Toyota Consolidates US Operations

Image result for toyota factory

Toyota has now completed a final expansion of its operation in the United States.  It has just ended a $156 million process of improving its research and development engineering center in Michigan in preparation for gaining a larger hold on the market.  This was the culmination of a three year plan to unify all of Toyota’s operations into one area to improve communication and have a more central location; Michigan is also an ideal point for this plant as there is a huge historic concentration of other manufacturers and innovators to benefit from.  Toyota headquarters is also moving away from California and relocating to Texas, yet another shift towards the center of the nation.

Toyota claims that it wishes to conduct production, sales, and research completely on a domestic front to improve its ability to provide parts and service, as well as gain a better understanding of the current market.  They will then be able to tailor their sales and research towards current market preferences specifically in the United States.  Toyota is also interested in hiring a large number of new people in Michigan, and says that they want to continue growing their operations here.  It will be interesting to watch the company in the near future, as the current climate has seen a decline in the sales of automobiles.  Perhaps Toyota will be able to buck the trend and increase their overall sales, as well as gain a larger percentage of the American market, be it in their sedans or their trucks, or perhaps even electric vehicles.  Research and development will allow Toyota to gain a keen insight into the patterns of demand to improve their chances of promoting growth.

Forbes article

Consumer Confidence is High, but has the Automotive Market Peaked?

As Trump’s first 100 Days ended and monthly numbers were reported there was an apparent disconnect in the automotive industry. Consumer and industry confidence are at their highest points in years, however, automotive sales were trending downward for the fourth consecutive month. The ramifications of this downward trend are especially harmful to jobs in this vertically integrated industry.

The new administration has pledged to bring jobs back to America, highlighted by Trump’s pledge to bring back automotive jobs from Mexico and China. This pledge has fallen into the background as the climate it was made in has changed dramatically. When promised, the auto industry was riding high on five-plus years of record profits. This made the industry an attractive target for domestic growth. Now that the industry’s sales have cooled, not only is the return of domestic jobs unlikely, but it is more than likely that domestic and foreign jobs will be lost. Inventories are building as turnover is up from 60 to 100 days.

First, this will lead to the loss of jobs in the the automotive giants and their production facilities. As production ceases in Detroit and around the world, the part suppliers will also feel the affects. When car production is halted, the inventories of suppliers will begin to build with the lack of a willing input good market. The obvious result is layoffs throughout the vertical industry. These suppliers have the luxury of diversification into other markets such as sea, air, and rail industries to soften the blow, however.

The city of Detroit may be the first major market to feel the effects of this downturn in sales. Motor City has 13 OEM assembly centers and nearly three times as many suppliers to them. In the recent 7 year run of record sales, over $23 billion has been pushed into the state’s once bankrupt industry. This sales downturn will result in a huge hit to the automotive industry’s $37B GDP footprint on the state. Tax revenues will once again be down in a city just regaining traction.


Sources: Detroit ChamberNYTTelegraph UK

Delphi’s Movement Away from Internal Combustion

One of the Automotive industry’s largest suppliers, Delphi Automotive, plans to spin off operations tied to internal combustion engines and wants to start to focus on technology for electrically powered and self-driving vehicles. This is believed to boost its share price and helps highlight the challenges for old school auto industry players. Many of the investors who provide the financial means to support the industry are starting to flock away from internal combustion engines, which is beginning to show with Tesla achieving  a market cap larger than both Ford and General Motors, despite Tesla never having achieved a full year profit and the Detroit giants staying extremely profitable.

After the announcement that the company was going to split into two entities, one focused on internal combustion the other on electric and automated cars, Delphi’s shares rose an impressive 12 percent.

Other big auto suppliers are making similar calls to move away from internal combustion engine supplies. German auto supplier Robert Bosch said it had sold its starters and alternators business to a Chinese mining company and Germany’s Rheinmetall also tried to hand off its unit which focused heavily on internal combustion parts, mainly on the “development, manufacturing and aftermarket supplying of pistons, engine blocks, and plain bearings. ” (automotive news)

Other than losing the support of investors on combustion engines, many regulators are cracking down on combustion engines and their emissions especially in Chinese and European markets with some areas even calling for outright bans on diesel engines. The Chinese government is also aggressively pushing electric cars on to its people by putting high targets in order accelerate electric vehicle production.

Delphi’s Ceo Kevin Clark has even said he expects diesel production to decrease by 3% for the next few years. But with the divide between the two sides of the company Delphi’s powertrain company could seize the opportunity to consolidate other players in the combustion market and capitalize on the continued demand for internal combustion while using the regulatory pressure to make them cleaner.

Less Parts, More Problems?

Before the popularization of interchangeable parts, automotive manufacturing involved more skill and [less!] precision. Standardizing screws and parts allowed unskilled workers to produce large numbers of cars quickly, and repair them easily. This made manufacturing more efficient, and thus, more profitable. However, with millions of parts coming in for production in several different models, the margin for error decreases.

Automotive News

In the current age of electronic engineering, a car with no errors is the standard in automotive manufacturing. Ford lost $467 million due to warranty payments in the first quarter, including a $295 million charge for two recalls involving engines that could catch fire and door latches. These issues occurred in multiple models, compounding the problems because consumers see this as more than a parts issue. This hurts Ford’s reputation as a reliable car manufacturer.

Ford’s CEO, Mark Fields, highlights the fact that the same parts go into multiple models, but he spins this into a positive feature showing the company’s innovation. “We were a little bit ahead of the industry in reducing our platforms and getting commonality of parts,” he said. “When we do have a recall, it tends to hit a bigger population. Whenever we see something, we’re going to act very proactively for the customer. That’s exactly what we’ll continue to do” (Automotive News).

Source: Ford profits fall on recall charges

The Growing Indian Auto Market and Kia’s Plans.

With a rapidly increasing population of 1.2 billion people, India is closing in on the Chinese in terms of population and is becoming one of the largest car markets in the world. Their rapidly increasing population has automakers envisioning that in the near future India will be the cause of another massive surge in car sales, despite India having a car market that is less than one fourth the size of the Chinese market. Auto makers believe the rapid growth potential could be worth looking into investing heavily into the area to hedge their bets and get in on the market early.

Currently the Indian Market for light vehicles is dominated by Maruti Suzuki. Looking at the light vehicle sales of Q1 of 2015, Maruti has over three times the number of vehicles as the second producer(317,000 vehicles). The other top producers are Hyundai (111,000),Tata (87,600), Honda (58,000), and Toyota (37,800). An assumed reason for a such a prominent role of Japanese manufacturers in India is due to the Indian market having less of a backlash than the Chinese market and Japanese manufacturers are wanting to ensure they can get a position of power in the Indian market.

The South Korean carmaker Hyundai Kia Motor Group is also trying to gain more ground in the Indian market and plans on investing $1.1 billion to build their first Indian factory in a deal that they plan on signing today. The plant will produce a “compact sedan and a sport utility vehicle tailored for the Indian market”(Indian Express) and will have a maximum production capacity of 300,000 vehicles a year. Its believed that Kia is trying to recover from a sales slump in their biggest market, China, during march which has been “attributed to a political standoff and rising competition from local brands” (Indian Express).

China Moves to be a Production Leader

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China has announced that it plans to become a global leader in automobile production within the next ten years.  Currently, the country is the worlds largest consumer of vehicles and has the largest market for them, likely due to the its high rates of growths and enormous population.  Despite this, China is still behind several of the current world leaders in terms of actual production of vehicles within its borders.

Currently, China has been implementing a policy to encourage consumers to purchase more electric cars, and this has worked.  China has been the worlds leading purchaser of Neighborhood Electric Vehicles for the last two years in a row, but this is still only a very small share of the total market.  The government is looking to implement new policies that will further the development of electric and self driving vehicles over the next several years and become a leader in innovation for that sector of the market.  There are already several strong Chinese firms working on developing these, and the number and technology should increase within the ten year plan.

The government is always looking into lowering regulations on foreign investment in automobile businesses.  The level of investment in a single business by a foreign body is currently capped at 50%, but there have been talks about lightening up on this policy.  This will be another move towards strategically gaining the resources and clout to become a major manufacturer on an international stage.

Works Cited

 “China Aims to Be Auto Powerhouse.” Shanghai Daily,上海日报. N.p., 25 Apr. 2017. Web. 26 Apr. 2017. <http://www.shanghaidaily.com/business/auto/China-aims-to-be-auto-powerhouse/shdaily.shtml>.

Auto Markets Throughout the World.

The largest auto market in the World is Asia with 47,878,892 vehicles produced in 2015. This total increased by 7.8% in 2016 to 51,521,214 vehicles produced. Within Asia, the largest producer is china with 28,118,794 vehicles in 2016, followed by Japan with 9,204,590 vehicles. The next largest market in the World is Europe. 21,699,598 vehicles were produced in Europe in 2016, a 0.5% decrease from 2015. The Largest producer in Europe is Germany with 6,062,562 vehicles produced in 2016. Following Europe, the Americas produced 20,854,138 vehicles in 2016, a 2.5% increase from 2015. The largest producer in the Americas is the United States with 12,198,137 vehicles produced in 2017 ,dropping .8% from 2016. Africa is an emerging market for vehicle production with 901,682 vehicles produced in 2016, a 7.9% increase from 2015. Both Asia and Africa saw close to 8% growth this past year, whereas Europe experienced 2.5% growth, and the US saw a .5% decline in production.

The largest market in the auto-industry is cars. Here we see the same trend as with all vehicles produced. Asia is by far the greatest producer of Cars with China and Japan being the two largest producers worldwide with 24,420,744 and  7,873,886 cars produced respectively in 2016. 18,951,868 cars were produced in Europe in 2016, a 2.5% increase from 2015. The largest producer within Europe is Germany with  5,746,808 cars  produced in 2016. The United States is the fourth largest producer of cars in the World with 3,934,357 produced in 2016. The US is followed closely by South Korea and India in yearly car production.

The market for autos is heavily dominated by cars, but production of light commercial vehicles and heavy trucks also occupy a piece of the market. The US is the leader in production of commercial vehicles with 8,263,780 produced in 2016, a 4.9% increase from 2015. China comes in second with  3,698,050 commercial vehicles produced. Mexico, Canada, and Japan, are the next greatest producers of Commercial vehicles respectively.  The US is the leader in heavy truck production with 268,096 produced in 2016, which is a 16% decrease from 2015. All of Europe produced 229,351 heavy trucks in 2016, and Asia produced 40,638 heavy trucks in 2016.

http://www.oica.net/category/production-statistics/

Automotive Industry Brand Leaders

The automotive industry has long been associated with “the big three” but over the past half century that term has taken on new meaning. The original big three referred to the American automakers GM, Ford, and Fiat-Chrysler. These Detroit based companies dominate the US and Canadian markets and command the American SUV market. The big three of today is much more fittingly described as the trio of American, German, and Japanese auto brand manufacturers. The German producers BMW, Daimler (Mercedes-Benz), Audi make up well over 80% of the luxury car market, while Volkswagen is Europes largest car manufacturer. The Japanese companies Toyota, Nissan, and Honda dominate the small car markets which have huge sales in Asia as well as South America.

According to OICA, “if vehicle manufacturing was a country it would be the sixth largest economy in the world.” In 2005, over 66 million automobiles were produced and resulted in the direct employment of 8 million people, over 5 percent of the world’s manufacturing employment. This data is coupled with the sale of 94 million autos sold in 2016 alone. It is estimated that up to five times more individuals are employed as an indirect result of the industry bringing the industry total to around 50 million employees. China is currently the world’s leading producer at over 24 million cars per year followed by Japan, Germany, and the United States. The US is the global leader in commercial vehicle production with over 8.25 million per year. The more notable statistic, however, is that while China boasted a percent change of 14.5%, the big three countries were all under 1% growth.

The 2016 Davis Brand Capital rankings top-25 included Toyota (6), Daimler AG (7), BMW AG (12), and Ford Motor Company (15). These companies are ranked on a scale emphasizing performance in the categories of brand value, competitive performance, innovation strength, company culture and social impact. The auto industry itself ranks in the top five globally for market capitalization. Davis’ high rankings of the four automotive giants are credited to their specific advances in the areas of autonomous vehicle innovation and advances in craft such as Ford’s aluminum body trucks and BMW’s advances in green technology. A notable trendis the growth of Tesla as an American automaker. Though the company is not without its flaws, it currently boasts a valuation $25B higher than that of Fiat-Chrysler. This is just another sign of the bull market for green technology.

The ever evolving, global automotive industry centered in the US, Europe, and Asia is seemingly recovering from the recent recession and shifting gears to embrace technological advancements and excel in brand management.


Emissions Conversation Continues in Germany

Image result for volkswagen emissionsIn September of 2015, Volkswagen disclosed that they had been intentionally cheating on diesel emissions tests for at least six years by installing secret software in 580,000 U.S. vehicles. During this time, Volkswagen was putting cars on the road that emitted up to 40 times the legally allowed diesel pollution levels. Earlier this year, they pleaded guilty to fraud, obstruction of justice, and falsifying statements to the U.S. Justice Department in reference to this scandal, but the conversation about emissions regulations in Germany, as well as the whole of Europe, has not yet been settled.

The European Union has since drafted a proposal to overhaul how vehicles are licensed and how their emissions are tested in order to prevent another similar scandal in the future. They have proposed that EU nations should fund the car exhaust testing centers, and to do so they should be able to levy fees from the carmakers. This proposal would also give Brussels the authority to fine manufacturers for any violations. However, in a recent position paper, Germany has stated that they are against fines on manufacturers and they believe that cheating these tests can be prevented in other ways.

It’s hard to tell if Germany and its automotive companies are bringing up these objections in order to improve future policies, or if they’re just trying to buy themselves time to keep doing what they’re doing to maximize profits. The German Federal Minister for the Environment has also spoken out against the practices of German automotive firms, saying that they should be charged with retrofitting the cars they’ve already sold to reduce the pollution they are currently producing. The German Auto Association (the VDA) has made statements against the retrofitting requirement, saying that it is not an economically viable approach. The actual policy revisions of the EU and Germany remain to be seen past these proposals.


sources:

Reuters – Business News

Automotive News Europe

Der Spiegel – Auto Section

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