'This Car Is Not A National Security Threat'

Automakers push back on tariffs proposed under the guise of "national security," Fiat Chrysler thinks everything will be just fine, Chinese car sales say otherwise and so much more for this great Morning Shift of Friday, April 12, 2019.

The humble Volkswagen Beetle you see above. It's cute. It's plucky. (It's also been canceled, but that's neither here nor there.) But is it a threat to America's national security, because it was made in Mexico?

The answer, automakers at the policy-centric Washington Auto Show say, is no, because it is not. That's from a Detroit News dispatch that says car companies and their lobbyists are pushing back hard on proposed foreign car tariffs that could be made under the auspices of "national security," and playing up how many Toyotas, Hondas, Volkswagens and the like are actually made here in America—something President Donald Trump consistently fails to understand. Or willfully ignores. It's hard to say with him.

From the story:

"This car is not a national security threat."

So proclaims a red-white-and-blue sign on the door of a Volkswagen Beetle, directed at members of Congress attending the annual Washington Auto Show.

The message is the work of the Association of Global Automakers, which lobbies in Washington for foreign-based carmakers.

As the Trump administration weighs the idea of placing tariffs as high as 25% on imported cars under the guise of national security, lobby groups and carmakers are fighting back. "Built in Ohio" proclaim signs on backdrops of stars-and-stripes on the doors of Hondas. "Built in South Carolina" read signs on Volvos, "Built in Alabama" on Hyundais, "Built in Mississippi" on Nissans.

The messages are trying to bring attention to the fact that foreign-owned brands are building more of their cars at domestic plants, bringing jobs in many cases to states carried by wide margins by President Donald Trump in the 2016 election. And they are part of a move by both foreign and domestic carmakers to block punitive tariffs on imported cars and parts.

As that story notes, the national origin of cars is a more hot-button issue than ever. Mercedes came under fire for claiming the Sprinter was built in America (it's not) and General Motors is getting all kinds of shit for building the new Blazer in Mexico instead of, say, the Ohio plant it just shuttered.

How much do buyers even care? Hard to say, just like it's hard to say what's an "American" or "German" or whatever car anymore, considering the international mix of parts and components all cars have, or things like Hondas built in Ohio and Mercedes SUVs being assembled in Alabama and such.

Anyway here's the latest on the tariff stuff:

The U.S. Commerce Department recently concluded a nine-month investigation of the national security impact of allowing imported cars to come into the U.S., but has not made its findings public.

The process, initiated at the request of Trump last May, could result in the president moving to impose tariffs under a section of trade law known as Section 232. That law allows the president to levy tariffs in response to national security threats. Tariffs could kick in as early as next month.

U.S. Rep. Fred Upton, R-St. Joseph, is co-sponsoring bipartisan legislation with U.S. Rep. Terri Sewell, an Alabama Democrat, to block the president from unilaterally imposing the tariffs on imported cars and parts.

And Sen. Chuck Grassley, a Republican from Iowa who has reliably supported Trump, told reporters Wednesday he had a "gut feeling" the report is not being released because it will embarrass the president.

"I'm not sure this 232 study on autos by the Commerce Department was done in a very professional and intellectually honest — well I shouldn't say intellectually honest — way," he said. "It may have some shortcomings. That's why we haven't seen it. It's going to embarrass somebody. If you put it out it probably weakens the president's political position."

Interesting remarks from Grassley. Maybe this will all just go away quietly.

While much of the auto industry predicts a global slowdown of new car sales in 2019 and possibly a recession, Fiat Chrysler would like to reassure folks that everything is fine, just fine. Via Reuters:

Chairman John Elkann said: "Despite the (fact that the) second part of 2018 included trade difficulties in some areas that the persisted in the first part of this year, we forecast a significative improvement in the second half of 2019."

In February weaker-than-expected guidance for 2019 profits and industrial free cash flow raised doubts about the Italian-American carmaker's longer-term targets.

Manley has sought to persuade investors that the 2020 goals – set by late boss Sergio Marchionne – were still achievable.

"I am confident that we will successfully deliver on our guidance for this year," he said.

Cool. Great. The Wrangler truck will surely fix everything.

Meanwhile, in the world's largest car market, from the Wall Street Journal:

China's auto sales declined for a ninth straight month in March, and a leading industry executive said he can't predict when a rebound will come.

Chinese vehicle sales in the first quarter of 2019 were down 11.3% year over year to 6.37 million, the government-backed China Association of Automobile Manufacturers said Friday. That decline followed the 12% and 9.6% drops of the previous two quarters, respectively. In March, sales fell 5.3% year over year to 2.52 million.

Passenger-car sales declined 13.7% in the January to March period, while commercial-vehicle sales increased 2.2%. Low confidence among consumers and curbs on peer-to-peer lending businesses have made it harder for dealers to move inventory, according to auto analysts.

"The market is still in recession, and companies are under great pressure," said the association's assistant secretary-general, Chen Shihua. "It's still hard to say when the point of returning to growth will come."

I've said this anecdote before but I remember being told by an exec at a large luxury automaker a few years ago that China's growth will never stop, and that it will continue to turn out new millionaires and new car sales pretty much forever. I'm no fancy, big city "business man", but I pointed out that's generally not how economies work. Turns out I was right!

Anyway this is bad for pretty much every automaker, which was banking on China to be a perpetual golden goose.

The car world is full of bullshit startups as of late, but one of the more interesting (and possibly viable) ones is Michigan-based Rivian, which aims to make all-electric trucks and SUVs at a former Mitsubishi factory in Normal, Illinois. It's got great designs so far and a little less hot air than you get from Silicon Valley.

Amazon is one investor in Rivian, and until recently General Motors was discussed as another. But now talks for a GM equity stake in Rivian are reportedly no longer happening, says Bloomberg:

GM had negotiated potentially taking a stake in Rivian and forging a partnership that may have helped the Plymouth, Michigan-based startup bring fully electric trucks and SUVs to market faster. GM was widely expected to become a strategic investor alongside Amazon.com Inc., which in February led a $700 million equity raise by the closely held company.

Discussions ended in the past two weeks, with Rivian founder R.J. Scaringe wanting to keep his options open, said one of the people. Rivian has had several other potential suitors take a look, the person said. If GM can't find a way to resurrect a deal, the automaker will continue developing its own electric pickup truck, which is in early stages of development.

"As we have stated, we admire Rivian's contribution to a future of zero emissions and an all-electric future," GM spokesman Pat Morrissey said in an emailed statement. "Talks occur on a regular basis in the auto industry between a variety of partners, but as a matter of policy we don't discuss who, where or when those discussions might occur."

GM has invested in or acquired other startups before, so it wasn't out of the question. Why would this truck-making giant be interested, though? I'll tell you:

A deal would have contributed to both sides achieving key goals. GM would be able to introduce an electric pickup quicker than it could with its own internal engineering, and Rivian would benefit from the larger automaker's manufacturing prowess and global purchasing muscle.

Anyway, Rivian's up to some cool stuff, so I have no doubt it'll find investment money somewhere.

I'm telling you, the future of the car industry is consolidation, joint ventures and shared technology, especially as everyone moves toward electrification. And Toyota has gotten a lot of takers since it announced it'd offer its patents for EV motors and power control units for free. From Reuters:

"Until now we have been a tier 1 automaker, but now we also intend to become a tier 2 supplier of hybrid systems," Toyota Executive Vice President Shigeki Terashi said.

Supplying rivals would greatly expand the scale of production for hardware such as power control units and electric motors that are used in gasoline-electric hybrids, plug-in hybrids, fully electric vehicles and fuel cell vehicles, he added.

Toyota last week outlined plans to offer automakers and auto suppliers royalty-free access to nearly 24,000 electrified vehicle technologies patented by the Japanese auto giant.

In an interview on Thursday at Toyota's global headquarters in Toyota City, Japan, Terashi provided new details of Toyota's strategy, and its anticipated impact on the company's investment plans.

By offering to supply rival automakers with parts used in Toyota's gasoline-sipping hybrid vehicles, the Japanese automaker sees a way to slash capital outlay by roughly half for new plants required to build electric car components for future models, Terashi said.

"We believe that this approach will reduce investment costs significantly," he said.

Basically, Toyota—correctly—sees electrification as the future, with more and more cars becoming hybrids before the industry eventually goes fully EV. And as the longtime leader in hybrid tech it can make a lot of money by licensing that tech to other companies. But there's plenty of confidence in sharing what it does best with rivals:

Terashi brushed off the risk that Toyota could lose this edge by offering its hybrid technology to other automakers, arguing that it held a crucial, 20-year head start over its rivals.

"Even if an automaker is able to develop and produce a car using our systems and parts which complies with emissions regulations, its overall performance would never be the same as ours," he said.

Cold. But it's never smart to assume you'll be on top forever.

Trump has already backed off his threat to "close" the U.S.-Mexico border, which would have done insane damage to our trade, but says he's looking at tariffs instead. But will that really happen?

Correction: This story originally said the latest Beetle is made in Germany; it is made in Mexico. We regret the error.