Mercedes-Benz is not as optimistic about the future as one would expect, the car companies are still working through their semiconductor stagnation at different rates, and Russia barely has a new car market. All this and more in this Friday edition of The morning shift by February 17, 2023.
1st gear: just hoping for the best
Mercedes-Benz ended 2022 on a high note, posting $21.8 billion in annual earnings, above analysts’ projections, and an adjusted return on sales of 14.6%. The company seems to have every reason to be optimistic about 2023, but CEO Ola Källenius is pretty down on the short term. Margins are expected to take a small dip, and the state of the silicon supply chain has nothing to do with it. From CNBC:
[Mercedes-Benz] They forecast a lower adjusted performance of 12% to 14% of the car division’s sales in 2023 and slightly lower group earnings in 2022, although sales of the Mercedes-Benz car business are expected to are at the same level.
“In 2022 we were mainly facing a shortage of semiconductors, but also an energy crisis in Europe and a bit of a shutdown in China due to Covid,” said Ola Källenius, CEO of Mercedes- Benz, to CNBC’s Annette Weisbach, and added that the entire year. However, the results were “financially very strong”.
“If we look to 2023, we think we’ll see a gradual decrease in supply chain constraints. We’re not out of the woods yet, but we expect that to improve,” he said.
However, he added that the company is “very aware” of the macro environment. “Interest rates are going up, so we have to watch what the economy is going to do in the major markets,” he said.
Most of Merc’s growth last year came from price increases, not volume, so don’t expect the new mantra of making everyone pay more to trade in fewer cars any time soon. It is working well for them and their colleagues. What you tin Mercedes’ hope, especially in Europe, is a gradual transition to direct sales. From Reuters:
The carmaker is “similarly” turning to a direct sales model in several European markets, including the UK, and intends to do so in Germany as well, chief executive Ola Kaellenius said, adding: “You go from a wholesaler to a retailer. It changes your whole attitude in how you run the business.”
Selling direct saves costs for the company and removes the worry from customers that they might get a better price at another dealer, he added.
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Of course, Mercedes can’t get away with this in the US just yet, so it’s an entirely rest-of-the-world initiative for now. However, car manufacturers are doing away with it. April 2021, said Mike Stanton, CEO of the National Automobile Dealers Association Automotive news that “the heat [had] it’s been shown a little” in the franchise model.
2nd gear: AutoNation sees the light
Used car sales may be falling, but AutoNation saw signs of life in new car sales last quarter, leading to a 3% rise in the retailer’s stock price as of Friday morning. From Reuters:
The auto industry is starting to show signs of a gradual recovery from a global supply chain crisis that had reduced production, allowing dealers like AutoNation to increase deliveries of new vehicles to customers.
“We expect consumer demand for personal vehicle ownership to remain strong for the foreseeable future,” said AutoNation CEO Mike Manley.
AutoNation’s new and aftermarket vehicle revenue rose 8% and 7%, while used vehicle sales fell 8%.
Used-car retailer CarMax Inc also reported an 86% drop in third-quarter profit in December, along with pausing some hiring, halting certain share buybacks and cutting expenses.
Good to hear from former Fiat Chrysler boss Mike Manley: It’s been a while. Here’s hoping Manley feels so confident about the future that he’s willing to see it through rumored deal with Alpine through.
3rd Gear: Chips are still an issue for some, not all
We’re getting to the point where certain automakers are starting to look into the whole semiconductor thing, while others aren’t out of the woods yet. Automotive news has a helpful read on the current state of the game and who’s winning and losing right now:
Honda told shareholders this month that the semiconductor shortage is bottoming out, but it has nonetheless cut its global sales expectations for next year. BMW, Mercedes-Benz, Renault and Nissan have not been affected by the shortage so far this year, according to a report this month from analysts at Bank of America Global Research, citing data from S&P Global.
But the positive outlook has not spread to all automakers.
Bank of America said Volkswagen is expected to cut about 65,000 vehicles from its production schedules in the first quarter of this year because of the shortage. Toyota is expected to lose about 58,000 vehicles, while Geely could lose 50,000 units as it struggles with shortages on top of the impact of COVID-19 in China. […]
The chip shortage has eased significantly since its peak in 2021 and even from last year. According to Bank of America, the industry has scrapped 200,000 vehicles worldwide so far this year, down from about 500,000 per quarter worldwide since the third quarter of 2022, and down from a peak of 3.4 million units of lost production in the third quarter of 2021. .
The solution that automakers have chosen is not the old-school “just-in-time” approach. Neither is it hoarding a pile of chips for a rainy day, especially since you can never be sure how long the rainy days will last. It’s actually strategic partnerships with fabs, to make sure you’re at the top of their customer list. The auto industry being the auto industry, it was always assumed to hold that top spot, until pandemic reported otherwise. According to S&P Global Mobility’s Phil Amsrud, this has led to a “rebalancing of power” that was probably long overdue:
“The OEMs and the Tier 1s, over the last few years, have been able to dictate what the terms of the annual contract negotiations are,” he said. “But with the shortage, that’s been reversed. It’s been the semiconductor and foundry guys saying, ‘These are the terms I need to support you.'”
4th gear: VinFast gets a permit
EV power on VinFast has needed some permits to begin construction on the plant it has long eyed in North Carolina. As of Friday, the company already has at least one of the necessary permits. From Reuters road Automotive news:
VinFast received an “air permit,” the company said, adding that it was still seeking other permits for the Chatham Country factory but would start a bid for construction.
“The air permit allows us to start the construction of phase 1 of the factory. We will start construction soon,” VinFast said, without specifying a timeframe.
The company completed the air permit application in December of last year and received approval on Feb. 9, according to the North Carolina Department of Environmental Quality website.
It has also applied for a permit from the US Army Corps of Engineers designed to minimize damage to water quality and wetlands.
December to February is a reasonable timeframe for the state government, if you ask me. Especially with the holidays in the middle. Frankly, VinFast should be counting its lucky stars that the office didn’t just lose its app over the extended break. Maybe this recent good news will convince the billionaire founder of the company to invest in it again.
5th gear: Finding a new car in Russia got really hard, really fast
If you’ve been curious about the effect the sanctions in Russia have had on the country’s new car market, Reuters has posted an enlightening (and rather predictable) update:
Spending on new cars in Russia more than halved last year as the auto industry felt the full force of Western sanctions over the conflict in Ukraine, with output falling, the rising prices and the shift of buyers to cheaper used models.
While analysts continue to debate the overall effectiveness of Russia’s economic curbs, there is no doubt that they have hit its auto industry, which was heavily dependent on foreign manufacturers and imported parts, hard.
Spending on new cars fell 52 percent to 1.5 trillion rubles ($20.4 billion) last year, while the number of new cars sold fell 58.8 percent. Car production also fell to its lowest level since the collapse of the Soviet Union in 1991, as Western carmakers halted production and sold factories.
Global spending on new and used passenger cars fell by more than 15% in 2022 as inflation pushed up prices and lowered living standards, data from analytics agency Autostat shows, despite a 14% increase in spending on used cars.
As a result, used cars were responsible for nearly three-quarters of all sales last year. And as for the new cars you can still get, it’s basically “budget junk and Chinese cars,” according to one industry analyst.
Reverse: More than 21 million served
On this day in 1972 — 51 years ago — the Volkswagen Beetle made history, for History.com:
On February 17, 1972, Volkswagen Beetle number 15,007,034 rolls off the assembly line, breaking a world automobile production record held for more than four decades by Ford Motor Company’s iconic Model T, which was in production between 1908 and 1927.
By the way, these figures do not include the New Beetle. The latest news old Beetle left the Volkswagen factory in Puebla, Mexico July 30, 2003. It was no. 21,529,464.
Neutral: Old video games were so hard
This is the message that appears on the screen after defeating the middle boss Tokyo Xtreme Racer 2 for the Dreamcast, something I finally did last night after struggling for, oh, I don’t know, 23 years? Figuring out how to progress in that game was a mystery to me as a kid. I still have half of it to do, but it feels good to finally be making progress towards conquering it. Also, what a great game with such a smooth environment. It’s criminal that there hasn’t been a new one since the Xbox 360 days.
