AAH #770 - OEMs Go 4X4 Crazy as Trump Kills CAFE

TOPIC: Off Road Vehicles PANEL: Adam Bernard, AutoPerspectives; Warren Browne, RFQ Insights; Gary Vasilash, shinymetalboxes.net; John McElroy, Autoline.tv

Episode Transcript

Speaker 1 (00:00):
Auto Line after hours. It's brought to you by Alex
Partners when it really matters.

Speaker 2 (00:08):
All right, thank you Alex Partners, fort of sponsoring the show.

Speaker 3 (00:11):
Gary.

Speaker 2 (00:11):
Good to see you here.

Speaker 3 (00:12):
Good see you.

Speaker 4 (00:13):
You're going for Thanksgiving last week?

Speaker 2 (00:15):
Yeah yeah, but we're back in the saddle.

Speaker 4 (00:17):
It seems like it was such a long time ago.

Speaker 2 (00:20):
Look this whole year. It's like, isn't this April? Still?
I can't believe we're in December. Hey, we got to
tell everybody who we got here. Warren Brown forecast or extraordinaire,
I'll say, and Adam Bernard products savant maybe is the
way I'll uh, we got so much to get into today.

(00:42):
You got something you want to kick the show off with?

Speaker 4 (00:45):
Okay, So I want to give you guys a quiz here,
which is different. It's not something it happened. This is
not that happened in history. And so so Warren you know,
he he teaches at Lawrence Technological University, So this is
turnabout a fair place. So if your students are watching,
they're probably like, yeah, yeah, all right, so this is
this is this is something that is just happened.

Speaker 5 (01:04):
Okay.

Speaker 4 (01:05):
So it's it's contemporary. So the Association of Scottish Motoring
Writers gave an award to the best family Car. Okay,
so the Association of Scottish Motoring Writers. Now what do
you think they named as the best family car for

(01:27):
twenty twenty five.

Speaker 2 (01:30):
Oh, there's got to be a joke in here someplace.

Speaker 1 (01:32):
Oh this is this is real.

Speaker 5 (01:33):
This is real.

Speaker 4 (01:34):
I mean, I'm sure it's real, but I just find
it astonishing.

Speaker 6 (01:37):
Okay, okay for an astonishing answer, the Ineos Grenadier.

Speaker 4 (01:42):
It's a good, good guess. But no, no, too.

Speaker 7 (01:45):
Far off, uh, because it's Scottish. I'll go with some
Defender version of land Rover.

Speaker 4 (01:54):
It's another good answer. Also, wrong, John, I have no idea, okay,
and I will give you the answer. And I have
no idea what this vehicle is. It is the Jaco
seven j A E C O seven.

Speaker 6 (02:13):
It's a Chinese cherry called something else in China. But
Jaco and Elmoda are the two brands they launched with
in Europe.

Speaker 4 (02:22):
So, I mean, isn't that astonishing that you know, of
of the vehicles that you mentioned, you'd think that natural
a Chinese vehicle.

Speaker 7 (02:31):
They weren't chilling for the Brits.

Speaker 2 (02:34):
Yeah, that's right.

Speaker 4 (02:37):
But but I mean it goes to the point of
the penetration of the Chinese, the Chinese and arguably the
you know, bona fides of that vehicle. In order to
uh beat out things like the the Ineos and the Defender.

Speaker 7 (02:55):
We automatically went up market, britt you know, the whole three.
It may be more that that answer may be more
telling about the future of the British auto industry than anything.

Speaker 2 (03:07):
Oh no, European auto industry. Yeah, not not.

Speaker 5 (03:10):
Just the bridge slowly climbing up there.

Speaker 2 (03:12):
I wouldn't say slowly there. They're really really big in England.
They're very big in England. They're rocketing up the charts
in terms of market share.

Speaker 4 (03:21):
So so I'm okay if we just say, okay, they're
doing well obviously in their home market, I mean comparatively speaking,
right well in Europe, South America.

Speaker 7 (03:32):
Right, specifically Chile, in Brazil.

Speaker 4 (03:36):
Apparently they're they're making moves into Africa, YEP and Middle East.
So like, if we take Antarctica out, what.

Speaker 2 (03:43):
Does that Leaveland, US and Canada, Greenland.

Speaker 5 (03:46):
Yeah, and they're in Australia too, don't forget that.

Speaker 7 (03:48):
So so how long that's what you that's what you get, Gary,
when you have twenty five million units of excess capacity,
most of which is gasole and you need to feed
the African South Americans, Central Americans, Central Europeans with affordable vehicles.

Speaker 2 (04:09):
And especially when you cannot make money in your home
market and you can price these things higher overseas and
maybe make some money.

Speaker 6 (04:15):
Yes, these cars are not as cheap in Europe as
people think they are. A ten thousand dollars byd in
China is like twenty thousand dollars in Europe. Price to
the market, yes, price to the market, right, but not
the bargain basement thing that everyone was afraid of.

Speaker 7 (04:28):
It's still twenty I was going to say money, it's
still competitively priced, and it's a very competitive vehicle, right right, But.

Speaker 2 (04:37):
Anyway, enough for the Chinese, the Chinese.

Speaker 3 (04:39):
Oh yeah, great quiz as always.

Speaker 2 (04:42):
Yeah, okay, very good money. Yeah, because I never knew that, Adam.
One of the things you wanted to talk about is
this rush into the hardcore four by four off road market.
And it seems like everybody must have woken up to
this about three years ago, because all these products are
come to the market right now. But what are your

(05:02):
observations on this.

Speaker 6 (05:03):
Well, I know, you know, during COVID there was lots
of stories about RV sales going through the roof and
empty lots and things like that, and people need to
get away. And I don't have any market research to
support this, but I'm wondering if that's kind of a
leftover feeling. And you know, Nissan is bringing back the Exterra,
a body on frame architecture. Audi might be building a
vehicle off the Scout platform. BMW is supposed to be

(05:25):
working on something. Hyundai showed the Creater concept, which is
an off road suv at the Los Angeles Auto Show,
So I don't know if it's kind of a form
of escapism. And the fact that gasoline is still relatively
affordable in the US compared to the rest of the
world suggests that, you know, people are a little less
concerned about a blocky, non aerodynamic, heavier vehicle in order

(05:46):
to have a little sense of adventure. But everyone seems
to be dabbling this in this in one form or another.

Speaker 2 (05:52):
Yeah, well, you know, look, Jeep had it forever, right,
and they had it to themselves. I kept saying this
on their show years ago. I can't believe the rest
of the industry is letting Jeep get away with it.
And then Ford woke up to it came out with
the Bronco. It's doing terrific for it the I'm really
and that must have awakened everyone else. Wait, what's going
on in this off road space? But my question to

(06:12):
you is is it going to grow the segment or
is it just going to slice the pie thinner?

Speaker 6 (06:17):
So I had to looking at some numbers that when
the Bronco came out, there wasn't decline in Wrangler sales,
but if you look at net Bronco plus Wrangler, it
was an increase in the size of the market. Now
there may be a practical limit to how much stuff
you can throw out there. I think it helps Nissan
that Exterra is somewhat of a known brand and there's
a little cultive followers out there with it, and Scout

(06:38):
arguably is trying to go to do the same thing.
If you're going to bring a trailer and look at
some of the numbers for vintage Scouts, those values are
starting to climb. So I think they're trying to bank
on that as they come to market. For a company
like Hyundai, it may be a little more challenging because
they don't have any off road credibility. They've done rally
cars which go off road, and they could try to
leverage that into convincing people that yeah, you can go

(06:58):
everywhere a Cheep can go in this hunt day. Maybe
a bit of an uphill battle for them.

Speaker 4 (07:02):
But to what extent you think the Exterra is coming
back because it's a name that people recognize, so cheaper
to market because you've already got that out there. Yes,
b it's body on frame. I'm sure they got a
lot of Titan frames sitting around somewhere that they haven't used.

Speaker 3 (07:18):
If they can, they can put in your work.

Speaker 5 (07:20):
Well.

Speaker 6 (07:20):
They talked about a new body and frame architecture that
they're developing, and it's supposed to be electrified, so some
sort of hybrid and they even hinted that the Pathfinder
could go body on frame for the next generation, which
I think.

Speaker 5 (07:31):
Would be a bit of a strategic misstep.

Speaker 6 (07:33):
If you take Pathfinder out of the BFI front wheel
drive all whel drive family, I should be market and
then make it a rugged three to rowo off roader.
You lose fuel efficiency, you lose interior package efficiency. You
gain some fun, but you may lose some families in
the process. So I'm not sure if they're going to
go down that road, but they apparently are. Nissan CEO
is doing a lot of new stuff, and so this

(07:53):
sounds like part.

Speaker 4 (07:54):
Of it sounds like a tribute to the fore runner.

Speaker 6 (07:56):
Yep, yep, and for runners still doing doing great longer
land cruiser and land cruiser.

Speaker 3 (08:02):
Right.

Speaker 7 (08:03):
I think there'll be two classes, by the way, the
Status class Scout is in that status class and the
mainstream Wrangler Bronco, Exeterra.

Speaker 3 (08:18):
BMW and Audi.

Speaker 7 (08:19):
They'll they'll, yeah, we can go off honey, we could
go off road if we needed to. Well, we spend
a thousand bucks for the extra for the paint job.

Speaker 4 (08:29):
Yeah, the Lexus LX seventy. I mean it's the same thing.
You can go off road.

Speaker 7 (08:34):
But would you Yes, they'll be too. They'll end up
being two classes Status.

Speaker 2 (08:38):
And maybe even a third because I would say there's
going to be the posers that are going to have
the painted toe hooks and the big wheels and everything,
but that's about it. You know, they're not going to
be really off road. They're just going to have that
look and people like that look. Of course, all right,
so some people.

Speaker 4 (08:54):
So So to your point, I have some stats here
that that underline that in a huge way. Vision did
a survey in twenty twenty two. So this is, you know,
within the COVID period, right, I mean it's fairly so.
Ninety eight percent of suv and crossover buyers and seventy
percent of truck owners go off road only once a

(09:16):
year or less. Ninety one percent of suv crossover buyers
only drive on dirt or gravel once a year or
not at all. So it sounds like this is all
show and very little go.

Speaker 6 (09:31):
Probably I'd be curious to see the numbers for Wrangler
and Bronco. I think if you do get a real
body on frame capable vehicle, probably a little higher and
like the Exteriancy a little more. But yeah, something like
a Traversity seventy one or a Santa Fe XRTI, those
numbers are probably right in line.

Speaker 2 (09:46):
Yeah, right, But you know, I to follow up on
what you just said there, Ford Raptor. I'll bet those
people are going off road with those things. But you
have to have the street credibility, right. There are plenty
of people who will buy a v that has unbelievable
off road capability and they're never going to use it,
but in their mind they've got the vehic call that

(10:07):
could so come the zombie apocalypse. You know, they got
to get out of town car.

Speaker 7 (10:11):
They look different at church in the parking lot. Yes
you can, you can call those up.

Speaker 4 (10:16):
Well, there's that that whole psychological aspect of saying, hey,
you know, if the zombies do come, I'll be able
to drive over that.

Speaker 2 (10:23):
He'll no problem. But you know, I see this development
akin to the mid size pickup segment. There's been so
many other players that have come in and more yet
to command Rams going to do a mid size pickup.
For example, Hyundai's doing something else that's going to be
bigger than the Santa Fe Santa Cruz excuse me. And

(10:44):
it's grown the segment some, but I don't think the
newer players are getting the volume they thought they would.

Speaker 5 (10:53):
Yeah, and it's interesting to the Ram.

Speaker 6 (10:55):
There was a lot of speculation this new Ram truck
was going to be off of this Stella large architecture
going to be five street truck had a deal and
then Stilandis's confirmed it's gonna be buying on the frame,
so it's now going to have offer capability and.

Speaker 2 (11:07):
It's going into the G plant. So if I were them,
I bet it's going to be awfully similar to Audiator
Gladiator exactly.

Speaker 7 (11:15):
I think I like Adam's point about the COVID thing.
I think that that influenced it. But you're a little
closer in that an suv is an suv is an suv.

Speaker 3 (11:28):
It's a box, Okay.

Speaker 7 (11:30):
The differentiation between if you take Ford Bronco out, the
differentiation between a traverse and an explorer and all of
these is not that great. So think of it as
a way to finesse distinction, to finesse something that's differentiated
from just everybody else because it's an suv. I mean,

(11:51):
it's it's just like a four door sedan. It's a car, okay.
But if you get you know, a high horse our
RT charger or whatever, well that's different than just the
regular charger that's on the street. So there's there's a
history of finesse that I think is happening there too.

Speaker 4 (12:10):
So but you know, to your point, Adam, I mean,
so at what point are there too many of these
alternatives out there that it it comes to the point
where the volumes are just just too low. I mean,
you can have this, you know, all these Exterra fanboys,

(12:31):
you know, like, damn it, we can't wait till that
thing I'm out, and they'll buy them right right, and
they'll enjoy them how far.

Speaker 6 (12:36):
But you know, ten years ago you probably could have
asked how how how fragmented can the SUV market get?
And I think it's probably now more fragmented than any
of us anticipated, between body and framing, BFI and like
shuv coops, which was not a thing ten years ago.
So you know, I think automakers are getting smarter in
terms of modular architectures and manufacturing flexibility and able to

(12:58):
make money with smaller volume to an extent. But yeah,
there's probably a risk of a saturation at some point,
especially if it's a brand that's trying to establish itself
versus the brand that's already got some heritage and reputation there.

Speaker 4 (13:11):
So Warren, since we've seen you last on the show,
you've you've come out with another of your analysis of
the industry, the impacts of tariffs and whatnot, and you
came out with what I will call the line of
the ear which is asset with no realistic economic purpose,

(13:32):
and that is applied to some plants that you see.
So tell us what the landscape looks like.

Speaker 7 (13:38):
Well, you know the ones that I called impaired assets
or they're on impaired asset watch, Okay, are are plants
that don't exist today. They're not in the capacity utilization
situation today. They are plants that are either got the
girders up, the land cleared out. In the case of

(14:03):
then Fast a promise made. Okay, but there are six
plants out there that don't exist today that were done
under the guise of the world is going a little
more electric than maybe what the market was going to do.

Speaker 3 (14:21):
And they have spent.

Speaker 7 (14:24):
Fifteen billion, twelve to fifteen billion dollars of plants that
don't exist yet. They're not making one unit, but over
the twenty seven twenty eight they will add a million
units to capacity. They don't have the volume to support

(14:44):
twelve to fifteen billion dollars worth of investment, okay. And
what what I've not seen is Ford on Blue Oval,
Rivian on Georgia, Scout on South Carolina out and say,
you know, we said we were going to spend four,

(15:05):
but we're really going to spend two now that all
of this is this was the marvelous opportunity for them
to do this, for them to do this six months
from today and say, you know, we've reevaluated the whole thing.
I believe I know enough about the internal workings of
General Motors, maybe not others. They've already evaluated it for

(15:29):
it's already evaluated Blue and they're not five billion dollars
will not pencil. Even with gas versions, it wouldn't pencil.
So yeah, that's why I put them on the impaired
asset watch because if you just take a look at
the capacity a million and you cut that in half,

(15:54):
meaning you.

Speaker 3 (15:54):
Cut the capital.

Speaker 7 (15:56):
Expenditure in half at the same time, even though in
the case of Blue Oval that investment pretty well along
the way, right and probably for Scout as well, maybe
not so much for Rivian. If you cut the capacity
in half and you filled it at one hundred percent,

(16:18):
still doesn't pencil.

Speaker 2 (16:20):
Still not enough volume to make money, is what you're saying.

Speaker 4 (16:23):
Well, so you project that next year prices will go
up four point six percent, and as a consequence of that,
the vehicle sales will decline by three point five percent
fifteen six.

Speaker 2 (16:37):
I think you send us a chart on that. I
can probably bring that up. You have a multi year
scenario and you show that sales and production because of
the tariffs and US automotive manufacturing employment going down because
of the tariffs. Now you also compare this to what

(16:59):
you call you or I think it was a key
pre COVID baseline or no.

Speaker 7 (17:04):
They when the Inflation Reduction Act came out, there were
all kinds of changes relative to what GDP growth was
expected to be, what prices were expected to be, what
incentives were expected to be to alter the transaction price.

Speaker 3 (17:19):
Okay that and it was compounded or enhanced.

Speaker 7 (17:24):
You would say by you know, you could get seventy
five hundred dollars off on every lease vehicle. So to
think that those seventy five hundred bucks were only applied
to just the eighteen vehicles that qualified, No, it applied
to every vehicle that was going to be leased, and
you could work that into the into the leasing agreement.
So there was some growth in the market. And the

(17:48):
two things that have been removed are the incentives meeting
shareholders will now have to pay. The government's not going
to pay anymore for that seventy five hundred bucks.

Speaker 2 (17:58):
For an EV.

Speaker 7 (17:59):
For an EV, the shareholder will have to pay. And
two in the initial phases. I was shocked that prices
didn't go up this.

Speaker 3 (18:09):
Year above two percent.

Speaker 7 (18:13):
I was shocked because my approach was, if tarifts are
going to go up by fifteen, let's just call it that.
You know, some have gone up by twenty five. They
haven't come down yet, but fifteen that there's not enough
margin across the board to absorb all of that.

Speaker 3 (18:33):
There isn't okay.

Speaker 7 (18:35):
When you when the supplier has to pay and pass
that along degeneral motors or to Ford or anybody else,
there isn't enough margin. I thought prices were actually going
to rise by five to six percent this year twenty
twenty five.

Speaker 2 (18:47):
Yeah, didn't happen.

Speaker 7 (18:48):
Did not happen, right, because they absorbed it, okay.

Speaker 2 (18:53):
But they paid for that on their bottom lines.

Speaker 5 (18:56):
And there's stock now that prices will start to climb.

Speaker 2 (18:59):
I believe so.

Speaker 3 (19:00):
So I think it's been delayed, right.

Speaker 2 (19:02):
Yeah, nobody wants to come out with the Trump administration,
the President himself breathing down their neck and said, look,
we had to raise prices because of tariffs. He's going
to cut their head off. So they've been loath to
raise prices. And I agree with you. They're finding some offsets,
and the administration has done a number of things. You

(19:23):
don't have to pay ZEV credits going forward, for example,
you're not going to face these cafe fines going forward.
In fact, we're going to give you a tariff rebate
three point seventy five percent of the American content on
any car that you've got. So they're they're finding some
amount of offsets to the tariffs themselves. But even so,

(19:44):
these offsets don't make up for everything.

Speaker 7 (19:47):
Well, the thing I teach at LTU is ultimately the
consumer will pay those tariffs, and there's you you can
you can get it into the fifties or the hundreds
of studies that have proven that to be true. The
exceptions to the rule are that the market is so
big that the supplier and the distribution channel and the

(20:08):
manufacturer will absorb that increase because they want to hold
the market. General Motors doesn't want to let the market
go before the Chinese get here, so they're going to absorb.
But after a while, after quarterly earnings, after quarterly earnings,
you know, I see a big write off in the

(20:28):
fourth quarter twenty twenty five, writ and all that stuff off.
But ultimately you're going to have to increase price if
you want to get back to margins. And here's the
key that I wrote in my report. If you want
to get back to margins that are going to sustain investment.
This is an investment intensive as you well know, Adam,

(20:49):
an intensive investment industry.

Speaker 3 (20:52):
You're spending five to six billion years.

Speaker 4 (20:55):
What sort of margins do they need to be healthy?

Speaker 6 (21:00):
Yeah, and now they've got to find money to reinvest
in internal combustion now that that's hot again.

Speaker 3 (21:06):
You know, well, they're right, Well, they're writing off the EV.

Speaker 5 (21:09):
Stuff exactly exactly.

Speaker 6 (21:10):
That's you know, portion of what three and a half
billion dollars to rejigger their plans. And every other automaker
is now is trying to fund the money to put
back into IC.

Speaker 3 (21:17):
Right.

Speaker 2 (21:18):
But don't forget they they have raised prices. They haven't
not raised ms rps, but they've raised destination charges. They've
taken away all kinds of incentives. So even though the
m SRP hasn't changed that much, uh, the actual transaction price, Uh,
that's what we got to look at well, of course.

Speaker 7 (21:39):
But that's also influenced by mix correct right, absolutely right,
So I want to make three points. Yeah, capacity is
not required, and ultimately they'll have to come out and
say that, okay, or or do something different. Did Scout
make the right.

Speaker 3 (21:55):
Move and doing E E R E V E R
E V S rather Snouts? Yes they did.

Speaker 2 (22:02):
But will people buy them?

Speaker 3 (22:04):
Well, I think that they'll.

Speaker 7 (22:05):
Buy the RAM, but irrespective a million units of capacity
by twenty the end of twenty twenty eight that does
not exist today, and capacity utilization this year will be
close to eighty percent, and the volume is going down, right,

(22:26):
and now we're adding a million units that isn't needed.

Speaker 3 (22:29):
And two I just think that.

Speaker 4 (22:32):
Maybe they can cool new vehicles though so of course
those plants will be churning.

Speaker 3 (22:38):
Hasn't made a nickel since they've opened.

Speaker 7 (22:40):
Right, they're at fifteen, they're at fifteen.

Speaker 3 (22:46):
Stock price.

Speaker 2 (22:46):
They don't need another plant. Four doesn't need blue oval
then fast. We'll see what happens with them. But I
think Scout Audi needs US manufacturing, and so supposedly Audi's
going to get a verge of the Scout. I wouldn't
be surprised down the line, it gets more than just
a version of the Scout. If the Scout doesn't.

Speaker 7 (23:06):
Sell well, once you've built planned, you know they they
will do what they can to fill it. But you know,
if let's assume that AUDI does a Scout version, and
I believe that they will, it's going to be a
seventy thousand dollars vehicle. You know, we know what the

(23:28):
market seg demand is for seventy thousand dollars vehicles.

Speaker 3 (23:32):
Not that good because.

Speaker 7 (23:33):
People are screaming for thirty five thousand dollars vehicles, right,
So there's access capacity, and then we have plant. There
are some plants that have been saved. Belvedere saved, right, okay,
because the volume for the mid size pickup wasn't going
to satisfy the.

Speaker 2 (23:54):
Remember one of one of the one of the things
that save Belvedere is that Brampton is getting its head
cut off.

Speaker 6 (23:59):
The compass is going into Belvidere and the Cherokee, yes, right, but.

Speaker 2 (24:03):
What's going into Brampton because that's where they were supposed
to go a be in suv. But what I'm getting
at is it's it's a game of musical chairs here, right,
So even though you say Velvetere is saved, Brampton is screwed.

Speaker 7 (24:15):
Well, as is some Mexican compass excess capacity closed. Nissan's
second plant in Mexico closed, Ingersol closed, Brampton, uh, Bramlay,
whichever you pronounce it. Those are four or five plants, right,

(24:38):
who says that? I know this is going to be
a shocker, and I'm the grinch.

Speaker 3 (24:42):
That sold Christmas today?

Speaker 7 (24:44):
But what's to say the Chinese don't sell one of
those plants or by one of those plants from the
Canadian government.

Speaker 2 (24:51):
Yeah, look, I talked to the Canadian they got hire
the summer about just that, and uh, would you guys
consider turning to the Chinese because the Trump administration has
slammed the door shut on you guys, And his word was,
we don't want to play that card yet, so they're

(25:12):
clearly thinking about it.

Speaker 7 (25:13):
What about compass in Mexico. Mercedes is leaving, Nissan has left.
It's a plant that's got a beautiful paint shot, probably
a paint shot that can produce one hundred and fifty
thousand vehicles. Chinese are about to get I think a
fifty percent tariff on imports, which will hurt General Motors,

(25:34):
by the way, because they import a lot of Chinese
vehicles in New Mexico.

Speaker 4 (25:38):
Okay, so they import them to Mexico to sell them
in Mexico.

Speaker 7 (25:42):
Correct, China to Mexico. Thousand, one hundred thousand chevrolets are
Chinese in Mexico. It's a shocker to a lot of people.

Speaker 2 (25:50):
Some South Korean.

Speaker 7 (25:52):
Yes, But the point is if you put that on,
the Chinese have manufacturing experience in Mexico, even though it's
on a small scale, just like Toyota started, right, So
you can ignore the fact that if you put fifty
percent duty on import to Chinese and that is a

(26:15):
market right for a twenty five to thirty thousand dollars
vehicle by compass, and oh, you won't be able to
export it to the US. That's fine. We'll build it
a compass and with all the free trade agreements that
Mexico has with other countries, we'll ship them down to
South America and Central America and the Cuba and everywhere

(26:37):
else that needs those vehicles. That's a strategic play that
could happen.

Speaker 4 (26:41):
Okay, But let's just let's let's take the Chinese in
Mexico out of the equation. Let's take the Chinese in
Canada out of the equation.

Speaker 3 (26:49):
Okay.

Speaker 4 (26:50):
So it seems to me that the numbers that you're
showing sort of indicate that there's going to be blood
on the streets here, of course, so talk about that.

Speaker 7 (27:00):
Well, the scenario where there isn't blood on the street,
and let's say the blood not on Main Street, but
blood on Wall Street, okay, is a continual absorption of
all of those terrats. The Toyota General Motors Ford de

(27:25):
Lane to say, look, we're just gonna eat them, and
rather than having three point two billion of earnings every quarter,
we're gonna have a billion earnings every quarter, and we're
gonna ride that horse until the end of twenty twenty
eight because we're not gonna give up one single piece

(27:49):
of market share, and we're gonna hold that production and
take it and make Wall Street and the shareholders pay.
That is a scenario that's not the one that I
wrote about in my report. My report says that prices
will go up by four point six percent next year

(28:09):
MSRP meaning the menu price, which every manufacturer is always
reluctant to change. They'll change incentives, they'll change destination charges,
they'll change interest financing. But boy, when that menu price
gets changed, irrespective of what the president says, it never

(28:30):
goes down, not the menu price. So if the menu
price goes up by four point six percent, yes, there
will be a reduction in demand, and there'll be a
reduction in production. And when you have a reduction in production,
you have a reduction in employment. And so my scenario is, if.

Speaker 4 (28:48):
You have a reduction in employment, you have an reduction
in the number of people who can buy vehicles.

Speaker 3 (28:53):
Correct.

Speaker 7 (28:54):
So the scenario that I wrote in my report is
a shareholder's case relief scenario, right. It is because the
margins will be back, the volume will still be a
little less because the prices go up. Right, So you
have this issue who's going to pay? I keep it

(29:16):
fairly simple, shareholders or the union. But one of those
pains will happen when you have tariffs that are five
times Remember terrats for two and a half percent. Everybody
thought that was okay, okay, was China cheating?

Speaker 3 (29:38):
Yes?

Speaker 7 (29:39):
Should China teriffts be higher than two point five percent?

Speaker 3 (29:42):
Absolutely, Canada.

Speaker 7 (29:47):
So you went from two point five to fifteen and
still for the USMCA it's twenty five. You have to
work that into price, Okay. I can't envision a scenario
or General Motors, Ford, Instillantis and Toyota continue to eat
those duties at the expense of future investment. I just can't.

(30:09):
And that's the summary of my report.

Speaker 2 (30:12):
Yeah, I think you're right with that. And this is
a perfect time for us to take a quick commercial
break for our sponsor. We'll be back to talk about
a whole lot more that's going on in the industry
just this week.

Speaker 8 (30:23):
We help businesses respond decisively to their most critical challenges,
from urgent performance improvements to enterprise wide transformation. We work
across the full value chain, in automotive and in industrials,
helping clients navigate disruption, drive innovation, and unlock sustainable growth.

(30:45):
Alex Partners when it really matters.

Speaker 3 (30:50):
Come back.

Speaker 2 (30:50):
Thank you again, Alex Partners for your support on the show.
So Gary Big News yesterday in the White House, President
Trump eviscerating Biden's fuel economy standards. What do you make
of it all?

Speaker 4 (31:03):
So it just so happens that Secretary of Transportation Sean
Duffy had a op ed in Today's Detroit Free Press.
I wonder why it's in the Detroit Free Press, and
so I will I will read you a couple of
quotes from this which sort of makes me wonder, and

(31:24):
I think you'll see where I'm going with this. So
this is this is a quote lowering mileage standards will
support President Trump's crusade to revive the beating heart of
American manufacturing, our auto industry. The sector was once the
pinnacle of American might and ingenuity. This initiative is going
to let the automakers build the innovative cars of the

(31:47):
future that families want, guaranteeing new jobs and more long
term investments in the heartland. So I would like you
guys to explain to me how automakers are going to
build the innovative cars of the future when basically it
seems that what they're going to be doing is just

(32:10):
going back to internal combustion engines. And viewers of the
show know that I've been more critical of EV's than
anybody sitting in either of these two chairs.

Speaker 2 (32:19):
Yeah, well, look, that's just a politician saying stuff Dad
makes his boss look good.

Speaker 4 (32:24):
Right, But I mean, but so I look to see
what the standards are in terms of fuel economy in
China in the European Union. Now, of course they have
different tests than we do. I mean, we had cafe,
different gas prices, you know, so it's calculated differently and so,

(32:47):
but basically it comes down to the MPG equivalent. Okay,
for twenty twenty five pasture cars and EU right now
sixty point two, the China sixty point two. In the
US in twenty thirty one, it was supposed to be

(33:09):
fifty point four. So here's my question, how are we
going to have the cars of the future. How are
we going to have innovative cars when the rest of
the world is kicking our ass when it comes to
technology that allows them to get that kind of fuel efficiency?

Speaker 6 (33:27):
Can I I mean so, I mean, the first thing
that pops into my head is, you know, with so
many people complaining about the price of gas, if the
US based automakers decide that they don't want to build
fuel efficient vehicles anymore, and I don't know if they're
going to do it or not, but because you know,
competitors outside of the US are still building those kind
of vehicles, and they'll be able to claim a fuel

(33:49):
economy advantage and so a lower operating cost advantage that.

Speaker 5 (33:52):
Consumers are going to file appealing.

Speaker 6 (33:53):
I mean, when the Japanese first came in here, they
touted their fuel economy advantage, and that was before there
were any kind of rules in place.

Speaker 5 (34:00):
Trends out a lot of people want fula fision vehicles.

Speaker 6 (34:02):
So you know, I think Bob Less used to say that,
you know, regulating phil economy was like regulating the size
of clothing.

Speaker 5 (34:09):
And so you know, you can go too far.

Speaker 6 (34:11):
But I don't think that removing the fiel economy regulations
is suddenly going to create amazing cars of the future.

Speaker 7 (34:16):
No, no, can I be the silver lining guy here? Okay,
listeners of the show know that I'm not the silver
lining guy ever. H Let's take a couple of things.
I applaud the level of deregulation that is happening here,

(34:37):
including the fact that the United States is no longer
divided between We're going to follow California and we're going
to do everybody else. That manufacturing complexity was drastically understated.
Today we're building vehicles for Oklahoma, Well, bossed, we don't

(35:01):
have the parts for Oklahoma. Well, we don't need any
more cars going to California, What do we do stop working?
I mean, that complexity was incredible. So the removal of that,
even though it's not yet finally approved, okay, I think
is significant. That deregulation is significant. The very fact that
you don't have to meet those standards, You don't necessarily

(35:25):
have to have stop start, you don't have to have
the world's best air conditioning to get the GSG credits
or whatever whatever they call them.

Speaker 3 (35:35):
I think that that's fantastic.

Speaker 7 (35:38):
Summary to that is they're letting the market decide what
vehicles are going to be built. What's wrong with that?
There's nothing wrong with that.

Speaker 3 (35:53):
Unless you don't build the ones the customers.

Speaker 7 (36:02):
That now is on the CEO, always has been on
the CEO, but more and more on the CEO. What
are are we going to build Sedan's? Well, Boss, nobody
buys them. Well, but now we got to build Sedan's
because Trump thinks we're going to build Senda.

Speaker 2 (36:17):
Well, that's stupid due except for one thing. I was
reading Joe White's post that high speed High Speed Rodeo
just earlier today. He made a really good point. Cafe
was skewed to favor trucks, SUVs, and trucks. Sure, so
you didn't want to do even a compact sedan because

(36:42):
if you did a compact quote unquote truck acrossover that
was easier from a fuel economy standpoint. So he was
postulating that maybe getting rid of this thing, we're going
to see the US manufacturers go. You know what, it
does make sense for us to start looking at building
sedans again.

Speaker 7 (37:01):
Could but let's look, Gary loves these. Let's do a
data check. Toyota didn't get out of the car business, but.

Speaker 2 (37:10):
It sells on a global basis.

Speaker 4 (37:12):
All right, here, data that is it's going to go
between what you both of you are saying. So I've
got a Corolla hybrid sitting out there right now, a sedan,
A hybrid sedan, Okay.

Speaker 3 (37:27):
Fifty miles to the gal It's here's the numbers.

Speaker 4 (37:31):
City fifty three, Highway forty six combined fifty Okay. Now,
basically what I heard the argument coming out of the
White House yesterday is all it's impossible to do this.
It's completely unaffordable. It's a thirty thousand dollars car. Now
I was thinking of some other numbers. Now, Unlike I've
never been much of a fan of the Bolt, because

(37:53):
the Bolt I thought was a small car, and we're
not supposed to like small cars.

Speaker 5 (37:57):
Okay.

Speaker 4 (37:57):
So I looked at the dimensions of the Bolt. It's
got a wheelbase of one hundred and two point four inches.
It's one hundred and sixty three point two inches long,
sixty nine point five inches wide, and sixty three point
four inches high. My Corolla has a wheelbase of one
hundred and six point three inches, a length of one
hundred and two or one hundred and eighty two point
three inches, twenty inches longer than the Bolt. You know,

(38:22):
I mean, all of its dimensions are bigger. Now do
you think that by twenty thirty one that Toyota is
not going to be able to have a cameray that
is going to get fifty three miles per gallon?

Speaker 3 (38:37):
Sure?

Speaker 5 (38:37):
Yeah, right, I don't doubt it.

Speaker 4 (38:39):
So my point is is that don't car companies that
aren't Toyota long look to the future thinking companies need
a kick in the ass that may be standards. You
know what, I don't know it is his first name.
I can't start with an age, Samuelson, who runs Volvo. Okay,

(39:03):
So he said yesterday that basically, if there were not regulations,
there'd be no catllite converters in cars, nor would there
be seatbelts, right, correct, right, So we're against those things.

Speaker 2 (39:13):
No, no, no, But.

Speaker 7 (39:15):
Look, starting even before the Biden administration, I think it's arguable.

Speaker 3 (39:24):
That the.

Speaker 7 (39:26):
Willy Wonka contraption that was built by the EPA to
get people to buy electric vehicles was was overreach.

Speaker 3 (39:37):
But Mark, you're hard to.

Speaker 7 (39:39):
Make the argument even unless you're at you know, the
ultimate tree hugger. I'm sure that somebody could contradict me.
But that complexity was incredible, and it drove a level
of I'm gonna stick my neck out lying by CEOs

(40:00):
saying that we're going to get there when they knew
they weren't. Okay, So eliminating that Biden complexity and now
Trump eliminating some of that regulations relative to cafe.

Speaker 3 (40:13):
And CO two, I don't see anything wrong with Yeah.

Speaker 2 (40:17):
But here's the problem for the industry. At some point,
the Democrats will come back into powers and what are
they going to do. They're going to ratchet those rigs
right back up to where they were in the first place.
And then you're going, yeah, I do, I do. Maybe
there will be a little bit more sanity in the standards.

(40:37):
I hope too. But what's likely is it's going to
be another knee jerk reaction. As we've been seeing here
from administration to administration. The industry is yanked this way
and then that way. And so all I'm saying is
that if I were running a car company, I'd be
mighty careful what I do anticipating. I'm not making a
prediction as to when the Democrats will come back in,

(41:00):
but they will, and you better be ready, and you
better be ready in a way that you're not going
to have to spend tens of billions of dollars to
try to catch up.

Speaker 7 (41:09):
Again, let's take your valid argument one step further, going
back to my study, not to harp on it. Then
you got to make your money and your margin now.

Speaker 2 (41:25):
Yes, now, mackay, while the sun shining right.

Speaker 7 (41:29):
To eat all of those tariffs at the expense of
future investment for this industry, whether it be a supplier
or an OEM, puts you out now to where you're
not making three billion a quarter, you're making one point
nine billion a quarter.

Speaker 3 (41:46):
And then you get out.

Speaker 7 (41:47):
And the Democrats come in and go, oh, here's all
the new expenses that you're going to have, You're you're
already in the ditch now, and so that was some
of the thinking that went behind and take your margin now,
an increase price, even if it means you've got to
reduce production. Wasn't that the code word during COVID. We're

(42:10):
never going to go back to giving the stuff away?

Speaker 4 (42:15):
Okay, but what comes? I mean five years from now,
what's the technology that is going to be offered by
the domestic manufacturers as it competes with European manufacturers and
Asian manufacturers.

Speaker 7 (42:29):
Is there a limit on Chinese vehicles coming to the
United States? Probably still, and you will have an incremental
improvement in technology from today.

Speaker 4 (42:38):
So basically you're saying then that that BMW's won't have
better powertrain technology five years from now than Cadillac or
Lincoln will have.

Speaker 7 (42:51):
Is Europe going to change the standard for twenty thirty five?

Speaker 4 (42:54):
But twenty thirty five standard was zero?

Speaker 7 (42:57):
Right right, I'm trying to I'm trying to respond to
your question. You tell me what the European standard is,
I'll tell you how good BMW.

Speaker 4 (43:05):
We're not talking five years from now, So twenty thirty.

Speaker 7 (43:07):
No, BMW as is as relentless of improving their gasoline
and diesel engines, not necessarily for.

Speaker 4 (43:17):
Those And that's that's what I'm worried about.

Speaker 3 (43:21):
It's just like the mar decide all.

Speaker 4 (43:23):
Of this is to make it easy now, okay, but
it's not.

Speaker 6 (43:26):
Making it easy now because everything's planned four to five
years in advan so stuff in twenty twenty eight is
just like kind of done. And so you know, to
you know, to assume that I'm going to remove the
field economy standards and all of a sudden, prices are
going to drop a thousand dollars.

Speaker 3 (43:38):
That's that's Yeah, it was a good show though, it
was a good TV.

Speaker 4 (43:43):
But the name of the program is this is capitalized
freedom means affordable cars. Freedom doesn't mean affordable cars. Freedom
means that the that there are caranies free to choose.

Speaker 2 (43:54):
Yeah.

Speaker 4 (43:56):
And the thing of it is that I understand it
is that the aforementioned Honda and Toyota and Kia and
Hundai are making affordable cars.

Speaker 3 (44:05):
Ye.

Speaker 4 (44:05):
Yes, and they're making a lot of them, most of
them here.

Speaker 6 (44:09):
And to your point, there are levers that could be
pulled right now to affect vehicle affordability as opposed to
raising prices of five percent next year. Correct, that doesn't
have anything to do with your economy.

Speaker 7 (44:20):
So look, I think to me Joe's piece and what
happened yesterday Semi Kubuki theater, okay, was the deregulation aspect
of it too. If you want to have stop start,
if you want to have turbo, if you want to

(44:41):
have in order to make smaller displacements to get better
fuel economy, if you want to have improved air conditioning,
you decide that as a manufacturer on how you're going
to go to market to compete against everybody else. The
government's not going to tell you how to do that.

Speaker 3 (44:59):
I think that that's fantastic.

Speaker 7 (45:01):
Now, I will conclude by saying it also has its risks.
If you're not competitive, even with the Chinese not being here,
If you can't keep pace with Hondai in Honda and Toyota,
who are very strong competitors with manufacturing facilities in the

(45:23):
United States and have been for quite some time, and
you start to only make a billion and a half
because you're eating all of those tariffs, When is the
time where you say we can't make it anymore?

Speaker 3 (45:36):
Will you give us another handout.

Speaker 2 (45:41):
Well, that's not going to happen. The American public will
never bail out the American auto industry. Again, that's my prediction,
and I think it's an easy one.

Speaker 3 (45:48):
So make your money now.

Speaker 7 (45:50):
I guess it's the summary of my study. Make it now.
If you don't raise your prices by four point six percent,
you're telling Wall Street you're eating them.

Speaker 3 (46:00):
It takes to come clean.

Speaker 4 (46:01):
So to go back to yesterday and then to go
back to your report, does yesterday change anything from what
you're seeing for next year?

Speaker 7 (46:10):
I think the level of engineering complexity gets changed, yes,
depending upon what you want to go to market with.
But I don't believe for one single minute it's never
been the case of the forty years I worked at
General Motors, that purchasing came in with a cost reduction,
and the first thing finance said, let's pass that on

(46:32):
to the consumer. That is, that is not an equation
that Albert Einstein could solve.

Speaker 6 (46:39):
And you could argue that an automaker would look at
a you know, a given car line and here's the
portfolio engines we have, and they could decide. With these
new field economy regulations, you know, what, we don't really
need the entry level basic technology four cylinder engine anymore,
and we're only going to offer the upmarket high powered engines,
And so you still have vehicles that are less affordable

(47:00):
because they have the more powerful engines under the hood.
So again it flies right in the face of what
they're trying to do.

Speaker 2 (47:06):
I think the Trump REGs will have some improvement factor.
It's just not going to be as ambitious as the
Biden wine was. But if I were an automaker, keeping
in mind that the Democrats are going to come back
in someday, I would jigger my fleet to beat whatever
the new CAFE standard is and brag about that every year. Hey,

(47:30):
we beat it, anticipating.

Speaker 3 (47:33):
That the lawyers would like it, anticipating.

Speaker 2 (47:36):
That when the Democrats come back in at least your view,
to somebody who was trying to do, in their eyes,
the right thing, I totally agree.

Speaker 7 (47:47):
But to me, I totally agree. Up for debate Trump
Lee's office, you think the terrorists will go down? No, okay,
that's one particular set of structural change that I also
agree will not go away. Do you think that the
new USMCA agreement.

Speaker 3 (48:11):
Will lower that.

Speaker 7 (48:14):
Duty between the three countries to less than five percent
after it's redone.

Speaker 2 (48:19):
Not less than five percent.

Speaker 7 (48:20):
No, okay, So there'll be a further separation of Mexico
and Canada from.

Speaker 2 (48:25):
But it'll probably below fifteen percent because right now you
can bring in stuff from what Japan and England and
the like cheaper than you can bring in cars via
the USMCA.

Speaker 7 (48:38):
So you agree that those are two structural changes that
probably are not going to be drastically modified agreed post
Trump administration. Now, I want to take you out to
the election.

Speaker 3 (48:49):
Gary.

Speaker 5 (48:50):
I'm listening, and the.

Speaker 7 (48:51):
Democrats have a lead, because now they've taken back the
Senate or the House, whichever one you believe is going
to happen, or maybe they don't at all. But the
Democratic Canada stands up in front of the UAW and says,
I'm putting those regulations back to where they were. We're
going to go back to CAFE and we're going to

(49:13):
go back to CO two emissions because it's the right
thing to do. And we're going to go back to
twelve states versus thirty six states, right because it's the
right thing to do. And the manufacturers go, well, yeah,
if you're gonna do that, just like Mary said today,

(49:35):
then we're going to have to close some plants, and
we would have had to close plans if those new
Trump regulations weren't in place. And the UAW is going
to get right behind that Democratic candidate. I don't believe
post Trump that there's going to be much change at all.

Speaker 2 (49:52):
No, you're right, so, but the Union is one plank
of the Democratic Party, right and then you're going to
have the environmental plank, which I would argue is far
more powerful in the in the party right now, and
they're going to say climate change is an existential crisis
and we're going to have to put their feet back
to the fire. That's what I think is going to happen.

(50:13):
And you're right, the Union will screen bloody murder. But
right now, I don't think, especially with the UAW and
who knows what's going to happen with Sean Fain, there's
a lot of dissatisfaction within the Union with them. Who
knows where it's going. He's going to come out in
the next contract demand start demanding pensions and he might
even go for a jobs bank again. But what I'm

(50:35):
getting at is I just don't think the Union has
the same cloud as the environmental.

Speaker 3 (50:42):
I can't debate that. Yeah, I can't disagree with.

Speaker 2 (50:45):
That, So it'll be a huge argusment within the party.

Speaker 7 (50:50):
They may have more money, yeah the environment.

Speaker 4 (50:52):
All right. I want to segue away from this political
thing and sort of underline my point of I think
it's all about the technology that matters in terms of
what consumers are going to buy. And at this point
of the you don't want to use the four because
the six is going to get you a better margin.
But so today at the Automotive Press Association, Consumer Reports
came out with their twenty twenty six overall Brand report

(51:16):
Card rankings. For the second year in a row, and
for the third time in five years, BMW's a runner up.
Subaru is number one, Porsche, Honda, Toyota, Alexis, Lincolnhyundai, Acura,
and Tesla. So in those names that I just read,
what stands out Lincoln Lincoln, right.

Speaker 3 (51:38):
Yeah, the rest of them were, uh, well.

Speaker 5 (51:41):
Tesla's domestic, but the others were all for him.

Speaker 4 (51:43):
Good point. So Lincoln the highest rated domestic brand. It
climbed seventeen positions to the number seven spot, which I
thought was and this is reliability or overall brand report
card vehicle scoring part. So so they they the annual
Auto Reliability Survey, which covers twenty problem areas engine, electric motors, transmission,

(52:09):
and car electronics and more so so the data from
that has Toyota is the most reliable brand.

Speaker 3 (52:18):
I'm surprised.

Speaker 2 (52:19):
Yeah, so so Adam, how did you guys inside General
Motors look at the Consumer Reports thing as not something
that you wanted to do well on, but rather did
it reflect the reality of what you guys saw?

Speaker 6 (52:36):
I think so, I know there were folks that worked on,
you know, understanding how Consumer Reports does the testing, because
there are a lot of people that look at you know,
rely one hundred percent on Consumer Reports to get you know,
you know, what car should I buy? So I think there,
you know, they was working with the consumers. You need
to understand, you know, how they score vehicles, and you know,
there's an effort to make sure that you know, the

(52:56):
products that they were being developed were going to score well,
you know in terms of the you know, understanding the
reliability measures and stuff. I know there's been always a
lot of controversy over over how they rate reliability, but uh,
you know, I think it's definitely seen as a as
a as a tool to get people to have a
positive view of a brand.

Speaker 4 (53:15):
So so this this is an interesting one. So in
in quoting quoting from them, this goes to the Auto
or about Reliability survey, Buick as usual ranks highest among them,
coming in eighth overall good for Buick. Okay, only the
Enclave has a below average reliability and.

Speaker 7 (53:37):
That's the brand new Enclave. Great.

Speaker 3 (53:39):
Well, yeah, but what's the other story there?

Speaker 4 (53:41):
Well, so, so.

Speaker 7 (53:42):
Bwick has four products right now.

Speaker 4 (53:44):
Right has the Enclave, which is built in Lansing, Michigan,
down the street here, and then it has the Vision
out of Vision out of Shangha, the Encore, and the
in Vista South Korea. So so the only one that
has the problems is the one that.

Speaker 3 (54:02):
That's the other.

Speaker 4 (54:04):
I'm concerned about what's going on. It's just like, we
need to have the best technology in the world here
not elsewhere, right, and that concerns me.

Speaker 6 (54:14):
I'm curious where the problems with the Enclave are, whether
they are because I know a lot of the stuff
you see as issues around all the electronics and navigation
or whatever, or if it's powertrain related, which is where
all the fuel economy rules were kind of tied to.
You know, if there's engine problems, then yeah, that's an issue.

Speaker 7 (54:28):
Look, I think that domestic manufacturers, let's just pick on
the Detroit three, domestic manufacturers the and I know there's recalls,
so I'm going to put that, put that aside. In
my head, the SUVs and the mid sized pickup trucks
are are as good as any vehicle in the globe.

Speaker 4 (54:51):
They are.

Speaker 3 (54:53):
Trot just as my cars. Right.

Speaker 7 (54:56):
They rely upon smaller SUVs to fill that niche that
was once in passenger cards. Whether they whether they come
back or not, I don't know. But I think the
innovation and the technology of the Detroit three is is okay,
is there's nothing.

Speaker 5 (55:11):
Wrong with that. There's no really bad.

Speaker 3 (55:14):
No.

Speaker 4 (55:14):
The new Equinox okay, but there's not bad. But it
isn't as good is my point. And that's the concern.

Speaker 5 (55:22):
Okay.

Speaker 4 (55:22):
So you know, going back to sedans, you know how
many how many cameras are sold every year?

Speaker 7 (55:30):
Two hundred and fifty.

Speaker 2 (55:33):
So used to be four hundred and fifty thousand, right, And.

Speaker 6 (55:37):
The camera is largely a North American only product, so
it's not quite as global as like a Corolla. So
they're obviously able to sell lots of them here, and
yet some some brands have said, sorry, we're out of it.

Speaker 4 (55:47):
Right, So so here you have a full line manufacturer,
so they make soup to nuts.

Speaker 7 (55:52):
Right, don't make as many tundras as they would like to.

Speaker 4 (55:56):
But yes, but yeah, so their their trucks have you know,
with the except into the Tacoma, which continues to dominate
in the mid size segment for trucks. I mean, but
you know they've got everything, they're making everything, and yet
they're kicking the asses of Detroit.

Speaker 7 (56:13):
Okay, so once you tell your chief engineers that the
way that we're going to meet that standard is with
electric vehicles, you are stop. You're going to stop working
on those smaller footprint vehicles that require a higher standard
just natural we're going evs. Stop working on those cars

(56:35):
because evs are zero, and those cars raise the bar
on what we have to meet.

Speaker 3 (56:41):
That was the change, Carrie.

Speaker 4 (56:43):
So what executives at any of these companies are being
penalized for making the wrong move.

Speaker 7 (56:55):
If the government says your standards fifty four and a
half and you think that the world's going to be evs,
because Europe's going EV's and China's got a bunch of evs.

Speaker 3 (57:04):
You go evs. I don't know how you get out
of that.

Speaker 7 (57:08):
I don't know that that was necessarily a bad decision
to go evs. You were getting seventy five hundred bucks,
you were getting jillions.

Speaker 2 (57:17):
What the law said you had to.

Speaker 3 (57:20):
But you were also getting incentives.

Speaker 7 (57:21):
You were getting the carrot.

Speaker 2 (57:22):
Yeah, yeah, no, there was a carrot, but not just
a condition.

Speaker 3 (57:25):
You were getting right cart.

Speaker 2 (57:26):
You were getting a carrot. But that was not nearly
enough to cover their their investment costs.

Speaker 4 (57:30):
Well, they're giving you money to build battery packs, the
battery plans.

Speaker 2 (57:34):
But I want to take a step back, because you know,
the market has to say in what it thinks are
the best vehicles out there. And if you look at
the US market this year, I believe only five manufacturers
have gained market share. General Motors number one. I want
to say, Toyota and Hyundai and Ford Motor Company the

(57:55):
only ones to gain market share this year. There might
be somebody else in there, but honda'slu market share, Mazda,
su Nissan big time. The Germans have BMW I think
has held its own. But what I'm getting at is
the market has a say. The market's making decisions here,

(58:15):
and you know, the two true domestics here are the
ones that you know, one of them gained more market
share than anyone this year without cars, without cars, right right, right, So.

Speaker 3 (58:34):
It's it's.

Speaker 7 (58:39):
And as long as the General Motors is doing you
know what, two point eight million vehicles in the United
States selling them without cars, and they continue along that
path and they need that margin, they need that margin.
Let's go back to cars where the margin is half
of what it is on a traverse run a tahoe.

Speaker 3 (59:01):
Gary.

Speaker 7 (59:02):
That's that's tough sledding inside when you're doing that financial.

Speaker 4 (59:04):
I thought it was very interesting. I don't know if
you guys saw. Yeah, yesterday when Ford came out with
its numbers that it had its top sales guy put
out a piece, a blog piece. Did you see that?

Speaker 3 (59:14):
No?

Speaker 2 (59:14):
I didn't see it.

Speaker 4 (59:15):
So this was all about affordability and how Ford has
been at the leading edge of paying attention to affordability.
And they used for an example that the base model
Maverick hybrid sales increased seventy four percent.

Speaker 3 (59:37):
Wow.

Speaker 7 (59:37):
Yeah, it's a phenomenal vehicle, the.

Speaker 4 (59:40):
Base model seventy four percent, and then the base model
of the Ranger went up forty percent. I think the
base model of the Explorer went up sixty percent, Okay,
And it occurred to me that if we think about

(01:00:00):
what has happened in the auto industry over the last
five years, that basically, you don't want to sell the
base level of anything, right. You want you want the platinum.
You know you don't want the excelts. You want the platinum.
And so suddenly they're saying no, no, no, it's it's
we know that this is what the market wants, this

(01:00:20):
is what consumers want. They want they want the affordable one.
Can these guys make money on the affordable.

Speaker 6 (01:00:28):
Wants It will make less money for money and accessories
because a lot of the automakers are building financing, they're
building up their accessories portfolio. And uh so you can customize,
personalize your entry level maver right without getting it all.

Speaker 2 (01:00:43):
But it comes back to what Warren you said earlier.
They can't give up market share. The market's not growing.
In fact, your number show the market is going to
shrink for the next few years. And so market share
has always been important, right, now it's going to be
critically important because if your market is not growing, how
do you possibly grow your company. We've hit up against

(01:01:05):
the ceiling of how far you can go with raising
your prices. That that's what the lever that they've been
using right over the last five years. Just keep raising
prices and your top line grows. Well, now the consumer
is going, no, I want the base one, and you
better be ready to sell those because that's the only
way that you're going to be able to maintain your
market share.

Speaker 4 (01:01:25):
So maybe Slate will be successful.

Speaker 5 (01:01:26):
Work Slate, roll windows.

Speaker 3 (01:01:30):
The cheap truck.

Speaker 7 (01:01:31):
Yeah, yeah, look they look, I'll give them this.

Speaker 3 (01:01:38):
They don't have a paint shot.

Speaker 2 (01:01:39):
Yes, they don't have a body shop.

Speaker 3 (01:01:42):
Right.

Speaker 2 (01:01:43):
Question from the Okay earlier related to Tyler Moser asked,
did Trump just kill Slate with the K car?

Speaker 3 (01:01:52):
Oh? No, we.

Speaker 2 (01:01:56):
Got to wrap this thing up. But yeah, K cars
are not going to sell. Well, a little niche thing in.

Speaker 7 (01:02:01):
The somebody Japan whispered in his ear and now he
comes back as a car expert.

Speaker 3 (01:02:08):
No.

Speaker 7 (01:02:08):
Look, they've they've done a couple of things on their
structural cost it's good, but they have capacity of one
hundred and fifty thousand, Maybe they need fifty and maybe
they need to run that at one shift for a
while until they build up the volume.

Speaker 6 (01:02:24):
Yeah, depends on how much they charge for the sub
kit to make it a really visible entry level vehicle.

Speaker 7 (01:02:29):
Every manufacturer, I'll close with this, every manufacturer came out
with a vision or any other pontification about electric vehicles
was betting on that seventy five hundred bucks and the
elimination of the seventy five hundred the elimination of the
incentives to do batteries and manufacturing put those plants that

(01:02:51):
we talked about earlier today totally at risk and put
the pricing at risk. The shareholders are not going to
eat seventy five hundred bucks a vehicle in order to
keep some of those vehicles sustained. Although if if you
want a EV nine right now, Hyundai is prepared to

(01:03:13):
give you eleven grand.

Speaker 3 (01:03:17):
Eleven.

Speaker 5 (01:03:18):
Yeah.

Speaker 7 (01:03:20):
Now, so maybe some will be more aggressive than the others. No,
the elimination of the Inflation Reduction Act and the One
Big Beautiful Bill changed the structure of the industry for
the balance of the decade, no question yep.

Speaker 2 (01:03:35):
And on that note, we do have to wrap up,
but Warren Brown great to have any here, Adam Bernard
awesome to have you and Gary will do another show
next week. We will, indeed want to thank all of
you for having tuned in.

Speaker 1 (01:03:47):
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