes the other way. So um.

And by the way, that's down if you go back a couple of years, there was in the sixes and sevens and eights. So um. I

think your question, Gary really leads to the whole issue of you know, Tesla frankly going way beyond the cars, and it's the image he is.

This is my opinion that he has image of the brand but also of himself that is an extraordinary draw. I mean he has created an image of himself

frankly as a winner whatever he does. And also he's an extraordinary visionary.

I mean he you know, he talks about creating a colony on Mars.

Now people can laugh, but he's he he has been he People read that and and then they talk about, what did you hear this? He's go

to go to Mars. I mean he He's had an extraordinary job. So

I think the appeal of the brand goes way beyond the cars themselves. And

I don't think that anybody can match it. And I think a lot of

brands think that they will when they come out with electric vehicles. But how

do you match that that overall? Hey, that image he's created and I

don't have an answer that question. But to anyway Gary, to keep back

the specifics, Yes, the numbers are strongly still in his favor, But again I would tell you when you back out the three in the y, it is a different situation, particularly with the luxury cars. With with the

luxury brands he has been able to the other luxury brands have been able to go almost one to one with the S and the X. It's just when

you pull in the three in the Y that it becomes a completely different situation.

Tom. Yeah, first of all, a question, but yeah,

your point about his image. I mean it's interesting, right because you know

there's the Twitter thing which on a lot of media I consume he's a very critical of him. Um, he's smart enough to balance in his own Twitter

feed or x feed or whatever he's calling it now, to balance that with the SpaceX you know, achievements which are pretty extraordinary even if you don't don't have you know, got issues with the way you know, Twitter is going.

But one thing I wanted to ask about, so you said that TESSAs like on that conquest to defection ratios of four or five. Who's on the

other end of that teeter totter, you know, you know the point point something. Yeah, Well, there's some brands, Yeah, I mean,

there are brands in the luxury market that, uh and I'm thinking of Infinity and Accurate and a few others that are extremely low i mean I'm talking, you know, way below one. It tends to be frankly, the weaker

luxury brands that are getting hurt the most. Um that that would be my

answer to that question. Yeah. So so speaking of the luxury brands in

general, tom Um, I thought it was interesting that if you look at luxury and you take Tesla out, so the average is forty eight point two percent of people that are there with it, Jaguars down at fourteen point six percent. How does a company like that compete? I mean, what if

you were a Jaguar dealer, Well, I mean, what do you do with your time? Well, there is a very strong positive and this is

data supported correlation between the number of models you offer and your brand loyalty.

We call it with the sort of breadth of your product portfolio. So if

you look at that entire bar chart from left to right, and you look over in the right the brands down on the right, I'm thinking thinking about Maserati, Jaguar, to a certain extent, land Rover Infinity, they have a much narrow product portfolio. I mean, Jaguar is an example. So

I mean again, it's intuitive when you come back to market and you want to get something that your dealer doesn't have, You're going to go to another brand or whatever. So again, and if you look at the left hand

side of that bar chart, Garry, you'll see that Mercedes and BMW and Lexus are at the left hand side, and they offer the widest portfolios.

The same thing in the mainstream section. If you look at the left hand

side of that chart, you'll see Toyota chevrolein Ford, although Toyota's dropped off a little bit recently, but they have the widest portfolio. Whereas if you

look at the right hand of that, you know, if you if you come back, if you're a Volkswagen owner, you come back to Mark and you've decided that you need to pick up, you're gonna have to switch brands.

So that's that's frankly, that's the reason, um why Jaguar is so over far over to the right. I mean, Jaguar has other issues,

I mean that, but but one issue is the product portfolio. Yeah,

that's really Can I just jump in on that. That's really interesting because I've

I've spent I've heard a lot in the last couple of several months about um, the you know, simplicity or simplifying product lines. Mary Barra said that

over and over again during their call. I think it was on Tuesday,

where what we're winning with simplicity, and they're trying to They're trying to a forward us the same thing. What you're saying maybe sounds like skinning out your

product line might actually be detrimental. I'm wondering if you can elaborate on that.

I mean, yeah, well, there's there's different different sort of perspectives of skinny. I mean, one is one is the stream levels. I

mean, that's one area where I think it can be very easy to get way too complicated. But I think another way to look at it is overlap.

I think what she was probably talking about is you don't want any overlap.

And we all are aware of general motors in the eighties and nineties when there was just overlap all over the place. But I said, but I

think that there is definitely a case to be made for covering all the segments in mainstream, and I think Chevrolet will still do that and Ford will still do that. They're just trying to But I will tell you though, as

as as a counter example going the other way, I mean, here I'm talking about how Ford and Chevrolet, Ford and Chevallet, Let's say they have approximately between fifteen and twenty models each. Yeah, Tesla has four four and

so that that sort of undermines the whole coverage. But again, Tesla's unique.

I would just very quickly give you another counter example of a brand that does very well on brand. Royalty has a lower number of models. You

might be able to guess, but it's Subrue. So Subru is not in

a lot of segments, but they do very well. But I think again,

I think that unless you're an extraordinary exception, such as a Tesla, if you're not going to be in certain segments. And I would mention Volkswagon

as an example. I mean, Volkswagen is a mainstream brand, but they

are not in certain segments, and I think that hurts them a versus to Toyota. So again, Joe, I would say, simplicity can be defined

many different ways, and it depends how you're looking at it. Tom,

do you have any data that looks at the loyalty of propulsion systems or power trains? And what I'm getting at is how loyal are people to electric cars?

And Douce, do you have any data that shows X number of EV buyers? Decide, Now I did my EV thing. I'm going back to

an internal combustion engine. Yes, we do have that data. We call

it fuel type loyalty. So because we have the fuel type of the vehicle

in the garage and we have a fuel type when they get their new vehicle, we have fuel type loyalty. And it's very interesting. EV fuel type

loyalty has been has been coming up and now for about five quarters in a row. It's been in the mid sixties, which is pretty good. That

means about two thirds of EV households to come back to market or getting another EV. However, as the same situation, a lot of occurrences Tesla masks

the underlying data. When you pull Tesla out, it's about fifty percent.

Now, let me mention something else. I'm sorry to make it complicated,

but we use a methodology as such that when a household returns to market and they get a new vehicle, that new vehicle could be an add on in other ways. We don't know it replaced the vehicle in the garage, but

I can tell you that when you pull Tesla out and you look at the all the EV households coming back to market, it's about fifty percent, which means that half of them are getting a gas or hybrid vehicle. But again

they could be getting a gas vehicle and keeping the EV. But so overall

EV is about fifty percent and be Tesla is about sixty seven percent. So

but but just also bear in mind, John, that that includes So if I go from a Bolt EUV to a Model S, I'm EV, I'm fuel type loyal because I'm staying with the same fuel type even though it changed brand, size, price, et cetera, et cetera. But anyway,

and what I'm interested in is where they go. You know, an eedy

household comes back to market and does not get an EV, where do they go to? And I've only looked at one brand recently, and that's Audi

and Audi. What's interesting is that the household goes from like an Etron to

a Q five or a Q seven. But it's good for Audi, and

they're staying in the same brand. And I don't know if that Q five

or Q seven is a replacement or an add on, but anyway, it's good in one sense and they're staying within the same brand. But but it

does make you question if they're coming back and getting a gas even if it's just a second vehicle, and they're keeping the EV why don't they get another EV is the second vehicle? For some reason, they're getting a gas it's

a second vehicle, And the question is, why are they doing that.

I suspect. I suspect it's for UH not to have an issue of range,

and perhaps they're taking long trips and they don't want to have any issues, so they get a gas vehicle. But anyway, I hope I answered

your question or yeah you did. But you know, would be interesting is

to look at some other brands. Yes, I say that is Audi's not

doing a very good job selling Etron. That's right. How I would say

it's like maybe five percent of their sales, right versus Mercedes and BMW's EV's accounting for eleven twelve percent of their sales were twice as good as as what Audi's doing. So it'd be interesting to see if it varies by brand that

loyalty to fuel type. I totally agree with you. One thing. We

have to wait, you know, for more of the households to have them long enough to come back to market to piece. The loyalty is all based

on what a household that already had one does when it comes back to market.

But yeah, I totally agree with You'd be fascinating to watch that.

And we are actually planning on doing a study of households that do go from a EV to a GAS to get their specific primary reasons why. And we

think the OEMs would be interested in knowing that. Yeah, I think so

too, Tom, I mean, they'd have to be right, and and there's probably dwelt on this enough for right now. But I'm curious too whether

some of the issue is is body type, right, I mean there aren't there there's like one or two EV pickup trucks on the market right now, really one right, there would be two or three? Uh there? Anyway,

you can see my point, right if if you really want to pickup truck, you've got more choice in gas and combustion by far than you do EV. And maybe it's I'm sure this this I can this database must be

must be pretty interesting to manipulate in that way. Well, what's interesting is

that if frankly, it changes so much from month to month. What I

mentioned to clients when I'm pretending these data is that you know you have to if you look at the fluctuation. Some of the models go way up and

way down from month to month, and I'm sure that supply issues and pricing, but so it's a fascinating market to watch and we're trying to watch it really closely. Um so um uh. Yes. Another another item. I

was going to mention about a reluctance to get a n EV that was initially talked about a lot, but I don't hear that much recently. Is there's

still a substantial price premium. And I mean, and also speaking of the

pickup trucks, I mean, and I think it'll be fascinating to watch the Silverado when it comes, but I mean that, and but those those prices are I mean, you know, they described the vehicle on and on and on, and they say this the starting prices X. I think the Silverado

I find wrong. I may be wrong. I think it's going to start

at seventy nine nine. Well that right there. I mean that eliminates about

seventy five. I don't know what percent, but I mean those as well,

unless you incorporate and go go through their fleet buyer program, then I think they've got one for about forty But yeah, you're right, Oh I didn't. I didn't really they've got they've got a work truck that I think

is oh, okay, never mind the WT that's coming out for seventy nine grand. Is that truck? Is that truck? Okay? Yeah, well

never line that one that is like the three WT, which you can get for the low low price of I think seventy four. I mean, it's

yea insane. But you know, speaking of trucks, Tom, I mean,

one of the things you guys looked at it was just a traditional pickup truck and you said, Okay, if somebody has a RAM fifteen hundred right now, they're having a monthly payment of seven hundred and seventy four dollars a month. Now they decide to get a new one, and you guys calculated

that there're nine hundred and ninety nine dollars per month. If they buy an

F one fifty, it'll cost a thousand, forty seven dollars per month.

And in the bargain is the Silverado at eight hundred and eighty six dollars per month. I mean, how many people go to market and say, yeah,

that's fine. Well, first of all, you're talking about all cast

vehicles, correct, Yeah, no, Well, I think the I totally agree with you. I think the The important point here is that um for

for a lot of businesses, pickup is a necessary vehicle, sou. And

also these three models, I mean, they are watching each other every day, and it's a very very competitive market. And I think what they do

is if they can get away with, you know, if they can get away with right raising the price slightly, you know, they'll they'll they'll try raising the price and if the market stays, if demands stays the same, fine, but if it doesn't, they'll just go right back. I mean,

they're so competitive to each other. And I actually we just recently pulled

data that shows them the relationship between the F one fifty and the Silver out of fifteen hundred and the market shares have an inverse relationship of point eight to two between those two models. Isn't that interesting? Though they're in different brands,

but yet when one goes up, the other goes down. So my

point is that the three models with the RAM are so competitive to each other.

I think Gary that they they all only are charging those that month on monthly that much on a monthly payment because they can and if one were to go up to eleven hundred or twelve hundred and it didn't work. Believe me,

they'd they'd come down within within twenty four hours. So and so that

that's my opinion. But again Um today and the Silverado in the F one

fifty look on any metric iwanu, and they are right with each other and Um, whether it's a price incentive, loyalty, I mean, they're right there. So it's a super competitive market. And also remember both those models,

I mean they are so important to those brands. We've done analysis of

brand loyalty for chevrolein Ford when you take out those models. So for instance,

you can look at the Ford households that have a Ford in the garage but not an F one fifty, and they come back to market and they can get any forward except in F one fifties. So in other words,

you're creating artificial brand that does not have the F one fifty in it.

And Ford's Ford brand loyalty goes from the upper fifties fifty seven fifty six, fifty seven fifty eight to the high forties, so you're getting it ten nine to ten point declient based on one model. And of course we all know

about the money involved, so so you can understand why they why they focus so much on those models. They're hugely important to the brands. On price,

I mean Tomas and again I mean GM just this week basically was boasting about how seventy percent of the of the GMC Sierra heavy duty truck, which does it's not a cheap truck to begin with, are going out with the Denali or eighty four, which are both you know, upper level tramps.

I mean, so, I hear you about price, and it seems but on the other hand, it does seem like there's a certain level of price insensitivity in the pickup truck market that's kind of hard to believe. I agree,

No, I agree with you, and I also, I mean Sierra.

What GM has done with it's GMC, it's just, I mean, it's very very impressive. I mean, they've created this image for the brand

and then they've created the image for these the Denali, And I understand there's something this shows My not isn't there a trim? There's a T four is

above the Denially? Am I correct? No? No, no, bellow

it okay, So, but I've heard that there's a series above Denali.

Collemy of mine was just telling me it's called the ultimate. So I don't

know if that's true or not, but that's what a friend was saying to me. So, but you know, the thing is that they've created this,

it's it's a an aspirational image that they've done a great job of creating for the brand, for the Sierra and for those trim levels. And you

know who can blame them? I mean, it's it's it's I've I've a

lot of respect for that. So, so I have a question. You

know, you were saying about if you, you know, artificially take out the F one fifty or the silver out of fifteen hundred, that the numbers change. And so earlier you were talking about how when you look at the

mainstream brands that that Ford and Chevrolet are very high. Yes, is that

performance predicated on those trucks and if you took those trucks out, they wouldn't be as high up as they are in general? Yes, if you take

those trucks out, their numbers come down quite a bit. As I said,

they go from the fifty six fifty seven range to forty eight forty nine range. So yes, they come down. I will say, though there's

a one caveat that was pointed out to me when I described the situation as I just described it to you, if you have an Explore household, it comes back to market and they can't get in that fore fifty, there's no pick up. What the calculation I did assumes is that they're not going to

be brand loyal In other words, they can't get in that porn fifty.

So there so they can't get a Ford. There's a little bit of a

gray area in there. In other words, an Explorer household, it comes

back to market and they can't get in that one fifty, whereas they could five years ago. They might get a like a I don't know, an

escape or ranger or an expedition instead and stay with the brand. So it's

not actually an exact new miracle calculations, but but there's no question if you take those pickups out of those brands, their loyalty comes down substantially. Yes,

Hey, look we're gonna have to take a quick commercial break right here.

We'll be back in just a second. And he saw that that popped

up on the screen. You're not the only doctor data here. So's Tom

delivery with all the statistics that he's got. But a quick break and we'll

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All right, we're back talking all things Joe, you brought it up earlier. Let's get into some of the news of the week. Mary Barry

was on the Earnings calls. A couple of interesting things. A number of

interesting things came out of that call. I thought, and I'd love to

get your take on at number one, are gonna keep the Chevrolet bolt?

Number two? It looks like to me like they're they're building batteries by hand.

And uh and number three is Kyle Vote from GM Cruise had some pretty interesting statistics on safety with autonomous cars. But that that first one, what

do you make of them keeping the bolt? Well, yeah, it's interesting.

And actually, you know, I'll say a few words and then hopefully I Tom, I can throw this to you because you may you may have some data on this that that helps explain this decision. But but right,

I mean, it did seem like, you know, they killed the bolt.

They said, we're gonna phase it out and we're gonna build pickup trucks in that factory instead. And from what I could tell, that was a

public relations black eye. I mean, here, the you know here,

they have the best selling TV they have by far, and the reward for that is to kill it, and I think it played badly. Um.

I Also, I mean, look, I don't think pr is what motivates business decisions at GM, or at least not entirely right. Um, there

must have been some hardcore business considerations where they said, wait a minute, you know, white, don't we put altium modern you know, modern, up to date altium batteries and upgrade the software we have the vehicle, the vehicles, you know, probably getting close to being paid for. It's you

know, the physical shell. What are we doing here? We we have

a low cost entry we can use to fight the fight. And so that's

what I think was going on, Tom. I mean, I don't know

if you've looked at the bolt specifically in terms of loyalty or in terms of kind of whether or not they're able to conquest with that, but it seems like having it has to be better than not having it, or they wouldn't have changed their course. Yeah, no, I I I very very much

agree with you. I mean they they've created, you know, some equity

in the in the model name. Uh. And so I just was really

really disappointed when they said they were going to drop it. So I think

it's a great decision that the I will tell you that the brand loyalty for the boat, for the boat is very high. Um, it's uh,

I mean it's among Remember Chevrolet is high end itself, and it's among the highest Chevrolets. So from the loyalty standpoint and from just having created an equity,

I mean reminded me, frankly of the Vault, which was I mean maybe didn't have as strong and you know a name played equity as the Bolt.

But I mean here they built it up and then you take it away.

Now they're doing it again. So I thought I was really glad.

I thought it was a terrific decision to try to keep it. Obviously I'm

not privy to the dowers involved, but just from an outsider perspective, I thought it was a great, great decision. Yeah. What I've heard is

that Bolt owners are as loyal and as passionate about the car as Corvette owners are. I don't. I haven't looked at Corvette recently, but they may

be even more loyal. They're very, very, very passionate about it.

Yes. So so what I wonder is to the extent to which was the

decision predicated on the fact that if you look at the price point of the Bolt, highly competitive, right, and you know we're still waiting to see the thirty thousand dollars other offerings from General Motors, and so here you can get a Bolt for twenty eight grand. You know, nice car, decent

range, you know, it's got the whole thing working for it. So

perhaps isn't General Motors covering itself by saying, hey, let's keep this.

We don't have to put in, as you said, Joe, not a whole lot of money into it. Um, because when I talked to him

earlier, when they were talking about canceling it, they're like, oh no, no, we can't put the Altiam system in there. It's too complicated,

and it's got the old battery and and it's just it's just too too much for us to deal with. We're just going to go full altium straight

ahead, and so the bull will be behind us. But you know,

when you look at the numbers of lyric and compare it to the bulls.

Which, yeah, well and that gets so I think John, you raised this this other point, which is that uh, Mary Barrow was talking about, you know, basically acknowledging and elaborating to some extent on problems that I think a number of of of people, both Walster analysts and journalists have noted.

Which is that there and Garrett you just noted is that they're not not able to build very many of the ultim evs right now. Um, and

apparently that has a lot to you know, manufacturing. Hell isn't just for

Tesla anymore. There's a maybe it's not hell, but it sounds like it's

purgatory at the very least for GM. There's really struggling to get their new

generation batteries out of this factory in Ohio. And um and yeah, they're

they're building modules by hand, is what they said. I'm sure that's not

the long term plan. But but as with Tessa, is novel technology,

you know, novel manufacturing technology. And apparently they're having issues, well not

apparently, Mary barr said they're having issues with it. And so yeah,

they've got a problem I'm glad you brought it up, you know, because there's been all kinds of rumors out there that battery packs would actually leak in the rain or going through puddles. I heard other rumors that they were having

all kinds of software problems with the battery management system. There was even talk

out there that GM was deliberately holding back production because it loses so much money on everyone that it builds. And but what Barra said essentially is the company

that's supposed to develop and deliver the automation to make these batteries in an automated way hasn't been a able to deliver, and that's why they're building them by hand. Yeah, that's right. Look, I I mean, I mean,

I don't I don't believe that GM had you know, I mean they I'm sure that there's some concerns about Look, if we overbuild, we're going to start you know, you know, we're going to really lose money on these things. On the other hand, I really don't think that they have

any incentive whatsoever to limit access to the lyric or the other vehicles um or for that matter, of the bold. I mean, I mean, if

you've got something that's successful, sell it right. So yeah, I think

I think it was probably not. I think it was probably necessary for them

to sort of say, look, you know, this is this is a this is a problem um, and we're going to try to get our arms around it. So we'll see, right, I mean, manufacturing hells are

sometimes harder to escape them than you want, um. And uh, just

how easy or heart it will be for them to ramp this up. You

know, we'll just have to see. You know. One other thing too,

I wonder that's part of it. Is GM announced that they're going to

cut back a little bit on their capital expenditures. I wonder if the bolt

is part of that that. You know, it's like, hey, we

already got the tooling. Maybe we've got to move it to another plant,

but now we don't have to develop an all new small compact EV. And

I wonder if they went, who, there's a there's a savings and I wonder if that's part of the package. If CAPT cutting their cap X,

maybe they weren't super transparent about about about what is going to be cut to achieve that billion dollar cap X reduction. UM. Back to the point I

think we were talking about earlier. Um, what I did say was that

the part of that is related to simplifying trim levels, simplifying you know, the product very line up some so you're not buying a whole bunch of vendor tools for for you know, features or options or trim that are going to be relatively low volume, but a billions a lot of money. And it

does suggest to me that there were some programs where they said, you know what, and maybe the Bolt was one of them, where they said, uh, you know what, how about if we do this the old fashioned way and basically reuse a lot of what we already have. Um, you

know, maybe customers can't really tell the difference between a purpose built EV and one that was kind of adapted right from a combustion vehicle. Ford seems to

be managing fairly well with the F one fifty light thing, So I don't know. I mean, they weren't super transparent about it, but it does

seem like there's been a rethink about the virtues of billboarding a huge capital expenditure number. Yeah, so time to go to this point of electric vehicles,

whether it's you know, which General Motors is doing now with a bold or not But okay, if we go back to the top of the show and you're talking about people this, you know, defecting to different brands, and you're saying it's, you know, fifty percent are going somewhere else and fifty percent are staying with and you know, your latest number is forty nine point seven percent of electric vehicle owners are sticking with electric vehicles, which means that more than half of electric vehicle owners are not getting another electric vehicle. And

I just wonder whether the amount of money that OEMs are pouring into electric vehicles right now might not be something that they may regret. Well, I understand

your logic, but I I don't think they have much choice. I mean,

I think this is an industry wide phenomenon that if you don't invest the money in evs, you're gonna feel like you're going to be behind. And

I think some of the OEMSI already are behind. So I but I think

it's got to be painful after all the money that they're spending to make them and then to sell them, to see households going back to gas. But

again, I think there's a lot of reasons. I mean, we've all

heard anecdotes about the you know, they pull up to a charging station, it doesn't work, They go to the next one, it doesn't work.

They end up at a gas station plugged in for four hours to charge it.

So and then also the price premium. So I think all those things

have to be kept in mind, and they're gonna in long term, they're gonna have to be addressed. I mean, and the price premium remains and

so M. But anyway, M Yes, I agree. It's it's a

very difficult situation to see households that are leaving evs and long term that that will have to be addressed. I think that will have to be addressed,

frankly, either by the state right, whether it's state level or federal.

But there's gonna have to be adjustments made pricing wise. I mean, the

administration has already started in that direction. But yes, it's it's very disheartening

to see that, and I'm sure it's very troubling for the OEM's to see the households weaving. I completely agree with you. Well, and there's another

dimension to that which we shouldn't forget, which is the regulatory dimension. Yes,

right, I mean the EPA by administration EPA is said, you know, sixty seven percent the fleets to be sixty seven percent electric by twenty thirty two. The industry has said, gee, that doesn't sound achievable to us,

but that seems to be the administration's course. Yeah, you better get

cracking because that's a very steep That's a real steep hockey stick. To go

up even to fifty percent would be a pretty steep hockey stick. And so

you're right. I think it's got to be challenging, especially for the Detroit

brands, right because it seems like it's their buyers who are the ones who are giving up on EV more so than say a Tesla buyer. Tom.

Is that a correct interpretation? Oh, well, definitely, and I'll pass.

I'll give you one statistic. When a Tesla household comes back to market

and decides to get another EV, the percent that get a Tesla ninety.

It's not nine out of ten. I mean, you know, I work,

I use these data all day long, and you never see anything above seventy five. And so so anyway, yes, I agree with the Other

thing to bear in mind, in addition to the regulatory environment is the global environment where you have China that's ahead of US. Europe, that's out of

US in terms of the EV mix. And so I mean, as I've

learned, I mean, if I'm correct, these manufacturers can't afford to build two different platforms, I mean one for the North America. So they're they're

building global platforms. And if you have such a large part of the world

that's going EV, I mean, you don't. To me, there doesn't

even be any choice, right right. But speaking of all that loyalty with

Tesla, Joe Reuters broke a big story today that Tesla get you pick it up, and I'll set the stage here. They had assembled teams of employees

to convince owners not to bring their car in for service when it did not meet the driving range that they expected to get. Yeah, that's right,

my Mike. My colleagues Snorri Shirozu and Steve Steklo wrote this story. It's

it's it's quite well well documented and detailed. UM. There's two things I'm

going to simplify here, But there's two things going on. The First thing

that's going on is that UM apparently Tesla has set up it's it's in car software UM to tell owners or to tell the driver and when when you start the day with a full charge, Wow, you've got this terrific range figure um at the very top end of the claimed you know, the EPA claimed range um. And and the problem is that that's probably often not not the

case because you know, it's hot, or it's cold, or there's some other you know, reason why you're not probably going to get the top range.

So when those drivers do not get the range, they you know, the display suddenly adjust to the real world about halfway through the drive and they get upset and they will call Tesla and say, what my something's wrong with my car. I want to come in for service. And that is where

my colleagues found and they've got sources and people to talk about this. Tesla

set up a team of basically customer service representatives whose job it was to divert them away from showing up at a service station or service shop and to basically convince them that nothing was wrong, everything's fine, you don't need to come in. And the why of that, apparently is that Tesla's you know,

good news, they've sold a lot of vehicles. Bad news. Their service

infrastructure is not kept up and they don't want people coming in because they're overloaded.

It was this fascinating tale of sort of how Tesla is trying to manage expectations, manage its infrastructure or a lack of it, for servicing this ever growing fleet of vehicles. And the last thing I'll say about it is it

just kind of highlights how the issue of range in the electric vehicle business just isn't going away, even for Tesla, which arguably has, you know, the best story to tell about range, even adjusted for what I just said, right, they've got the best story to tell about range probably of any manufacturer, maybe except for Lucid in the in the extreme case. And yet

they're struggling to manage it with you know, manage expectations, and they're doing things that sort of bears some scrutiny to do that, all right, So we got to be fair to your your writer's colleagues. They were far more

colorful about this situation of people assembled to tell people that they do not want to bring their car in for service. They described it as being a boiler

room type operation that included a xylophone that would be played whenever someone is able to than someone not to bring their car in. And it was I mean,

yeah, I was remiss. I forgot to xylophone detail, which which

is pretty remarkable. Um, you know, I yeah. It's one of

those things where I think every business, you know, there should always be someone whose job it is to ask how's this going to look? When it

gets out right? I mean, I'm I'd be happy to be that person.

They don't last long. I think in organizations they tend not to be

successful, but you need one no matter where who you are. I think

that's what I would say about that. You know, a couple of things

that were pointed out in the story that I thought were interesting was that when someone would contact a service representative or whatever it is, the type of person they talked to at Tesla, the person would say, you know, i'll check it out over the air and we'll see what's what. And then they

say, oh, it looks fine, don't worry about it. And one

of the people that's quoted in the story basically says, well, no, there is a problem because it says, you know, I've got one hundred and fifty mile range in a full charge. That doesn't seem quite okay.

I want to have the I want to have the service appointment the thing I wonder about and Tom, maybe this gets the point of loyalty. I mean,

is something like this going to have an effect, maybe a small one, but affect nonetheless on loyalty of of Tesla owners or is it something that will just probably go by the wayside. No, I was. I was

going to mention that Gary m the other the Mercedes, Benz and BMW, they emphasize they believe that one of their strengths in the long term is their established strong dealer network, and they mentioned that frequently, and there's something to that. And then in the long term you have these customers who get treated

like Joe is just describing what are they going to do when they come back to market? And I think there's I think there's a case to be made

that it will hurt them down the road. I think if you look historically

at the brands that have not focused on quality I'm going way back, and how they've done, I think it does come back to haunt you. And

so I think there's something to Mercedes point that in the long term, what are they going to do with those customers who who have to come back to What are they going to do when they come back to market or when they need service, are they going to get the same treatment as a test TESTAM as they will Mercedes been so I yeah, you know, time will tell, but I think based on history that there will be a negative impact for them. Yeah, I would. I mean taught me yea that it does

seem like this sort of thing is an opportunity for the Mercedes, BMW, Audie, Cadillac. You know, the luxury brands that have dealers and everybody

says, well, they're a liability. I think on the sales side,

that's a conversation you can have because there's a lot of money going into selling that maybe Tesla, you know not maybe Tesla isn't spending and everybody knows that.

On the service side, though, you're right, And I would think especially for a luxury brand where you know, the convenience and sort of the lack of hassle is part of the offer, right, I mean, it's why you spend the money so you don't have to hassle around. Um and

if you are hassling around, that's bad. And it seems like that's a

that's a once Mercedes and BMW can catch up on the product attribute side, which obviously they say they're going to do, but then they have. Then

if they can leverage this, it does seem like a it levels the playing field a little bit perhaps for them. Also, this is just a question

I throw out, but right now, Teslas in a sort of unique situation that they're selling every vehicle that they can make. There's no marketing that I

can see at all. They have to go over the price. But but

long term, as the market gets more and more competitive, is it going to hurt them at all? And I'm just throwing this side. I don't

know the answer. Is it going to hurt them at all to not have

a re an established retail network. I don't know the answer to that,

But it'll be interesting to watch because right now they're off in their own situation and it doesn't really matter. But it's the market gets more and more competitive,

what will happen at the retail level. That just be interesting to watch.

Well, you know, Amazon dot Com demonstrated that there's no rule that a company that starts its business on the Internet can't have physical strenswer to your question, I noticed that's not a law. You could have them any time

you feel like it. Yeah, clearly, you know, not having a

dealer network has not hurt CHESLA from a sales standpoint. And you know,

especially a younger generation of people who are used to buying online, that's how they prefer to do it. I agree. I'm telling you, as an

older generation guy, I hate going to car dealerships. You know it.

It's not a fun experience. Oh, I understand from the service standpoint,

totally agree with what you guys are saying. Yea. And you know,

I think even Elon has talked about debt, that they have to invest more on the service the business, and but that that's about the only area I think we're you know, the legacy franchise system has an advantage right now.

There's just so many repair facilities that are out there all across the country.

Right I just wonder whether some clever entrepreneur like a Roger Penski shouldn't say, Hey, a good business opportunity. We just set up auto repair shops specifically

for electric vehicle. Garry stopped talking. Let's let's end the broadcast here,

and and all of us, four of us, are going to go do that right now? Well, of course, you're right, right, I

mean, I mean there's absolutely nothing that stops Tesla or Rivian or Lucid or any of these you know online sales EV companies from ultimately having a physical network to handle the back end service. Um and and right. I mean you're

right. Maybe leveraging you know, somebody else's money, which is what the

Detroit companies did one hundred years ago. Leveraging someone else's money as the way

to do it. You're right, yeah, but don't forget either. Roger

Penskey tried that with internal combustion cars. Remember he had set up repair facilities,

and it's one of the very few businesses that Roger started that failed.

Its new new new day, new opportunity, new technology boom. So so

we got about ten minutes left here too, Joe, I'd love to ask you what you think about what's going on at Volkswagen in China that you know, uh, sales of the I D series three, four five UH are are falling like a rock. Uh. Audi ran to Seic to get a

platform Volkswagen is investing in. I think it's pronounced chapong. It looks like

yeah xu yeah, shalpung. Yeah. What do you make of all this?

Well? Yeah, I think I make of a kind of what the

tone and of your question makes of it, which is that this this is these are these are hard times for Volkswagen and Volkswagen. You know, let's

not forget not that long ago and you know five seven, certainly ten years ago, Volkswagen dominated the Chinese market. They you know, they n GM

would sort of swap being the number one brand in that market or you know, set of brands if you will. Um and yeah, I think what's

happening with Volkswagen and China is a red flag, you know, flare in the sky to all the global OEMs operating in China. Uh, they are

struggling. Uh, they're getting pounded by Tesla and by the domestic Chinese brands,

and their evs are not cutting it with their customers. On my colleagues

they have written about that, Sum, I know other people have as well.

Um, I agree with you that going to Shaopong, going to Sai c for a fix essentially, Uh, you know, China for China in vehicle technology, China for China platform. Um, it's a it's a it's

a striking turn of events. And just today Volkswagen, I think it's today

this morning Volkswagen came out with their uh their quarterly or half year results in it, and they cut their sales forecast global sales forecast by half a million vehicles. I think primarily because they recognize that their China business is going in

the wrong direction. Um. So I have no question and no doubt in

my mind that a lot of very smart people of Volkswagen are hammering on this problem. But they've been hammering on it and it's just been brutal for them.

Like I said, I think it's a red flag for the Japanese automakers are having problems general motors performance in China. Um, it's not quite as

calamitous, but it's not great. They used to make a lot of money

in China and they're not right now. So it's it's a very different market

than it was several years ago. So I question to you Joe and then

Tom so, Joe, do you think that this is the Chinese buyer is saying I'm going to buy a Chinese brand? The Western brands no longer have

cachete with one notable exception Tesla okay Um and Tom, do you find that buyers here are loyal to domestic brands? Or is that something that has gone

by the wayside and they're just buying good No, an interesting topic and we do have We call it origin loyalty. In other words, are they loyal

to the origin of the vehicle that was in the garage? And UM.

For the domestic brands, there is quite there is quite a high origin loyalty.

Interesting, some of some higher than others. But UM, so we

do measure that and UM again across the across the brands there there there is there is some origin loyalty. I'm speaking about the domestic brands, UM and

UM. But that that would be all I'd really know off the top of

my head. So Tom's China specific. You know there's a couple of Chinese

made vehicles sold in the US. Yeah, right, yeah cars. H

Gary and I were in New York at the beginning of the week when Volvo unveiled the e X thirty that's going to be made in China will be sold here. You know, we get comments from the viewers and emails and stuff

saying I'll never buy a Chinese car. What do you think can the Chinese

be successful in the US market? Well, if you look at the envision,

if you look at the it's it's having no effect. It's having no

effect now at all. I mean I don't think you know, I mean,

do you ever see something that you know, when talking about the Envision or whatever and there's an answer something said, by the way made in China.

I mean, it's it's completely under the radar, and I don't I don't think it has any But that's a that's an established brand. Remember we

all know that there's not there's not one vehicle sold in the United States by a vehicle by branded Chinese branded vehicle by Chinese brand. So I think that's

that's a huge image issue. But we're not there yet, so I don't

think it has I mean, our data shows that, you know, the Envision and I think I thought the CT six maybe, but I don't think it has any effect at all. Yeah, I think that, I think,

I think, and I suspect many of our viewers probably are doing this.

But if they aren't, they can and should, which is look at Europe. Now, in Europe, the Chinese brands are starting to enter and

entering under their own names, are under the names that they've purchased like MG and so on, and involve obviously um so, and I know there's a lot of concern in the European industry. Um just again this week as results

have come out that they autom in Europe have been talking about the need to cut cost cut costs because the Chinese are coming. So it'll be interesting to

see what happens in the European market when some of the Chinese brands, you know, under their own names, Chinese brands made in China, start selling over there, and how do they do against you know, Volkswagen or some of the other established European brands. I think in this country that whatever is

there twenty five percent tariff, I haven't thought about this in a while, but I think there's a significant tariff. You know, that is a tendency

to kind of tilt the market, right, and but in Europe they don't have that tariff. It's much more sort of even up in terms of or

not as high tariff. It's it's more even up in terms of you know,

does the car meet my needs? Do I like the way it looks?

And so then we'll have to then we can see kind of how they're going to do. Yeah, I mean, Carlos Tavarius CEO of Stilantis,

came out this week or again warning that, you know, they better be aware of the Chinese coming coming. I think Renault said the same thing.

They're deeply, deeply worried because the Chinese have such an acid and cost advantage over them. Yeah, I guess Tom dropped off the back. Yeah good,

but yes, And I do think that it's actually been a little surprising to me as someone who's covered the industry since Lei Coco was still on the scene. Surprising to me, how up until about now, how chill you

know, at least in public, some of the European automaker CEOs have been about the Chinese challenge. But you're starting to hear them speak up, and

I think reminding the policymakers in France, Italy and elsewhere. Hey, look,

you know, if if we start, if we let the Chinese brands have all the sales, then all the jobs that we have here in France in Italy aren't going to be here anymore. So it'll be interesting to see

that political policy things start to spin up in Europe and where that goes.

It's right, well, you know, the ones who are speaking out have next to no presence in China and correct, no pougeaux. The Germans haven't

said much about this because they depend so heavily on the Chinese market. Yeah,

that's it's awkward for them exactly because, yes, the Chinese market is still so significant. You know, it's very interesting if you think about it

that, you know, General Motors said we got to pull out of Europe, can't make any money there, and the Europeans never really were concerned about General Motors. Now suddenly Chinese companies are coming in and they're like, you

know, the houses on fire, we better get the well. Without meaning

to be too disrespectful to people at General Motors, I mean, I think the lack of concern for Opal was that up until Opal was sold to Carlos Tavaris, it wasn't very competitive, right, I mean that's the problem.

But you know, I think the Chinese are viewed in a different light very much. So. Yeah, and on the earnings called didn't Mary barrosay they

do have a plan to get back to Europe with their evs, but it was I think it was just mentioned in passing and no follow up on it whatsoever. Yeah, you hit it, Yes, yes they do. I've

heard a little bit about it, not only in passing. You know,

it'll be interesting to see what they do, because yeah, I mean, I mean discussion we just had suggested if that there's some risk that you'll show up with ebs made in the United States or made in North America that can't compete on the playing field. That will exist when Chinese brands have established a

significant presence, or when Tesla is cranking out a million Model Wise and Model threes from this Berlin factory and is doing, you know, whatever is necessary to sell them. You know, I think it could be a very different

market. All right, Hey, look, we're gonna have to wrap it

up. But Joe has always great having you on the show. Great to

be I think we lost Tom because of internet connectivity issues, but thank you Tom Libby for having been on the show. Your input was awesome. It

was really good. And of course Gary, we'll keep on doing this and

I want to thank all of you for having two and deed I'll online after hours. It brought to you by Bridgestone Tires Solutions for your journey. If

you liked this program, I would like to learn more about the automotive industry.

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AAH #657 - Tesla's Owner Loyalty Blows The Rest Of The Industry Away

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