+++ Ford expects CHINA to wait until the last possible moment to announce whether it will extend a tax cut on small engine cars set to expire at year’s end and is making contingency plans for various outcomes, an executive said. China’s auto industry association, executives and analysts have warned of a potentially steep drop off in sales growth next year if the policy, which halves the purchase tax on cars with engines of 1.6 litres or below, expires as planned at the end of 2016. A government official said in October that the country is considering extending the tax, originally instituted in late 2015 to stimulate the market as vehicle sales flat lined amid a weakening economy. “If there is an announcement about a continuation, I would not be surprised if that announcement is made on literally the last day of year”, Peter Fleet, Ford’s head of sales and marketing for Asia Pacific, told in an interview. In the face of such uncertainty, the U.S. automaker is planning for 3 different scenarios, he said: the tax cut expires, it is extended at a reduced rate, or continues in full. “We’re proceeding on the basis that the purchase tax incentive ends at the end of the year”, Fleet said. “We’ll adjust our plans as quickly as we need to in the new year if there is a different set of assumptions”. Fundamental demand for cars will continue to be strong and the tax cut will only result in a marginal change in demand, he said, declining to give exact predictions for 2017 auto sales. The tax cut spurred a strong rebound in the world’s largest auto market this year with sales for January to October growing 13.8 percent compared with the same period a year earlier, according to the China Association of Automobile Manufacturers. Analysts predict flat or negative growth in 2017 if the tax cut expires as planned. +++

+++ Many carmakers are predicting a significant shift to ELECTRIC vehicles in the next decade. Advances in battery technology and the growth of autonomous driving and ride sharing – suited to electric vehicles – will power this expansion, they reason. But some oil executives take a different view, predicting electricity will play only a bit part in transport out to 2040 at least. If they are on the wrong side of the argument, it could come at a cost to an industry where new projects often cost billions of dollars to build and need decades of at least moderate crude prices to pay off. Over half of all crude oil pumped is used for transport. An overly pessimistic outlook for electric cars may lead oil companies to adopt an overly optimistic outlook for oil consumption and price growth, analysts say. ENI Chief Executive Claudio Descalzi is among those who believe the threat posed to the oil industry by electric vehicles is not significant. “Electric cars, they can grow, but I don’t think that is a problem for us”, Descalzi told Reuters on the sidelines of a conference in London last month. Exxon Mobil, the largest western oil producer by market value, and British rival BP publish oil market outlooks to 2035 and 2040 respectively that guide their investment decisions. Both predict that in 2035, less than 10 percent of new cars will be electric vehicles (EVs) or plug-in hybrids – cars with a backup combustion engine for when the battery runs flat. “Our central view in the outlook is the penetration of electric vehicles and electricity more generally is likely to be pretty limited over the next 20 years”, Spencer Dale, BP’s Chief Economist, said in February. The carmakers don’t produce comparable long-term outlooks for vehicle production but their nearer term predictions for vehicle roll-outs envisage a much faster take up of EVs. Dieter Zetsche, CEO of Mercedes Benz manufacturer Daimler, said in September his goal was to have EVs make up between 15 and 25 percent of group global sales by 2025. BMW has said it could do the same. Ford CEO Mark Fields said in April that by 2020, 40 percent of models would be electrified. “For over 100 years the internal combustion engine has been a basic design assumption for our business, for our industry”, Hau Thai-Tang, Ford vice President for Purchasing told analysts at an investor day in September. “This shift to electrification is game changing,” he added. For the oil companies, a lot is riding on the accuracy of their demand forecasts, said Alex Griffiths, Group Credit Officer for corporates at credit rating agency Fitch, who produced a report about electric vehicles. “Without that oil demand increase, you potentially find that the market gets out of kilter… which is not a good place for the oil industry to be in,” he said. To be sure, some in the oil industry are predicting a rapid expansion of EVs and some carmakers are conservative on EV prospects, but they are in a minority. Norway’s Statoil, for instance, says electric motors could roll out widely in the next 2 decades. And Fiat Chrysler Automobiles CEO Sergio Marchionne has expressed caution about the uptake of electric cars. Where there is a variance in outlook between the oil and auto industries, it is usually down to different expectations around technological developments and what happens in emerging markets. Carmakers expect batteries to become cheaper and be able to support greater vehicle range than some oil companies have predicted. Oil companies have said regulated caps on vehicle emissions can be most efficiently achieved by improvements in combustion engine efficiency. But carmakers say it is becoming increasingly expensive to hit emissions targets with combustion technology. BMW Chairman Harald Krüger told investors last year that electric motors were the only way to meet CO2 emissions regulations coming into force in Europe and elsewhere. But an even bigger reason why many in the auto industry believe the future for cars is electric is because of developments in car ride sharing and autonomous vehicles. Thanks largely to the involvement of Silicon Valley companies like Google owner Alphabet, driverless cars have gone in a few years from the stuff of science fiction to a reality. Many of the big carmakers are developing models and predicting large-scale roll-outs in the 2020s. Indeed, they predict the technology could change their business model from selling vehicles to providing transport as a service. That would be a big boost for electric engines. Electric cars are expected to remain more expensive than combustion engine vehicles for the foreseeable future but their operating costs are much lower than gasoline. That extra cost can be quickly recouped if the vehicle is part of an autonomous fleet with a high utilization rate – as ride hailers like Uber Technologies envisage emerging in the next decade. Also, with fewer moving parts, electric cars are cheaper to maintain – another incentive for fleet owners. And perhaps most crucially, driverless technology integrates better with an electric engine than a combustion engine because such technology needs electricity to operate, auto experts say. “All those sensors and that computer platform, the beauty is on board we’ve got a lot of capability to power all those systems”, Pam Fletcher, General Motors Chief Engineer said at a conference in September. There is no evidence oil companies have factored this change into their calculations. Neither BP nor Exxon’s outlooks mentioned autonomous vehicles, although a policy document issued by BP said driverless cars would be considered in its next outlook due out in early 2017. Nor were autonomous vehicles mentioned in the transcripts of 44 analyst presentations given in the past year by the seven biggest Western oil companies (Exxon, BP, ENI, Royal Dutch Shell, Chevron, ConocoPhillips and Total). The companies said they had not modeled the impact of autonomous vehicles, or they declined to comment. A spokesman for the International Energy Agency, which advises developed nations and their oil companies on energy policies, said it had not yet studied the potential impact of driverless cars on oil demand. Oil executives’ outlook for oil is also supported by an expectation that increased car ownership in emerging markets can more than make up for any increase in EV penetration. “When we talk of electric cars, we are talking about the OECD”, ENI’s Descalzi said, referring to the group of 35 largely rich industrialized nations. “More than 1.3 billion (people) have no electricity”, he added. But Simon Redmond, Director, Oil & Gas Corporate Ratings at credit rating agency Standard & Poors said there was a risk that developing countries’ adoption of the automobile echoed their experience with telecoms. In that case, consumers largely skipped use of the established technology – fixed land lines – and went straight to the latest technology – mobile phones. Indeed, some in the auto industry think emerging markets could well outpace some rich countries in adopting EVs. “We believe that China is going to lead in the penetration of electric vehicles into the market”, Mary Barra, General Motors CEO, said in October. Exxon predicts that by 2040, car ownership in China will triple to about 30 vehicles per 1,000 people. BP predicts such growth, and an increase in miles driven per vehicle over the next 20 years, will help China overtake the United States to become the world’s largest liquids consumer in 2032. Yet, China is already the largest market for electric vehicles in the world, helped by government subsidies worth up to $10,000 per car and exemptions from traffic restrictions in cities such as Beijing and Shanghai. Between January-October, sales of all-electric and plug-in hybrid models totaled 337,000 and the country is targeting 5 million such vehicles on its roads by 2020. The government also offers incentives to manufacture electric vehicles in China, including more relaxed restrictions on foreign ownership of carmakers, and plans to set quotas that would require a certain proportion of cars built in China to be zero-emission vehicles. Analysts say the risk for oil companies is that, with growth in crude demand baked into market analysts’ forecasts, anything which suggests the shift to electric vehicles will be quicker than expected can impact oil prices years before the shift occurs. “The key risk for the industry is the rate of change”, said Redmond. “It does bring into question some of the economics of the different type of projects that the oil majors may want to look at”, he added. +++

+++ FORD is stockpiling 2017 model F-150 trucks, delaying delivery to dealers while it runs final tests on a new 10-speed transmission, a top executive told. The trucks should be delivered by the end of the year, Joe Hinrichs, head of Ford’s automotive operations in the Americas said in an interview. “We are launching the new Raptor and F-150 with the new 10-speed transmission”, Hinrichs said. “We continued building but we’re holding trucks longer so we could do more testing and make sure everything is right before we release them”, Hinrichs said. Extra testing is surely prudent in an industry plagued by frequent and costly automotive safety recalls. But Ford’s shipping delays come as rival General Motors is aggressively trying to cut into Ford’s lead in U.S. pickup sales. Taking aim at the “Built Ford Tough” ad campaign, as part of a bid dominate the lucrative light truck and sport utility vehicle market, GM rolled out a series of hard-hitting TV commercials over the summer. Punching holes, literally, in the lightweight aluminum beds featured in Ford’s new line of pickups, the ads tout the alleged advantages of the roll-formed, high-strength steel beds in GM’s trucks. The Ford F-series line of pickups has been the best-selling model line in the United States for 34 years, and Hinrichs predicted 2016 will make it 35 years in a row. Ford did not disclose how many F-150 pickups it is holding. But several hundred vehicles were stored earlier this week behind a chain link fence on an empty factory parking lot in Detroit. More were parked near the Detroit-Wayne County airport. Many were well-equipped Limited or Platinum models with sticker prices above $50,000. Ford designed the 10-speed transmission jointly with GM. The 2017 model F-150s equipped with a 3.5 liter six-cylinder engine and the 10-speed automatic gearbox get a one mile per gallon improvement in fuel economy over comparable 2016 models with 6-speed transmissions, according to federal fuel economy data. Ford remains the leader in large, light duty pickups with 733,287 F-series trucks sold on the U.S. market through the end of November, according to sales figures compiled by Autodata. However, Ford in October said it would cut a week of production at a Kansas City assembly plant that builds F-150s. GM has sold 718,994 of its large pickups during the same 11 months. GM said in November it had increased inventory on U.S. dealer lots by 111,000 vehicles at the end of the third quarter. GM, Ford and other major automakers in the United States are promoting holiday-themed discounts and financing deals to clear out inventory by the end of the year. December is a critical month for truck sales, said Pete DeLongchamps, vice president of manufacturer relations with Group 1 Automotive, a Houston auto retail chain. “I expect them to be aggressive”. +++

+++ A U.S. judge in New Jersey threw out a proposed class action lawsuit alleging that automaker MERCEDES misled consumers about emissions standards in “BlueTec Clean Diesel” vehicles. U.S. District Judge Jose Linares said the plaintiffs did not have standing to bring the case. Plaintiffs claimed Mercedes falsely advertised the BlueTec vehicles as having lower emissions. They said that they later found that the emissions were higher than U.S. standards permitted. The judge said the plaintiffs failed to show they actually viewed any of Mercedes’ advertisements touting the cleaner technology. He gave them leave to revise their complaint. Diesel car makers in the U.S. have been under increased scrutiny since Volkswagen admitted in September 2015 that it had rigged U.S. diesel emissions tests. Volkswagen ultimately agreed to pay $15.3 billion in settlements for owners as well as state and federal regulators. In April, the U.S. Department of Justice asked Daimler to investigate the emissions certification process for its Mercedes vehicles. The automaker said it would cooperate with U.S. authorities, but has not admitted to any wrongdoing. The BlueTec system uses urea to eliminate nitric oxide fumes from vehicle emissions. It is used mainly in heavier cars like SUVs or Daimler’s large sedans. +++

+++ French carmaker PSA agreed to invest $320 million in Argentina with the aim of producing cars from a new plant starting in 2019, the government said. Carlos Gomes, head of Latin America for PSA (Peugeot, Citroen, DS) made the announcement to President Mauricio Macri during a meeting, the government said in a statement. The plant will be located in the suburbs of Buenos Aires and it will produce for the local market and for exports. Macri has been betting on investment to pull Argentina’s economy out of recession, but a year into his term growth is still elusive. Data released on Thursday did show automobile production grew 3.3 percent in November from a year earlier, after falling for various months amid recession at home and in neighboring Brazil. Exports also rose 15.8 percent from November 2015, the data from the Association of Automobile Manufacturers (Adefa) said. +++

+++ The RENAULT-Nissan alliance is replacing its top executive in charge of combining the carmakers’ engines and gearboxes, sources told Reuters, as tightening emissions regulations expose the slow pace of integration so far. Alain Raposo, global head of powertrain engineering, will be moved to an advisory role, and a successor announced this week, four people with knowledge of the matter said. A Renault-Nissan spokeswoman said there would be no comment on “speculation about personnel changes” from the companies or the people involved. “The alliance is on track with its overall convergence objectives, including engineering”, she said. Under Chief Executive Carlos Ghosn, who heads both Renault and Nissan, the carmaking alliance created in 1999 is still moving incrementally towards common vehicle architectures and engines, in search of 5.5 billion euros in annual savings by 2018. The two groups, with total sales of 145 billion euros, say 85 percent of engines are already shared in some way. But that understates inefficiencies, executives privately concede – as well as the cost of protracted bickering over whose technology becomes standard. “It’s a permanent punch-up – after 17 years we are still unable to think like a single company”, said one of Raposo’s management colleagues. “In powertrain it’s always been hell”. A coming onslaught of emissions regulation in the wake of Volkswagen’s exposure last year for cheating U.S. diesel tests has made the problem more urgent. Independent studies have since blamed Renault for some of the highest real-world nitrogen oxide (NOx) emissions, piling pressure on engineering boss Gaspar Gascon Abellan and Thierry Bollore, Ghosn’s second-in-command at the French carmaker. Questions over whether Renault’s technology breaches EU law have been referred to prosecutors for investigation. Renault has said all its engines are legal. The weak emissions performance is inflating Renault’s bill for curbing excessive on-the-road emissions from current engines and accelerating development of cleaner new ones, along with rechargeable gasoline-electric hybrids. “We’re behind on several projects – some engine development schedules are all over the place,” said another manager. “The tighter standards are causing real difficulties, so we’re hiring and doing everything we can, but it’s not enough”. In one example, Renault realized too late that the next generation of gasoline engines was likely to require particulate filters, hitherto reserved for diesels, the manager said. “We had thought we could get by without them”. The scramble has begun to weigh on Renault’s capital expenditure – focusing more attention on untapped savings opportunities with Nissan. Renault-Nissan is set to top 10 million annual vehicle sales following Nissan’s acquisition of Mitsubishi, rivalling the likes of Toyota and General Motors. But the economies of scale are further behind. For instance, the carmakers have refused for years to pool three-cylinder gasoline engines, or to use each other’s. The current Renault Clio and Nissan Micra have similarly powered – yet separately conceived – motors and transmissions. And while Nissan developed continuous variable transmission (CVT) automatic gearboxes through its subsidiary Jatco, Renault purchased costlier dual-clutch transmissions (DCT) from Getrag, pending plans to design and produce its own. During Raposo’s tenure, however, sources said Renault recently agreed to use a Nissan three-cylinder and shelve DCT gearbox development, in favor of greater use of its partner’s CVT in core models, starting with the Kadjar next year. Production of Nissan’s next Micra, now ramping up at a Renault plant west of Paris, also includes versions with a Renault three-cylinder engine. But these gains are too little, too late to alleviate the strains on Renault’s engineering resources. “Top management wants to go faster”, said another executive. Raposo is the latest in a series of alliance directors to pay the price for slow progress on technical convergence that they lack the authority to impose. Renault owns 43.4 percent of its larger partner but has refrained from exercising control under Ghosn’s philosophy of consensual decision-making, which hands each company an effective veto on joint investments. The Renault and Nissan executive committees “have never been capable of converging” technologies in a timely way, a senior manager said. “So they end up punishing the guy underneath”. +++

+++ SEAT has confirmed that the Arona, its new Ibiza-based compact crossover SUV, will arrive in the showrooms in December next year. Built to rival the likes of Nissan’s Juke and Renault’s Captur, the Arona will be built on the same A0 platform as the forthcoming new Ibiza, using the Volkswagen Group’s modular MQB architecture. Expect styling reminiscent of the Ateca, and more space inside for passengers than the Ibiza thanks to a higher roofline. The Arona will expected to arrive in December 2017 after a debut at the Frankfurt motor show in September. It is last of three new Seat models planned for the next year, after an update to the Leon at the start of the year, and the launch of the fifth-generation Ibiza in July. The Arona is named after a city on the Spanish island of Tenerife, and also after a town on Lake Maggiore in the Piedmont area of Italy. It will be developed and built at Seat’s Martorell headquarters in Barcelona, Spain. Seat boss Luca de Meo said: “The Leon, the Ibiza and the new Arona, together with the Ateca, are going to strengthen Seat from a commercial, financial and brand image standpoint. 2017 is going to be a very special year for Seat”. +++

+++ SOUTH KOREA said it will file criminal complaints against 5 former and current executives at Volkswagen’s South Korean unit and fine the company a record 37.3 billion won for false advertising on vehicle emissions. The fine, a record for false advertising in the Asian country, indicates South Korean authorities are in no mood to soften their tough line on the German carmaker’s emissions-test cheating, having already suspended most of its sales in the country since August. The Fair Trade Commission (FTC) said it would ask prosecutors to investigate Volkswagen’s headquarters, its South Korean unit and five former and current executives including André Konsbruck, currently vice president of sales for the Americas at Volkswagen unit Audi, and Audi’s Head of Sales Overseas Terence Bryce Johnsson. It alleged Volkswagen made “false, exaggerated or deceptive” claims in the advertisements, with punishments ranging from jail terms of up to two years or fines of up to 150 million won, an FTC official told reporters. Volkswagen advertised its cars as environmentally friendly vehicles that met pollution standards although they were equipped with devices designed to deceive government tests, the regulator said. Audi Volkswagen Korea (AVK) said it had not been formally notified of the regulator’s decision. “AVK is committed to rebuilding trust with the authorities and with customers and other stakeholders in Korea”, it said in a statement. South Korea has already fined Volkswagen 17.8 billion won for emissions-cheating, and arrested one local Volkswagen executive on accusations including fabrication of documents and violation air quality laws. The sales suspension imposed in August slammed the brakes on the German automaker’s breakneck growth in South Korea, a market dominated by homegrown rivals like Hyundai and Kia. While South Korea is a relatively small market for Volkswagen, it is significant for its luxury marques Audi and Bentley and one of the fastest-growing markets for all brands. Volkswagen admitted in September 2015 to using software to falsify pollution tests on some diesel cars, spurring legal action in the United States, Germany, South Korea and elsewhere. In the United States, Volkswagen has already agreed to spend up to $16.5 billion to date to resolve diesel emissions cheating allegations, and still may face billions more in fines. +++

+++ TOYOTA has confirmed that the GT86 sports car will continue into a second generation, with a likely on sale date of 2018-2019. “The GT86 is at the stage where it’s being decided on the next one”, Toyota Europe boss Karl Schlicht revealed. “Then a chief engineer will be assigned and away we go”. The 200 hp rear-wheeldrive GT86 has carved out a niche as a fun driver’s car, but like most sports models, its strong early sales have subsequently subsided. “The GT86 will carry on”, said Schlicht. “The car serves a big purpose. We are not getting out of that business. Sporty cars go through their phases. It’s our intention to continue with that car”. Continued co-operation with Subaru also looks likely but is as yet unconfirmed. “Will it be with Subaru?”. said Schlicht. “I don’t know. But for the concept to carry on, with the low engine, we’d have to do that. There are a lot of reasons to continue with Subaru”. A key engineering feature of the GT86 is its low-slung Subaru flat four engine, which keeps the centre of gravity low for better handling. Schlicht also suggested that a soft-top version of the GT86 was unlikely. “We wouldn’t do it on the current model”, he said. “That doesn’t mean dealers wouldn’t like one, but there are so many other priorities that I don’t think we’ve got spare capacity for that”. The new GT86 will sit below the reborn Supra in Toyota’s sports car line-up. The bigger coupé is currently in development with BMW, whose version will replace the Z4 roadster. “That co-operation is going well”, said Schlicht. “It’s on track. It’s being done in Europe. Our version is a different car from BMW’s”. +++

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