AAH #805 - Are Family-Run Automakers Good or Bad?

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0:57Gary Vasilash: All right, everybody. Thanks for joining us on Out of Line After Hours. Good afternoon, Mr. Gary. How are you doing, John? I'm doing actually quite well. Yeah. Good. Yeah. I hope you are, too. End of summer? Yeah, getting there. Yeah. So I hope it never goes away, but no better than that. You live in Detroit, John, so just come to grips with reality. Right. So we've got to let everybody know we've got Keith Naughton with us today, formerly of Bloomberg. Yeah, now sort of in retirement land, right, Keith? Yeah, sort of. Yep, you bet. I'm figuring it out. Yeah, and we got Jeff Gilbert with WWJ News Radio 950 in Detroit.

1:36Thanks for having me. Great to have you here, too. So you guys, I would submit, so we're not going to have a discussion of, like, how much Metamucil you took today or, you know, how many steps you took. but you know you two and you john you've probably talked to more people in this auto industry than any dozen other automotive journalists i mean just by the nature of what you do right you know working hard being in detroit i mean you i remember running into the airport one time 5 30 in the morning and you'd been there already and he says yeah this is guy doing those were the days, my friend. We thought they'd never end.

2:20We really did. They'd never end, but go on. So, I mean, what were some of the highlights that happened in the industry that are most memorable of you? I mean, we had so much happen. I mean, the bankruptcies that occurred, we had COVID affecting the industry. We had the chip crisis. We had interesting people in the industry like Sergio Marchionne, Alan Mulally. I mean, presumably some of these, I mean, John, I know that you talked to Alan and knew him. And these are special moments in this industry that we talk about every week. I mean, we'll talk about the news today, but I mean. Well, one of my favorite Alan Mulally moments involves Keith.

3:08Okay, great. Now I will say, I always enjoyed being in a scrum or something like that with Keith, because seriously, it's not a joke. You always ask great questions, the kind of questions that give a radio guy a good soundbite. And I cannot remember what you were asking Alan Mulally, but he did not want to answer it. And where your typical auto executive would get irritated, Mulally liked to be Mr. Happy. So he kept answering a different question, not yours. Whatever it was you asked him, he would just say something totally different. And then you would try to get him back on track, and then he would repeat what he was saying before.

3:45And there were like three or four times it happened, and by the end of it, we were all laughing because we knew he wasn't going to answer the question. Do you remember that situation? Yes, he was doing a friendly filibuster. Yeah, friendly filibuster, but I mean, you know. He was very good at that. He could read the one Ford card by heart. Right. If I ever did training of people of how to do an interview, I would use that as an example of, you know, we can ask the question, but you're not under oath. You don't necessarily have to answer it. I wish they were. Yeah, I wish they were. But, you know, some people would just get so irritated if you kept asking a question.

4:21He would just be like, you know, he knew he was in control, so he could laugh about the whole thing. So, okay. So, I mean, so he was a guy who came to Ford from Boeing. Right. You know, he had been the president of Boeing Commercial Airplane, right? And he comes to town, so he's not a car guy. And then, you know, you mentioned the one-fourth strategy, which basically changed the company, right, John?

4:44Gary Vasilash: I mean. Well, it did temporarily as long as Alan was there. And as long as the people there were scared. Yeah, I mean, it's too bad Alan didn't stay there another couple of years. because I think the cultural change that he was affecting might have stuck. But the way I heard it, I'd love to hear what you've heard too, Keith, is the board decided, no, it was time for Alan to go. Yeah, because he was, remember, he was being wooed by Microsoft, and that annoyed them because he was open to that. You know, he figured, let's save a third American company. And so I think that accelerated his departure.

5:26And sadly, with his departure also went the BPR, the Business Performance Review meetings, every Thursday morning. Right. Which really called everyone to account in a way that was mostly non-threatening. You know, reveal your problems and we will help you.

5:43Gary Vasilash: And let's just step back for anybody watching that doesn't know it. Alan would have a meeting every Thursday with all his direct reports. All the executive VPs of the country. Including those around the world, you know, who were before Zoom. And they all went through what are the issues that they were dealing with? You know, red, yellow, green. Green means everything's okay. Yellow, I got a problem. Red is, man, we're in trouble here. And it forced everybody there to sort of collaborate. Right. And initially they didn't want to report any red issues because they figured they'd be fired. but over time it was with a famous Mark Fields anecdote when he had a, I think it was a latch on the tailgate of, what were they building in Oakville?

6:26The edge. And he said, you know, it's screwed up. And Alan gave him applause for revealing that. They found the problem with the supplier. They fixed it and the launch went on. Right.

6:42Gary Vasilash: Let's continue that Mark Fields story because Mark Fields, when he became CEO, got rid of the business performance reviews. Exactly. And the detriment, because what it does is it forced like candid communication at the highest level of the company, which then, of course, filters throughout the rest of the country. Because every department started doing their own BPRs, every department. And it just became such a huge culture shift that just completely evaporated after Alan left. So do you guys think that perhaps this is contributing to the problems that Ford has been experienced with launches and in terms of the number of recalls it's been having of late, that they don't have these meetings where people get up and say, hey, we got a problem here.

7:27We need to fix it. I want to observe something that just happened today, which I think is significant and we would not have predicted five years ago. So Lisa Drake retired from Ford today at 54 years old. And Lisa was previously in charge of electric vehicle manufacturing. Of course, we know Doug Field left in May, right? And he was brought in with much fanfare from Apple doing the Apple Car Project and before that Tesla. And he was in charge of EV product development, electrification. So the top two EV executives have left the company.

8:08Gary Vasilash: Let's fill in some more backfill on that, too. Lisa Drake was once considered to be on the path to the CEO position. Doug Field came to Ford thinking that if everything went right, he could be CEO. So what you've just told me there, if I'm reading the tea leaves right, is they've already decided who the next CEO is. and Doug knew that and left and Lisa knew that and left. Right. And I also think having, you know, EVs on your resume is now a career killer. Although, but she was, they moved her to Ford Energy, the new storage. Right, which looks great by happenstance, but that, I don't think she got a lot of credit for that.

8:53It was just something they had to do to salvage the battery capacity that they had that was no longer needed for electric vehicles. So yes, it caused this huge surge in Ford stock most in years. But, you know, that was simply because data centers exist. And, you know, it wasn't like there was some, there was no building a better mousetrap. It wasn't like we came up with this car that nobody else has. And therefore, everyone's going to beat a path to our door. It was, you know, the hyperscalers are building data centers because of AI. And oh, by the way, we have batteries that can accommodate that because they no longer are needed for electric vehicles.

9:32It's not the same sort of success story, if you get my meaning.

9:36Gary Vasilash: Yeah, but I would argue that being an EV person is not a career killer in the sense that when you look at Ford's EVs, Mach-E, Lightning, Transit, EV, those programs got off the ground fairly quickly and fairly well just that they went into a marketplace where ev demand just wasn't at the volume that they needed it to be but they also predicted a certain volume so they are culpable in in some of this it's not just the market didn't materialize they they created capacity and a program right for a volume that didn't materialize. So that's a bad call on their part too. Yeah. But was that Lisa Drake and Doug Field making those calls?

10:21Gary Vasilash: No. No, it wasn't. That was the people at the very top. Correct. But perhaps your EV team becomes the scapegoat. I'm not saying Doug, by the way, I just want to say clearly, Doug and Lisa are outstanding executives. They were really good. There's certainly no performance issue with either of those two people. They were brilliant. Right. But they were in the wrong place at the wrong time. And how many times have we seen this at any auto company, let alone Ford, that you don't have to go back very far to remember when everybody was predicting that Joe Henricks was on the fast track to be the next CEO.

10:55And then all of a sudden, Jim Farley was on the fast track and Joe Henricks was departing. On the train track. On the train track. He did become a CEO just naturally.

11:06Gary Vasilash: Right. But the strange... Why didn't the board keep them both? Why didn't they make... I don't know if it would have been co-CEO or CEO and COO, but Farley has all the marketing chops. Joe Henricks had all the operations, i.e. manufacturing chops, and that would have been a great team together. It's very rare. That's kind of what you see with Mary Barra and Mark Royce, but you don't see it in many other cases. It's a hard one to pull off, and I'm not sure Ford is the place to pull it off. You can never forget, it's a family-run company. The family decides in the end. They control 40 % of the stock.

11:45Bill Ford has his daughter on the board and Etzel's son is on the board. It's a family-run company. So decisions, I mean, Jim Hackett became CEO because I think Bill and they needed one. They were ousting Mark Fields and Bill and Jim Hackett had a great relationship. Here's a great question for you then, Keith. Family-run company good or family-run company bad? Depends on how they run it, right? I mean, they're still here 120-some years later, so they must have done something right. And they have the F-Series, which is the best-selling vehicle in America that any company would envy around the world.

12:25Gary Vasilash: You know, what I'm amazed is how many car companies have family involvement in them to this day. So the Kwan family controls BMW. The Pieck and Porsche families control Volkswagen. Toyota, still got Toyotas in there. Who am I missing? There's others as well. But the ones who are actually running, going to work every day. The Agnelli's with now Stellantis. John Elkin, yeah, sure. But they also have Juvenitis, they have all this other stuff. The Fords are still just doing the motor company. And I think in that regard, I guess the Toyotas come close, but they're not... It's a different situation in Japan than it is in the United States.

13:12Keith, I want to go back to your point about the loss of two EV executives at Ford. What do you think this portends? And I guess we should point out that at Business Week, before you retired, you were covering Ford. So you have certain expertise that the rest of us don't have. I mean, what do you think this portends for their EV portfolio going forward? You know, they're putting all their chips on the affordable EV, the universal electric vehicle platform that'll be that pickup truck. The Fathom. The Fathom that they're coming with next year. And I'm sorry, we can get into names later. That's which is, you know, starts under 30 ,000.

14:01So they say it's a BYD fighter. They tried to price it to be the equivalent of their theoretical BYD EV out of Mexico. So, you know, they are, and they took an SUV factory in Kentucky and converted it to EV at a time when EVs, what do they have these days, 6 % of the U.S. market, 5%. I mean, they're an afterthought. You know, do station wagons have a larger market share currently? Convertibles. Yeah, you know. So that's gutsy. You know, I'd say they're still keeping an oar in the water. But EVs used to be, you know, used to stir the drink, and they don't anymore. And until we have a hit, and Tesla hasn't had a hit in years, until we have a hit EV, I don't know when they will.

14:52I don't know.

14:53Gary Vasilash: Model Y is still selling. I know. When did Model Y come out? Well, I know, but it's still selling terrific. Oh, no. It's selling terrific. What do you mean? A new hit. A new hit. Yeah, yeah. I totally agree with that. Excites everybody. This is new. This is shiny. This is something that we haven't seen in a while. Going off that point, Gary, you're also on the jury for North American Car Truck of the Year. And we're in the process now of voting from all the vehicles that are new for this model year to, okay, what are going to be the contenders? I just took my vote and I was as a board member I was kind of involved in putting the list together but I didn't really start thinking about it till I was ready to vote and I looked at it I gotta say this year's crop of new vehicles period is not very exciting because a you've had all this money that was put into EVs that was all of a sudden scrapped and not put into conventional vehicles.

15:47So think about vehicles that have been out in the past 12 months. Is there anything that wowed you? Yeah, the Kia Telluride maybe, and I haven't been in the Rivian R2, so maybe that. It's a good car. Yeah, okay, it's a good car. But, you know, there have been years where it's like, I've driven a vehicle and gone, whoa, this is going to be a contender. This year is not one of those years, and I think it's all because of what's happened with EVs and the sudden change.

16:14Gary Vasilash: Yeah, sure. I mean, look, this industry collectively, I'm talking with suppliers and everything, burned up close, and I'm just talking North America, burned up close to$100 billion in capital and R &D investment. Imagine what that could have gone into if it weren't EVs that nobody wanted. Yeah. Yeah. But what I'm getting at is we're in a trough right now that's going to last several years because they're CapEx shy because of everything that got burned up. And with all the changes that the current administration has made backing off fuel economy standards, backing off emission standards, and everybody thinking, you know, with the next administration, it might swing back again.

16:53Gary Vasilash: So everyone's just sort of sitting on their hands. And this is why we're seeing so many new trim levels of existing vehicles coming out. Oh, we got the off-road version. Oh, we got the performance version. Oh, we got that whatever it is version it's all trim and ornamentation we're not seeing much new stuff i'm thinking of somebody okay with a three-year-old off-lease vehicle is going back into a dealership expecting to see something new and exciting after three years and i don't know if they're going to be wowed by a new trail no well it depends i mean look how well uh dodge has done with the durango It came out, I think, in 2011.

17:33Gary Vasilash: Last year, it sold more than it did in all preceding years. If you look at the last generation Dodge Charger and Challenger, he did extremely well, even though it was a very old platform. But those numbers were small. I mean, compared to something you'd buy from Chevy or Ford, I mean, it was miserable. But the point is that if you do it right, you can drag out a model line without changing the sheet metal much. But, you know, we had Larry Burns on the show earlier this year, and he wants to go back to the annual styling change. He wants to make fashion and desire and really grab the public's attention the thing that the industry should be doing.

18:18I think the concern is that Detroit in particular is falling back on what they know will sell and will make them a lot of money, which is big ICE vehicles. and they're not pushing hard enough. I get the EV thing didn't play out, but hybrids are doing great and they're not pushing hard enough into hybrids. GM has none. Well, I think there's one. Corvette. Corvette. There's a Corvette. Yeah, right. It sells in the tens of tens. There's a new one coming. Oh, great. That'll sell in the hundreds of hundreds. And then, and Ford, while they have a lot of splash with the Maverick and the F-150 hybrid, and if you look at those two together, They lead the industry in hybrid pickup trucks, but they did away with the Escape hybrid.

19:02They did away with the consumer version of the Explorer hybrid. Meanwhile, there's Toyota doing hybrid-only versions of the Camry, hybrid-only versions of the Sienna and the RAV4, and they're selling like hotcakes. And so they took the risk. It's like, okay, we'll stop doing ICE, and we're just going to do hybrid-only of our highest-volume products. That's gutsy. That's a move I'm not seeing out of Detroit.

19:28Gary Vasilash: Well, and here's the other thing that just broke this week is Hyundai announced it's going to introduce 100 new models to the market globally. 58 of which will hit the American market by 2030. So here comes hybrids up and down the lineup. Right. So here comes Hyundai. In fact, if you and that was just Hyundai, that doesn't include Kia. And when you throw what he is talking about into the mix, by 2030, they'll be able to build 9.7 million cars. That will be second only to Toyota. Toyota's doing 10 plus. Volkswagen's at 9 million a year in sinking. And I mean, this is a product offense the likes of which I don't think we've ever seen in the industry.

20:17Gary Vasilash: 100 new models in what, three, four years? It's a staggering number. And what's the Detroit equivalent? Nothing. Well, you know, so to your point of the big vehicles that Detroit is so dependent on. So I was looking back to see the causes of the bankruptcies that General Motors and Chrysler went through. And what were some of the causes that led up to it? And one of the causes was that gas prices increased and that they basically only had big vehicles that they were making money off of, that they had basically said, eh, we don't need little vehicles. They don't do so well. I mean, aren't we in a situation?

20:58You mean like getting out of the sedan market? Is that sort of stuff? Something like that. Yeah. It almost seems very analogous to what could happen now. Yeah, but I think we're in a different situation. Back then, and people are probably not going to like this, but it's the truth. The Detroit Three were all global companies. Now, in many cases, they're North American regional companies. Yeah, Chrysler is part of Stellantis, but I'm talking about their North American brands. Ford sells some vehicles elsewhere, but their core is the F-150 here in the U.S. They are focusing on their core market, which is pickups and big SUVs.

21:35It's not quite like it was in the 70s where they had a whole lineup and the entire lineup was gas guzzlers. So they are focusing on vehicles people want, and they've stopped focused on the idea that we're going to be number one. They focused on the idea that we're going to make money with this. Remember the, was it a 29 pin that GM wore of 29 % market share? Well, they were losing money.

21:59Gary Vasilash: That came after the 30 pin. But they were losing money. They were losing money with that 29 share. They're making big money with what's their current share now. I want to say 17%. percent yeah in the u.s yeah so they have focused on what makes them money yeah they have but gary's got a great point uh you know they depended so heavily on big trucks and suvs uh from the year 2000 to 2007 and uh and they weren't even make remember they got so desperate they were discounting trucks and i remember this very vividly that there were used ram trucks going down the auction lines more expensive than new ones you could buy in the showroom.

22:45Gary Vasilash: That's how upside down it got. You know, and one of the things, I mean, I was looking at some information yesterday and Brown University's Watson School of International Public Affairs has a live tracker of how much money, the Iran war is costing American consumers in terms of gas prices. And so since the war has started, we've paid an additional$50 billion for gasoline, which comes to$382 per household. I mean, and there's no end in sight to this, right? I mean, so it's going to be... That's a tax. And so you look at that and then you look at the average transaction price for a new vehicle being above$49 ,000.

23:39Pretty soon these big vehicles are not quite as interesting to some consumers as smaller things from Kia and Hyundai. Okay, I'm going to play the old man card. because we've had this conversation in 2008 and 2009, and the world thought, I heard the legendary Bob Lutz, it's another, US is gonna be like Europe, we're gonna have small cars, but there'll be premium small cars that we can sell at a big profit. And everybody thought the market was going to change. You know, we had the Fiat Chrysler deal where we brought in the Fiat brand, which is very fuel efficient. Of course, that's doing so well in the American market now.

24:20And we had all of this, and it was kind of a Chevy Volt. It was kind of looking good for a while. And then gas prices dropped. The economy went up, and Americans went back to pickup trucks. But I think car companies, you know, the people who were running the companies were around then, and they're going, I don't know, it didn't work then to go to something small. I don't think it's going to work now. I mean, culturally, clearly, we like large. Big homes, big TVs, big stakes. We like large. So I do think we'll default to large. But who's to say you can't make large more efficient? I know it'll never be as efficient as small.

25:00But that's where we come back to hybrids, E-Rev, something that gives us a larger vehicle. And the Model Y, for goodness sakes, anything that makes a larger vehicle more efficient because we can't go on like this.

25:17Gary Vasilash: Well, people have said that for a long time. And, you know, but going back to 2007, you're right, Jeff. Remember, that's when all the headlines were peak oil. The world is running out of oil. It's coming to an end. And then fracking happened. And it revolutionized the oil and gas industry, at least in the United States, and took us from an importer of energy to an exporter. And everybody went back to saying, yeah, I want the big vehicle. I mean, you know, what America wants is a vehicle the size of a Chevy Suburban that gets 40 miles to the gallon, burns rubber all the way across the intersection, and costs under$30 ,000.

25:59And if anyone could deliver that, you'd sell them all day long.

26:04Gary Vasilash: You need that plutonium power truck. There you go. Dilithium crystal. See, but I sort of wonder, you know, you mentioned the station wagon. And so what happened? That, you know, a generation grew up in the back of a station wagon, and they thought the minivan was better. So what happened to the station wagon? Basically disappeared, right? Because it was a generational shift, and they didn't want those sorts of vehicles. At what point will a generation say, why the hell do I want a pickup truck? I don't need anything that big. Why do I want a three-row Suburban? You know, I've got two kids. I don't need all of that additional space.

26:44And, you know, that potentially, a generational change, could make those 30 new vehicles that Hyundai-Kia will be coming out with all the more appealing.

26:54Gary Vasilash: Yeah, no, it absolutely could. But, you know, people generally buy vehicles based on their needs. I mean, they can be wowed by the styling and the features in it and the pricing and all that. But basically, you buy something because it fits your needs. And people buy on the dream, too. They dream of taking their family on a cross-country trip, and they want all the room to be able to do it. So that's their perceived needs. They dream of, you know, they... Maximum perceived needs. Yeah. Right. So will you get somebody in an F-150 to start considering a Toyota Corolla? No, but they might. Never in a million years.

27:37But they might someday consider an Explorer or even smaller a RAV4. They wouldn't go all the way down to the bottom. But that's why midsize crossovers are so popular, because they do fit a lot of people's needs after they get realistic. And that's why you see we've seen a lot of the larger crossovers. You know, the third row in an Explorer is not super comfortable, but it's there just in case. That was very polite. Yeah. Just in case you want to carry a lot of people. So it fits that maximum perceived need. You may never actually use that third row, but you got it there. No, there was a product planning guy at Chrysler who called it the maximum use.

28:19I can't remember the third word there, but it was all about you needed to have your vehicle do that thing that you only needed one time a year. Right. Imperative, maximum use imperative. And so you need an EV that I can take up north without recharging. And there are no charging stations or not many along the way.

28:40Gary Vasilash: That's changing very quickly. I was just up in Grayling a couple of weeks ago, and next to my hotel was a bank of six fast chargers that Rivian put up there. And so it's happening. It may not be as visible to most, unless you're driving an EV. You think, man, there's not many chargers around. As soon as you get an EV, you realize, wow, there's a lot more chargers than I realized. But that's one of the things that has held EVs back in this country. We have a very large country. It's very hard to cover it with a charger infrastructure. And even if we are doing that, people perceive we are not. That's correct.

29:20Gary Vasilash: That's the perception. Hey, why don't we take a quick break right now, come back. A lot more to talk about. I'll give you a quiz when we come back. Oh, quiz coming up. Okay, quick shout out. There's no math involved, is there? No. Okay, good. To our sponsors. The automotive and industrial sectors are undergoing a historic transformation. Electrification, digitalization, supply chain reinvention, regulatory shifts. The pace is accelerating and the pressure to adapt is real. This is not a time for hesitation. It's a time for bold decisions backed by fast, effective execution. You need a partner who understands complexity from factory floors to boardrooms and delivers measurable results.

30:10That partner is Alex Partners when it really matters.

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30:35Gary Vasilash: Performance that shines even in the rain. That's what really matters. Bridgestone Potenza tires. Improved grip in wet conditions. Thank you, Bridgestone and BorgWarner and Alex Partner for helping making this show possible. And now we're going to get quizzed. This one may actually be too easy. Okay. So we're going to go back to August 27, 1957. Okay. Okay. And so I've got this august panel of journalists here. Well, on that day, a car company brought some 250 journalists to Michigan. They also brought a guy named Al Gross and his team of stunt drivers up from Fort Lauderdale, Florida. What vehicle did Al Gross and his team demonstrate for the journalists?

31:41Was it the Ethel? They knew it was easy. So it was introduced September 4th, 1957 to the public. Sorry, we should have answered it in the form of a question. Yes, we should have. We did answer in unison. So I got to say, so there's a YouTube video that people should Google strictly for stunts. It's 10 minutes long, and it shows Al Gross and his team of stunt drivers driving Edsels. And I mean, they're hitting ramps, and I mean, they're doing all kinds of crazy things. And there's one that is just mind-boggling. So the transmission shifter, it was buttons on the steering wheel. Where the horn was.

32:27One of the demonstrations was you could shift gears with a toothpick. So they show the guy driving. He's got a toothpick in his hand, and he switches gears. It's like, what? And then they go, well, that's not quite enough. We can do more. Now watch him steer with a cigarette. Stop. Yeah. Sure makes me want to buy one. We just had a story on how the Cybertruck is the modern day Etzel because they had so many parallels, breakthroughs and design and all that kind of stuff. But they also had the same volume projections pretty much. I think it was Ford thought the Etzel would sell$200 ,000 a year and Elon said the Cybertruck would sell$250 ,000.

33:15Of course, neither of them came close. But the push-button transmission on the steering wheel is a problem because people would honk the horn and shift it into reverse. I hate those words. That was another demonstration where they loosened all the brakes, and then for some reason you'd go put it in reverse and brake, and they would retighten themselves.

33:43Gary Vasilash: Yeah, that was probably revolutionary in the day, but most drum brake cars operated that way. They would reset how the brakes were set by going in reverse and hitting the brakes. Automatically ratchet to where they were supposed to be. I just can't imagine too many Edsel owners climbing under there. I'm going to see how this works. Yeah, mentioning the Cybertruck, I see that Elon just raised the price for the Cybertruck, the Cyber Beast. This is a shocking number. $102 ,990. $3 ,000 increase for the Cyber Beast. And like I was saying about the Corvette hybrid, it will sell in tens and tens. I'm sure there's a micro market out there somewhere.

34:32All right. So, you know, speaking of Tesla, so when you guys were out talking to executives, Detroit executives, and the issue of Tesla came up, I mean, did you ever find situations where they said interesting things about Elon or interesting things about the company that? I remember Bob Lutz poo-pooing Tesla and the way they made their batteries, which were a bunch of cells linked together and essentially saying it would never work. Yeah, so the view, I feel like, evolves over time from disdain to overly imitating them. And that's what got them into the EV jackpot. They sort of took the Tesla growth line and said, okay, we'll just join that.

35:16And we're going to have the same kind of EV growth they've had in the latter years of the teens in the early 2020s. Of course, that didn't happen. But no, I feel like they took great joy in Elon trying to launch, what was it, the Model, not the Model Y, the one that preceded the sedan. Model S. Yeah, being in manufacturing hell and all that kind of stuff. They loved his early fumbles. And then when, you know, he caught lightning in a bottle there for a while, they wanted to be just like him. I mean, I found when I talked to people back then, Detroit people, or even people like from BMW or Mercedes, it was like a denial.

36:03It's like, this is not important. This is, you know, and this is in early days, admittedly. Right. But it was never a sense of, wow, this could turn into something. I remember pre-ELON talking to Martin Eberhard every year at the LA Auto Show. There was a PR firm that would arrange interviews with them. This is back when they only had the first Roadster. And they were relegated to the concourse area. They couldn't even get into the main exhibit area, or maybe they couldn't afford to. And other car makers just sort of patted them on the head and walked by. No, I interviewed both Martin and Elon for a piece I did for Newsweek when Tesla was brand new.

36:49This was running about 2008. And Martin was still the CEO, but Elon was underwriting it. And they, at that point, were just doing the Roadster, which was just a converted Lotus. And Elon didn't like the sill. He thought it was too high on the Lotus. and whatever starlet he was dating at the time, he said, he told me in the interview, would give a crotch shot, you know, the full Britney every time she got in the car and he was telling Martin to lower it. Martin said it was part of the structure and we needed that sill. And about six months later, Martin was gone. And the sill was lowered. Yeah, I think the legacy automakers,

37:34Gary Vasilash: and it wasn't just Detroit, It was the Germans, the Italians, the French, the Japanese, the South Koreans really didn't know what they were up against. They saw an electric car and they saw that it had cylindrical batteries and they saw that it was a wiring mess trying to get that all together. And they thought, OK, it's got some nice styling and it's wicked fast, but we know better. Elon's not going to make it. what they didn't realize and I didn't either at the time I don't think anybody much on a Tesla did is they didn't know that this was a software defined vehicle they didn't know that it was using zonal centralized computing they didn't know that Tesla was using digital digital twins to develop it they didn't have any clue about over-the-air updates they were not going to go do this giga casting thing because they had billions of dollars invested in stamping and And it wasn't until, you know, around 2019 when Tesla turned the corner financially and started making gobs of money that they started to take Tesla seriously.

38:40Gary Vasilash: And really, you could argue to today, to this very day, maybe the new class, Neuer class BMW has caught up technically to Tesla. I think the Ford UEV will catch up to it, maybe even take a step beyond ahead of Tesla. nobody else in the industry has caught up. And remember that that first Model S hit the market, what, around 2011 or something like that? 2012. And 2012, I mean, you know, here we are a decade and a half later and the industry still hasn't caught up. John, do you think it's a little bit of history repeating? I mean, if we go way back before even we were covering the industry, I'm sure Toyota was the object of a lot of derision when they first came.

39:24Well, they came and then they had to retreat, right? And then they came back. Their first cars were so bad, they had to put them back on a ship and send them to Japan. But by the time I started covering the industry in the 80s, everybody was emulating the Toyota production system. They were the coin of the realm.

39:38Gary Vasilash: Right. So if you remember in the 1970s, it was when the Japanese automakers began their love affair with the baby boom generation. And the baby boom generation loved these Japanese cars because gas prices had shot up. Oil crisis one, then oil crisis two. cemented the end of Detroit as it used to be. Right. Because you could argue that the best import barrier that the United States ever put up was cheap gasoline. Right. And so if you go back then, the Japanese and the German automakers were so much smaller than they are today. They could not afford to do full-size body-on-frame, V8 power, automatic transmission vehicle.

40:17Gary Vasilash: They couldn't do it. They couldn't afford it. But when gas prices shot up, all of a sudden their products were very competitive. Right. And that's when the boomers really started getting interested in import cars. And guess what? They had a neat little feature. You had a right side, outside rear view mirror. No American cars had an outside rear view mirror on the right hand side. They came with floor mats, standard equipment. They had change holders in the console. I mean, this was considered like really cool stuff back then. Absolutely. And so Detroit, you know, at first, I remember when I first got into the business, it was like, oh, those Japanese cars, they sell on Cal in California.

41:00Gary Vasilash: That's the only place. And it'll never amount to anything. You know, we're GM Ford and Chrysler. And and what they didn't realize was that the Japanese had this lean production, the Toyota production system. And so before Detroit learned about that, it was like, oh, Japanese are cheating. Oh, it's collusion. Oh, they're manipulating their currency. Oh, they put up a big wall. It's Japan Inc. And then Harvard did his report. Then the MIT group did The Machine That Changed the World, the book that described the whole thing. Right. And Detroit got religion, started copying what the Japanese were doing.

41:39One of my first assignments when I went to work at the Detroit News in 1988 was I had to run up to cover a plant tour in Orion with Roger Smith. And I was late because I hadn't allowed enough time from the Detroit News building on Lafayette to Orion, which is a long drive. So I'm joining the scrum in progress. And I've been given a question by my editor to ask, and that was GM's market share loss at the time. I'm asking Mr. Smith, are you worried about your declining market share? And he looked at me and pointed a finger. Young man, who's the largest automaker in the world? The General Motors.

42:19That's all you need to know. Yeah. So this goes back to the treatment of Elon, right? I mean, of Tesla. They had this mindset of like, who'd want these things? Well, yeah. Arrogance ran deep. Yeah. And pride cometh before the fall, right? So here we are. All right, so let's talk about Sergio Marchionne. I mean, this was a rather unique guy. And one of the things that I thought was interesting about him is I looked at his educational background. And I'm not exactly sure why, but he went to college in Canada. Across the river here in Windsor. Well, one of the schools. So he got a bachelor's in philosophy from the University of Toronto.

43:08He got a bachelor of commerce and an MBA from the University of Windsor. And he got a bachelor of laws from York University, also in Canada. I mean, what kind of automotive CEO who became a global force when Fiat came in and essentially saved Chrysler from Chapter 11 Has a background like that. Nobody. Absolutely nobody. Although Accio Toyota went to Stanford and yet uses a translator for every interview. Yeah. That's kind of the Japanese way. Yeah, that's where you cut the time of an interview in half. Yeah. Right. So, Jeff, did you talk to Sergio? Sergio was able to get General Motors to pay him$2 billion just to go away.

43:56so that was that was kind of like when we first learned about him when gm was going to do a deal with fiat and there was some clause in there that if we cancel we've got to pay fiat two billion dollars that was kind of the first time he was on my radar and going wow that was a good deal like that program that they were doing and that was yeah that and but but gm was going to sell some fiat products in the u.s i believe probably badged his his chevys or yeah they were going

44:23Gary Vasilash: GM wanted the deal so bad. Yeah. They were going to sell a small Chevy that was basically a Fiat design. And it all fell apart and they had to pay Sergio$2 billion to go away. Right. Sergio had put that into, was a clause in the contract. And it largely broke down over engines that they were doing with, I want to say, what was that VM diesel company that Fiat had acquired. But yeah, no, I mean, Sergio is an amazing guy. I mean, a philosophy background. I've never met anybody in the industry ever before who has a philosophy background. And he had zero automotive experience when he was appointed CEO of Fiat.

45:05Gary Vasilash: Another thing that never, ever, ever happens in this industry, maybe Jim Hackett being brought in as a furniture guy to run Ford. But he rents steel case in case people are wondering. And I'm trying to remember where Sergio was before, was it ABB or something like that? Was it an insurance company? It was a list of companies. I looked at their names. I had no, I'd never heard of these before. It was some conglomerate. But yeah, very unique individual. But sheer force of personality. I mean, that's what drove him is, you know, he was able to push through things. I think early on he was underestimated to other people's demise.

45:49And then he comes in and essentially gets the U.S. government to work with Cerberus and gives them Chrysler, which was an entree to the U.S. market when every other car maker wouldn't touch it. And he was deeply skeptical of electric vehicles. Sergio? Yeah, of that market. He said, why would I make a car that loses money?

46:11Gary Vasilash: Right. Right. Yeah. At first he said they lost$14 ,000 on everyone they built. And then he later up that to, if I remember right,$17 ,000. And he openly would speak publicly about how he hopes nobody buys their cars because they lose so much money on them. But see, that's another fault that comes back to the legacy mindset. It's like, well, that doesn't work. So we're just out of it. Instead of trying to figure out what's it going to take to make a profit on an EV? What's it going to take to make a profit on a passenger sedan? Instead of taking that mindset and attacking the problem, it's like, oh, let's just give up and get out of here.

46:49So Sergio did a document that came out in 2015 that is like a Bible for you, Confessions of a Capital Junkie. And when he talked about the importance of consolidation in terms of components that could be shared across the industry so more profit could be made components that people

47:16Gary Vasilash: really don't care about commodities and you know look the chinese have essentially adopted this the chinese as an industry have commonized commodity components across the line when i say commodity components i mean stuff that the customer doesn't even care about door hinges radar units, windshield wiper motors. As long as it works, that's fine, but they never see it, they never touch it. It doesn't identify brand identity. So anyway, the Chinese have commonized across the board. And I'm guessing commodity components, I'll make up a number, I don't know if I'm right, somebody can correct me. Commodity components maybe make up 80 % of everything that goes into a car.

47:59Gary Vasilash: And so when you go to design a new car, You're just taking 80 % of the components. They're already on the shelf. This is one of the key elements to China's speed of getting new programs done fastly. 80 % of the car is already done. The other thing that China has done, which is why this trade war with Canada mostly benefits China, is they've cornered the market on rare earths. Every vehicle, hell, every fighter jet needs to function. and you saw what happened when they shut off the market for rare earth. Was that a year or so ago? Or it had to shut down at Chicago factory, you know, and the ripples were already starting.

48:39China has played the long game so well. And any trade disruption with the North American countries or with Europe is only to their benefit. And when you're talking about rare earth, it's not just electric vehicles. It's for any vehicle. Little motors to move the seats forward and backwards, need rare earths. Headlights, whatever. Yeah. Yeah, yeah, yeah. Yeah, a lot of defense equipment. Sure. And China has cornered that market. I mean, we focus on, they cornered the market in batteries for electric vehicles, which they have. We all have to go to CATL if you want an LFP battery, right? But take it back another level and they cornered the market in rare earths.

49:23We gave it away. And that gives China a huge advantage. And the more we fight with allies, the more it will play to their strength. Totally agree. 100%. So, Jeff, you mentioned in passing being at the L.A. auto show. And, you know, we've talked about auto shows on the show many times. And, you know, it seems to me that there was like an inflection point in terms of auto shows in 2016 when General Motors launched the production version of the Bolt at CES, not at the Detroit Auto Show, which happened the preceding week. So you've been to like a million auto shows. I mean, what's your sense of what they were and what they are and what they could be?

50:17Well, they are consumer shows now. The idea of auto shows as a media show, I think, is something that time has passed. And I also think that's happened with CES. The last couple of times I've gone to CES, it's been more about suppliers. OEMs have not been there. So I think the OEMs are now looking at CES like they did at auto shows with, hey, if I want to launch something, I can just do my own thing, save a lot of money and get more of a spark. I think when auto show, to me, the seminal moment of when auto shows started to fall apart was when Mercedes spent a bundle to launch the new G-Class in Detroit.

50:58And they brought in Arnold Schwarzenegger to do it. And all of the publicity was about pickup trucks. The very next year, I don't think it was a coincidence that the Germans dropped out of the Detroit auto show. because I could just see some German executive going, we spent all this money and this is all the coverage that we received. And to me, that was like that just started the zipper that opened up and other car companies started looking at auto shows. Back, first time I went to the Paris show, which was around that time, was when Ford decided it wasn't going to exhibit in Paris. And I asked beforehand if I could do an interview with somebody.

51:39and Barley was the head of European operations at the time and he just happened to be in town. And he frankly said to me, for the money that I would spend to be in Paris where they don't buy my vehicles anyway, they buy Fords in Germany but not France, I could afford to fly everybody I want into an event and have money left over. So, you know, car companies were thinking of that, then COVID hit and now we have very nice consumer shows but it's just not the way car companies want to launch products to the media. It also has something to do with how the media has changed, too. Well, that's true.

52:13It was all about getting free media at these big events. Now the media landscape is so splintered. Well, you know, I think the car companies also learned from tech companies. It used to be we would go to an auto show. I would know once a year, at the very least, I would get a sit-down with one of the CEOs. I can't tell you the last time I had any kind of sit-down interview with the CEO. they realize Tim Cook doesn't talk to people one-on-one unless it's 60 Minutes or somebody big like that. So why should I? But I do have Chrysler to thank for getting my only interview with 50 Cent. That would be pity.

52:50Fity. Yeah. So it was a Chrysler 300 intro. But I mean, it's interesting what you said. I mean, so for people who don't know this, I mean, you are arguably the preeminent automotive radio reporter. That's what happens when you're the only one. But I mean, the point is that everybody knows who you are in this industry. For sure. And I mean, and you do national stuff as well. So it's not just the Detroit market that you cover. But it doesn't matter to them anymore. They don't really get anything out of it. And I think somewhere along the road, they realized that there was no ROI for them on having a CEO sit down and do interviews with 20 or 30 journalists at an auto show.

53:37It's just, you know, not anything they do anymore. I mean, there's some one-offs. Last year, Antonio Filosa made himself very available. Mary Barra has gotten to the point where she is extremely unavailable. And early on, she was very available. and Farley is kind of come and go. They still like to be on the cover of Business Week. I can tell you that. And that's where they appear. They appear on Business Week, on Bloomberg, CNBC, things of that nature, where the things the investors watch. Right. Yep, it does move the stock. Well, I mean, you know, speaking of... Oh, yeah, and Farley likes Fox.

54:14He's on Fox a lot for some reason. Love hate, yeah. Yeah, love hate, but I, you know... You can get into a trap as he did earlier this year. But you start seeing him on there. Yeah. Yeah. Trying to speak to their. So what trap did he get in? Well, he went on Fox on their morning show and he was very hawkish on keeping the Chinese out. And then like literally three or four days later, he walked that back as obviously Ford also wants to do business with the Chinese. And he sounded like he basically was characterizing them almost or could be taken as they are the enemy. Meanwhile, they have that deal with CATL and they just did another deal with Chile.

54:58That plant in Spain. He talks about how he wants to learn from the Chinese and all that kind of stuff. He walked it back. Fox deals in black and white and no gray. He got caught in that trap. Do you think that five years from now, Ford will be very close with Chinese companies, not just in your... Yes. Didn't even have to finish the question. Yeah, absolutely. I think the Geely deal is a harbinger of things to come because it's not just utilizing an undercapacitized plant in Spain. It's also a product development deal. And I think we're going to see more of that because everybody wants to figure out how to develop cars on China time.

55:45and Ford sees the quickest way to do that is aligning with the Chinese partner. And Geely was, that's who they sold Volvo to 15 years ago. So they had a longstanding relationship. Geely's a pretty evolved and Western oriented Chinese automaker, if you will, because of their brands and the deals they've done.

56:09Gary Vasilash: Not government owned. Right, not government owned. So they say never, never, never. but I think they could do a deal with Geely in the United States or anybody, but they have the relationship with Geely. Do you think Ford's plant in Louisville more than anything else is a learning lab on trying to do what the Chinese do and trying to find their own way to do it? Well, it certainly will have no ROI. I mean, they may say it will, but it will not have the ROI it has as an SUV plant. I know they have math that shows the escape had fallen so far, or whatever, but you can't make EVs profitably in the United States right now.

56:46So yes, the answer to your question is yes. That's the whole BYD fighter. They want to have a project, the UEV project, that focuses on how they can compete against the Chinese, which is not a bad concept. It just can be costly.

57:03Gary Vasilash: Okay, but it's necessary. It's completely and totally necessary. Totally necessary. This is the kind of investment that you have to make. And by the way, what they're really doing is copying Tesla because the Chinese have copied Tesla. And all Tesla did was bring a Silicon Valley mindset to how you should design, engineer and manufacture cars. And so I think this is absolutely necessary. I'm surprised that so far GM and Stellantis haven't announced anything close to this. I think they'll be forced to. And no, I commend Ford a lot on this project. I think it'll be profitable, maybe not as profitable as the escape was.

57:46But so what?

57:48Gary Vasilash: I mean, to me, the future is electric. And if you don't figure out how to do it now, you're going to be screwed. Totally. And so that's a good play. I think the returns will come slowly. But getting back to this relationship with Julie, I mean, is it conceivable in five years vehicles that were designed and engineered by Geely in China could be made in the United States in Ford plants and badged as Ford vehicles. Of course, let's remember Geely has a plant in South Carolina. We call it a Volvo plant, but it is a Geely plant. They're a wholly owned brand of Geely. So they're already here. I know that we have these 100 % tariffs on Chinese made EVs, but the door is cracked already and it's going to open.

58:38Gary Vasilash: I don't think we'll see G-ly designed vehicles being made in Ford plants in the United States. I don't think we're going to see that. We will see it in Spain. We already know that's going to happen. It could happen in other areas of Europe too within Ford. Stellantis is doing the same thing with Leap Motor. I think if there's a need it could happen. If you have the same situation that they have with Valencia in Spain, underutilized plant, and they're trying to get it above water financially. See, but the thing I wonder about is, you know, we all concentrate on, you know, the, as established earlier, currently irrelevant electric vehicles in terms of the market, right?

59:22Right. Okay. There's tremendous capacity in China for internal combustion engines. They're still building lots of cars that have gasoline put in them that they're driving around in China. I mean, everybody in China is not driving an electric vehicle. Okay, so get back to Ford. We talked earlier about how the traditional domestics have big vehicles. Ford wants a small vehicle. Geely has small vehicles that are powered by gasoline. So they've designed it. They've engineered it. So Ford says, how do we quickly get one? we'll take it from them. You mean like the deal they're doing with Renault? But that's just the European thing, right?

1:00:07Gary Vasilash: Volkswagen, they're still doing with Volkswagen. Yeah, that's a dangerous trap. That solves short-term problems. If you don't figure out how to do this yourself internally, kiss your ass goodbye. Because if you start depending on Geely or Chang 'an or Leap Motor in the case of Stellantis or any of the other legacies working with Chinese automakers, you're toast if you don't figure out how to do it you're toast you're handing your future to them but i think to jeff's jeff's term i think the gili deal is a learning lab and they're going to see how they can develop a car with gili and no kind of like the reverse of what chinese companies did to american brands in china 20 years ago oh it is totally the yeah that's it turnabout is fair play So explain that a little bit.

1:01:00Okay, well, I've been to China once. I know you've been several times. It was 2002, and back then the conventional wisdom is, hey, the Americans are opening up China. This is going to be a big market for our vehicles. Of course, they all had to have a Chinese partner there. And, you know, for the first few years, GM did great guns in China, kept the company alive during the 08-09 period. Well, over the years, their Chinese partners learned, and now American brands are not selling the same in China as they once did. The Chinese competitors have learned. They've got their home market, and now they're exporting.

1:01:39But they had a lot of learnings. Remember when people would laugh at the Teletubby mobiles that were Chinese vehicles brought into the Detroit Auto Show in 2009, 2010? Nobody's laughing at those Chinese vehicles today. Well, I think the Chinese market also is more like the U.S. market. They do like large cars in China, just like we do. So that differentiates. Pickup trucks are starting to catch on. Right. And so that differentiates them from, say, the Japanese market. They're a different kind of Asian market because, like the United States, they're a very large country. They like big things. But they're also a market where the government can tell consumers what to do versus the U.S.

1:02:21market where consumers rule and are often very fickle. Right. And if you want that ICE vehicle that you were mentioning a moment ago, you'll pay$10 ,000 for that license plate. Yeah. Instead of free for an EV license plate. Right.

1:02:33Gary Vasilash: And that's how the Chinese government gets people to buy what they want. They don't tell them, buy this. They just make it very so attractive to do so. Right. Absolutely. But, again, I think, you know, the middle ground here is China has pioneered something that I think GM invented, the extended range electric vehicle. and that's the car that they could bring over here because you can put that in a large form factor and it works and it's efficient i don't know if it's going to be 40 miles to the gallon in a suburban but it's still going to be a hell of a lot better than what we have now and it would meet the market need of large and you could drive for long distances on electricity only and before he left, I talked to Doug Field at Ford about what will, is, is a hybrid a transition vehicle or is it a destination?

1:03:24And he felt with E-Revs, people only drive around in a car where you go in a hundred or 120 miles on electricity only for so long before they say, why the hell am I taking this car to get the oil changed every six months when the engine never turns on? Why am I doing all this maintenance for the ICE engine that I'm towing around and not using? Why don't I just go all electric? That was his view. What's he doing now? He is, I think, a professor, is he not?

1:03:54Gary Vasilash: Hey, look, we're going to have to wrap it up. We've come past the top of the hour, but Keith Naughton, great to have you on the show. Thanks for having me, Jeff. Yeah, Jeff, great to have you back here. And Gary, we'll do it again next week. We will. I want to thank all of you for having tuned in. Auto Line After Hours is brought to you by Alex Partners. When it really matters. Bridgestone Tires. solutions for your journey and by BorgWarner. The automotive industry continues to evolve and so do the opportunities to define it. BorgWarner, one of the world's most admired companies, gets partners where they need to go.

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