AAH #735 - Diving Into U.S. Car Sales

Speaker 1: Out Online After Hours is brought to you by bridge Stone Tires Solutions for your journey.

Speaker 2: Welcome, Welcome, everyone, appreciate your joining us today on Auto Line after Hours. We're gonna have a very special show.

As you all know, things are happening fast and furious in the auto industry. I was on the phone call

yesterday with an executive of a European based OEM who said, Gee, the world's changing in two weeks, isn't it. So we

can see that all happening. So to discuss that and

even more, I have my good friend Jerome Levine from Speaking Alpha, Is that right, yep? Seeking Bob Gritzinger, the

editor of a wards.

Speaker 3: Yeah, here we are for Fast and Furious eight, nine, ten, eleven, and twelve.

Speaker 2: Right, bang and back, because he knows more about what's going on in the market in real time than anyone I think we all know. Is Rick Wenshell of Cloud Theory.

He is the VP of data Science and analytics. So

but the way you break it down and talk about these things is very useful for the people who are interested in the auto industry. So what's going to happen

in two weeks? Rick?

Speaker 4: Boy?

Speaker 5: If I knew that I'd invest in some auto stocks, but sure moving quickly, isn't it would.

Speaker 6: Still be a bad idea.

Speaker 2: So okay, So you guys looked at what was going on in the market, and so you know, twenty four seemed to be the recovery, the post COVID recovery, and things were going to be getting back to normal. The

prices that you had seen going very high, high, high, high began to come down somewhat. And so you guys

calculated that in January and February of this year prices were down on fire and twenty six dollars compared to what they were in September. Correct, But at the beginning

in March, you saw something else starting to happen. Tell

us about that.

Speaker 5: We did. So, you know, we've been looking at the

pricing for a long time because you know, there's the basic laws of economics supply and demand, and over the last couple of years, the prices of vehicles at the retail levels, which is what we look at at Cloud Theory, had been stuck at above fifty thousand dollars. And this

was happening even though inventories were growing and demand was relatively flat. So that's not normal. You would expect that

prices are going to go up if there's more to choose from and the same number of buyers roughly, and there's reasons for that, you know, discontinuation of lower end models, emphasis on higher end trims and so on. Now, we

did start to see, like you said, starting in about October November, that decline starting to happen. Still very high

historical levels, but what was fifty two hundred dollars was now about forty eight seven. So we were starting to

see this and okay, this is you know, what you would expect. It's still high, but now consumers are going

to have a bit of relief. Starting in literally on

March first, we saw an inflection point. And every single

day since March first, even through this morning. I looked

at our data again this morning. Every day the retail

average retail price the consumer see on dealer websites has gone up, and over that twenty day period since the beginning of the of the month, we're now seven hundred dollars higher than where we started the month. So it's

cut into that decline by about half.

Speaker 2: So it's roughly thirty dollars a day that it keeps increasing, increasing, increasing, So then the amount that would have been savings for the consumer that you saw from starting last September will be gone the day after tax day April sixteenth, it'll be It'll be even I mean, do you see this as as a sustaining trend? I mean, do you think

this is going to happen in a in a step by step way or is there going to be a point where it's going to rise precipitously.

Speaker 5: I think to answer that question, you have to really look at some of the underlying reasons why this is occurring.

And there is a lot of uncertainty to your first point that you raised. So what's going to happen in

two weeks? It's hard to say. And I think part

of this is related to the tariff situation and the decisions that are being made and then remade or unmade, and there's that uncertainty is creating a lot of churn in the marketplace. And the March for state that we

saw that increase start to occur. It didn't start there.

Those tariff threats were coming in January pretty much right after Trump got re elected. And if you think about

from an OEM's perspective. There's supply chain, there's production issues.

You're getting engines from windsor Canada for the super duty trucks, for example, and so there's uncertainty as to what the cost of that is going to be thirty days down the road, or next week or the week after or you know. First, the tariffs were announced in early March,

then they were delayed to early April. So this uncertainty

is really forcing the OEM's hands to look for alternative supply chains.

Speaker 7: I would guess all of this also collides somewhat with consumer psychology, which is the consumers hearing about these incentives and they're hearing about tariffs and they're saying, Aha, I better get out there and buy my car before or the prices go up. Well what happens you have people

going to dealerships and suddenly whatever the supply was is now insufficient to meet this increased demand and pricing begins to go up.

Speaker 5: I actually have some numbers for you to just supply its actually went down low or mad I thought that there was.

Speaker 3: In terms of many days.

Speaker 5: So here's some numbers for you just to chew on a little bit. So if you look at the last

thirty days versus the prior thirty days, there has been a small increase in inventory two percent. The percentage of

vehicle movement what we calculate, which is a reflection of sales thirty days over thirty days, went up twenty one percent. Now,

there is a small seasonal bump that always occurs in this little window of time, and it has to do if people are getting their tax refund checks, which are kind of vehicle down payment sized, you know, three to four thousand dollars roughly, So there is typically a bump right in the middle to end of March. But last year,

just to give you the numbers to consider, the inventory went up five percent and movement went up seventeen percent in that period over period view a year ago five percent and seventeen This year it's two percent and twenty one.

So there was a twelve point gap last time last year.

There's a nineteen point gap in terms of what's happening on the ground right now the vehicle movement. So what

our contention is is that it's exactly what you were saying, which is consumers are anticipating increases and getting trying to get ahead of that curve. And accelerating their purchase or

you know, if you're in the market to do it now before the prices really go up. And I think

there is truth to that center because what we're seeing, you know, where Gary started asking this question literally day by day at retail, there have been increases every single day.

And now the question of is it going to be thirty dollars a day and will hit the number on April sixteenth, that's where you get into, well, is there a kind of a sea change of a decision set of decisions that are made on the tariffs. So right

now you've got you know, April second as looming as this date for the Canadian and Mexican tariffs in the automotive industry, is their follow through on that is there?

You know, is there retaliatory tariff increases And that's really already you know, at least threatened, if not already happening.

And so if that accelerates and you get tariffs on the vehicles themselves or major parts like the engines coming in from windsor as an example, then that's where you can go from thirty dollars a day to three hundred dollars a day and you know, you hear numbers kicked around in the industry, Oh, this is going to cost ten thousand dollars per vehicle or whatever. I don't think

any of us can say what that number is going to be. But if the teriffs become longer lasting, if

it sparks this retaliatory tip for tat trade war and they become semi permanent or permanent, you've already got really high prices in the industry that have come from the post COVID era that have the threat to go quite a bit higher in the thousands over time.

Speaker 2: You know, COVID was unexpected. No one really knew how

to deal with what was going on. You know, the

whole issue of supply chains. Everybody's like, there's a supply.

Speaker 3: Chain, what's that?

Speaker 2: You know?

Speaker 3: And just in time?

Speaker 2: What yeah, I mean there's things that that people really didn't have their arms around. Okay, five years later, companies

seem have figured that out and understand what they need to have and how much they need to have and where they need to have it. Is it your sense

that there are any lessons from that experience that are applicable to now or is there just too much uncertainty and this causes the product planners and the people who are doing the pricing just not knowing what to do.

Speaker 5: You know, I heard something a couple of years ago it's stuck with me, which is this whole notion of just in time parts provisions, you know, and the lesson learned in the industry was it's still just in time, but there was an added layer of just in case.

And that's the phrase it always stuck with me, is that there's a little bit more cushion that is in place now. So, you know, I think the original step

in the chip shortage that led to the bigger supply chain issues was a lesson to be learned that a handful of really key parts could bring a production line to a halt. So I think that, you know, there

the production planners learned a lot from that. I think

this is a little different though, because it's not so much the h that a part isn't going to be available.

It's maybe there's a little bit of that, but I think it's more about what is that going to cost me and how is that going to fit into the larger picture. If you think about, you know, the complexity

of building a car, it's not just you know, the doors and the handles and the engines and so on, but it's the rubber gaskets that you know, it's all of these parts that are subject to They're coming in from other places that are subject to these tariffs that all incrementally add costs to the mix. I think that

in anticipation of what is happening or what really could happen going forward, that the OEMs have been and I've talked to a few of them, and I've read a lot about this, that the OEMs have been searching for alternative supply chain solutions, and partly because it's either going to be you know, someone in Canada is going to stop selling to the US because they can't afford to anymore, or because it's just going to cost them so much more to buy apart from a certain supplier. So they've

been looking for alternative supply chain you know options, and those always come at a cost. Obviously, the OEMs are

looking for the lowest cost solution, and so the next lowest cost solution may be paying a little bit more, but somewhere that's not subject to the tariff. And so

all of those little those little anticipatory concerns that have led to those sorts of explorations and those sorts of decisions.

I think you know that all have been coming since January.

The chickens are kind of coming home to roost now and at retail, those prices are starting to be reflected by some of those decisions that have been made prior.

What's interesting too, just one real quick addition to that is that I was looking at some of our numbers again this morning. We have a metric at cloud Therey.

It's called market adjustment, and it's a reflection of the visible discounts and incentives that dealers are showing on their vehicle detail pages on their websites, and that is where the price increases are really coming in. So you have

an MSRP price, but then you have the less price or the discounted price and the incentive reductions. Those are

really what's fueling this seven hundred dollars increase. Is there's

been a pullback from those incentives, those discounts, and that's the way that it's manifesting itself for the consumer and why they're paying more at retail now.

Speaker 2: If those pullbacks from the OEMs, I mean, that's where the cash is coming what would come from and is now going back to.

Speaker 5: Well, if you think about it, the OEM has two options to deal with these tariffs. One they can pass

that cost along to the consumer, and the other one is that they can eat the cost and cut into their profit. So you've got different ways to absorb that

or reflect that. So a price increase is pretty visible,

but incentive reduction is a little less visible. So at

least for now, that seems to be how that's playing out is that it's that cost because again, what we're collecting is what is the consumer seeing, How is the vehicle being priced and portrayed to a consumer on a dealer's site. What we're seeing is it's that price increases

coming from that less aggressive incentive and discounting picture.

Speaker 7: Which makes sense because when people shop, they shop generally thinking first of all, how much does this car cost?

So they go to the retail price. Then they learn

as they sort of scratch around to different dealers and look at the advertising, Oh there's a deal here, there's a deal there. So that would make sense from the

manufacturer's point of view is to lessen that incentive somehow first, and then when that's gone then you start thinking about, okay, do we raise the price, do we take it as part of profit, or at.

Speaker 3: Some point can they start decontenting these vehicles, reducing you know, going down in trim levels to provide a price that might be palatable.

Speaker 5: I think that's a good point. And actually we were

doing an analysis in our data because there are fewer lower end models and because during the height of the inventory shortages, the OEMs had to make up their profits, you know.

Speaker 6: Heavily contented these things.

Speaker 3: And all the chips went into the end of the escalate at the UH.

Speaker 5: Now, now, what we did see was that the oams have moved back to the lower end trims. There's a

little more of a balance there. But the lower end

trims aren't selling as well as the higher en trims.

So there's a higher percentage now of the lower entrims.

And we dug into this and we think that it's you know, there's a lot of angst in the consumer space right now, a lot of you know, if you look at the consumer sentiment numbers, consumer confidence numbers. So

if you're in the you know, mid to lower end of the socioeconomic scale, you're going to be more subject to that. So, but I think that you're right. I

think that that is a strategy that the oams may employ, is to move down to get the price down to a palatable, you know, acceptable level through more base model or mid level trim packages and not than the higher end that have been the focus for so long.

Speaker 2: Well, this this leads sort of to a related point. Now,

one of the things that you guys studied and discovered was between election day and Inauguration Day, a whole bunch of people went out and bought EV's. And but since then,

the number of people who went out and bought EV's has declined. And you know, you're talking about vehicles that

have a lower price point, but buying large evs all have higher price points. So two part question here, talk

to us about this decline that you've seen since inauguration Day in the sale of evs. And secondly, you know,

to Bob's point, is is it conceivable that they will be able to sell EV's at all given price sensitivities.

He's shaking his head listening to the podcast.

Speaker 4: I I I think that the the EV issue is really a reflection of perception versus reality, and the reality.

Speaker 5: Is going to move slower in this case than the perception.

So election day, Trump got elected and he was very vocal on the campaign trail about you know, not having the EV mandate even there kind of isn't one exactly, but not having the seventy five dollars text credit. And

so after he was elected and before he took office, there was kind of a mad rush for people to buy evs because there was this perception that all of those favorable situations in place for EV's was going to go away. He took office on January twentieth, and from

that point forward, the increase that was seen on EV's was reversed in pretty much the decline was commensurate with the increase. And I think a lot of that has

to do with uncertainty with you know, consumers don't follow the industry the way that we all do and you know who work in the industry, and so if you're in the market for an EV and you hear that there's you know, there's a new sheriff in town in Trump and is that credit still available.

Speaker 7: This is also called pull forward of sales that Rydy Ray Windecker used to talk about all the time at the Ford motor company. You give some incentive, you've already

had it in your mind to get this thing. You

know that the incentive is going to end. You pull

it forward. Well, guess what that sale that might have

taken place on the twentieth of January or the twenty fifth of January, that doesn't take place anymore because it took place on the fifteenth of December. Yeah, so there's

you know, they talk about the return to the media and the there's a trend as a trend as a trend, and it goes up, it goes down, but it returns to the media.

Speaker 5: The reality, though, on EVS is you know the I think you know people see in general, you know, Trump is very active, and he's signed a lot of executive orders, and there's you know a lot of things changing on a lot of fronts. The reality is the ev If

you read the executive order that has to do with the energy the language is very clearly, it's very interesting.

It says that there will be a consideration for certain reversals in the in the EV space seventy five hundred dollars text credit as it, for instance, And that's because a lot of what was put in place within the Biden administration was done through the Inflation Reduction Act, which is an Act of Congress. And in order to reverse that,

you can't sign an executive order, has to be a new law that replaces it or you know, sends it or refines it. And so, but consumers don't really have

that level of knowledge. So they see Trump come into office,

He's got a lot of rhetoric against evs, and so there's a lot of uncertainty is that credit even still available?

And so I think that's what caused that decline to occur.

After the inauguration, all the people were in a mad rush to buy them, even though it wasn't going to be a short term thing to change it. And now

that Trump is in office, people who bought the car to your point, you know, they kind of pulled that forward.

But now there's also if you were in the market or considering an EV there's a concern that the favorability of doing so is no longer in place, which is not true.

Speaker 2: So before all this political stuff, okay, when you look at twenty four and you are tracking the sales of the vehicles, now there was an increase in EV sales, but it seems that the momentum wasn't as robust as people thought it would be. Do you think that the

situation we're in now in twenty twenty five, with all the confusion going on, is going to further decrease the demand for evs in the market, and that people will be looking for ice vehicles at a more I.

Speaker 6: Think it's going to useful price.

Speaker 5: I think it's going to delay it, but I don't think it's going to ultimately change the ultimate outcome. And

the reason I say that, I think there's a lot of pressure from China and from the European manufacturers in EV technology and EV investments and so on, especially from China, and so I don't think the current OEM space wants to fall too far behind. But so I think that

the long term picture will still ultimately become a lot more electric than it is today. But I do think that,

you know, when you don't have government through regulatory changes or regulatory you know philosophy, and you don't have that in place pushing the OEMs to move in that direction, it slows it down. Partly, you know, if you think

about in twenty four and even before that, when the original regulatory standards came out sixty five percent and twenty thirty two being evs and so on. All the oms

were in a big mad rush to build evs and they got way ahead of their skis, and the consumers weren't there. So there was a big glut of evs

out in the marketplace. Prices were coming down, they were

losing money in every vehicle they were selling, and so on.

When the regulatory standards were relaxed, so instead of sixty five percent, like thirty two percent or something that had to be evs, still very aggressive, but it allowed the OEMs to be a little bit more measured in the way they went about it. And so we started to

see pullback on investments from FORD and GM and others and so and it slowed down production and so on.

And what happened was that the consumers were kind of catching up. They were the demand was going up a

little bit, supply was coming down a little bit, and so it was starting to kind of meet in the middle. Now,

with the new you know, the new administration in place, you're going to see even more license and leeway for the OEMs to pull back from those investments because there isn't going to be as much of an incentive or a push coming from government to do so, and I think that will help to kind of make that balance come into into further focus. But I do think that

the that longer term but longer arc of where the industry is going to go will still move in an electric direction, just not as quickly.

Speaker 2: Have you been driving a lot of cars lately, what do you what do you think about how this is going?

Speaker 3: Well? I mean all of that has been focused on

on interiors and screens and that stuff more than propulsion systems.

But I think I go back to hybrids. And I've

been saying this for a couple of years. Plug in

hybrids have tremendous value in this transition period. And all

I've ever heard from any of mostly my journalistic friends, is Bob, you're crazy. Nobody wants those They don't understand

those cars. And now I think you're probably seeing that

it's a segment that's increasing and lo and behold, we have a ram truck that's an e rev Holy General Motors.

Speaker 7: It's a whole another category, really, and I think this speaks to the fact that the consumer is quite confused.

They really don't understand many of them don't understand what a plug in car is. They don't understand a plug

in hybrid, they don't understand a hybrid. And now they

don't understand the distinctions between a plug in hybrid and an EREV. Right, and and Chrysler is further confused it

by not calling it an EREV. They call it a

range extend extended, so it's sort of another name thrown in there. So there's this whole alphabet soup of categories.

Speaker 6: And I think that the.

Speaker 7: This is just anecdotal, But when I talk to people who are not from the business, who aren't front, you know, sort of in the same bubble we're in, you find that people don't really understand the difference between these or why they should even think about them. And of course

you're really overcoming a and I've said this before, you're overcoming an infrastructure that's been a century in the making, which is the gasoline infrastructure, and a lot of people just don't see any reason to go away from that.

Speaker 6: There's you know that.

Speaker 7: If you if you sort of go backwards on, you know, from the from the electric vehicle to the beginning of the zero emission movement, it all comes from the idea that we must decarbonize or the world is going to combust.

And I think part of the election of Trump is a reversal of some of these some of these beliefs in that and other areas. And I think that that's

a threshold type of belief that hasn't been widely accepted in this country.

Speaker 6: Not yet.

Speaker 5: I think there's another aspect of this too, which is we wrote a report UH pointing to hybrids as a bridge to an electric future, and it was we wrote that report at the time when those regular Tory standards got relaxed.

Speaker 6: Part of what got.

Speaker 5: Changed when they did that was they included hybrids, plug and hybrids and other hybrids as part of the part of the standards. And I think it was in large

part because they were zero missions or close you know, so that was helping the environment.

Speaker 1: So on.

Speaker 5: What you saw when that happened was a shift in the OEM language talking to consumers. So you had Ford

out there talking about your vehicle, your choice. You had

similar kind of communications going out from general motors versus you know, like half the commercials or whatever were ev oriented, but now you had more of communications about you know, it's your pick. There's gas vehicles, there's hybrid vehicles.

Speaker 6: Started with do the right thing and now it's your choice.

Speaker 5: Well yeah, well, but part of that is why hybrids, I think. So we were seeing in our numbers, for example,

like evs started to come down in terms of sales, and hybrids we're moving up. And I think part of

that is, you know what the OEMs we're talking about to consumers, and they're reacting to that bigger you know, regulatory picture and the bigger environmental picture and so on, and so in general, you know, you've got this kind of macro movement where all the various bodies are working in concert, government, the OEMs, you know, the investments from private the private sector in terms of charging, infrastructure and so on. And I do think that you know, what

happens in Washington sets the tone for that, but it doesn't.

It's not the only voice in the industry and the decisions that are made. So that's why my contention is

it's going to slow it down, but it's not going to stop it.

Speaker 6: I agree with you completely.

Speaker 7: I think we'll all be if we live long enough, we'll all be driving electric cars eventually. And part of

it's driven from the other end, from the supply.

Speaker 6: And you see these.

Speaker 7: Announcements like the announcement for by D, which we'll talk about probably in some detail about what they're claiming. I

don't know what's actually real and not real and what's what's hyperbole, but they're talking about very dramatic numbers in terms of range, charging times coming down. Uh and when

price comes down. I mean I wonder sometimes when uh

uh consumers voters in this country learn what Chinese cars are selling for around the world, how they're going to feel about tariffs keeping Chinese cars out out of this out of this market.

Speaker 6: I wonder about that.

Speaker 2: Okay, so we'll be people.

Speaker 6: We've got to take quick break here.

Speaker 2: Well, we'll continue to wonder for for just a very short period of time.

Speaker 6: Here.

Speaker 2: We want to thank our friends at Bridgetown for making the show possible and so please give a listen.

Speaker 8: Performance that shines even in the rain. That's what really matters.

Speaker 3: Rich.

Speaker 8: Don't pretend to tires, improved grip and wet conditions.

Speaker 2: Bob, I stepped on what you were about.

Speaker 3: To say, and you know I was picking up on what you were saying about. You know, Chinese people wanting

that lower price Chinese vehicle that people want to lower price Chinese everything, And so why why.

Speaker 6: Everything right exactly?

Speaker 3: And to the to the hybrid growth, I think part of what the great masses want is fuel academy. When

when gas prices are too eighty one day and two days later they're three thirty, you know you can't. You

can't run a household budget on those kinds of fluctuations.

And so if you can go to a dealer and they say this car will go forty five miles on a gallon of gas, you go, that's the car I'm want.

I don't care what it is, So plug in, Golees a little bit, a little bit further.

Speaker 2: But so you know Bob's point about running a household on a budget. And you know we were talking earlier

about when you guys looked at the lower priced under thirty five thousand dollars vehicle availability, which increased, yet the demand didn't seem to be what had been anticipated. And

you know, you guys made an interesting point, and I'm going to quote you here the attitudes and behaviors of younger and middle to lower income customers who are prime targets for purchasing vehicles in this price range are revealing cracks in the lower end of the automotive buying landscape.

A number factors are at play, with general affordability and financial viability, avoidant to the financial burden from loans, rising insurance rates, and spending priorities on goods and services such as childcare, housing costs, and other major expensive expences, all bitting to market place pressure. Are we seeing a point

in time now where the up and coming generation just is not going to be that interested in vehicles and that it will have an effect on this sor regardless of politics.

Speaker 5: There's there's been a lot written about the younger generation coming into the market, uh, you know, not being as aggressively getting driver's licenses and so like just you know, vehicles in general are not as important. The rise of

social media, the rise of you know, like different forms of interaction rather than in person and so on for younger younger game there's another one, right, So, but but the thing but but back to the point that we made in what you just quoted, Uh, you know, we were sort of we've been living in you know, the the post COVID era had a lot of echo effects that haven't really been I mean they've been spoken of,

but not really framed up. In my opinion, all that directly,

which is so much of the inflation that we've all been contending with over the last several years has to do supply side inflation. There's some demand side inflation too,

and that's typically more perpetual, but it was exacerbated by the fact that you had these supply chain issues that were causing supply reductions in the automotive industry, and so there was fewer things to buy and people still wanting to buy them.

Speaker 6: So the prices are.

Speaker 5: Going to go up, right, And that's happened across you know, you name it, every kind of sector in the market, and so I think consumers are contending with higher prices on everything. So when you're talking about younger I have

four children for young adult children, and I see them all struggling with how are they ever going to afford a house, how do they pay their own car, and how do they you know, pay for childcare and so on, all of which are real world things that everyone in you know, everyone in the country is struggling with. And

I've seen in my own family, and so, yes, when you're talking about you know, someone who's twenty five or twenty eight or thirty. Back in the day, when we

were younger buying a car, it was kind of a rite of passage and it was super exciting, and you know, what's the next model, it's coming out, what's the next the next big thing.

Speaker 6: And we never really questioned our ability to do that.

It was only it's when was it our turn?

Speaker 2: Yeah?

Speaker 5: And I think now it's you know, it has been less of a priority for them from their younger days, but I think that the economic situation has been such that it can't be a priority for them for financial reality reasons. And so that's what we were speaking of,

is that lower end on the you know, younger buyers, lower end of the socioeconomic scale. Whenever things more expensive,

and cars, by the way, there's fewer choices at the lower end, and even the ones that are there are higher in price. There's very few cars that are twenty

to twenty three, twenty five thousand dollars anymore. And those

are the cars that that generation, that age group, not not even this generation, but just someone of that age.

Even when we were younger, that's the car that you bought and got excited about, and there aren't that many choices anymore to get excited about that are like that.

So I think it just adds to that general deprioritization of this industry to that generation.

Speaker 7: And that's where the low priced import comes in again.

You talk about you see these cars that are unbelievable selling for nine thousand dollars, twelve thousand dollars, thirteen thousand dollars.

The Chinese are doing something very interesting. It used to

be that we would worry about cars being dumped at a low price on our market. What they tend to

do is they give their own people the low prices and they sell them at a profit overseas, and even at a profit. You look at some of the prices

that they're transacting in Europe and they would be very competitive here.

Speaker 2: So, Bob, you you were telling me earlier this week about you'd read a piece by Michael Dunn about how the Chinese auto industry became the Chinese auto industry.

Speaker 3: Yeah, Michael's Michael knows the Chinese market inside note and the premise of the column was, hey, tariff's work. Look

at China. They they built their entire auto industry from

as we know almost nothing in thirty five years to now this juggernaut. Maybe Trump's on the right path here.

It might take thirty five years. But but the idea

being that you protect your dem sticic auto industry. If

someone wants to play in your market, they have to have a partner. All that kind of stuff. Now you know,

this is America.

Speaker 7: It was a very good column, And I'd like to plug Mike Dunn, because you're right, he knows probably more than almost anybody about the Chinese market. The second half

of that policy of China's putting a tariff against imports was forcing the partnership of Chinese car companies with US and European car companies and Korean and Korean, which led to this transfer of technology and transfer of expertise. What's

going on now is that the Chinese are putting cars on the market that very much reflect kind of a new way of making cars. They started with a digital economy.

They didn't have to unlearn things. Maybe we should do

the same thing, have a tariff, but have them partner with some of the local manufacturers, whether they're Korean, Japanese, American, and see what we can learn from the Chinese. Because

I am positive that we can learn plenty from the Chinese.

Speaker 3: Well, yeah, man, it went what the Japanese created new ways to build cars, the South Koreans copied from them, the Chinese copied from them, and then and then improved it at every level.

Speaker 2: And so yeah, see, it seems to me that it's very easy to say, oh, it was the terriffs that made this happen. I mean there's a couple other factors.

I mean, one, I don't think we would like that government being a command economy as it is. I mean,

we sort of like to have freedom and things like that.

The other thing is is that not meymore we used to.

Speaker 3: They voted that out. That's gone carry on.

Speaker 2: And the other thing is is that, you know, I mean, part of the deal that you guys were foing to was that if if Volkswagen wanted to build cars in China, that they had to set up a company that was owned at least fifty percent by a Chinese company, right right, Okay, So if you look at I mean, and these are numbers from today, so let's not even think about what they were thirty five years ago, that in today about fifty percent of Chinese households have a car. In the

United States, ninety two percent of households have at least one car.

Speaker 6: Okay.

Speaker 2: Now, you know, the Chinese population is one point four two billion. We are three three hundred and forty two million. Okay,

So there's this tremendous untapped market. So if your Volkswagen

General Motors buick anybody, you want to be there because there's this huge opportunity. Is there a huge opportunity to

sell cars in the United States?

Speaker 6: The perfect analogy.

Speaker 7: I'm just saying that, I'm just saying that you're not going to keep the people out of your market forever.

Speaker 3: But there is, and to his analysis, an untapped market for a lower price right vehicles that they would love to bring.

Speaker 5: So I do think that there needs to be So, you know, there's a strategic aspect of tariffs, and I think the Chinese, to your point of you know, employed that extremely well. You know, Jamie Butters wrote an opinion

piece in the New York Times that was about the tariff situation, and he made a point about the way that the industry works is you know, we're talking about long lead times, long long decision arcs in terms of you know, where to put production facilities and so on, And if there was a component of this that's said, like we're going to you know, we're going to make Chinese cars that much more expensive, but we're going to or the parts coming in, or you know, we want

to make them more in the US and so on, that there's a measured way to do that. You know,

we're going to put an x percent tariff in year one, and you know it's going to play out this way to achieve this strategic objective. It doesn't appear that the

application of tariffs is being done in a strategic manner, at least not yet. And so I think that, you know,

if that's the goal is that we want to make Chinese cars, you know, we can compete better there or they can compete worse here, or whatever it is, needs a more measured version of the way the tariffs are being implemented right now. Right now, they're being used as

kind of a bargaining negotiating chip put on the table and withdrawn and so on. I think there needs to

be a more strategic version of that that says, you know, this is how this is going to play out, and here's why we're doing it, and here's the strategic goal that we all have to end up in a better pay.

Speaker 7: I think that that is the thinking of the administration, is that they start with this idea, Hey, we're going to slap everybody with tariffs, and then when you get into the guts of the deal, you say to the Chinese something like, and I'm making this all up. We

want to sell semiconductors over there, we want to sell agricultural products there.

Speaker 6: You want to sell cars here. Let's make a deal.

Why not.

Speaker 3: We don't want China to be a fifty for a state right.

Speaker 6: Now, I don't know. So I don't want to get

in a land war with them, or as sea war and air war. I'm not want to get in any

kind of war with the trade.

Speaker 2: So Dron you alluded to this before. The BYD Super

E platform, which they say is a thousand kilowatt charging system that you can get two hundred and forty nine miles of range in five minutes.

Speaker 7: It's and it's going to require a special kind of battery that's only going to be available on two new models that are coming out later this year. So this

is a very limited supply. But the point is you're

going to get a glimpse if it's legit. And I

say if, because there's a lot of hyperbolea involved here.

Somebody once said told me the joke that they are liars, big liars and battery engineers, right they they they're they're known for exaggerations. But if there's something to this, then

it's a technology then we that we definitely have to understand because it's going to speed this day that you talk about, which is the day when electrification is here, when charging times are down to five minutes, when the pricing is at parody with internal combustion engines, when we're not worried about range anymore.

Speaker 6: Those things need to happen.

Speaker 7: And I get the sense that they're happening faster in China, not only with c at L, which is the big I have, that's the big battery manufacturer, and with BOID, which actually makes its batteries and has.

Speaker 6: Apparently done a lot. I mean, there are pioneering.

Speaker 7: This extended range electric vehicle also that supposedly has twelve hundred It has twelve hundred miles of range when you use the larger battery and the larger engine and gas tank, it gets twelve hundred miles of range, and we've already started to glom onto that a little bit because Ram is going to have this truck later this year there range extended.

Speaker 2: Okay, so let me ask you guys this.

Speaker 6: Okay, so you said, and I quote, we're going.

Speaker 2: To glom onto a little bit.

Speaker 6: Okay, So.

Speaker 2: Why is there no American OEM like BYD that's saying, yeah, we've got this development of five minute charging, And because why are we only going to glom on a little bit?

Why aren't we technological leaders?

Speaker 7: I'll withdraw the a little bit. I mean, I think

we should. We have to understand this technology. It's the future,

right and if we want to be building these kinds of cars and manufacturing these kinds of batteries, we have to understand how it's done. But that would be the

main reason why why maybe General Motors should make a deal with BYD, or Ford should make it a deal with BYD, is to learn how to do that.

Speaker 3: Tesla was doing this right and got distracted. Now, I mean,

but one of the things that's interesting in the skimpy details about this whole uh you know, a thousand killawat super E platform is it's a lithium iron phosphate battery.

This isn't what everybody's been doing. And that that direct

that seems to be the shift in the direction for batteries for the industry as well as everything else. It

seems like I have electrical engineers telling me that's the battery I should buy for my camper, for instance, because it's better, cheaper, safer, safer. The only thing you can't

do is charge it at lower temperatures.

Speaker 5: Any lithium you were speaking to, the change, you know, coming from the Japanese and then the South Koreans, you know, did that you know follow that same path and so on. Uh,

you know, any big technology change that takes place. And

we're I was talking earlier about about cell phones, you know, smartphones, and I was telling someone earlier, I found my very first smartphone in a drawer the other day was an iPhone three. It was literally like this big, you know,

and uh, it probably did four things. And now it's

so taken for taken for granted that everyone's got you know, laptops or iPads and cell phones and so on that do everything. And it didn't happen overnight, and it didn't

happen with a snap of a finger. It was evolutionary.

So I can't speak to the battery technology, you know, I don't know all the ins and outs of that.

But someone's going to come up with better whether it's evolutionary or revolutionary. They're going to come up with better

technology to extend range, to charge faster, and so on.

And each one of those steps forward, whether they are evolutionary or revolutionary, will lead to that long arc that I was speaking about, you know, like evs are going to be where we go, and whether it's the Chinese that are driving us, or we drive the Chinese or anyone else, you know, takes the leadership mantle here. There's

a lot of money being poured into that investigation, and I think that's going to just continue to go forward.

Speaker 3: And around the world. And I have said this I

don't know how many times. Imagine if tom as citizen

had had one penny and chip to work with to solve the light bulb thing, he would have just set it, figure it out, tell me in the morning, and now of course it'd be a GPU chip and he'd have his answer in five minutes.

Speaker 7: And I think investors and companies have to think about this, because as the Chinese industry comes forward, just as the South Korean industry did in the Japanese industry before it, they're going to be incumbents that are going to disappear.

And I don't think that's a very bold prediction. I mean,

we see a company like Nissan, which twenty years ago was in trouble, but maybe thirty years ago was an up and comer, and now they're struggling to hang on.

I think it's fair to make the case that they're struggling to hang on because of the.

Speaker 6: Competition that's coming up from the bottom.

Speaker 5: I mean, just imagine if someone does come up with a battery that has a thousand mile range or you know, can be charged in five minutes to a full charger.

Speaker 6: That's what they're saying is happening.

Speaker 3: And doesn't weigh nine thousand pounds.

Speaker 5: Right, But think about the sea change that that will will trigger and everyone will move in that direction, and there everyone will be scrambling to be partnering. You know,

you were saying like maybe Ford or GM should be partnering with BYD or whoever whoever comes up with that technology is going to be in the driver's seat.

Speaker 7: You know, well, I think the person who ought a broker this relationship between BYD and an American automaker is Warren Buffett because because Berkshire Hathaway is one of the early investors in BYD and they made a fortune with their stake in.

Speaker 6: BYD.

Speaker 2: The better hurry Warren's getting a little pardon, I said, they better hurry Warren's getting a little up there.

Speaker 6: So yeah, well he's having a pretty good run.

Speaker 7: I'm not making any predictions about Warren Buffett, but.

Speaker 3: He would be the guy that broker that kind of deal could make that happen.

Speaker 2: So, Bob, you mentioned GPUs. So there was an announcement

this week. In Vidia has this big conference out in

California and it's like Woodstock for GPU nerds, I mean, and they have all kinds of speakers, and announcement was made that General Motors and Nvidia are partnering and they're going to be partnering on using GPUs in fact, to develop the factory layouts. They're going to be using GPUs

for cars, and they're making it sound like g whiz.

This is the first thing that has ever happened between in Vidia and a car company, Toyota, Volvo, Mercedes, Houndai, Rivian, Jaguar, Land, rover byd Lee Auto Shaping, Pollstar, Neo, and Lucid are all working within VIDIA. So darn you know General Motors

very well. Is this a PR move or is this

a legitimate thing that General Motors is doing with in video because they're a great name, Rather than.

Speaker 7: I think there's always a I think there's always a PR dimension behind every announcement. There is an announcement without

a PR dimension to it. But I also think that

large corporations must have some kind of presence and foot in the AI world or they're going to be left behind.

The building of large language models they call them lms in the of for artificial intelligence are being embraced in every industry and it gives the ability of people to ask questions and to set up processes and to get data and to organize data in ways that nobody ever thought of. This is basically this is only three years old.

I remember reading the Financial Times and seeing the words chat GPT for the first time in November of twenty twenty two. I immediately downloaded chat GPT when it became

available to the public, and it was breathtaking, and I still find it breathtaking what these different platforms can do spreading out in industry.

Speaker 6: So this one.

Speaker 7: Company that I was speaking to today has spent tens of millions of dollars. Basically a quarter of their workforce

is dedicated to doing nothing but keeping this up to date because it's such an efficiency driver, and it's a way to do with ten people what you used to do with one hundred people. It's a way to do

in one minute what used to take eight hours. And

if you can't do that, and that applies to general motors into ford, into the factories and the design labs and the marketing teams, if you can't do that, you're going to be put out of business.

Speaker 6: It's that simple.

Speaker 3: And the growth in that area. Did anyone read this

New York Times piece on GPUs compared to CPUs and you missed a couple companies, the gaming companies that have been using those chips. That was a game we.

Speaker 7: Need back in the day that they had much more processing power, but we only thought it was for these nerds who like to play these complicated videos. Right, So

we found out is that in order to train these large language models, you need a lot of processing power.

And when you take that processing power away from the graphics and put it towards take sucking up all this data and all this knowledge and then organizing it in a different way, it.

Speaker 6: Takes a lot of power and it takes a lot of process.

Speaker 2: So that was that was the New York Times story you're talking about, And they did make the point about the amount of electricity. These data centers are requiring water

to cool.

Speaker 3: Right.

Speaker 2: It brings to mind as we're talking Rick, you know, you're seeing the long arc the issue of charging infrastructure.

I mean so by d and it's announcements basically saying yeah, you know, we know that we have to have a special charger that's going to allow us to do this, and it's going to take more, you know, more energy.

Our car companies thinking about sources of energy the way that you know, we we were reading that you know, Google and Meta and all these companies are saying, you know, Microsoft is going to open three mile Island because they.

Speaker 7: Need yeah, right, yeah, futilities are definitely thinking about.

Speaker 2: What are the car companies, I mean, because Google's thinking about it and well they're.

Speaker 7: Not you know, kind of edge GM GM can't can't make power, but it has to make sure that Detroit Edison can supply it with power. So so those people

are talking and now Detroit Edison they're they're they're recommissioning some nuclear plant here or there's talk about it.

Speaker 3: Yeah in the west side of the state.

Speaker 7: Yeah, yeah, and that's happening everywhere. Gates is Bill Gates

is very heavily invested in these new modular plants. And

this is a this is a this is an answer that has been evident for several years nuclear power, but it hasn't been politically feasible. It's it's become politically feasible

now because of this three Mile Island recommissioning and a lot of other reasons.

Speaker 6: So yeah, turnobols.

Speaker 7: They are thinking about I mean, the answer to your question is yeah, they're thinking about it. But the way

that's expressed is they're going to the utilities and saying, hey, this is how much power.

Speaker 6: We're going to need. How you're going to build us

another coal fire plant? I don't think so.

Speaker 3: Somewhere back in time of a Volvo electrical engineer was describing to me how much power a like a typical refueling station on the Ohio Turnpike would take if you add fifty pumps there now and you replace that with fifty chargers and fifty cars are there wanting to fuel from ten to eighty percent and twenty minutes or ten

minutes or five minutes. You need that reactor out back.

Speaker 2: Like power everywhere in neighborhoods. Yeah, you know the Yeah,

So all right, one more topic then we'll wrap this up.

Speaker 6: Rick.

Speaker 2: One of the things that you guys looked at seems to be what I'll describe as being peak truck that we saw for the first time in decades that the F one fifty, not the F.

Speaker 3: Series, which was still the leaderful, but the F.

Speaker 2: One was outsold last year by the Toyota raft Wour Compact SUV. You guys did some analysis, and you think

that the raft war and the Honda cr V have real possibilities of beating the F one fifty again.

Speaker 6: Talk to us about that.

Speaker 5: So, you know, what cloud theory focuses in on is inventory and uh vehicle movement and sales velocity and that sort of thing, and the efficiency in which vehicles sell in the marketplace. And we did see for the first

time in the industry so off. The first time I

think was actually I should say the second time, in like it was forty one years that the F one fifty got out sold. And what we've seen over the

last two or three years, a lot of the OEMs got hit hard on inventory from the chip shortage, from the supply chain issues. Toyota and Honda in particular got

hit very hard, and there were other extenuating circumstances, in particular with Toyota with some of the recalls that they've been contending with with the engines and so on, so they've had some big inventory issues. In spite of that,

the Rev four still outsold the F one twenty four.

And so what we were seeing in our days is when you look at things like inventory positions and turn rates, the inventory position for the F one fifty was about three times I think the level that it was for the Red four. Every Red four that was out there

was getting bought. And Toyota is turning the corner in

terms of its inventory positions now, and they have a lot of pent up demand and a lot of efficiency in their system and in the public's buying interest in their vehicles to work with. As their inventory position recovers,

so they don't have to be as aggressive with incentives, they don't have to be as aggressive with discounting, for example, so they have room to grow in a way that one fifty. You know, f one fifty has a pretty

solid of course, it's you know, an incredibly good seller with a very dedicated consumer base. But outside of that

dedicated consumer base, they have to work pretty hard with and some other things to move more. Whereas Rev four

and CRB for that matter, have a lot of upside potential that they haven't tapped into because they have been inventory challenged for several years. So what we saw in

that shift was kind of a harbinger of things to come.

And you know, fifty's gonna have to work that much harder to keep the crown if they wanted to keep the lead going forward.

Speaker 7: You know, to your point, I think both Toyota and Honda have a lot of upside in both those models with optimization of gas electric hybrids. We were on vacation

last year and got a Civic Hybrid, a Honda Civic Hybrid, and I think we drove this thing for a week and I went to fill it up before we went to the airport and it took like four.

Speaker 6: Gallons of gas.

Speaker 7: I said to my wife, when have we ever got anywhere where we've had to fill up the gas before?

Speaker 6: It's getting fifty miles to a gallon.

Speaker 5: So much of this, too, is what you were speaking to about, you know, gas prices first of all leading to segment shifts.

Speaker 3: Uh.

Speaker 5: We were talking about the overall affordability of life in general.

And you know so, I mean, the F one fifty does have the F one fifty lightning and it's selling, but it's it's a relatively small position within the overall model.

But for a lot of those reasons, you know, RAV four and CRV have an advantage. And right hardly it's gas. Partly,

it's economics, Partly it's list For a certain part of the population. F one fifty is a status symbol. It's

the same as somebody who's carrying, you know, a two thousand dollars perse they're driving this car, this vehicle down the highway. That makes no sense whatsoever from a from

an economic standpoint, But it's a status.

Speaker 2: But before it depends on a broader audience than just those people. I mean, you look at you've got the

working people.

Speaker 6: On in those corner over the last couple of decades, look.

Speaker 3: At cars to your point, to look at big picture though, I just pulled some some of our numbers ahead of this and just through February, about four hundred thousand uh cuvs sold in our segmentation, or take that back, four hundred thousand large and the smaller pickups compared with one point two million cuvs in that period two months. So

if that's if that's where the market's going for the rest of the year.

Speaker 2: You know, trucks, Yeah, So what are you saying about fifteen hundred, Well.

Speaker 5: I think, you know, trucks have a place in this market.

They always have and they always will and it's there is a you.

Speaker 6: Know, there's a status on you know, they have an audience.

Speaker 5: But I think that there is also a huge component of those are very utilitarian view hicles that do a lot of things for a lot of people in practical ways.

You know, that's that's been the base and core of that model forever and that will still be true. But

I think that the you know, all of those other dynamics that are inherent in the market, money being a big one, uh, you know, that's going to push people to ceuvs more, more and more. And one thing of

note is that we're talking about price increases, and I may have mentioned this, but uh, it's the heavy duty trucks that are driving those price increases a lot having to do with the engines and where they come from right now. But so that's another advantage that the SUVs

have or cuvs have over trucks right now, is if prices are going to head back up and they are being led by the bigger, the bigger, more expensive trucks, and so you know that that's going to just add a layer of exaggerations.

Speaker 7: For a certain segment of the populationitarian park. But there's

also a luxury item part that's driving those as luxury.

Speaker 3: One hundred thousand dollars of those really high priced vehicles.

Speaker 2: So drone men, the wealthiest man that I know, I know you're going to out there and buy an expensive truck.

Speaker 6: So I'm.

Speaker 2: All right, we ran over. I thought we'd end at

four o'clock, but you know, this was such a great conversation.

So Rick, thanks for coming back on the show and really nice to buy it. Followsure, Bob Darn, It's great

to see you guys.

Speaker 6: And good.

Speaker 2: I appreciate it so and you all come back next week and we're going to talk about cybersecurity, another topic that is roiling the industry.

Speaker 1: Out online after Hours is brought to you by bridge Stone Tires Solutions for your Journey

Dodge Ram

Toyota Crown

Honda Civic

Ford F-150 Lightning

Honda Crv

About this episode

Original notes