AD #1446 – Mexico “Even Steven,” China Opts for Coal over Oil, The Upside of Recalls
August 28th, 2014 at 11:48am
Runtime: 5:57
- Mustang Production Kicks Off
- Saab on Life Support
- Mexico “Even Steven”
- China Opts for Coal over Oil
- The Upside of Recalls
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Hello and welcome to Autoline Daily. Murray Feldman from Fox 2 News in Detroit here once again. In today’s show we’ll look at China’s EV strategy, GM moving SRX production from Mexico to the U.S. and I’ll tell you about the upside of all the recalls we’ve had.
But we’ll start today’s broadcast with a look at the highs and lows of the automotive industry.
MUSTANG PRODUCTION KICKS OFF
The highs we see in the form of the iconic Ford Mustang which began production of its new 2015 edition today at its upgraded Michigan home. The 50-year old sports car is set to go global for the first time building both left and right-hand drive units and aiming to produce more than 300,000 cars a year.
SAAB ON LIFE SUPPORT
And then there’s are the lows…in this case the ongoing funk for the folks at SAAB. The Wall Street Journal reports that the company that brought the iconic Swedish brand out of bankruptcy just two years ago, has filed for bankruptcy protection itself. The company — National Electric Vehicle Sweden or NEVS as it’s called — which had been producing about half-a-dozen SAAB 9-3 sedans a day, ran out of money to pay suppliers two weeks ago. So the Chinese-backed company that runs NEVS made the move to buy time for talks with potential investors. If this sounds familiar think back to about 3 years ago when Spyker and SAAB did this same sad dance.
And now, for those of you who remember the famous “Even Steven” episode from the Seinfeld TV series, today the country of Mexico seems to be doing its own reboot of that particular show as it “broke even” on the latest batch of factory announcements.
MEXICO “EVEN STEVEN”
First, the country lost the Cadillac SRX when General Motors moved production of the next-generation luxury CUV to its old Saturn facility in Spring Hill, Tennessee which has been producing Equinox crossovers and GM’s current Ecotec engines.
But then, just like on Seinfeld, Mexico “got even” when Kia Motors announced it would make a billion dollar investment in a compact car factory that’ll go online in 2016 and build 300,000 units for both North and South America. Even Steven, indeed.
And if you want to see hear more about Mexico’s manufacturing mojo, check out the latest Autoline This Week episode on our website or YouTube channel.
Oh, by the way, we should also point out that GM, in addition to the SRX move, will also be upgrading its Spring Hill engine plant to produce the company’s new lineup of three- and four- cylinder Ecotec gasoline engines.
EV “STRATEGERY”
And just before we go to break, Earlier this week we reported that China might invest $16 billion into electric car charging stations. Despite disappointing sales of EVs, China is pushing ahead with its EV program and it has nothing to do with going green. China generates 70% of its electricity from coal, and several studies that show China’s air pollution will only get worse if it goes with electric cars. Dr. Frank Zhao! from the Automotive Strategy Research Institute at Tsinghua University points out that China imports 58% of its oil today, and by 2020 that will jump to 70%. He says that scares China’s leadership. But China has at least a century of coal supplies. Dr. Zhao says China would rather have cars that can run on domestic coal instead of imported oil. And he tells Autoline that China literally sees electric cars as a matter of national security.
Coming up next, I’ll tell you about the upside of the record amount of recalls automakers have issued in the U.S.
THE UPSIDE OF RECALLS
The car makers have helped to create a new fast growing industry — the recall industry. Consider this: the major carmakers are pumping billions of dollars into recalls. Companies such as Delphi and other suppliers are pumping out new parts as fast as they can. Delphi put on an additional shift. So you have more people working… just to handle the GM ignition recall business.
Dealerships are trying to beef up service departments, hiring more technicians and service reps. Some of these jobs are $75,000 to $100,000 a year with benefits.
General Motors, Chrysler, and Hyundai now have new groups dedicated to safety and compliance.
It’s hard to put a total figure on this, but we know we’re talking tens of billions of dollars — just for starters.
Then there’s the rollover — in salaries and taxes on those salaries for re-call related workers.
But wait there’s more. This recall industry has spawned many new jobs, not all connected to autos. Let’s start with product recall specialists. Compliance coordinators, safety experts and product investigators. Safety engineers attorneys. Inventory control specialists, regulatory specialists, and we can go on and on.
It just makes you think. If we could ever make vehicles that didn’t have to be recalled, this economy could be in real trouble. Let’s hear what you think. I do read your comments. Just be nice.
Be sure to tune into this evening’s Autoline After Hours. Tonight’s guest is Larry Nitz from GM Powertrain. If you want to get the latest insider info about where GM is headed with its engines and transmissions, tune in tonight at 6PM ET on Autoline.tv.
But that’s a wrap for today’s show. Once again, I’m Murray Feldman from Fox 2 News in Detroit, thanks for watching and I’ll see you next time.
Thanks to our Partners for embedding Autoline Daily on their websites: Autoblog and WardsAuto.com
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Comments (40)
August 28th, 2014 at 12:10 pm
When I was a small child, we bought a car and replaced it every 3-5 years. It wold seem that 36-50K miles and the new was wrung out of it. So recalls really were not a needed function. That was OK it met our expectations. Then in the mid to late 70′s we were introduced to a car that would go 100K fir the same $$. Ok the bodies fell off, but the mechanicals lasted. We had new expectation. Safety innovations were a new requirement. So too were environmental controls and the price soared. So did governmental expectations as well as the public. Now we want our cars to go 150K plus with NO break downs. recalls are more a function of governmental regulation and lawyers demanding what we should expect rather than manufacturing reality.
August 28th, 2014 at 12:25 pm
One of my least favorite buzz words is “Robust”. The GM switch would have been alright if it had just been “robust” enough. The heart of the problem is that no one really knows if the key chain will weigh 3 ounces or 3 pounds. So what happens is that the print and the specs call for the 3 ounces and then there is the unpaid for “hope” that the part will be “robust” enough to handle the extreme cases. It’s the same thing with rusty brake lines; you are left “hoping” when what you really need is a spec that matches reality.
August 28th, 2014 at 12:25 pm
Murray: I suggest you become familiar with economist Frederic Bastiat and his “Broken Window Fallacy” The parable was introduced in his 1850 essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society. The parable seeks to show how opportunity costs, as well as the law of unintended consequences, affect economic activity in ways that are “unseen” or ignored. See the entire parable here: http://en.wikipedia.org/wiki/Parable_of_the_broken_window#The_parable
August 28th, 2014 at 12:28 pm
China also has plenty of thorium to fuel thorium reactors as well as other rare earth elements
August 28th, 2014 at 12:38 pm
Murray,
I don’t disagree with you that there is an economic stimulus upside to auto recalls, but I suspect this is a very ineffective way of producing economic growth. The money spent on recalls would have been better spent on new research and development and new product design that would generate intended revenue from people buying new vehicles, which stimulate employment for the nation’s workforce and profits for the automotive corporations, which in turn generate taxes (both employee income and corporate income). This is the same argument the federal and state governments make on funding infrastructure projects in that it stimulates growth, but at the expense of requiring more tax dollars to be collected (or more money to be borrowed), which result in fewer consumer dollars to be available. Infrastructure projects do stimulate the economy, but it is a very inefficient way of accomplishing that goal.
August 28th, 2014 at 12:53 pm
Murray, I would not be surprised if the Flat rock plant can build 300,000 a year–but they won’t all be Mustangs. The majority of the cars produced there will be Fusions. I’m sure Ford will be more than happy if the Mustang sells at a consistent 100,000/year rate.
August 28th, 2014 at 1:04 pm
The comment that “recalls” are good for the US economy is an argument for mediocrity and that the USSR auto model during the Cold War era was “on track”. The “jobs” that are generated by poor engineering and sloppy manufacturing that lead to recalls is paid for in the higher prices for the new cars and replacement parts. There is no “Free Money” to pay for recalls. Fred
August 28th, 2014 at 1:12 pm
2. Mike, your point about robustness brings to mind a practice in architecture that is no longer common – over-designing. It used to be that any given building could withstand weight, loads and forces that it was not “designed” for. Reason being, buildings built prior to about 60 years ago were engineered to much greater tolerances.
But today we engineer the sizes of structural members down to the ‘T’. The allowances that were given back in the day are considered wasteful and unnecessary now. That’s why the walls in a home built 80 years ago feel much more solid than those of a newly constructed dwelling.
I can only suggest that perhaps automotive engineering has fallen prey to the same fate.
August 28th, 2014 at 1:13 pm
Is there a business case for Subaru (Fuji Heavy Industries)to acquire Saab? These two OEM’s do produce similar vehicles for a very similar customer base. What is Subaru’s current sales rate in the EU? I believe the boom Subaru has experienced recently is due to the demise of Saab. The folding of Saab style and technology into Subaru would be a good thing.
Subaru needs to redesign the Tribeca as their large SUV. The former Tribeca was too small. From a distance the Tribeca looked like a Lexus RX. Subaru also needs a hatchback version of the WRX. People with active lifestyles need flexible space within their vehicles. The WRX should not be a specific vehicle (sedan or hatch) but a top trim level.
August 28th, 2014 at 1:25 pm
Lex, that really makes sense and it seems like a good “fit” for Subaru and SAAB to join..
In fact, SAAB did sell a Subaru that was pretty much re-badged and tarted up a little several years ago as a “SAAB”…
August 28th, 2014 at 1:25 pm
Broken window in the factory scenario indeed!! What is that, 100 level economics?
August 28th, 2014 at 1:47 pm
SAAB at this point is damaged goods and tarnished image, no one in their right mind is gonna invest one penny in the brand!
August 28th, 2014 at 2:06 pm
11, I agree. While SAAB had a bit of the same customer base as Subaru, they are certainly damaged goods now. Also, any SAAB facilities that still exist would have high operating cost, and would not be near where Subaru now manufactures.
If Subaru wants to build some cars more like SAABs, like non-AWD hatches and wagons, I’m all for it.
August 28th, 2014 at 2:12 pm
9, As I remember, the SAABaru was a fancied up Impreza wagon. They also sold a SAABlazer at the end.
August 28th, 2014 at 2:13 pm
I was traveling yesterday, so let me get to everyone’s questions about the brake lines. First up is Mike. It would be very difficult to get the customer to check brake lines. In this case I think it comes down to the person working on the vehicle to a) be informed that these vehicles have an issue that needs to be monitored and b) inform the customer when the issue pops up and explain how important they are to replace. But that can be difficult for the dealer or the repair shop because it’s not a cheep fix and a lot of people already feel like repair shops are always trying to sell them things they don’t need. It’s up to the customer at that point to realize this is real safety issue.
August 28th, 2014 at 2:16 pm
Chuck Grenci – I’m not sure if GM uses a different base stock of brake line or not, but when you see a bunch of these vehicles come in for the same problem and it’s in the same spot most times, it seems to me like it’s a location issue.
August 28th, 2014 at 2:23 pm
GM——-Put the ignition switch on the floor like a SAAB
August 28th, 2014 at 2:25 pm
HtG – A flexible scope would work, but we didn’t have one at the shop that I worked at. It would have sat in a drawer most of time collecting dust, so it’s hard to justify the cost. You could say that it would have paid for itself by not having to remove the gas tank a few times, but most of the time I had a good idea if the lines were bad or not. And please next time have more fun with your post. Even if you’re making fun of me, I can take it.
August 28th, 2014 at 2:28 pm
1) Saab on “life support”? The company has been pretty comatose since being folded into GM. GM recognized the only way for the company to survive was to become more mainstream (as BMW, Audi, and M-B) however the image “clout” of Saab wasn’t up to the levels of the Germans, so that plan failed.
2) Recalls- It is amazing that the Feds can regulate car companies the way they do. Cars are better today than they were just a decade ago, and expectations have climbed as well. The parts used are supplied by the lowest bidder (that was good enough for NASA to put men on the moon!) and all are designed to meed the regulation in place when the vehicle was manufactured, yet the Feds and trial lawyers rate a product designed and signed off on nearly a decade ago now as a death trap. How long should product liability last? 5 years, 10 years, longer, and if the product met the requirements in place at the time, should there be any liability at all? I keep thinking of the case of the Mazda MPV owner who sued Mazda because the center seating positions only had lap belts. Are people going downhill that fast in being responsible for thier own actions?
August 28th, 2014 at 2:28 pm
XA351GT – I have seen brake lines that have rusted from the inside to the outside before, but in the case of these GM vehicles they rusted from the outside to the inside. They just ended up getting so thin they could not handle the pressure.
August 28th, 2014 at 2:29 pm
The only thing that connected SAAB and Subaru together was GM. GM was in control of SAAB and had a sizeable chunk of Subaru.That gave us the SAABaru. When was an Impreza with a few changes.
Recalls and jobs, yes it is a cause and effect relationship, but I don’t want to encourage auto companies to make a poor product just because it creates more jobs. That is where the auto industry was in the early days. Only the wealthy owned cars because you had to employ your own mechanic to keep them running
August 28th, 2014 at 2:30 pm
Kit – I don’t know for sure which automakers use stainless brake lines. I would be guessing.
August 28th, 2014 at 3:13 pm
Great responses Sean, thanks for taking the time to respond.
Murray (on recalls), yes it is a flow of money (stimulating some of the economy) however, I believe this money is, for a better explanation, a service economy; we need to get back to building ‘product’ for the long-term solution (to our economy). But I certainly recognize the value in your evaluation and conclusions (that for the short term a net positive is being realized).
Saab: “Rest in Peace” (I’m afraid)
And good for GM; bringing some production back to the U.S. Braking even for Mexico, hmmm, maybe they are net positive (gaining the Kia factory) but that’s okay; Cadillac back in the U.S. is a win in my book.
August 28th, 2014 at 3:29 pm
Oh heck, why not? Here it comes, Murray
I thought part of the price of a new car included several hundred dollars for possible recalls. So if a company(not necessarily GM) has to spend from that bucket, it means that their higher level financial accounts will tend to show less profit(assuming we’re talking about GM, which we’re not necessarily doing). Finally, lower payments in the form of dividends paid to wealthier folks owning stocks means that that money goes into the hands of folks that earn through their labor, ie ‘big spenders.’ So money is being paid to and spent among people likelier to spend it than old farts(not necessarily me) who wouldn’t be spending it.
And through the magic(not necessarily econometricly speaking) of the velocity of money, the economy grows.
August 28th, 2014 at 3:50 pm
If Subaru picked up a lot of Saab’s clientele when Saab shut down, they have no compelling reason to buy Saab. They already have their customers. I imagine enough time has passed that ex-Saab owners have already moved on to another brand and are building loyalty towards it.
August 28th, 2014 at 4:00 pm
25, Of the two former SAAB owners I know, Chevy (Impala) and Toyota (Prius) picked up their business.
August 28th, 2014 at 4:33 pm
CHINA’S SMART. They are pursuing electric vehicles for the wrong reason (to stop importing foreign oil), but in the long term is will be an intelligent choice. When the oil & coal & other fossil fuels runout, China will have a population driving EVs and easily transitioned to green power:
- solar panels on Chinese roofs
- hydro power from dams
- supplemental nuclear power
While we Americans and Europeans are struggling to make the jump from Gasoline/diesel to electric cars (circa 2050), the Chinese will able be done with the transition. They will be ahead.
August 28th, 2014 at 4:41 pm
One of the compromises of the ZEV Court Case (circa 2002) was California would drop its demand for 10% of all cars be electric, and the Carmakers would guarantee 10% of their cars be SULEV qualified up to 10 years or 150,000 miles.
So basically the carmakers created their own hassle (trying to make cars run ultraclean for an extra-long time).
August 28th, 2014 at 5:22 pm
Working the line
So, I talked to a Tesla person recently, and learned a bit about the roll out of the Model X. In order to set up the production line in Fremont, Tesla has the line workers doing this job, but at the cost of slower production for the S sedan. Tesla increased wait periods for the S to 4 months from 2.
1200 customers have already plunked down 40K for their X, and are due to begin receiving them at the end of this year. Regular production is planned to begin at end of Q1, 2015. X will cost more than the S because of the four wheel drive.
Did everyone already know this? Because I didn’t.(lots of things I don’t know, like what they’re waiting for at New Hampshire Ave and White Oak Lane. I won’t bore you)
August 28th, 2014 at 5:26 pm
29 (oh, they say some ‘complex analysis necessary’ argey-bargy. Well do tell. Bored yet?)
August 28th, 2014 at 6:02 pm
29, I didn’t know. I thought the X was going to be cheaper than the S.
August 28th, 2014 at 6:06 pm
Nope. 40K is the deposit!
Oh yeah, I also heard that maybe in a few years there will be a smaller sedan at a lower price. But for now it’s an upside down pyramid; start at the high end and work down.
August 28th, 2014 at 6:12 pm
The upside down pyramid seems to be working, so far. We’ll see how it goes a few years in the future.
August 28th, 2014 at 7:05 pm
The X is an SUV so it’s no surprise it costs more than the S sedan. It’s the same basic design but with a larger body.
In 2018 there will be a model E (renamed III).
Musk is claiming it will cost $35,000 for 200+ miles range & be affordable to middle income families, but I suspect that will still be too high in price. 35,000 is like buying a topend Honda Accord or an Acura/Lexus! Meanwhile other EVs are selling as low as $23,000 (Mitsubishi i).
August 28th, 2014 at 7:08 pm
DH, do you know how the drive train in the X will be laid out? Two motor units, one at each end, or one in the back like the S?
August 28th, 2014 at 7:14 pm
2 units, one in front, one in back.
http://www.teslamotors.com/modelx
August 28th, 2014 at 8:36 pm
Murray, that’s a novel theory. I never thought that bad engineering and shoddy workmanship would ever be used as a reason for economic stimulus.
August 28th, 2014 at 8:39 pm
Hi Sean, thanks for the feedback. I had a 1988 Beretta that had the brake above the rear axel rust out.
August 29th, 2014 at 12:30 am
Stainless steel for brake lines is not that much more than regular steel. Most shops use stainless aftermarket brake lines when replacing brake lines.
August 29th, 2014 at 4:46 am
It sounds like OEM’s should use stainless too, but I guess every penny counts when building cars. Rusted out brake lines are almost exclusively the result of road salt, and car companies don’t want to waste money on stainless lines for cars that might end up in Arizona.