2018: Not Entirely Behind Us

“Those who cannot remember the past are condemned to repeat it.”

Although January is traditionally the time for looking forward, I would like to take this opportunity to look back at some of the things that occurred in 2018 because (1) it was a particularly consequential year in this industry and (2) as the quote from George Santayana that you probably vaguely remember from some class back in the day and perhaps misquote has it, “Those who cannot remember the past are condemned to repeat it.” Given the comparative freshness of the past in this case it is probably not to hard to remember, but the point is, it ought to be kept in mind going forward.

In January Chevrolet revealed the all-new Silverado, which features a multi-material build strategy. And the same month Ram introduced its light-duty pickup, the Ram 1500. It, too, features a multi-material approach. These vehicles are notable for a few reasons. Foremost, at least from the perspectives of GM and FCA, is both of these trucks sell in such huge volumes that they pretty much pay for many of the vehicles that don’t do quite as well in the market (think things like the Camaro and the Corvette, the Charger and the Challenger). And then there’s the multi-material approach. It was but a few years ago that Ford launched the 2015 F-150 with some mysterious material described as “military-grade aluminum.” That was to be a game-changer. It hasn’t been, at least not in terms of starting some sort of aluminum vehicle revolution. Both GM and FCA were able to get mass saves by doing a variety of tailored engineering moves on their new trucks. The likelihood that the next F-150 will be as aluminum-intensive as its predecessor isn’t great. (Speaking of sales: the F Series, again, sold in such staggering numbers that the income from that truck would probably dwarf the GDPs of several small countries.)

There were a couple of executive changes in 2018 that will reverberate for several years to come because in the cases of both gentlemen, the consequences of their actions are particularly massive as regards not only their companies, but the industry overall. In July, Sergio Marchionne, the man who ran FCA died. Marchionne, who started his career in the early ‘80s as an accountant in Canada at Deloitte & Touche, was to start the transformation of Chrysler in 2009, after the firm exited bankruptcy. Fiat had received a 20 percent ownership stake in the company back then, and was to, under Marchionne’s leadership, acquire the rest by 2014 so that Fiat Chrysler Automobiles became a real thing. It is somewhat interesting to note that word Automobiles in the title of the company because although there are still cars like the aforementioned Charger and Challenger, the U.S. sales for FCA were completely dominated last year by sales of the Ram 1500 and the Jeep products, not “automobiles” as they are traditionally thought of. In early 2015 Marchionne made a presentation titled “Confessions of a Capital Junkie: An insider perspective on the cure for the industry’s value-destroying addition to capital,” in which he calls for platform, powertrain and component sharing across companies in order to realize better returns—and as he lays out in some detail, the returns that are otherwise being realized aren’t all that robust. Chances are good that we may see more of what he called for in the months and years to come.

The other executive that surprised the industry in 2018 was Carlos Ghosn, who was arrested in Japan in November for under reporting his compensation. Ghosn joined the Renault Group in 1996 and became the COO of Nissan in 1999. He not only orchestrated the “Nissan Revival Plan”—which could have been called the “Nissan Survival Plan,” because things weren’t looking good for the continued existence of the company, but also the Renault-Nissan Alliance, which added Mitsubishi in 2016. One could make the argument that what Ghosn did with the various companies and their products was the sort of sharing that Marchionne talked about. Ghosn’s legal troubles notwithstanding (there are theories abounding that has it that they’re predicated on political machinations), Ghosn has absolutely changed the modern auto industry.

General Motors certainly made a surprising announcement in late 2018 when it announced that three assembly plants and two powertrain plants would be “unallocated” in 2019, a term that is probably a legalistic euphemism for “closed.” One of the reasons behind this is, presumably, that the assembly plants built cars, ranging from the Chevy Cruze to the Cadillac CT6, and as previously mentioned, things like pickups, as well as sport utility vehicles, are selling, not sedans and coupes. The factories were on single shifts, which isn’t good from a capacity utilization standpoint. Another factor is that GM, like other OEMs, needs to invest a considerable amount of money into electrification and automation of its vehicles, so by cutting costs via the unallocations, as well as headcount reductions there and elsewhere, it would free up some cash. This year we may see more capacity shifts, as well.

Good luck for the rest of the year.