Course over! back to Autos & Economics

The course came to a safe conclusion with the final week including a visit to Metalsa, a heavy truck rail manufacturer in Roanoke, and meetings with W&L alumnus Bill Cosgrove ’67, a retired Ford SVP who sits on Metalsa’s board.

On a personal end, I was off to the airport immediate from the final class to St Louis (a family event) and then on to the Industry Studies Association meetings in Minneapolis, where I made two presentations. Less than 48 hours after returning from the ISA it was off to Puebla Mexico for the annual GERPISA auto industry research conference. The latter included a day at the VW Puebla assembly plant and the not-quite-completed Audi plant located nearby. There were also 3 days of papers and panels on the auto industry, including an opening keynote by Sue Helper, whose PhD research comprised part of the influential <em>Machine That Changed the World</em>, two presentations by myself, and a concluding panel that included the [Mexican] head of purchasing for Ford, the head of exports for Nissan, the well-known VP for Corporate Relations at VW and the president of the Mexican auto industry association. Oh, and Thomas Klier, one of our on-campus speakers, was part of a panel the second day on the new geography, which included speakers from Brazil and Germany.

Anyway, now that I’m starting to recover from travels (Puebla is at an altitude of 7200 feet and in a different time zone), slowed by returning to an office that had flooded in the downpours that hit the Shenandoah Valley), I’ll resume blogging at Autos and Economics on blogspot. As per past practice, I will selectively repost student contributions on this blog.

VW: Car Company or “Mobility Provider?”

Just today, Volkswagen CEO Matthias Mueller announced that the brand was unrolling a new strategy for summer 2016. Hoping to reinvigorate its appeal to cost-conscious, environmentally-minded customers, the German auto maker has pledged to focus less on selling products en masse and more on designing vehicles that can most efficiently transport drivers/passengers from place to place. Of courseAR-160529992, this campaign comes at a time when Volkswagen is suffering from serious scandal. Just eight months ago, it was found that VW had been tampering with the emissions tests required industry-wide for their fleet of diesel vehicles. Using software to fabricate passing results, the company had cheated their customers of information necessary to make a smart buying decision. Therefore, it makes sense that the CEO is being this vocal about the mission and direction of the company. Call it damage control. Call it scrambling. Regardless, it seems like we can expect VW to make concertedvW-busted efforts to redeem themselves and the integrity of their brand to their current customer base if not future generations of car owners. Optimistic as always, I believe big moves are to come.

 

Tesla: Struggling with Model 3 Output?

On Wednesday, Tesla announced that it would sell $2 billion, yes billion, in equity to help finance its Model 3 production. Tesla has accepted about 375,000, $1,000 deposits for customers who want to buy the Model 3, however there is not yet a set date for the release of the Model 3. Tesla CEO Elon Musk said that he believes that the company will be abimgres-3le to produce 500,000 Model 3s by 2018, however this new round of fundraising makes me wonder whether they will be able to meet the 375,000 initial orders! Tesla has a history of not delivering things on time due to many issues with their vertical supply chain and given the sheer size of the initial order makes me wonder whether they have been able to fix these issues from shipping to battery production. Tesla plans its Model 3 to be the car that it moves down the market with and given Tesla’s immaturity within the industry, it remains to be seen whether Tesla can produce the amount it hopes to. A research analyst with Edmunds.com says that a typical factory output is between 200,000 to 250,000 cars per year and in the first 3 months of 2015, Tesla was only able to produce 15,000 cars. Moreover, its current models cost $75,000 (Model S) and $80,000 (Model X) and the Model 3 will be priced at $35,000. Whether this price is profitable for Tesla I do not know, but currently they are not making money and are relying solely on government credits that they sell to other OEMs for profit. Another thing is that Tesla has recently had two execs leave the company: Greg Reichow, VP of production and John Ensign, VP of manufacturing are both leaving the company which makes me wonder if there are issues that have not been announced to the public that has caused their departure. “In the first quarter of this year, Tesla lost about $283 million on revenue of $1.15 billion. During the same period last year, it reported revenue of about $940 million and a loss of $154 million.” This data is not encouraging however an analyst for Goldman Sachs recently changed his recommendation of Tesla from Neutral to Buy, causing Tesla’s share price to rise. In conclusion, I am still doubtful that Tesla will be able to keep to their goal of 500,000 cars by 2018, let alone meet the 375,000 in Model 3 pre-orders. If this is true, then it could be a total disaster for the company and its shareholders.

Source:

nytimes.com/2016/05/19/business/tesla-to-offer-2-billion-in-stock-to-meet-model-3-production-goal.html?ref=automobiles&_r=0

Proposed Biofuel Regulations for 2017

The EPA proposed raising the amount of ethanol in gasoline in 2017.  The proposed regulations would raise the current regulations by 700 million gallons to 18.8 billion gallons of ethanol and biofuels blended into the gasoline supply.  Although on the surface, this appears to be a great increase, it is lower than expected.  rfs-volumes-chart-2014-2018-newThe original regulations set in 2007 proposed 24 billion gallons by 2017, but the EPA has revised the proposed amount after development was slower than expected.  The announcement caused a drop in stock prices of ethanol and biofuel producers, such as Archer Daniels Midland Company.  Critics argue the increase is more biofuel than current automobiles can bear.  EPA officials, on the other hand, argue the requirements are set based on the realities of the market and Congress’s original goals.   Pro-ethanol groups, though, believe the regulation did not go far enough and is simply catering to the oil industry.  One proponent stated “she was “encouraged” the EPA had increased the levels from previous years, but added that “it still falls short” of the statutory target and of what the industry can do.”

The regulation is currently in the comment period and will be decided later this year.

Going from here, the question remains if biofuel is the best alternative fuel to reach lower greenhouse gas emissions.  As a class, how do you personally feel about biofuels? Is forcing biofuel hindered development of other alternative fuel sources?  Do you agree with the more with the critics or the pro-ethanol groups?

More about the EPA’s Renewable Fuel Program here.

Source: WSJ

UAW to Endorse Presidential Candidate, not Trump

United Auto Workers President Dennis Williams announced today that his union will endorse a Presidential candidate shortly. While declining to comment on who that candidate will be, Williams stated adamantly that the UAW will not endorse Donald T120906-UAWWheel_Rmark1rump. While the UAW has a history of endorsing Democratic candidates, Donald Trump’s rhetoric regarding free trade and the outsourcing of jobs to Mexico has endeared him to many UAW members in recent months. Exit polls indicate that 28 percent of UAW members support Donald Trump for President, by far the highest of any Republican candidate.  Trump, now the presumptive Republican nominee, has begun to shift his focus towards the general election and is courting the votes of union members who oppose recent free trade agreements that they say threaten American manufacturing. Trump has capitalized on the outrage surrounding President Bill Clinton’s support of the North American Free Trade Agreement (NAFTA). Trump now either leads or is within striking distance o1200f Hillary Clinton in the Rust Belt states of Michigan, Pennsylvania, Ohio, Wisconsin, and Minnesota due in large part to opposition to NAFTA. UAW Vice President Cindy Estrada, an outspoken Bernie Sanders supporter, has cited NAFTA as a major reason for her reluctance to support Hillary Clinton. The United Auto Workers have a membership of over 412,000 active workers and 1 million retirees. Regardless of which Democrat the union chooses to endorse, that candidate will benefit from the endorsement in the Rust Belt states while Donald Trump will likely retain support among many UAW members.

 

Source: http://www.detroitnews.com/story/business/autos/2016/05/19/uaw-presidential-endorsement-coming-soon-trump/84588054/

The Aloha State Verse Takata

Recently this past Friday, the Aloha state, Hawaii, took yet another shot at the Takata airbag defect by calling the Japanese auto parts maker to court. Accusing Takata of covering up the deadly airbag defect, the state court demanded a $10,000 penalty for every affected car owner residing in Hawaii. Filed by Hawaii’s First Circuit Court, the lawsuit makes Hawaii the first state to sue Takata over its airbags, and moreover, the lawsuit includes Honda, the automaker most affected by the defect as Takata’s biggest customer. Regarding Honda, Hawaii hopes that the automaker will be a defendant in this case and demands that each company do more to raise awareness on the dangers of the defect on Honda’s car owners. In an interview, Steve Levins, the state’s director of consumer protection, stated, “We’re not going to sit back and wait for more accidents to happen. We’re also seeking that consumers be compensated for any losses associated with this incident, whether that’s alternative transportation costs, or a diminished value of their vehicle.” So far, there have been only 10 deaths in the United States and three overseas because of the defect, which is a result of pressure building up in the airbag, forcing a rupture to occur in the steel interiors of the airbags, and finally sending metal debris throughout the car’s cabin. In Hawaii’s case, the lawsuit says that its residents are at a higher risk than most other states due to the state’s high temperatures and humidity levels. Auto safety regulators support this claim since they recently determined that long-term exposure to moisture and temperature fluctuations over time actually degrade the explosives used to deploy the airbag, which makes the airbag more prone to rupture. At first the recall of airbags consisted of only humid regions such as Hawaii, Florida, Puerto Rico, and the Virgin Islands, but it now spans globally bringing its total global recall tally to 51 million vehicles with 70,000 recalls coming for the Aloha State. However, Hawaii is not seeking compensation for crash victims, but instead, insists that Takata reimburse or provide relief to car owners affected or otherwise inconvenienced by the recalls, even though no airbags have gone off within the state. Furthermore, for Takata, which is already facing a Justice Department investigation, Hawaii’s lawsuit creates another headache to go along with its mounting recall, legal and regulatory costs putting the company’s financial viability in doubt. Therefore, it will be interesting to see in the next couple weeks whether or not other states will begin filing lawsuits on the airbag defect, which will turn Takata’s headache into a full blown migraine.

source: http://www.nytimes.com/2016/05/14/business/takata-airbag-defect-lawsuit.html

It’s the Drivers, Not the Cars: The Formula E Championship Series

While many blogs have featured topics revolving around self-driving cars, automobile companies, and the industry’s “capital”, Detroit, another interesting aspect of the auto industry is that of automobile racing. Whether it’s Nascar, Formula 1, or the newly created Formula E series, one question that is frequently been asked about automobile racing’s from its avid fans is whether or not victories (either in Nascar, Formula 1, or Formula E) are attributed to the technology of the car or to the actual skill of the driver. Give of take, it’s a little bit of both, but specifically, if someone were to look at Formula E, a championship series that began just last year comprised of only electric cars, it’s apparent that the difference between first and second is its drivers and their team’s teamwork. This is due to the fact that all the electric cars within the series have equivalent technology and batteries, which makes it easy to compare between the driver as the victory or technology within automobiles as the credited victor. Lucas di Grassi, a driver at the ABT Schaeffler Audi Sport team commented on this one of a kind equivalency stating, “When the development of a car is free- like in World Endurance Championships and Formula One- you can develop the car forever, so the car makes more difference than the driver. Here, everybody has the same car, same aerodynamics, same brakes, same everything”. Di Grassi continued by describing a new addition to this season Formula E’s cars: “What changes is the drivetrain. The drivetrains are better or worse, but they are within maybe two or three tenths of a second. And two or three tenths on tracks like these, the driver makes more difference than the drivetrain.” In essence, Formula E has much less dependency on telemetry and other computerized aids used in the tires and brakes than those cars in Formula 1 and WEC. Therefore, because of these unknown circumstances with tires and breaks, Formula E drivers constantly have to be aware of their car’s movements, which makes the job much more difficult difficult since it requires so much attention to detail and knowledge. As a result, Formula E teams seek only the best, most-experienced drivers. For example, Mark Preston, team principal of Team Aguri, referred to his driver Antonio Felix da Costa’s skillset by stating, “The skill level, the experience that Antonio brought from running on the simulator in Red Bull, and being very good at energy management in Formula One, helped us a lot, it made him more of a natural at it”. Preston also noted that in Formula E “the workload in it is pretty high,” and so, he added, “the capability, that’s the difference.” Additionally, not only are the Formula E cars all the same, but they also have a certain limit on their amount of engine power. In most other series, the cars have a limit on engine size, but within that the teams try to produce as much power as possible. But in Formula E, the amount of battery power per car is limited to 170 kilowatts during the race and 200 kilowatts during qualifying. Another factor in this equation that results in a more equal ratio between the importance of the driver and his machine is that the races take place on street circuits that create little grip and control for the drivers. So unlike Formula 1 or the WEC, Formula E’s tracks require a level of precise driving that is rarely needed on permanent race tracks. Therefore, if someone where to look at Formula E, a strong case can be made that it’s the drivers that matter and not the cars, which can provide more competition among drivers and hopefully can become one of the premier auto racing series in this eco-friendly future.

source: http://www.nytimes.com/2016/05/20/sports/autoracing/drivers-do-the-winning-not-the-cars.html?rref=collection%2Ftimestopic%2FAutomobiles&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=2&pgtype=collection

 

The Long-Haul Trucking Industry Goes Driverless

While many companies are focusing on creating autonomous cars for the average driver, Otto has taken a new approach.  Otto, a company of former Google, Tesla, and Apple employees, has kept the project quiet until this week’s unveiling.  Otto began with the idea to created safer roadways by enhancing the ability of truck drivers.  While trucks drive 5.6 percent of all miles driven in the U.S. they make up 9.5 percent of all fatalities.  At the same time, the American Trucking Association has been recently dealing with a driver shortage, prompting Otto to change directions.  Unlike other companies like Daimler which have tested fleets of self-driving trucks, Otto has developed sensors to outfit existing trucks.  This strategy decreases the investment required to build entirely new trucks by using the pre-existing capital of transportation.  While the company does not wish to remove humans entirely, the sensors will allow the driver to rest or sleep while the truck continues its journey.  The equipment has been tested on public highways.  Check out the video here.

In light of our discussion at Metalsa yesterday, this news is extremely interested.  Mr. Cosgrove mentioned that even the slightly improvement in weight or efficiency can provide great benefits to the transporter.  This technology could potentially decrease the number of stops required of truck drivers.  Currently, regulations require truck drivers to break 10 hours every 24 hours period to prevent falling asleep at the wheel and other accidents.  With Otto’s new sensors, a driver could potentially drive a long journey straight through while sleeping for periods of time as the truck continues the journey on its own.   The decrease in travel time would not only move goods faster, but also allow the current level of drivers to move more goods.  In this way, Otto is not only solving a problem for trucking companies, but also creating safer roadways.

Source: CNBC

Self-Driving Cars, Sooner Than We Think?

Recently Fiat-Chrysler (FCA) CEO, Sergio Marchionne, announced a partnership with the world’s most valuable company and Silicon Valley giant Alphabet Inc. FCA will provide Alphabet with 100 self-driving Pacifica minivans that Alphabet will outfit with sensors and cameras to test its self-driving software on. The two companies will also have a conjoint team of engineers that will team up and be located in Detroit. This group was designed with the hope of helping improve the self-driving technology. Mr. Marchionne, when talking about the partnership and the technology, said that he believes that self-driving technology will be available in five years. It is conventionally believed that this technology will not be available for another fifteen or twenty years at the least. An analyst at Kelley Blue Book is skeptical of the partnership because there does not seem to be much collaboration between the two, ‘“So it remains to be seen how much work they actually do together.”’ This recent development seems like a continuation of the trend of Chrysler being third in terms of the Detroit 3, as Ford and GM have already invested money into autonomous vehicle technology. Going back to when we met with Mr. Thai-Tang he mentioned in his presentation that Ford is trying to rebrand itself as something more than just a manufacturer of cars. He felt that there were many technological aspects of car-making that will added in the future that traditional manufacturers may miss out on. The articles say that Mr. Marchionne thinks that this is too lofty a goal, however perhaps it is this line of thinking that consistently makes Chrysler the perpetual “Number 3.” Mr. Thai-Tang also mentioned that he was worried about the SV giants like Apple and Alphabet because of the amountimgres of imgres-1cash they have. This is pertinent because Mr. Marchionne doesn’t think that a merger between FCA and Alphabet will occur, however given this huge stockpile of cash Alphabet may make an attractive enough offer that would lead to a merger. Who knows, perhaps a merger with the most valuable company in the world will help pull FCA out from its third place position and help inspire a brand renaissance! Any thoughts on this partnership and prospects on a potential merger?

Sources:

www.nytimes.com/2016/05/07/business/fiat-chrysler-chief-sees-self-driving-technology-in-five-years.html?ref=automobiles

http://www.bloomberg.com/news/articles/2016-05-03/fiat-google-said-to-plan-partnership-on-self-driving-minivans

Detroit Late Night Spots

While visiting the motor city, a group of friends and I decided to make a late night run into the city to try to get a feel for the culture. My first thought when we got in the car at around midnight was “we need to find some food”. I think that the food in a city tells a lot about its culture and people. We drove down the higTelway Burgersh way looking for late night eateries, and by chance rolled past a tiny hole in the wall burger joint called Telway Hamburgers. The tiny shop with only enough space to fit a carryout window and a five stool bar did not catch our eye until we saw a sign hanging from its door, “4 Burgers 3 dollars”. We stopped immediately. A deal like that seemed impossible to pass on so we got out and tried it ourselves. Although the burgers were essentially sliders, they were incredibly tasty and left us satisfied as we turned towards our next destination. We pulled out of the lot and decided that our night couldn’t end there. The obvious next stop was directly into the heart of metro Detroit. We made it to mid town and started searching. We passed by many funky dives and exciting looking bars but landed on a bowling ally pizza restaurant combo called Sargent Pepperonis. When we walked in we thought we were just going to get a slice of pizza and sit around for a while but when we saw Sgt. Pepsthe retro bowling ally in the back of the restaurant we had to play. We ended up playing two rounds and eating 2 pizzas before we left, and decided that the night was a success. Full and happy we headed back to the hotel to get some rest. Although we didn’t have enough time to get a good feel for all of the night life in Detroit, we managed to find some great food and have a great time with out having to spend much money. If you ever make it back to Detroit these spots should be high on your list of places to go.

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