If vehicle sales were to be the measure of industry success, then 2015’s performance would probably receive a BBB rating (medium class companies, which are satisfactory at the moment) from rating agency Fitch.
Globally the auto industry was faced with and had to adjust to very large and widespread exchange rate movements, commodity and raw material price changes and, of course, decreasing oil prices. The last two obviously significant tailwinds for the auto sector, its margins and for most of the world consumers, but at the same time, their unpredictability means long-term business plans will likely change at a more cautious pace.
Nevertheless in early 2015 HIS predicted a global market in excess of 88Mio passenger vehicles, with North America set to register sales in excess of 18Mio (According to Wards Auto) – the best since the heady days of 2000.
But below the surface things aren’t as rosy, with many chinks in the automotive armor having been revealed during the course of a tumultuous year.
According to the National Highway Traffic Safety Administration (Quoted from www.safercar.gov) there were a record 74.2 million recalls in 2014, with a further 34 million recorded by the end of July 2015.
However the exact number of vehicles recalled isn’t known, because some have been recalled multiple times. But there are currently approximately 254.7 million cars and trucks on U.S. roads according to IHS Automotive reports, which means that if a family owns two or more cars there is a good chance that one of them has been recalled.
As discussed in depth in my October 2014 “Industry Spotlight” column on Automotive IQ the reasons for the apparently uncontrollable factors that lead to these recalls may be varied and extremely difficult to control (Even with the best 6-sigma practices in process control), the bottom line is that CEOs and boards need to show moral and ethical fortitude when faced with a dilemma of cost versus fatalities.
This can be done, as Elon Musk proved when faced with a fiery challenge to his brand’s reputation and the safety of his customers.
The converse to this was GM’s response to the ignition switch defects and Takata’s nonsensical handling of the Airbag explosions that were directly responsible for 8 fatalities.
But what happens when manufacturers decide to omit important safety features on cheaper models? The Ford F-150 aced a suite of crash tests conducted by the Insurance Institute for Highway Safety and earned the nonprofit group’s “Top Safety Pick” rating. Of note, however, is that the honor was only bestowed on the SuperCrew body style, the bestselling version of the truck.
The four-door SuperCrew passed all five tests with the highest-possible “good” rating. The reason? Ford installs steel members fore and aft of the front wheel wells (in yellow, below) to prevent the wheels from intruding into the cabin space during an accident, but the company doesn’t fit them to SuperCab or regular-cab bodies.
Ford installed steel reinforcements (above, in yellow) only in its 2015 F-150 SuperCrew trucks—and not the other body styles.
During the IIHS frontal-small-overlap test, which simulates hitting a pole or a car head-on by contacting 25 percent of a vehicle’s frontal area at 40 mph, the SuperCrew’s body cage remained “largely intact” with a “low risk of injuries,” the group said. However, the smaller F-150 SuperCab pickup scored “marginal” due to “significant intrusion” of the passenger cabin, as the dashboard and steering wheel came “dangerously close” to the dummy’s chest.
Since the A-pillars buckled and other body components “seriously compromised the driver’s survival space,” the IIHS rated this F-150’s structure as “poor,” which is below “marginal” and the group’s worst rating. Vehicles have to earn “good” or “acceptable” ratings in all tests to qualify as a Top Safety Pick.
“That shortchanges buyers who might pick the extended cab thinking it offers the same protection in this type of crash as the crew cab,” said David Zuby, the Institute’s chief research officer. “It doesn’t.” But Ford having been advised of their oversight (?) will be fitting these across the range from 2016 Model year.
Following closely on these embarrassing episodes was “Dieslegate”: A coverup that will potentially have long lasting affects, possibly even finally sealing the fate of diesel powered passenger vehicles. But worse than that, it’s shaken customer confidence in an industry that is often seen as a black art controlled by corporations that are untouchable.
The root cause of the Volkswagen Diesel emissions scandal.
Despite VW’s laborious, finger pointing conference about the reasons and the corrective action (Which is a topic for a whole new can of worms… sorry I mean article), the facts were highly polished and the root cause never addressed:
In 2005, following a decision by Piech that VW was to penetrate the difficult US market with a diesel, a four cylinder was successfully evaluated in South Africa: The problem was, however, that It proved impossible for this EA 189 engine to meet the strict US emissions targets, leading to a group of employees fitting the engine with software to give two different emissions readings.
Great: So VW have identified a group of rogue engineers who, I assume, were not technically competent in scrubbing the NOx from the exhaust gas emissions. Not likely! These were amongst the best automotive engineers in the industry; but faced with the very real possibility of being dismissed by the overly authoritarian management of VW (Created by the temperamental Piech and reinforced by the enthusiastically autocratic Winterkorn) and hamstrung by unrealistic financial constraints imposed by another VW autocrat, Jose Ignacio Lopez, the engineers did what they had to, to survive.
So the issue here, is again that of moral fiber and ethics when faced with a challenge which pits ethics against financial considerations: And again the second largest manufacturer came up very short on expectations, thereby placing a blot on not only the industry, but also the very sustainability of diesel power in automotive passenger vehicle applications.
Someone who has taken note of the exponentially increasing cost of high-tech product development is FCA Group’s Sergio Marchionne, who in 2015 was very vociferous in stating his case that in order to survive more mergers were required within the OEMs.
A tangled web of differing global regulations, mostly covering emissions and safety, forces automakers and suppliers to spend billions on redundant engineering:
A European automaker had to design, test and produce a completely different rear suspension for one of its cars in North America because there wasn’t room in the European design for a part needed to meet U.S. emissions standards.
For global automakers, differing standards for bumper strength, lighting, pedestrian safety, crashworthiness and so on, add billions to product development costs. Every time a part has to be redesigned to meet conflicting regulations, costs climb.
Marchionne’s courting lands on deaf ears.
Coming off a high of the successful Fiat Chrysler merger Marchionne passionately believed the cause and effect was so obvious that other CEO’s would wilt at his approach.
In August (2015) “Automotive News” quoted Marchione as saying: “We’re not talking about marginal improvement in margins. We’re talking about cataclysmic changes in performance, just huge.”
He added that he made some “arbitrary” assumptions about which platforms and engines would survive a merger and came to the conclusion that the combined automaker would make US$28 billion to US$30 billion a year in earnings before interest, taxes, depreciation and amortization. (By comparison, FCA reported EBIT of 3.2 billion euros, or US$3.6 billion at current exchange rates, in 2014, while GM reported adjusted EBIT of US$6.5 billion.)
The improved profitability would result from cuts to overlapping products and other business areas, implying that a merger between FCA and GM would result in significant job cuts.
Unexpectedly (To Marchionne) GM has dismissed the idea more than once, and Marchionne told Automotive News that he’s never even met CEO Mary Barra.
But if GM were to bite, would Marchionne be prepared to play the Bill Ford/Yoshikazu Hanawa role of advising Fiat Chrysler employees that they now need to dance to the tune set by GM’s execs?
No? You think he seriously believes that he, representing the troubled company on the block, would be in charge of a merged company?
Not likely; so his overtures may come to naught and go down in history as another attempt by an ego driven egotist to build a legacy.
But I do think his concern is valid and needs to addressed; so watch this space in the year to come…
While the sun shines on a globally recovering economy, tumbling oil prices and the emerging Panda economy there are thunder clouds on the horizon, which unless dealt with head-on do not bode well for the industry in the mid to long term.
CEO’s and boards need to be held personally liable for safety and the compliance of their products. While this may be daunting the captain at the helm is responsible for the crew… and bystanders, and a paradigm shift (Through legislation if required) might be necessary to achieve this.
Furthermore Marchionne’s concerns are real and maybe it’s time for intensive cooperation on non market-critical components which are not key product differentiators. Things like seat frames, engine hang-ons, drivelines and even full electrical systems (Obviously excluding software mapping for individual requirements) are not critical to any marketing program; The large-scale commonisation (At least in development costs) would certainly go a long way to driving down costs and lifting profitability.
So here’s to the year that was, and looking forward to the year to come!