The most important kind of company to have as a nation was, for much of the 20th century, an automaker. It signified a level of technological achievement and manufacturing prowess that many leaders aspired to, with the added benefit of being able to be switched over to make bombs and tanks. That was something else people cared a lot about for the very good reason that the world had gone to war a couple of times.
Making cars remains a key industry, but far from the only one, or even the most valuable. So why are so many countries committed to building factories and never letting them go? The Morning Dump shall explore this notion, and to support this inquiry is Canada, which is doing what it can to save its car industry.
Volkswagen’s overcapacity issue is both a political issue and a demand one, as fewer people want the cars the company makes. Could a Ford-based Bronco fighter help? Maybe! What about an autonomous VW ID.Buzz? Softer maybe.
If Only They Started Remaking The Ford Probe, Those 57 Million Cars Would Be Sold
There’s a big opinion piece by Liam Denning in Bloomberg, and the thrust of it is that there’s way, way, way too much automotive factory capacity. This year the world will buy about 85 million new cars, but can make 142 million vehicles, leaving that big deficit number.
Why is that a big deal? From the piece:
Building assembly lines is capital-intensive, so profitability rests on running them as much as possible to spread fixed costs across as many vehicles as possible. The breakeven point to cover costs, in terms of capacity utilization, isn’t set in stone, but industry analyst Glenn Mercer posits a threshold of 80% or more. This makes the current global level of 60% look dismal. Barring South Korea, none of the major automaking nations or regions look particularly good on this front. The US has notably lost the leading position it held beforethan the pandemic.
Roughly 28 million vehicles’ worth of new manufacturing capacity has been added over the past decade, and four-fifths of that is in China. Yet sales have risen by only 5 million over that same period. China’s own vehicle market has plateaued, leaving the country with enough capacity to make more than two cars for every one sold there. Domestic automakers are now pushing millions of vehicles overseas in order to keep their plants running; without that, their utilization would be below 50%, rather than a merely dismal 60%. China is exporting its excess car capacity problem across the world.
You can sense all of the drama in the car world over the last couple of years in those numbers. The concern over China, the rising protectionism, the misplaced investments. The EV ‘head fake’ also hasn’t helped, with carmakers building out assembly lines to make products they’ve suddenly canceled. Or, in the case of EV automakers, building out new factories. It’s sort of odd to think that Rivian is building a new facility in Georgia when there’s excess capacity out there, but that’s the way it goes. And it’s not like it’s all evenly distributed. Ford would love to have a little more capacity to build F-150s, or at least more aluminum production.
The piece makes the point that, in a rational universe, none of this is how an efficient industry would work. Efficiency is not what this industry does well, and with a mix of tariffs and other headwinds, the average margin is under 4%, meaning that all car companies in the world combined made less money than just Apple last year.
The negative political ramifications of a plant closing are huge, as are the positive ones if a new plant is opened, which is why tax breaks and incentives flow to attract this kind of manufacturing.
Canada Will Invest To Save Its Car Industry
Canadian and American relations aren’t great right now, and a lot of that has to do with Canada wanting to have a car industry and the United States being a little less interested in that.
What’s Canada’s next move? As the Canadian Press reports, it’s putting the country’s money into a plan to support itself sans the US:
Ford said it’s clear the Canada-U.S. relationship has changed permanently.
“No matter what happens in the midterms, no matter who sits in the White House, we’re not going back to the way things were and we need to plan accordingly,” he said.
The wide-ranging plan includes $2.5 billion for the automotive sector, with the federal government chipping in $1.5 billion. Carney said that is aimed at helping automakers pivot to meet the growing demand for electric vehicle.
So, yeah, capacity is not going down anytime soon.
Will Ford Make A VW Truck Or Not?
When it became clear that Volkswagen was going to sell a truck in the United States, I sort of assumed they’d use the Scout factory they’re planning to build. But what if Ford could do it?
That’s the discussion going on, according to Bloomberg:
A partnership with Ford would be the fastest and most direct way to jumpstart the effort. The US automaker already builds the VW Amarok, a midsize pickup based on its Ranger model, in South Africa. But Ford executives are reluctant to extend the collaboration to the US and risk cannibalizing its light-truck franchise, the people said.
Should Ford reject an industrial tie-up, Blume’s executive team in Wolfsburg reckons Volkswagen can bring a Bronco rival to market within two to three years, drawing on suppliers and the offroad expertise at its Scout unit, according to some of the people.
Scout’s South Carolina factory, currently slated to start deliveries in 2028, could provide extra capacity, the people said. Audi, meanwhile, has no US plant and an entire American lineup exposed to tariffs. It is studying local production of larger SUVs that could tap spare capacity within the group, the people added.
Could… VW rival Ford in a Bronco? I am skeptical, but I’m into them trying.
VW Shows Off An Autonomous ID.Buzz
Volkswagen has finally found a customer for its ID.Buzz: no one! Well, no driver. I suppose commercial clients are people, too.
What’s all this then? From VW:
The vehicle displayed in Berlin is a long-wheelbase autonomous ID. Buzz with a mobility-as-a-service interior. Its NVIDIA DRIVE AGX Hyperion 10 reference configuration comprises 14 cameras, nine radars and three lidars. The compute and sensor architecture illustrates how an advanced Level 4 technology stack can be integrated into a vehicle developed to series-production standards.
The technology showcase underlines the platform strategy of Volkswagen Commercial Vehicles: autonomous-driving developers and operators can combine their high-tech solutions with a robust, series-production-based vehicle instead of developing vehicle integration from the ground up. This can reduce complexity and support the scalable deployment of different passenger and commercial transport applications on a common vehicle foundation.
The world is flush with NVIDIA chips, so why not toss them in some vehicles?
What I’m Listening To While Writing TMD
My daughter was trying to tell me the name of a song the other day and, oh boy, this was hard to parse. We eventually figured out it was “Bourgeoiseses” by Conan Gray. It’s very much an ’80s throwback.
The Big Question
What would you do with that excess 57 million capacity?
Top photo: Ford
Government incentives, as well meaning as they may be, are often exploited, and unintended consequences, and/or Dr. Evils result.
We need to prioritize Character in those we elect, and ensure an effective oversight has the brains to consult the best brains on the topic at hand.
I feel like we have run out of our ability to be viable while doing the wrong things. To paraphrase Churchill; Eventually do the right thing.
When GM, Ford, or any other carmaker makes some ridiculous statement that they are going to transition to a tech company, this is why.
TBQ:
Cheap, high quality, fuel efficient RVs and trailers for Americans to live in when they can’t make rent anymore.
Cheap, high quality, energy efficient customizable prefab housing WITH BASEMENTS to do more than just idle talk about the housing crisis.
Cheap, high quality, fuel efficient cars and trucks that people actually want to buy and can actually afford instead of the unaffordable high margin bloated messes automakers are over producing now.
Non disable energy and resource efficient major appliances (e.g. machines that don’t rust out their drum bearings in a few years and machine themselves to death or fry unobtanium circuit boards )
Personally I’d like to see American manufacturers lean heavy into range extended EVs with a target of 50-60 miles of electric range and 400-600 total while achieving at least 48% average thermal efficiency on any mix of regular gas to E100 from the ICE. The Gen2 Chevy Volt was the closest we’ve had to this ideal and its time to bring it back, better than ever.
Since we’re dreaming how about repurposing ICE and the armed services to go after the monsters who run puppy mills, MLMs and internet scams?
I always want to like Conan Gray. Feels like it should be up my alley, but as soon as I listen to a track or entire album, I find I can’t recall a thing about it.
Time for both countries to join the international UNECE standards.
Not to be political, but why can’t we go back to the relationship we had with Canada?? Once Trump is out of office, wouldn’t life, in general, go back to the normal way we are all accustomed to?
Wait, crap, that was 10 years ago now, right? I still don’t see an issue.
The next president better grovel to the world stage like a dumb husband who cheated on his wife on a business trip.
I think we’ve shown the world that we can change on a dime, so it will be extremely difficult to rebuild trust that we will maintain stable relations in the future.
We never used to do this, despite always being able to. Which is my point. This is unique to a specific individual (I feel).
You may be right that it’s unique to a specific individual, but how do we convince the rest of the world that’s the case? I worry that the current situation we find ourselves in isn’t due to a specific individual, but due to the migration of politcs to the extremes and I think other countries are increasingly coming to this conclusion. When I look at the US, I see a country that is becoming more and more polarized, and I don’t see that changing as long as the two main parties are in control. If it is indeed due to a specific individual, I think it will take a very long time of future stability through multiple administrations to convince the world.
the problem is that they aren’t going to trust the US anymore to be reliable for long enough, with timelines for things being so long, nobody can rely on the US anymore to be able to be stable enough to create and set up everything necessary.
it’ll be decades or longer to even begin to build these relationships back up.
I just don’t agree. I understand your point, but I think the world is eager for us to get ” back to normal”
I mean, there’s some truth to this. But no one was going to trust us in international military and diplomatic affairs ever again and then we elected Obama. Things always change.
The auto industry in Canada probably is following the Australia glide into semi-irrelevance model.
The last auto plant to open here was in 2008, nearly 20 years ago – Toyota in Woodstock, ON.
There have been several plant closings since 2009: Ford (Ontario Truck, St. Thomas Assembly), GM (Oshawa Truck, CAMI?), and Stellantis (Brampton, which is basically done). Canada’s current production capacity probably is less than its domestic market consumption at this juncture – about 1.2m vehicles produced versus 1.9m purchased.
About the best news for Canada is that the current automakers will probably keep at least one assembly site per major automaker, if only to have another government to lobby to shake the money tree and see what falls out.
Canada isn’t quite the same as Australia because the latter is a big continent in the middle of nowhere while Canada is literally across a river from the second largest auto market’s domestic automakers. Australia can, at best, hope to export to New Zealand (which is much farther away than you’d think), while Canada can easily export to the US and even Europe.
So, like maybe enough for 1 EV production line? Not even that? These are not serious numbers if Canada wants to go it alone. I don’t understand why Canada continually and repeatedly shoots itself in the foot when it comes to investing in a manufacturing economy- they have both the natural resources and population for it, but are content with simply being a supplier to US manufacturers for the most part.
I will bet all the moneys on “Not”. Why on earth would Ford help a competitor eat into their biggest cash cow? Sure they make the Amarok, which is sold in markets where they barely have a foothold, but the US? Not a chance.
TBQ: In the great automaker tradition, convert it to a munitions line to make drones and missiles, which currently have a massive demand and production shortfall.
Without going into a treatise about my fellow citizens too much, it is safe to say that the mentality or instinct of Canada and Canadians is to be a resource colony of a larger order.
Which is to say: Aside the current bluster about nationalism because of reasons, I do not expect a resurgence of real independent thinking and action that involves effort or sacrifice by citizens here because we’re a pretty soft bunch. Nice easy people, but soft.
At the risk of sounding jaded: I have seen too many examples of losing what at one point was a near world-class advanced industry from this country in my lifetime to have much faith that any project of an independent nature could survive a long time.
The juxtaposition of these two little factoids is not particularly comforting.
Hey now, the PLA divested from all it’s commercial endeavors back in 1998! What, you don’t believe that the subsequent rise of a bunch of defense-commercial conglomerates with revolving doors between PLA Central Military Commission and their C-Suites isn’t just the natural result of free enterprise and open competition? Psch, everyone knows only decadent bourgeoisie capitalists have a corrupt Defense Industrial complex!
Global overcapacity vs $$ margins vs cheap cars the people want
In the very near future, a lot of car companies will have to make a decision. You can’t have it all, oh, and nothing lasts forever. Don’t take it personally.
Military drones. It seems like that’s the way of future conflict, and as you say, it’s important for countries to have a strong manufaturing base so that they can support their war efforts. Why wait until you’re at war if you have excess capacity? The automotive companies should be going to their respective governments asking for contracts to build military equipment.
Please note, I’m not in favor of war or military spending in excess of defensive needs. This is not meant to be a political comment; it just seems like as a manufacturer it would be a profitable venture utilizing excess capacity.
TBQ:
Mothball it? It seems silly to double down on building stuff if demand isn’t there. This infrastructure can be used if/when there is an economically viable need for it. Until then, most uses seem like they will end up being a great demonstration of the sunk cost fallacy.
TBQ: Drones? Routers? Sell it to Chery?
That last one seems inevitable
Total pie in sky answers:
Build cheaper cars?
Convert factories to make thinks people need like prefab houses?
Convert factories into trade schools and training centers with housing?
Something about being able to make 50+% more than you need for something so expensive seem off.
Prefab/manufactured housing, aluminum or steel recreational or commercial boats, aircraft, weapons systems and ammunition, household appliances, steel furniture and cabinets, I mean, I guess there are options, but its more capital investment on top of capital investment to convert, and are you going to get the volume and profit margin you still need out of the new product? There may not be an easy solution to all cases
This is my least favorite of all the Conan Grey songs. It is both grating and something that worms its way indelibly into the deepest parts of your brain. A terrible combination.
Build Firebirds so after a few years every one in the US could have one with whichever year/trim/options they want