Newsflash II

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+++ The BMW 530e plug-in hybrid has been revised, with changes bringing about claimed improvements in fuel economy, all-electric range and a reduction in its CO2 output. The German brand has also bolstered the 5 Series PHEV’s line-up with a new, 4-wheeldrive xDrive variant. Prices are yet to be confirmed for both models. The new 530e features a denser battery pack than the outgoing model; its energy capacity has expanded from 9.2 to 12 kWh with no increase to its physical size. As a result, the rear-wheel-drive 530e now has an electric range of 65 kilometres miles and CO2 emissions of 41 g/km; a respective improvement of 20 kilometres and 5 g/km. BMW claims the new lithium-ion battery pack can be charged from a household socket in less than 6 hours, or around 3,5 hours when using the brand’s iWallbox fast charger. BMW has also improved the standard 530e’s fuel economy by around 20 %. Like the outgoing model, the new BMW 530e is powered by a turbocharged 2.0-litre 4-cylinder petrol engine, mated to an electric motor and an 8-speed automatic gearbox. Power and torque figures remain the same at 252 hp and 420 Nm, as does the car’s 6.1 second 0–100 km/h. The new 4-wheeldrive BMW 530e xDrive features the same petrol engine and electric motor setup. Its 0–100 km/h is slightly slower, at 6.2 seconds. Naturally, the 530e xDrive’s emissions are worse than the rear-wheel-drive variant’s, at 49 g/km of CO2. Both models come with two driving modes. ‘Auto eDrive’ is the standard setting and allows purely electric driving at speeds up to 110 km/u, while ‘Max eDrive’ mode raises that limit to 140 km/h. When driving electrically at speeds up to 25 km/h, both models also generate an acoustic alert, to warn other road users of the cars’ presence. Optional equipment for the 530e and the 530e xDrive includes adaptive suspension, a 12.3-inch digital instrument binnacle, a larger 10.25-inch infotainment system, an advanced parking assist function and a range of alloy wheels in sizes between 17 and 20 inches. Both models also come with programmable auxiliary air conditioning as standard, allowing owners to remotely set their car’s temperature using a smartphone application. +++ 

+++ Nissan is reportedly cutting about 10 % of its global workforce; some 12,500 people. Ford is supposed to be in the process of showing some 7,000 salaried workers the door, which is to be complete by the end of August. Car sales in western Europe were down 3.5 % in the first half of 2019 compared with 2018. In China, passenger car sales were off 14 % for the first half of 2019. And in the U.S. things were better than either of those cases, but there was a still a 2 % decline for the first half of the year and were it not for the U.S. consumers’ seemingly insatiable appetite for pickups and SUVs of all sizes, that number would have been certainly higher. (Consider, for example, FCA sales for the first half in the U.S.: Ram (333,168) and Jeep (456,281) brands had a total 789,449 units during the first half of 2019, which means that Chrysler, Dodge, Fiat and Alfa Romeo only contributed a combined 306,661 units for FCA’s 1,096,110 first half sales). Globally there is a consensus that things are slowing economically (e.g., the U.S. Commerce Department reported that U.S. GDP grew 2.1 % in the second quarter, which might seem good except that (1) it was 3.1 % in the first quarter and (2) that is the lowest level since Q1 2017), and that the auto industry is likely to see so-so sales for the next few years. With all that as prologue, you might imagine that global car companies are planning to reduce their global footprints. However, according to May Arthapan, director of Asia Pacific Forecasting for LMC Automotive, a global analysis firm, they are building MORE FACTORIES . Yes, factories are being closed, like Lordstown. But according to Arthapan, there will be 36 net new plants added to the global automotive manufacturing base: 14 plants will be closed this year, 50 will be opened so it goes to 36 additional ones. And it gets even more puzzling, as Arthapan writes, “While we are expecting a loss of 2 million in global Light Vehicle build in 2019, at the same time 3.6 million units of new capacity will be added, on top of the existing 45 million units of idle capacity, or 34 % of the total”. That’s right: there is a whole lot of production capacity that isn’t being used right now, yet more capacity is being added. Not surprisingly, a lot of new capacity is being put into China. According to Arthapan, during the past 3 years the Chinese market has contracted by 1 % yet the production capacity has increased by 6 %. The capacity being added in China isn’t wholly predicated on indigenous brands. Arthapan’s data show that VW Group and Hyundai Group are putting a considerable amount of manufacturing investment in China. Yet the U.S. is also going to be getting additional capacity between now and 2026, some 1.3 million units. Consider that there is a $1.6 billion investment being made in Huntsville, Alabama, to build the Mazda Toyota plant, which is to go online in 2021 for the production of SUVs for both brands. FCA is taking 2 engine plants in Detroit and transforming them, also with a spend of $1.6 billion, into a single car assembly plant, which will start building Jeeps by the end of 2020. Arguably, given what Mack I and Mack II, as the engine plants are known, were and what they’re being transformed into, this is a whole new thing (and going back to the importance of Jeeps and pickups to FCA, the company is also investing $900 million in its existing Detroit Jeep plant to build the new Grand Cherokee and Dodge Durango and a total of $1.5 billion at its Warren plant to provide capacity for the Jeep Wagoneer and Grand Wagoneer, while continuing production of the Ram 1500 Classic). And Volkswagen, which plans to have the global capacity to have the ability to sell 1 million electric vehicles globally by 2025, which undoubtedly accounts for a considerable amount of the added capacity (Arthapan: “The VW Group is at the forefront when it comes to investing in plant expansion, with 1.4 million units of new capacity in the pipeline between now and 2026”), is spending $800 million at its Chattanooga manufacturing complex to put EV production in the plant by 2022. While there’s nothing that says that there won’t be more plant closings as there are more plant openings, should sales continue to go south (or not go very far north), things may get troubling for auto workers the world over. +++ 

+++ A challenging year in 2018 left many of Europe’s automakers struggling to put a brave face on falling margins amid worries about the high cost of complying with tougher emissions rules while also investing in electric cars and autonomous driving technology. This was not the case at PSA Group, where CEO Carlos Tavares announced record sales and profits, including an operating margin of 8.4 % for the Peugeot, Citroen and DS brands; and a 4.7 % margin for Opel / Vauxhall just 18 months after buying General Motors’ money-losing European operations. Analysts were quick to give Tavares credit for the results. “The transformation of PSA under Tavares has been extraordinary”, Max Warburton of Bernstein wrote in a note to investors in June. Tavares successfully applied his proven approach on cost, capital discipline, distribution and pricing to Opel/Vauxhall, Warburton wrote. Arndt Ellinghorst of Evercore ISI said Tavares and his team are on track to do what few would have thought possible in turning around Opel/Vauxhall. “PSA, under CEO Tavares’ leadership, shows how to get the job done”, Ellinghorst said in  a note to investors. The praise for Tavares grew last month after PSA said that recurring operating income rose 11 % to €3.34 billion, lifting its operating margin to a new record of 8.7 % in the first half. Ellinghorst called it “a hugely impressive result”. That being said, Tavares’ record is not perfect. Sales in the Chinese market have fallen to about 200,000 this year from nearly 750,000 in 2014; sales in other global regions such as the Middle East and Latin America have slipped recently; and the upscale DS brand has not yet gained traction. The Tavares formula, if there is one, includes a focus on improving pricing even at the cost of volume; keeping a tight model lineup with strong branding; and efficient allocation of capital, analysts said. But there are other factors such as: Tavares’ qualities as a leader; a willingness to explore lesser-known revenue streams such as used cars; and an agile production network. Some of the success can also be attributed to luck or good timing, analysts said. Tavares arrived at a troubled PSA in early 2014 after stepping down as No. 2 at Renault under then-CEO Carlos Ghosn. The departure came after Tavares publicly expressed his wish to lead an automaker. With PSA bleeding cash after the 2008 recession, earlier management made some hard decisions. PSA was restructured to give the French government and China’s Dongfeng Motors a 14 % stake each. The move injected more than €1.6 billion into PSA while reducing the Peugeot family’s stake to 14 % from 25 %. Assets were written down, lowering PSA’s cost basis. A factory at Aulnay, near Paris, had just been closed, as part of a plan to trim more than 10,000 jobs in France by 2015. A development deal with GM, signed in 2012, had yet to bear fruit, but it later resulted in key SUV models that hit the European market in 2016-2017, and laid a trust base for PSA’s acquisition of Opel / Vauxhall from GM in 2017. European consumers were poised for a 4-year car-buying binge that erased the losses from the 2008 recession and 2012 “double dip”. Even if Tavares was able to hit the ground running at PSA, analysts praised him for his leadership qualities, operational efficiency, and discipline in reducing complexity and focusing on improving pricing. “There is a long list of executional decisions that have been strong”, Morgan Stanley analyst Harald Hendrikse said. “Having not had as much capital available as, say Volkswagen, PSA has been forced to make some more intelligent choices”. Said Denis Schemoul of IHS Markit: “The recipe isn’t genius. The fact is that he can execute on it as a leader. If you talk internally to people at PSA they are so glad to have someone who provides organization and leadership vision. That was a big change”. Tavares has managed to get people behind him “even with some disruptive changes”, Schemoul said. In person, Tavares is direct and approachable, with little of the “great man” mystique attached to powerful CEOs. He flies on discount airlines and stays in budget hotels. Away from the office, which he says gets 100 % of his time from 8 a.m. to 6 p.m., his passion is vintage racing, whether it’s a 1980s Formula 3, a rally-prepped Peugeot 504 Coupe or sharing the driver’s seat in a thundering Lola T70. “He flies on low-cost airlines because he believes in it”, Schemoul said. “He is applying to the whole organization some aspects of his personality. That’s probably one of the reasons why people tend to follow him: they can see that he’s genuine”. Yet Tavares’ racing exploits point to a fierce competitiveness. In recent years he has referenced Charles Darwin and the principle of natural selection to describe the seismic changes starting to appear in the auto industry. “We are agile because we faced a near-death experience”, he said last year. “We are Darwinian. We know that the survival of our company is based on our ability to adapt”. Tavares has increased the metabolism of PSA, analysts said, including pushing for real internal competition among factories for product allocations. “He has definitely turned the organization around in terms of excitement, willingness to work, the ability to believe that PSA can win”, said Philippe Houchois of Jefferies. “That didn’t exist for 20 years”. Tavares has hired talent from his former employer, Renault, most recently Thierry Koskas as head of sales and marketing, and Alain Raposo as head of powertrain, battery and chassis engineering. Earlier, Olivier Bourget, executive vice president for programs and strategy, and Yann Vincent, industrial director, came aboard from Renault. “The years of nonaggression between Peugeot and Renault are gone”, Houchois said. In style and substance, Tavares bears some resemblance to the late Sergio Marchionne, the hard-driving CEO who managed to wring profits out of Fiat Chrysler Automobiles, analysts said. “One of his key strengths has been humility, a realization of what kind of company he has, which Marchionne similarly had in Europe. By having a clear understanding of its strengths and challenges, it’s been easier to cut models and not to fight for the incremental sales, and therefore to hugely improve the overall mix”, Hendrikse said. Said Houchois: “Tavares today is probably the closest we have to Sergio Marchionne in the industry, in the ability to drive people to do more”. Houchois, however, added a note of caution. “Keeping people on their toes as a management style has a lot of benefits, but it also wears people out”, Houchois said. “You have to be careful”. Tavares has turned PSA’s relatively small size into an advantage, analysts said. “People have been suspecting PSA of underinvesting, but what we have seen coming out of R&D and the design studio is quite impressive”, Houchois said. “There has been a continued focus on capital allocation and savings that is Tavares’ imprint on the business”. Tavares has often cited pricing relative to benchmarks as an important metric of success. “His other obsession, outside of efficiency, is to sell well”, Houchois said. “When Tavares was chief operating officer of Renault, it was about the only period when Renault was particularly good in pricing”. Hendrikse said PSA did not take much market share in Europe from 2014 to 2016 when the market was seeing its biggest gains. Instead the company used the organic market growth to hugely improve the mix on the sales they were making. “They reduced exposure to rental cars and dealer self-registrations”, he said. “The overall sales discipline that Tavares has had has been incredibly important”, Hendrikse added. “He has not had an outright unit sales strategy, but one based on profitability”. To command higher prices a company has to offer a product that buyers want,  which PSA has done as Peugeot and Citroen have emerged as distinct brands with recognizable styling and a tighter lineup, analysts said. “Tavares highlighted the fact that PSA had too many models in too many different regions”, Hendrikse said. Many were not profitable, and low sales meant high inventory and capital expenditure needs. “By allocating models more intelligently around the world and cutting less profitable models he has turned PSA into a much more efficient company”, he said. 3 models cited by analysts as having boosted PSA’s fortunes are the new-generation 3008 (“you have more than doubled volume on an existing car”) Hendrikse said, the Citroen C3 (which is based on an older platform but has been the brand’s best-selling model) and the new 508 (which have met sales targets in a declining segment). “The design and care with which they have brought cars to market on those 2 brands has been fantastic”, Hendrikse said. “That has played incredibly well with a more disciplined pricing and sales strategy”. While new-car launches tend to draw most of the publicity, much of the profit in the auto industry is made after the sale: through service, parts and the used vehicle market. PSA has been aggressive in taking some of that profit, which normally goes to dealers or third-party companies, for itself, through several channels. “None of it is rocket science, but they are doing it with a bit more focus than their peers, and it appears to be paying off”, Houchois said. Among recent moves: It has beefed up PSA Retail, its in-house dealer network, which has acquired or built 29 Opel / Vauxhall sales points since early 2018; and starting in 2020 will distribute Opel parts. In May, PSA launched Spoticar, a new used-car platform for its brands, with the goal of increasing vehicle sales to 1 million from 800,000 by the end of 2021. “Selling used cars is always a profitable business, but they have taken it one step further”, Houchois said. “They are doing more multibrand sales of used cars and they have restructured aftermarket parts deliveries. “Those 2 activities earn more than new-car sales”, he said. “What surprises me is that more automakers have not done it”. The payoff: an estimated profit margin of about 8 %, he said, on revenues from those services of €11 billion to €12 billion. +++ 

+++ RENAULT could reduce its stake in Nissan in a bid to restart merger negotiations with Fiat Chrysler Automobiles (FCA). Renault could cut its 43.4 % holding in Nissan as a way to rebalance their global alliance. While neither Nissan nor Renault have commented on the reports, it is understood that if Renault were to reduce its stake in Nissan, it would need the approval of France which owns a 15 % stake in the company. The relationship between Nissan and Renault has long been shrouded in controversy because, while Nissan is the larger of the 2 carmakers, it only holds a 15 % non-voting stake in Renault. Nissan’s belief that a merger between Renault and FCA could weaken its influence in the alliance prompted it to withhold support for the deal. Before the French government could convince Nissan to get on side, FCA pulled the proposed merger. It is alleged that discussions to change the structure of the Renault-Nissan alliance commenced shortly after the deal collapsed. Talks have been limited to a small number of executives, board members and lawyers for the companies. Those with knowledge of the talks claim that the negotiations are still in their early stages but an email dated July 12 suggests that an agreement between Renault and Nissan could result in an initial memorandum of understanding between the pair as early as September. Speaking on an earnings call during the week, FCA chief executive Mike Manley expressed his belief that an FCA and Renault merger can help both companies, dubbing it “a great opportunity for us. And we believe it’s a very good opportunity for Renault”. +++ 

+++ Sales of Japanese-branded autos in SOUTH KOREA slumped in July amid a worsening diplomatic row between the 2 countries that has led to consumer boycotts and efforts by Seoul to cut the economy’s reliance on imports from Japan. Toyota’s sales in the country tumbled 32 % from a year earlier while Honda’s sales skidded 34 %. Although automakers are still assessing the main factors driving the declines last month, industry participants and analysts expect an intensifying boycott campaign to hurt demand further, as diplomatic tensions grow. Japan tightened controls in July on exports to South Korea, escalating a row over wartime forced laborers and sparking a boycott by South Korean consumers of Japanese products and services, from cars, beer and pens to tours. Japan escalated tensions by removing South Korea from a list of export destinations approved for fast-track status. “Showroom visits are declining while consumers are holding off on signing contracts”, a Honda Korea official told. South Korean representatives for Honda and Toyota did not provide any commentary on the sales trends and said they would need to assess the reasons for the decline. However, industry watchers said public sentiment was a factor behind the sharp falls. “The South Korean public is angry about Japan. It will soon become a taboo to drive Japanese cars in Korea”, Daelim University College automotive engineering Professor Kim Pil-soo said. The data from the Korea Automobile Importers & Distributors Association (KAIDA) also showed Lexus, Toyota’s luxury badge and the third-most imported brand into South Korea after Mercedes and BMW, saw sales down 25 % from the previous month, although they were still up 33 % from the previous year. Japanese officials have cited unspecified security reasons for the export curbs to South Korea. But they have also pointed to an erosion of trust after South Korean court rulings last year ordered Japanese firms to compensate wartime forced laborers, a matter Tokyo says was settled by a 1965 treaty normalizing bilateral ties. +++ 

+++ SUBARU reported a 48 % increase in first-quarter operating profit as global sales grew, led by demand for the Ascent and Forester SUVs in the United States. The smallest of Japan’s major automakers posted an operating income of 92.2 billion yen ($870 million) for April-June, versus 62.1 billion yen a year earlier and an average estimate of 65.6 billion yen from 8 analysts. Sales in the United States, by far Subaru’s biggest market, rose 20 %. It accounts for about 60 % of Subaru’s overall sales. The maker of the Legacy and Forester maintained its forecast for operating income at 260 billion yen for the year to March 2020, up 45 % from a year earlier. The previous fiscal year was marred by a string of recalls, production stoppages and inspection improprieties that cut the automaker’s earnings in half. Subaru reiterated its annual forecast for global sales of 1.06 million vehicles. It also left unchanged its assumption that the yen will average 110 against the dollar over the course of the fiscal year, versus 111 last year. A stronger currency eats into profits because cars exported from Japan become more expensive and the value of earnings made overseas decreases. +++ 

+++ SUZUKI reported a 46.2 % fall in first-quarter operating profit, hurt by lower output at home as it improves its inspection systems, and falling demand in India, its biggest market. Japan’s 4th largest automaker posted an operating profit of 62.7 billion yen (£487 million) for the April-June quarter, down from 116.5 billion yen a year earlier and below a mean forecast of 69.09 billion from 8 analysts. Suzuki reaffirmed its forecast for full-year operating profit to come in at 330 billion yen, up 1.7% from the year ended March 2019. Suzuki, known for its Swift and Baleno compact models, is bracing for subdued growth this year in India, where roughly 1 in 2 cars sold carries its brand. The company stuck to a forecast for vehicle sales to increase slightly on the year, but conceded that it may need to trim its forecasts in the coming months as slowing economic growth and stricter emissions standards could dent sales. Slowing profit growth could hamper its ability to invest in and develop lower-emissions vehicles and on-demand transportation services necessary to survive the technological upheaval currently underway in the global auto industry. The automaker has long acknowledged that it cannot shoulder the costs of developing electric vehicles and self-driving cars on its own, and has turned to Toyota to supply Suzuki vehicles with its gasoline hybrid systems. +++ 

+++ TESLA has announced it will offer all-new Model S and Model X customers lifetime complimentary access to its Supercharger network. Currently, the offer has no expiration date, although Tesla has confirmed that free Supercharger access will be removed if the buyer sells or transfers ownership of the vehicle. At present, Tesla says it will not extend the offer to its most recent customers. However, according to the firm’s sales terms, customers who have taken delivery of a Model S or Model X in the last 7 days have the right to return their vehicle for a full refund. Should they wish, buyers could then reorder to take advantage of the deal. Tesla’s latest product restructure comes only 4 months after the company raised the price of both models. The Model S Long Range is now the cheapest available option. Prices have risen, although the top-spec model now includes “Ludicrous Mode” (previously an option) at no extra cost. Prices for the Tesla Model X Long Range have also risen. However, like the revised Model S, it too comes with Ludicrous mode at no extra cost. Tesla’s indecisiveness about its product structure has sparked discontent amongst the brand’s most recent buyers, many of whom have taken to Tesla forums to express their anger at the fluctuating value of their cars and the differing levels of service included in their purchase prices. During Tesla’s last product restructure, the firm’s boss, Elon Musk, promised to offer disgruntled owners something for their troubles, tweeting: “If you bought a Tesla before the price reduction, you can have Autopilot or Full Self-Driving Capability at half the normal cost”. No such benefit is planned Tesla’s latest product update. +++ 

+++ In the UNITED KINGDOM , new car registrations declined 4.1 % in July 2019, marking the fifth consecutive month of decline, although sales of electric cars tripled to a record high. Some 157,198 new cars were driven off dealer forecourts across the UK last month, of which 2,271 were fully electric. This is a 158.1 % increase from the 880 new EVs sold in July 2018. Although this resulted in a record monthly market share, EVs still only made up 1.4 % of all new cars sold throughout July. According to figures from the SMMT (Society of Motor Manufacturers and Traders), sales of conventional hybrids also saw a significant boost of 34.2 %, although plug-in hybrid registrations continued to decline badly, dropping 49.6 % year-on-year. Meanwhile, diesel experienced its 28th consecutive month of decline, falling 22.1 %, while petrol remained stable with a 2.6 % increase. There was a 2 % fall in demand in the private sector, while fleet and business were down 4.7 % and 22.5 % respectively. There were declines across all but one vehicle segments, with executive cars taking the biggest hit with a 21.6 % drop. The SMMT predicts that the car industry will continue to invest in advanced powertrain technology, resulting in a potential 51,000 EVs being registered in 2020. This would still only be a 2.2 % market share, though, with “world-class, long-term incentives, supportive policies and substantial investment in infrastructure” needed to get the UK to meet its targets for electrification. Mike Hawes, chief executive of the SMMT, commented: “Despite yet another month of decline in the new car market, it’s encouraging to see substantial growth in zero emission vehicles. Thanks to manufacturers’ investment in these new technologies over many years, these cars are coming to market in greater numbers than ever before. If the UK is to meet its environmental ambitions, however, Government must create the right conditions to drive uptake, including long-term incentives and investment in infrastructure. The fastest way to address air quality concerns is through fleet renewal so buyers need to be given the confidence to invest in the new, cleaner vehicles that best suit their driving needs, regardless of how they are powered”. The Ford Fiesta was again Britain’s best-selling car in July, with 5646 examples sold. The Volkswagen Golf (4288) was second, ahead of the Nissan Qashqai (4047), Ford Focus (3863) and Mercedes-Benz A-Class (3702). In total, Ford has sold 48,943 Fiestas in the UK so far this year, putting it ahead of the Focus (36,102), Golf (35,781), Qashqai (33,227) and Vauxhall Corsa (33,061). +++

 

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