AAH #754 - 2nd Half Car Sales Forecasts Don't Look That Good

Speaker 1: This is Auto Line after Hours, unscripted, uncensored, unapproved. Hey,

thanks for joining us on Auto Line after Hours. I'm

gonna be talking about all kinds of things going on in the industry, right Gary.

Speaker 2: Indeed, we are, I.

Speaker 1: Mean, that's what we always do. We may as well

keep on doing try to what we do we do.

Speaker 2: Yes, absolutely, So.

Speaker 1: We've got to let everybody know we've got Jeff Schuster back with us today.

Speaker 2: Jeff, we're glad to have you.

Speaker 3: Been great to be back with you. Guys, looking forward

to it.

Speaker 1: Jeff, you've got your own gig going now too, right.

Speaker 3: Yeah, I do so. I'm kind of doing some of

my own consulting also, just trying to figure out what part of this industry I want to be part of next.

So in doing that, clearly, looking at trends, looking at what's driving the automotive industry is core to my heart and I'll always have a piece of that.

Speaker 2: So Okay, So you talk about like you're looking to see what area, which means that you have to look at all areas right now. How do you characterize what's

going on.

Speaker 3: Right now right now? Chaos, I guess is a is

a good way to characterize it. I amen to that, Yeah,

and it's it's not new. We've been in chaos for

quite a few years. It's different chaos, and I think

it really is challenging for anyone in the industry right now to make a decision tactically and strategically just to try to figure out what am I doing tomorrow, let alone what am I going to do five years from now and plan a business. And I think that's that's

really the area that I feel like I want to gravitate toward and work toward helping helping make better decisions in the in the chaotic market we're in right now.

Speaker 1: You know, we've we've been saying that every decade.

Speaker 2: We go, oh my gosh, this is so crazy the competition.

Speaker 1: But I would say the difference right now, though, I believe the chaos is at a level we've never seen before.

And if you look at second quarter earnings, boy does that tell the story. Everybody's profits are down sharply or

like you know, we saw a Ford report a loss, right, I mean, which is shocking. It's not shocking that Stalantis

posted a loss because of the issues they're going through.

That's how I'm measuring the chaos right now is profits are evaporating in front of our eyes.

Speaker 2: So I mean, okay, to what extent though, was much of the chaos before predicated more on competition in the industry, predicated on consumers shifting their focus ways, say, from sedan's to sport utes, things that were just sort of organic to the argost dynamics, right right, versus something that is chaotic because it's imposed from top top down in terms of tariff policy.

Speaker 3: Yeah, and I think I think you're right, John, I agree with you. We're at a level that's just unprecedented,

and it's probably Earie. When I think about that question,

I think it's because it's coming at so many different angles.

Your top. It's coming from top obviously with policy, regulatory environment,

changes to policy associated with that tariffs of course, so that creates a chaotic environment and a decision tree that so far the industry is just saying, we're going to wait and I'll get back to that. I'm sure we'll

talk more about that. But I think when you look

at all these different issues, so it's the consumer, it's the policy, it's the technology disruption that you know is going still going on in the background. That I think

the industry is having a difficult time really working around all of these variables, which you know, it almost looks like a tornado right now, I think. Yeah, so John.

Speaker 2: Jeff mentioned people having a difficult time making technology decisions because of what's going on now. For the last several years,

the technology decisions seem to me to have been, Okay, do we make one thousand evs or do we make ten thousand EV's or one hundred thousand evs or by twenty thirty to all EV's, And it seems to have shifted to, well, let's ratchet that number down. But do

we then go back to the guys who we've put in that back room who are developing ice engines and maybe, you know, give them a lamp so they can see what.

Speaker 3: Work they're doing.

Speaker 1: Yeah. Look, I mean obviously automakers are postponing or eliminating

EV programs. That's the market reality that we see right now. Yes,

they are pivoting back to V eight power in some cases bigger SUVs, full sized pickups and the like. But

guess but they already know how to make that stuff.

They've already made all the investment in that and with the Trump administration taking away any penalties for missing GHG emissions or fuel economy, well, you don't even really have to improve those trucks either. I think the industry is

going to take this as a whopping big opportunity to cut billions of dollars in new product development and put that money to the bottom lines or help offset the costs of the tariffs and things like that. But I

don't see Big R and D going into ic power trains.

They're there, they work, the customer seems to be happy with them, at least in the United States. So the

rest of the world know that. You know, there's still

the emissions, there's still the efficiency requirements, there's still the ZEV credits that you have to buy that's going away in the US. So I think this is of all

the chaos, this is actually kind of a windfall for the industry that part of the ledger, you know.

Speaker 3: I agree, I think it is in the short term.

I think the potential problem or risk is we all know, and you know you can if you're a if you're a manufacturer supplier, that competitive pressure that you're always faced with the whatever the issue of the day is that that COVID the financial crisis, we saw innovation come out of that because you had to. If you don't have to,

I worry a little bit about the competitive environment in the US. If everyone is allowed to do basically what

they want, they don't have to push any technology or push improvements to the whatever the IC or or development into evs or In that case, you're probably extending life cycles a little bit longer unless consumers push back and say no, I want my vehicle needs to be new.

That creates I think a different environment.

Speaker 1: Sure, because look what's managements going to be under pressure from They're going to be under pressure from their boards to maximize private profits and drive shareholder value. And then

it becomes an easy decision. If I put all this

money into EV's I'm not going to get my big bill bonus.

Speaker 2: I'm not.

Speaker 1: I'm not going to do that now. But I do

think they have the enough smarts to know that EV is the future. It may be farther down the road

line than we thought, and so you better not just give up on it, because there's probably going to be some period in the twenty thirties where you're going to get your head cut off because you just were not competitive.

Speaker 2: Okay, So who's running any one of these companies that worries about what's going on in twenty thirty five. I

mean it's just like, look there, does they're measured on what they're doing right now?

Speaker 1: No? No, No, you're absolutely right. But Bill Ford worries

about what's going to be going on that, I would say the kids, because it's it's a family operation. Would

say same thing with Akiyo Toyota. He's going to worry about,

you know, future generations and.

Speaker 3: It's a legacy.

Speaker 1: It's a legacy exactly. So. But the others are just

guns for hire.

Speaker 2: Right So it seems to me that okay, if if your bonus is predicated on what you did this quarter or yeah, And I mean it's just like so you're saying, okay, they don't need to spend all of this R and D money. Okay, So do they take that R and

D money and do something else with it, or do they take the R and D money and say, we don't need to spend it, We're going to keep it, or we'll buy back stock, or we'll do something that will have a financial impact on right now sure versus what's going to happen five years from now.

Speaker 1: That's the incentive for them. There's the carrot, you know,

maximize shareholder value, and they're going to be under enormous pressure to do that, except that, as I've said, there's certain family entities, the Chung family at Hyundai for example, the what's the family that owns BMW. I'm blanket out

on the name right now.

Speaker 3: Quant.

Speaker 1: Yeah, the Quant family. I mean, they they're not gonna

want to see BMW go away.

Speaker 2: Right, Okay, But but see I would make the argument that, okay, if you look at Hyundai or you look at BMW, that they are still facing the competitive pressures that we talked about before, because basically they're competing around the world, and around the world still has things like emissions regulations, right, and so they're needed.

Speaker 3: I think that's a big challenge for those type of companies because they're pushing hard into evs and if that's not what this market wants, they're going to So now you have to you have to serve multiple markets, and I think you're spreading yourself out. And yeah, I totally agree.

We're not going to see development R and D into into ice. It's just it it's going to be what

it is, and you can do some tweaks here or there, but that's that's just going to run good enough. It's

good enough. Could it be if could you do more?

Of course, but it's not worth it. It's diminishing returns,

I think at this point.

Speaker 1: Look, we've been working on the internal combustion engine for what one hundred and twenty years or something like that.

It's about at its maximum. You know. The thing I

like to point out is internal combustion engine actually very inefficient.

And the point I make is Formula one engines, which cost ten million dollars a piece and they throw every tech trick in the book at them, are fifty thermodynamically efficient i e. They waste half the energy in a

gallon of gasoline. These are the bleeding edge and cost

is no object kind of engine, right, And that shows you you're never going to get better than that, and so why invest more to get you know, e C tenC fractions of an mpg? Now when there were MPG

fines for missing it? Sure, oh yeah yeah, Now it's

worth fraction money to avoid the cost of the fine.

Speaker 2: Okay, So let's say there's a person who is going to be going into a buy a new vehicle, and they can buy a Hyundai that has been doing lots of development on ice engines as well as on fuel cells and hybrids and plug in hybrids and evs. I

mean they've covered the table with bets yep, and their MPGs are ten miles per gallon greater than something you can buy from a FOURD or a GM. Isn't Hyundai

in a better position to get the sale?

Speaker 1: Absolutely sure? I mean there's going to be a lot

of the car buying public who's going to do their research, look at the fuel economy ratings and go boom, this is the one for me. If it's made by Hundais,

who cares? That's what I want?

Speaker 2: So, Jeff, I mean what you're suggesting earlier that it's going to be more of a regional market rather than a global market. Now is it? Is it three regions

or just two regions? With the two regions, I would

say you take the EU and you combine it with China and say, okay, they're sort of looking for the same things. And in the third region being the US

or the second region.

Speaker 3: Second, Yeah, and obviously then you've got more emerging markets, and not everyone's competing in those, you know, parts of South America, Southeast Asia. Some of those markets are going

to be different obviously in Africa, of course, so you have nuances in each of those markets. India is a

unique market as well, so there are multiple markets. But

I think, yeah, when you're looking at your mainstream markets that drive most of the volume, yeah, you're down to US, maybe even more isolated than calling at North America market now, and then you've got the other EU in China. I

think in Japan, Korea you could maybe a little different as far as how it's being developed, but similar patterns there.

So in terms of the regulatory environment, So yeah, I think it really isolates the US in the current environment.

And yet it is also for a consumer that wants whatever they want and doesn't want to be told what to drive or where it has to go. I think

it's potentially good they like that, but I think again that's it's a more of a short term benefit and maybe a short term benefit to the manufacturers on the regulatory side. Obviously, the tariff side is still playing out,

and I think I throw some caution on not to pivot on you guys yet, but throw some caution on sales to date look better than they probably will at the end of the year.

Speaker 1: Yeah, no, I totally agree. Let's talk about that because

you've done a lot of forecasting work. I read I

haven't gone in and dug into all the numbers. That

the Star last month was sixteen point nine million, Is that right? Yeah?

Speaker 3: Six high sixteens. Yeah, I think I had. It floored me,

absolutely floored me.

Speaker 1: You know, I thought by this time the automakers would have run out of all the pre tariff cars and that they would have had to raise prices or at least remove incentives on even stuff built in the US.

I was sure that sales were going to start dropping in July. In fact, they hit the highest SAR rate

that we've seen in a lot quite a while. Yeah, yeah,

what's going on that?

Speaker 3: July was read quite an interesting month. June was definitely soft.

So I think you've got to if you look at the trend between the two, you've you've got a little play there. So maybe there were some reasons why things

pushed into July. But then I think if you look

at consumers are paying attention to headlines and when they are expecting tariffs to impact pricing and potentially availability or choice because certain vehicles are going to possibly rise higher than others. I think it's more of us spreading it

out than what general consumer probably thinks. But that notion

of rising price is coming, and if it hasn't yet, let's get it. If I need something in the near future,

let's buy now. And I really think that drove July.

It obviously had the you know, we saw EV's through the roof because of the credit disappearing next month. So

if you pull all of that together, it was a fantastic month. But I think it comes with some caution

on did we buy from future months?

Speaker 1: That's how I feel. But you know, like I said,

I was pleasantly surprised at the July numbers, but I think it's pull forward.

Speaker 3: Saying I think it's pull forward.

Speaker 2: So this is Aaron Keating of Automotive wrote this. The

coxs onnotive team still expects consumers to see retail prices climb by four to eight percent by year end, with price increases accelerating as twenty twenty six model year vehicles hit the market. In other words, the sticker prices will

go up for those higher than they probably would have where they're not tariffs, right, okay, John, she wants to write, we expect the average price of a new vehicle in the US to break the fifty thousand dollars barrier in twenty twenty five as automakers begin to pass along the cost of tariffs and the market sells a larger share of higher end vehicles. Our forecast for new vehicle sales

remains below the sixteen million new unit mark for the year, a decline compared to twenty four as higher prices continue to move the auto market in a direction that favors high net worth households with excellent credit, leaving many on the outside looking in. So what happens to the auto

market in the United States when it's above fifty and lots of people can't afford.

Speaker 3: That affordability has been an issue, it will continue. That's

a major driver obviously demand and volume. Ultimately where volume

ends up and I think you again have the risk of displacing a lot of would be new car buyers when prices continue to edge up. Because of this, we've

already seen the pullback and incentives maybe not as great as I would have expected. At the initial announcement, I

guess of terrorists. The delays, the some of the deals

being made is impacting things favorably, so they're not as dire as they were looking like they might be. But

I think at the end of the day, vehicle manufacturers cannot continue to absorb this cost. We've seen what it's been,

what it's done so far.

Speaker 1: It's really their bottom line at the bottom lines, and it's only going to get worse.

Speaker 3: Well, the in the warnings that they've put out in their in their earnings calls, if that doesn't signal something that it's going to get much worse unless something changes, So they are going to pass They can't continue to absorb it. They're going to have to pass.

Speaker 1: It on, right, because you know, I thought that they would share the pain with their customers. They haven't, so

they've eaten most of the pain. And the pain's really

going to the shareholders because when all these earnings came out, boom stock prices went down, right, and they're going to hear bloody hell from shareholders and investor groups, which is going to put pressure on their board. And the board's

going to say, look, you gotta raise prices.

Speaker 3: And then that has spillover effect that affects production levels.

It affects then those those workers at those plants that potentially are going to be shut down temporarily. So yeah,

this will ripple through the industry, I think. So there's

definitely some concern in my mind when I look at the rest of the year as we as we just try to navigate all these these variables that are out there.

Speaker 2: So you were mentioning that EV sales, I mean people are like, oh, we got to if you want one, you get one now. You don't wait until after the

seventy five undred dollars tax incentive goes off of them.

What do you think is going to happen to that segment of the market in the United States?

Speaker 3: I think the second half is well call it, call it the fourth quarter. So after September, I think it's

going to be quite challenging because you've not only are you are you going to have that issue of the credit disappearing for future buyers, but any again, anyone that was considering or even had a thought of an EV, they're rushing out and buying it. So you've got a

massive pull forward. So there's going to be a vacuum.

I think for EV sales in the fourth quarter that are going to be quite challenging. So it's and then

come back to earth because you know, we saw over the course of the last eighteen months or even longer, we saw the kind of the weaning of the consumer with with EV growth not necessarily disappearing, but the growth that we have been experiencing in the US has disappeared, and then recently it just has recovered. And that that's

all because primarily because of the credit pull forward. So

once that's gone, the drive goes away. So ultimately, you know,

that's something we've in the industry. I've talked about for

a long time. The evs are going to eventually have

to stand on their own without a credit. So does

this pull that notion forward a little bit maybe and create an opportunity for an automaker or or not consumers, an automaker and product developers to figure that that formula out.

Speaker 1: Yeah, I think it's going to depend on the segment to a degree, in the sense that I think luxury evs will probably not be too impacted by the credit going away, because either the vehicle was too expensive itself and didn't qualify or the person buying it has too high of an income to be able to qualify exactly.

And so I don't see those sales being affected one iota.

The real thing is going to be, what the hell is Ford going to announce on Monday with the skunk Works project. When is GM going to bring well, we know,

next to your GMS bringing back the bolt. Were they

going to price that, you know, if they price it at twenty eight thousand dollars or something like that, I'm making it up. I don't know where they're going to

price it.

Speaker 2: Okay, But but before we go to I mean, I'm going to get back to back these more expensive vehicles that you were assuming are going to be just fine. Okay.

So Lucid came out with its numbers and it had a net loss of senner hundred ninety million dollars. Okay,

and it's lowered, it's it's production outlock, and this I think is the biggest red flag you can possibly have.

So this is from Mark winterhoff In term CEO at Lucid.

In Q one, we mentioned our ongoing relationship discussions to develop new revenue streams for our EV technology and beyond, meaning we got to figure out something else to do with this technology. You want somebody else to buy it,

you know, the expensive cars. He goes on to say,

the Robotaxi partnership we announced with Uber and neuro is a perfect example aligned with that strategy. Now here's the big,

big red flag. We also continue to double down on

increasing our brand awareness, introducing Timothay Chalomey, an award winning actor and cultural icon, as our first global brand ambassador.

So they're rolling out Bob Dylan Jr. And saying he's

going to be the brand ambassador for Lucid and this is going to save us.

Speaker 1: Right.

Speaker 2: Okay, So Lucid at this point, high end cars, right, Lucid Gravity, which would be lower but still at the higher end of the lower scale or wherever we want to look at that. Then Rivian net loss of one

point one billion, and they're all happy because it's an improvement over its one point five billion loss last year.

At this time, how can these companies afford to lose this money?

Speaker 1: Well they can't, number one, But I would say you're cherry picking the data there. So I would say, look

at Cadillac EV sales. They're strong, they're going pretty good.

I think they'll be largely unaffected by the seventy five hundred dollars.

Speaker 3: Going and I think Lucid and Rivian have other issues going on. They're trying to gain awareness, still build a brand.

That's a tough road in itself, it has been.

Speaker 1: But remember about this time next year, Rivian will have the R two out. Yes, much cheaper vehicle. It's still

not cheap. I'm just saying cheaper and cheaper than what

they've gotten than what they've got, Smaller size, more garageable, blah blah blah kind of a thing. I bet their

numbers start to look a whole lot better when that.

Speaker 2: Okay, but didn't we just sort of posit that EV sales are going to go into the tank. Therefore, where's

the demand for these?

Speaker 1: You know? What I've said is I think it's going

to be segmented to pans.

Speaker 3: I think there are two, well two, maybe more than two markets, But I think the luxury I would agree John, the luxury EV market is somewhat isolated from that now.

It may not be growing substantially as a whole, but it probably holds its own certainly more than the mainstream market.

The under fifty thousand dollars EV and for those that are launching and trying to find an affordable EV without that credit, I think again it's going to be challenging.

So it'll be interesting to see what forward and ultimately then what GM does with the bolt.

Speaker 1: Right, So.

Speaker 3: You guys are still EV positive, Cautiously, I think it's going to be a really challenging market, tough. Some will

end up being okay, and I think those that push into those high networth individuals going after that market, they're probably going to be okay, but they still have to convince that buyer to buy an EV. So I think

there's still our challenges.

Speaker 2: Okay, But we've also heard that Mercedes high end basically saying, you know about those evs, we still got ice in our plans until twenty thirty five.

Speaker 1: Mercedes has done a pretty poor job with its evs.

They have not contrasts their performance and evs to BMW's.

BMW's doing a great job. They're just about to launch

their new class of vehicles this year.

Speaker 2: Which is a portfolio approach. They've gotten across many powertrain options.

Speaker 1: Right, correct, Right, But yeah, Mercedes has not done a good job. Audi seems to be stumbling right now. Portia

got out of the box really strong, but it's only had the tye can and everybody who was going to buy a tyke in has essentially bought one, and so you need more product out there are fresh product, but you got to be careful too, because the pies not growing.

You know, we had Michael Robinant here last week and he made the point, Look, the pie is this big, and how all these new EV models are coming in, so you're just going to slice the prel center cinner.

Speaker 3: Yeah, and that's something that we've you know, we've looked at for a while now. When you look at the

EV market, it's it's going to have to grow like this to accommodate all these new players and all the push into that market and getting looking at average volume per per model that has to go to hout.

Speaker 1: So I would say I'm pessimistic on EV's short term, but I still believe the future is EV.

Speaker 2: So, so, Jeff, is the is the EV pie going to stay essentially the same size or is it going to grow? And if it grows, how is this growth

going to be comparable to the growth that we're likely to see in hybrids? And plugins and straight ice.

Speaker 3: You mentioned a portfolio approach, and I think that's probably the smart decision right now is and yeah, again you're kind of spreading things. You're spreading inventory thin as far

as having a lot of options available, but that's I think the best approach for this type of an environment.

So Eve, in terms of PIE, if we talk specifically about the US, I think the near term and call that two three, four years, EV sales probably take a hit.

I think that's pretty clear from where maybe not from where they are today, but from where they were projected.

That's all come back. The road to fifty percent market

share has been pushed out as well, So the near term what's happening right now with the regulatory environment here, that's probably not forever, but I think what it's done is pushed everything out as far as adoption. So the

growth I think will still come to the EV market.

It may look different than it was going to, and it's going to be a lot slower than it was going to. But I kind of share what you said, John,

I think ultimately that's still where things go, unless out of nowhere comes a technology that we're not talking about right now exactly.

Speaker 2: You mean a technology in terms of propulsion systems.

Speaker 1: Or yeah, right, No, I know, and I don't know much about it, and I'm probably not free to talk about it. But I know of a radically new kind

of engine that would be brilliant as a range extender, very small, very lightweight, very very efficient. So to propel

a car, probably not, but to run a generator bingo, this thing could take a lot of costs out of the revs O.

Speaker 2: Hey, John, I'm looking at the Cadillac sales numbers for the first half, and it seems to me that the Escalade alone sells all yeah, no, and including the Escalade IQ. Yeah,

they're electric version, of course.

Speaker 3: No.

Speaker 1: But what you have to look at is the sales growth at Cadillac with EVS, and it's really impressive. And

I want to say they ended up at the end of June with like thirty percent of their sales EVSE.

Speaker 2: So I have to adjust my glasses here, so I can think, sure, those small numbers. So so the Cadillac

Lyric first half down twenty eight correct, But that includes the the introduction of the optic, and I think if you add the two sales together, you're going to see that it was way better than Lyric did before. I

think cannibalize Lyric, you just add more product than Yeah, you're naturally going to have greater numbers.

Speaker 1: The Optic is awfully compelling. The package at the price, Man,

that's a price point is a sweet spot I think in the market. It visually and.

Speaker 3: What it offers I think is very competitive. So yeah,

I would agree. Challenge is still I think, you know,

playing which shoulder do you want to sit on? I

think makes sense. But when we look at it, I

do I expect.

Speaker 2: To see growth with Cadillac, Okay, but if we look at if we look at overall market in terms of purchasers of evs, Okay, So now I mean we still haven't busted ten percent, right right, okay? And this year

it was looking like maybe we get to nine percent this year, probably not going to get to nine percent, not going to get to nine percent, Okay. So then

the question becomes of Okay, if we hit eight percent this year, what will next year be? Will it be

ten percent or will it be nine percent? And if

it's still ten percent or lower, and we've discribed that the pie is being all sliced up, where does any get any scale, and where does anybody make any money?

Speaker 1: Well, this is why I like GM's Ultium platform. You know,

where you have one platform essentially, you know, uh, one set of electric motors, inverters, chargers, everything. You just changed

the top hat. Maybe you change the kind of modules

or amount of modules, the batteries that you got, but everything else is pretty much the same. So you get

the scale and the really expensive stuff.

Speaker 3: Yeah, absolutely, you get scale by spreading that across the entire EV lineup instead of you know, a traditional ice platform might have three four vehicles on it. They're more

obviously they go more than that, but on average. But

if you can do that EV platform and spread that across your entire EV lineup, and if you're again, if you're planning it accordingly, planning it correctly. Not everyone does

that when they're developing vehicles. But if you can share

as much as you can that that doesn't matter to a difference between a vehicle or a brand, it can it can go a long way to help with that efficiency and scale. It's not easy to do, that's the problem, right,

And if you expand that a bit to certainly E revs they use the same batteries maybe smaller, but same batteries, same motors, same inverters, same charge or same everything. So

that's why I'm intrigued by the extended range TV segment.

Speaker 2: Okay, So if I'm if I'm General Motors, am I going to make more money off of a Escalade, Yukon, Silverado combo versus fill in the blank ultium?

Speaker 3: Yeah, so of course you are.

Speaker 2: So if I'm if I'm running General Motors, what do I do?

Speaker 3: Which is the challenge when we bring that back to shareholder value and what do you do in the short term with your decision making. That's that's a tough conversation

to have with your board and your management team on well we need to stay the course and keep pushing into this. When I mean your Yukons and Escalades that

they can go on autopilot essentially, I mean, of course you've got to put development into it, but that still needs to pay the bill.

Speaker 1: We make a beer grill, but you know other tail lights.

GM is kind of being hurt by this because they went all in. Because they went all in, they went

all in, and now they've got this full lineup of evs that are tooled.

Speaker 3: You got to go through with the factoring. Yeah, conversion talked.

Speaker 1: About you know, they didn't go down that route at least not at the speed GM did. And now GM's

got to take all these products into production and go through their life cycle. And Ford is sitting back and saying,

we'll step into the market in about two years when everything should be better, and that's going to be an advantage for them.

Speaker 2: But will things be better in two years? I just

I don't understand how the numbers play out here.

Speaker 1: Here's how because in two years you're going to see second gen platforms that take a lot of cost out.

Everybody's flipping over to LFP batteries right, which are twenty to thirty percent cheaper right off the bat there, and they keep learning and learning and learning bit by bit, nibble by nibble, how to make these things more cheaper and efficient. So in two years you're going to see

a better cost of MAB.

Speaker 3: And I think if we kind of take that notion and talk about that risk I mentioned earlier about the environment in the US of not driving innovation, but remove being that text incentive the credit, maybe that does potentially create an opportunity to drive innovation, to push How do we take cost out of these How do we improve the efficiency of the development of manufacturing of an evy to compete in a market when I don't have that credit.

So not everyone's going to take that challenge on because there's cost associated with that. But I think there were

those that are able to do that and are successful.

That'll set them up I think for the long term.

Speaker 1: I agree, and they got to pick their targets. We're

not going to do all these vehicles. We're going to

do we think we can hit success here in this segment, in that segment, and then to your point, let's put all our resources into taking cost out and then you.

Speaker 3: Can apply that to the rest of the lineup once you've figured it out. Right.

Speaker 1: There was odd buick that came out this week in China.

Did you guys see that? I did see the electra orbit, Shohn,

I got a picture of that.

Speaker 3: Really interesting.

Speaker 1: Oh you don't have the electric orbit? That was electric,

wasn't it?

Speaker 3: Yeah?

Speaker 1: Yeah, so to me, and I'm sorry, we should have had a picture to put up. You guys can all

do a search for it. That is a compelling product.

Speaker 2: I was not doubt Okay styling, Okay, you saw the styling.

Would you care what was under the hood or wherever it's located.

Speaker 1: No?

Speaker 2: No, right, So so again it's the design was.

Speaker 1: Was very compelling. Yes, But if you were Buick and

said yes, and the only way you can buy this design is to get an electric version, people are going to say, damn, I want an electric.

Speaker 3: Take an electric vehicle now, okay.

Speaker 2: And let's say that you're you're running Buick and you say, the only way you can get this vehicle is to buy one, and we will put whatever powertrain you want in this vehicle.

Speaker 1: What do you tell more of You're going to sell more ice or hybrid, probably because hybrid.

Speaker 2: So this is the thing that you know, you guys are both saying, Okay, in two years, we'll take the money cost out blah blah blah blah blah blah, it'll still be comparable. I mean, this is what they're talking about.

We want ice.

Speaker 1: That would be a good example, Gary. And this goes

back decades. I remember when the Japanese automakers started putting

four speed transmissions automatics in their cars, and I remember the then head of engineering at Ford saying, you don't need it. You don't need a forest speed. It's not

going to get you a better acceleration, it's not going to get you a better fuel economy. Versus the way

that we have paired our three speeds with our big V eight engines. It would make no sense for us

to go to for speed. We're only going to add cost. Well,

guess what the Japanese were able to sell the advantages of forest speed. Oh, it's got four speed and the

public money. Yeah, that's what we want. And that's the

danger I see is that if you don't stay current with ev technology, there's gonna come a point several years down the road where you're gonna get you're gonna be caught with your three speed automatic that nobody wants.

Speaker 2: Okay, And to go back to to the last week's show with Michael Ropinette of S and P Global Mobility said he is afraid we are going to become a technology backwater. Correct, Okay, And it seems to me that

what he's saying in that statement is, yeah, you will have the guys back there in that room. They'll they'll

be they'll be reading up on these new developments current, They're gonna be staying current. So yeah, we we we

will fall behind.

Speaker 3: We're good.

Speaker 2: We may not talk to them very often. But but

because you know what, we're gonna sell the hell out of all these other vehicles. And I mean, but they've

they've lost so much money, you know, I mean, so what General Morters is thinking is gonna it's gonna lose five billion dollars this year, okay on EVS. On no,

because of the tariffs five oh yeah, five billion. It's

probably another five billion with EVS, but probably you know, at some point, I gotta start making this money, and they're not going to make this money and.

Speaker 3: Trying to stop the bleeding somehow, and that comes probably at the cost of development right there.

Speaker 1: And there are some offsets, like we know for a fact they're going to save billions not having to buy ZEV credits, not having to pay fines for missing few economy targets, being able to throttle back on their capital investments and on their R and D because you know, they can build a lot more ice products that are fully engineered.

Speaker 2: So okay. So so the question then becomes if if

you are well I'm speaking out of like eight size on it. Okay, So you're Mary Bearro or your Bill

Ford or Jim Farley or you know, I mean, and and suddenly you're saying, Wow, I can sell these V eights, this good stuff. How do you tell the market those

EV things are They're fine, They're they're good, But two different customers, you know what, Okay? But are there a

sufficient number of customers even to address these guys, these EV people? I mean, isn't it sort of like saying,

you know what, we need more convertibles because you know what, there's a certain segment of the public that really likes convertibles.

Speaker 3: So I think, I think what we're missing in what the industry was going through heading up to this pullback in the rags and in the credits and the push for EV's, and this goes along with it too. And

this is maybe a risk for that two years and after two year period, is we were still educating consumers on EV's, the benefit of EV's putting some of the concerns at Bay they're still out there as far as some of those issues, the infrastructure, which is now going to take longer to get where it needs to get.

So I think there's still a lot of risk and this pause that we're on is going to again extend things.

We don't ultimately know what that looks like because of this, because you still have to convince a consumer, and I think right now those that want an EV probably have and that yeah, there's some that we're considering, and that's going to push them off for now. If you then

don't convince them that the infrastructure is there to support their EV that they just bought when they want to go on a road trip or just want to charge somewhere away from their home, I think you have more challenges in front of you. So I think, yeah, I'm

again going back to pro positive on EV market growth, but I think the risks are still mounting, and things that we were talking about and dealing with and said had to be solved before we saw a market move heavy into EV that's all still there. And convincing the consumer.

There's been movement in that, and I think those that are considering EV's those numbers had gone up prior to this pullback, But you still have to ultimately convince them price, the performance aspect or just the characteristics of the EV driving experience, the infrastructure, what do you do about the battery range, what do you do about the battery life?

All of that, you know, it was still something consumer, the consumer has to deal with, and we hadn't gotten far enough, at least in the US to make that happen.

Speaker 2: So I mean, talking about the consumer, Edmunds had some shocking numbers, I thought, in terms of people who are going to buy a new vehicle and trading in their existing vehicle. So the for twenty twenty five, the share

of vehicles purchased with the trade in was forty five point seven percent. Some almost half people have a t

in they're gonna buy a new car. Right. Share of

trade ins with negative equity twenty six point six percent.

Amount of negative equity on average six thousand, seven hundred and fifty four dollars.

Speaker 3: It's a bit of a red flag. Oh my god.

Speaker 2: I mean it's just like, so.

Speaker 1: Look, it's not a new problem. No, it's not a

new This has been around for years where people are upside down in their car loans, i e. They owe

more than the vehicle's worth.

Speaker 2: But if you know, they go back to twenty nineteen in their numbers and we're setting a record.

Speaker 1: Yeah, I look, I can believe it. And the reason,

of course is car prices are super high, interest rates are super high.

Speaker 3: Right, and so terms are getting extended.

Speaker 1: Correct, And so somebody that might have had a good credit score when the the interest rate was three percent do not have a good credit score when it's at nine percent. And so if they're buying a new car correct, right.

Speaker 2: Average trade in age in years three point eight.

Speaker 3: Yeah, so that's young.

Speaker 2: Yeah, and we're talking about like, oh, but they're going to buy evs, Well, how where's the money going to come from?

Speaker 1: Look, people, they make sacrifices. Not not everybody, but people

who want a new car and are on the edge of not getting a car loan or at lease, they'll make sacrifices to get what they want. And you know

the people who are coming in trading cars that they're upside down on. You know what they do. The dealership

will happily roll that money that they owe into their new loan. And all they care about is can I

afford that month the monthly payment.

Speaker 3: They don't even look at what happened to get to that monthly payment, right, right.

Speaker 1: But if the if the dealer says, and I think we're at seven hundred dollars a month average right now, if the deal says, hey, look I can make this work for seven hundred a month. Bingo, I'm in sign

me up. I want a new car, all right.

Speaker 2: I want I want to talk about a fun topic. Now.

What So there was a motorist on July twenty eighth who was clocked on the Autobon going one hundred and ninety nine miles per hour in a Porsche Panamera.

Speaker 1: He should have gotten a Corvette z R one acs and gone two hundred and thirty three miles an hour.

Speaker 2: So it was more than one hundred and twenty four miles per hour above the speed limit.

Speaker 1: Because everybody thinks there's no speed limit on the Autobah, there's a lot of speed limits on the audubon these days there are area opens, very few open.

Speaker 3: Yeah, so he was then he had hundred two hundred two hundred.

Speaker 1: Should have folded the mirrors in.

Speaker 2: So we got a fine of one thousand and forty three dollars and two points on his on his license.

So what do you think about that?

Speaker 1: Jhen? What that he should not have been going one

hundred and ninety nine in a speed limited area. He

should have waited until there was open auto bond. Maybe

he ran out of open out of bond. But you

know this gets to you know, I mentioned the zero one X. They just announced the price today, two hundred

and seven thousand dollars. I mean it's a track car.

It's two hundred and thirty three mile an hour that Mark Royce himself president and GM was able to clock officially. Meanwhile,

Ford's got this Mustang GTD, which was also a track car, for three hundred and twenty eight thousand dollars, so one hundred and twenty thousand dollars more than the Corvette. The

Corvette's got two hundred horse power more than the Mustang.

Lapped the Nurburgring at I think it was two or three seconds faster than the Mustang. And I can't wait

to see what Ford comes back with, because you know they can't is sitting down.

Speaker 3: I really can't, no no question about it. They've just

been been smacked.

Speaker 1: They've been smacked good, and uh, you know, how does Corvette do this? I mean, two hundred and seven thousand

is way above what I'm not very going to pay for a car. But you know, three hundred and twenty

eight thousand for a GTD versus two hundred and seven thousand for a that's a bargain, right, Yeah.

Speaker 2: So I mean, so is what's the market like for these vehicles?

Speaker 1: Very small?

Speaker 3: It's very small.

Speaker 1: It's not about volume. It's about brand image. It's about

keeping you know, the base Corvette Stingray relevant. It's about

keeping the two point three liters turbo Mustang relevant to this.

Speaker 3: And you know that my car is similar to that.

It's related. Yeah, it's it's a halo. It's a halo.

Speaker 2: Does it work?

Speaker 1: You know?

Speaker 3: It has? It has worked over the years, So yeah,

I think it does. It's from image standpoint and just

kind of creating that buzz around that the entire vehicle line.

It does work, and there are buyers.

Speaker 2: So some guy who's going in and he buys a Chevy Colorado pickup goes, but you know what, this is a Chevy saying no, I don't know about that, but I might be pushing it a little too far.

Speaker 1: Right, That does. But look at how well Dodge managed

the charger and the challenge, your oldest platform in the book, Old as the Hills. But they came out with the

three ninety, they came out with the hell Cat, They came out with all these special packages that had a limited run. It created a demand. I want to get that.

Speaker 3: One before it's gone. Yeah, So he.

Speaker 1: Kept that car line going, like I camp, and they made good money off it as old as it was.

I mean, there's a lesson in that, right if you if you mark it well, if you keep the thing fresh and relevant, you don't have to spend a whole lot of money doing There's different ways, platforms, different ways to keep it fresh and relevant. Obviously, get the specs

up creates something that and again there that doesn't appeal to every buyer clearly, but there's the enthusiast out there that it does appeal to.

Speaker 3: And and strongly. And it it that marketing and creating

those special run vehicles brought some youth back also excitement into the enthusiast market and for those products.

Speaker 2: Right Okay, So so John maintains we've reached peak car, meaning peakatto, peakato because you know, well, okay, more than just cars, trucks fans. So so we're on the downward slope.

And so here's a vehicle that's bringing in some enthusiasm as you look out, how does it how does it look globally even for the automobile.

Speaker 3: Industry, are we at I don't think we're at peak per se, but I think the growth and the track that we are on pre all the various market disasters that we've gone through over the last fifteen years, I think that has taken the wind out. And I think

it comes down to affordability, and that's an issue not just in the US but everywhere. And I don't see

that issue going away. So I think if you pull

that in as a driver, and if that's a given, that vehicle affordability is going to be challenging for most consumers around the world. Maybe we are at peak or

or growth rates certainly slow immensely, and we don't see these recoveries back to the high volumes of the seventeen and a half and eighteen twenty seventeen, right. I don't

think we get back to those days globally. I don't

think we get back to them in the US either.

Speaker 1: Yeah, And it's not just affordability. I think that's number one.

But you have an aging popular, you have a middle class whose income has flatlined for years, and I you know, you put all that together, and that's why I believe we're at peak out.

Speaker 3: And maybe to argue toward that peak. And again I

think this is a little further out as well. Now

it's certainly not going to happen as soon as previously thought.

But and whether you call it a robotaxi or just car sharing or ride sharing, that's still going to be a factor at some point, and I think will affect auto ownership and affect annual volume. And there's different arguments there.

These large fleets are going to have to get replaced to turnover on those as much faster than an ownership model, but I think you need less of them than you do if if we're going by home or by individual ownership, right.

Speaker 1: And I would also argue that if leats are going to have robotaxis, they're going to start specifying their vehicles that they buy differently. You know, look at Class eight

semis the tractor. They'll last a million miles easily, and

you know what, all things considered, they're not that expensive.

I mean a tractor cab sleeper is about one hundred and forty hundred and fifty thousand dollars. I mean, so

you could easily design robotaxi fleet vehicles to last a million miles and without them being cost prohibitive.

Speaker 2: So you know, you were mentioned earlier about different markets.

I thought it was interesting yesterday that Hyundai and GM announced that they're going to be collaborating on an su.

Speaker 1: What do you make it?

Speaker 3: There?

Speaker 2: Your pickup? So we got to give the background, everybody, Yeah,

give them. So they're they're doing design and engineering work

for new vehicles for the Central and South American markets, and this will be for a mid sized truck, the car and suv, and then they're going to do an electric commercial van for North America, so meaning here. So

I mean they announced that they were going to be collaborating I want to say about eight nine months ago that they didn't say what they were going to be collaborating on. And every event it will be supply chain.

Speaker 3: And they'll they'll be doing efficiencies and purchasing.

Speaker 2: Yeah. Right, and now they're saying, no, we're gonna we're

gonna do vehicles. They're gonna do vehicles for what arguably

is mainly emerging markets still, I mean South America is you know.

Speaker 3: I found that really interesting because of I mean, the volume really isn't there. These are markets that especially Brazil.

Was this the market that everyone kind of said would be one of the next growth markets, and it just for various reasons, hasn't gotten there. Yeah, it's still it's

still a strong market in the sense of three million issue units. But and if you combine that with Argentina

and Chile and yeah, you can you can build maybe a decent sized market. But that it's it's it strike.

It struck me as an odd focus on where you would develop the vehicles for.

Speaker 2: So would you think that they would develop them for this market or or a Western market as it were.

Speaker 3: I would have thought more of a call it Asia, Europe, Japan, Korea, you know, throughout mature market. I would say, mature market

is what I would label it as. That's where I

thought they might go and try to get scale there.

The CV for the U or for the North American market, I think built in the US is the plan from what I what I.

Speaker 2: Read on the commercial van will be manufactured in the US as early as twenty eight.

Speaker 3: That's interesting. See.

Speaker 2: But the thing I wondered about was, Okay, what happened to break Drop? Yeah, I remember Carrious Like, that's a

good point.

Speaker 1: What happened to bred Drop?

Speaker 2: And you know, and here was it? You know, I

mean and if you looked at the specs of that thing, Wow, this is a pretty amazing vehicle. And remember they had,

you know, FedEx announced Oh yeah we're gonna we're gonna buy movies and and uh and now there's gonna be this commercial van.

Speaker 3: I think Hundai takes the lead on this.

Speaker 1: Sunday Hondai has Hondai Kia have developed a a really interesting commercial electric platform. Uh you know that can be

sized up and down. I'll bet it's built right off that.

Speaker 2: Okay, but here here's the thing. The the development is

for vehicles that will have either internal combustion or hybrid propulsion systems, not evs for the for the commercial vehicle, but it's the SUV current pickup as well as a mid sized pickup, all with the flexibility to use either internal combustion or hybrid.

Speaker 3: I think that's for the South. That's South America market, right,

I think the US I'm not mistaken.

Speaker 2: The electric commercial yeah yeah yeah, But and.

Speaker 3: Those markets are just not ready for evs from an affordability state.

Speaker 1: Don't tell that to b y D.

Speaker 3: That's a fair point. I should say non Chinese EV's

that are priced like they are not EV's to.

Speaker 1: Me, it kind of makes sense for GM and Hyundai to look at South America first. Here's why, let's stick

our toe in the water. You know, Uh, we don't

know really how we're going to work together. Remember GM

just had this great deal going with Honda and then at all what came apart, and they've never explained what the hell happened there. Now they've got a new deal

with Hyundai. I'd say let's go a little slow, let's

test the market before we get into the serious stuff. Also,

remember most of GM's vehicles that it sells in South America are either made in South America or imported from China and South Korea. You know, so GM's already got

a bunch of vehicles going to South America from Kia, from Korea. And so I could see them saying, you

know what, why don't we go to South America first?

Because of what I already said, But also the Chinese are they're taken over and we can't possibly take them on by ourselves. Let's split the cost.

Speaker 3: Could be a way to look at that from a competitive standpoint, to try to go after the Chinese, taking that market or blocking that market to go to the Chinese companies, and it could also be a way to not not do this in the major markets right now with each other as they're trying to develop this relationship.

That does make sense, John, I could see that point.

Speaker 2: Okay, So if we look at if we look at Hyundai Group, I mean, they are doing well in other parts.

You mentioned India earlier. I mean they're they're they're very

strong general motors. Noe. What is the possibility now? This

is this is going a way out on a limb.

The company is combined. I mean maybe not tomorrow, maybe

not five years from now, but maybe within the decade.

Speaker 3: They certainly don't overlap like they might have previously or used to overlap. If you look at how JAM has

changed their focus and and you say North American and China will take China out of that mix now and it really to degree anyway. Obviously they're still doing some

development there with the buick that launched.

Speaker 1: But.

Speaker 3: That focus. Yeah, so the overlap in the markets isn't

as strong as it used to be. I don't see

that happening anytime soon. But could that happen sure?

Speaker 2: Well, I mean if we go back to the point of you know, peak Audo.

Speaker 3: Yeah, and the I mean man's validation is natural then if if you can't grow another way.

Speaker 2: Right, So that's what I wonder about. Or is it

a situation where you say, okay, you know untapped markets at least for Western companies. Africa you mentioned that earlier.

I mean there's a place. I mean, they're not buying

very many vehicles right now, but.

Speaker 1: That's that is a market that it's a continent of a billion people, is it can be a big market something And India is a large market potential there, right, So those are probably the last two big growth areas of the world that are left. But I don't think

they would ever become one company. I don't think the

United States, especially would tolerate a Korean company acquiring General Motors and their partnership.

Speaker 2: They just they just one to another partnership of equals.

Speaker 1: And there's no way you've heard that before that the Chung family in South Korea would allow Hyundai, which is I mean, it's it's to South Korea what General Motors was to the United States and the mid sixties, right, it is a massive part of the economy. But I

think what you're going to see is a lot more collaboration amongst the big legacies recognizing that let's split the cost of a program.

Speaker 3: And I think market forces will dictate how that happens and ultimately to what degree it happens, because if if, if we do hit peak auto and we have all these pressures and we're still moving into these these portfolio of technologies and trying to leverage how to do them all and by the way, moving to Avis, at some point you can only do with scale. So and if

you can't pay for it with volume growth yourself, then you're gonna have to find other ways to do it.

So that's going to be a natural outcome of this.

Speaker 2: So what it's Ford is for it to get closer to VW again.

Speaker 1: Or great question. I mean they're going to have to.

I'm sure top management at Ford is under pressure from the board. General Motors just went out and tied up

with Hyundai. Who are you tying up with?

Speaker 3: Find some of them? Fur They're all gone?

Speaker 1: So what do you think, Gary, what do you think Ford would do?

Speaker 2: I think I think Ford is the recall problems are not sufficiently being addressed by that company. A in a

you know, pants on fireway that I think they need to be. I think that they probably are not even

paying any attention to that. They're trying to divert, you know,

with their Model Team moment, and I think that that is a horrible phrase for them to use because I don't I think I think the.

Speaker 3: Model is not a model team moment.

Speaker 2: I mean, the Model t is is truly an icon I mean, I know they call their vehicles iconic vehicles, but you know what their iconic vehicles because the public said they're iconic vehicles, right. It has nothing to do

with the corporation seeing their iconic vehicles so huge, you know what, over ninety recalls so far this year. How

can management?

Speaker 3: How can manage still have launch problems? Right with plants

and vehicles that they've launched and that are just redesigned.

So that's that's an issue. Manufacturing is an issue.

Speaker 2: And so until they address that looking to do other things, it strikes me as is being silly. So, I mean,

you know, I what can they introduced on Monday, Jen, I mean they've announced basically it'll be a mid sized truck. Yeah, okay,

and let's say that they're gonna you know, I mean it occurred to me that maybe if we go back two or three years ago, we were talking a whole lot on the show about skateboard. Right. When's the last

time we said skateboard on this show? I don't remember, right, right,

And it's all it's got a skateboard and you can put whatever you want on top of it, and it's you know, easier to make. Well great.

Speaker 3: Is that going to put the will in the world of information? Is it?

Speaker 2: Is it the warl on wheels?

Speaker 1: Nope? I think what I expect to see is a

very cost competitive, small electric pickup that has decent profit margins.

That's what I expect to see. Because if they come

out with something and say, well, we're going to lose less money on this one dead, it's dead on arrival.

But if they say, look, this has got a twenty percent gross margin on it at at the base level, now you're talking.

Speaker 2: Okay, and and we established earlier in the show that fewer and fewer people are buying evs hell of a market to get into.

Speaker 3: I think that's I think that's going to be challenging.

It's going to have to be something really compelling that that we're not expecting totally.

Speaker 1: It better knock our socks off, because you're right, Gary, if we come out and go, well, that's nice, but it ain't no body t of evs they're gonna have egg on their face. I don't expect that to happen.

Speaker 3: Do you think they're gonna see I.

Speaker 1: Think they're gonna show us something that we go Wow.

Didn't see that one coming.

Speaker 3: I hope so for their I really do, I really do.

Speaker 1: That's right. Yeah, Okay, one quick one to end the

show on. I think did you guys see this thing

that Tesla has taken out a patent for a sucker car?

We put four fans under the car. If you know

the the Chaparral two j Canam car which Jim Hall who ran Chaparral invented it, and then brab Them actually did a sucker car in Formula one. It was so

good it was banned essentially after one race. And then

Gordon Murray, who did design the Brabum came out with a performance. What was that the T five? I think fifty.

Speaker 2: Did you ever sell any They sold all of them out.

Speaker 1: They made like one hundred or two hundred and they were gone. Okay, came out. Yeah. Gon's saying that they

sold every single one that they built. But anyway, uh,

that's the kind of thing that number one I think Tesla needs, I think, to get when they need something where go wow.

Speaker 3: Yeah, but I think that's that's the innovation and the creative thinking that I think has gotten Tesla up until this year to where they where they were. That's right.

So it'll be interesting to see if how that how that develops in and if they they bring it into a production vehicle.

Speaker 1: Yeah and not five years from now. Yeah, I'm sick

of waiting for Tesla to deliver they analyzed us.

Speaker 2: Maybe they'll put that technology in the roadster.

Speaker 1: Wait, no, that's what it's supposedly going to go into, is the roadster.

Speaker 3: But mm hm that somewhere in space right now. I

think there is one floating around out there still.

Speaker 1: Anyway, we got to wrap it up. Jeff, thanks so

much for coming on.

Speaker 3: Always enjoyed it, really good good time.

Speaker 1: And Gary, maybe next week we'll talk about this this Ford model.

Speaker 2: T of VVS. I think we will got there.