AAH #810 - Tires Are A Key Part of Vehicle Development

0:00AutoLine After Hours is brought to you by Alex Partners. For more than 40 years, we have helped companies and their stakeholders around the world harness opportunity, overcome challenges, and achieve outsized outcomes. Alex Partners, when it really matters. And by Bridgestone Tires, solutions for your journey.

0:24Gary Vasilash: Hey everybody, thanks for joining us on AutoLine After Hours. Gary, good to see you. Good to see you, John. I was gone last week. I was gone last week. I'm back here now, though. So all's good. Here you are. Yeah, right. We've got to let everybody know our special guest today is David Coletti. He's the president of Consumer and OE Tires for Bridgestone here in the Americas. David, welcome to the show. Thanks for your sponsorship, too, by the way. That's what keeps us going here. And we got Sean McElroy joining us as well. Yeah, good to be here. So, David, I got to ask you first before we begin.

0:55So you have a degree from Santa Clara University. Why are you not in Silicon Valley right now? I like cars. It's pretty simple. My son's actually at Santa Clara right now following my footsteps. But I grew up on the West Coast, love the West Coast, and then I wanted to be in the car industry. so I've been in the midwest ever since I graduated from Santa Clara and I've just addicted to cars

1:26Gary Vasilash: and tires and we're going to get into that but let's talk the business side then we'll get into some more of the fun stuff but uh what's your outlook right I mean automakers have to buy tires it doesn't matter if it's a plug-in an ice a bev or what a you know small car big they gotta sell they gotta buy tires so where do you see things going right now yeah I think the industry is fairly stable in terms of overall volume. The mix is changing a lot. A couple years ago, everyone was talking about all EV, and now it's like no EV. So the mix is changing. The price of vehicles are going up. So that's a concern.

2:08But a lot of the, I think the OEs and a lot of the suppliers are focused on cost. Because the EV bets didn't pay off, the China threat, all that stuff, it seems to be the big focus now is cost. What can we do collectively as an industry to reduce cost? And not as much about technology. Technology was a big thing, I'd say, five years ago. EVs, we have to have all this new gadgets and everything, but affordability is an issue for vehicles. And the OEs want margin, so it's like how do we take cost out of the system? And I think a lot of us as suppliers are seeing that there's a lot of cost pressure on the supply base that take cost.

2:52So in terms of tires, I mean, you use a lot of natural rubber and we have no natural rubber in the United States. You've got to import this. Imports mean tariffs. You know, other constituents that go into making a tire are largely imported, maybe the steel for the belts or what have you. How are you guys dealing with that? Some of it's exempt, actually, because natural rubber, you can't get here. We have an exemption on that, so that's not tariffed, but steel is. Chemicals are. But some of the stuff we get here locally in the U.S., we have a lot of production in the U.S. So some of the stuff, except for natural rubber, we can actually source from the U.S.

3:34So the exposure to tariffs for us is less because we're not importing full tires. Most of our tires are made in the U.S. And some of the materials that we can actually source in the U.S., we will. What about recycling? Can you recycle old tires and get new materials that way? That is an interesting conversation with end-of-life. What do you do with tires? And most of them go in the landfills or they get chopped up to actually take apart a tire through paralysis and decomposition a tire. It's very difficult. And we had some investments in it, I'd say, five years ago, three to five years ago. But it's expensive.

4:22And who's going to pay for it?

4:25Gary Vasilash: So what can you do to take out costs? You described the ecosystem. So you're looking beyond just cutting the prices of your tires and eating into your margin or giving it away? Or is there things that you can do to design cost, Alan? I mean, a lot of it's fixed because of the production in the U.S. You have massive plants, overhead in the plants. So it's hard to move the cost around a lot. When you look at original equipment tires, how can we be more efficient with the design and development? So there's some cost there. instead of building and testing everything, can you do stuff virtually? So you're not building and testing as many iterations as we have in the past.

5:12And then are there lighter materials, less expensive materials to put in the tires? So there's focus around that. Taking weight out of the tire is taking cost out usually unless you're doing light weighting with expensive materials. But if you have less rubber, you have less materials, you have less material cost. But what can we do about taking material out and making thinner, lighter tires that still meet the requirements of the OE? Instead of taking cost out, what about adding value to a tire in terms of like technology, especially connected technology? That was a big focus. I'd say, again, three to five years ago, there was how do we add value to the tire?

6:00connected tires sensors and tires connecting it to the vehicle more my experience is the most of the oe customers are not interested in that right now they have plenty of technology they've invested a lot in technology now it's how do we take the cost out with the technology that we have so i don't see adding more value it's maintaining the value and taking cost out so kind of going the other way because we went the opposite direction for the last five years and I just see us kind of like okay we like the technology and the value that's being offered now give it to us for less cost yeah yeah always right so so Bridgestone I think maybe uniquely among tire manufacturers you guys actually own a rubber plantation in Liberia which which provides 10 % of all the rubber that you guys use comes from there.

6:58I mean, does that give you a distinct competitive advantage in the market because you're able to have your own rubber without having a middleman marking it up? I think it also de-risks us from supply disruptions, being vertically integrated and having our own source of materials. I'd say it's more from a resilient standpoint ensuring supply maybe not as much from a cost standpoint Hey we've got a question from a guest Robert Foster here he's asking what you think about the new tire regulations in California Well first explain what it is So about maybe two months ago, California released a law that the tires have to have a certain fuel efficiency or efficiency, essentially maintaining the same efficiency that came on the vehicle.

8:02So when you replace the tires, California wants a minimum threshold for efficiency. And the first stage comes in 2029, and then 2033 is the second stage. So they step it in. And there's penalties for the tire dealers if they sell a tire that doesn't meet that minimum requirement.

8:28We're not against it, and I think the technology that we have, we put in the tires, we're not that concerned about it. But how do you make sure that it's being enforced? not just in California, but kind of globally. Bridgestone as a company, we follow the letter of law, you know, very much about following all the rules and regulations and we don't take shortcuts. So there's a rule we're going to follow it. It's how do you, you know, make sure everyone else follows it. You know, what are the penalties if you don't follow it? And I think that's the bigger concern is how is it going to be regulated and what are the penalties for not meeting the standard is probably the bigger issue.

9:10I don't think we're concerned about meeting the requirements. It is interesting that California puts that minimum requirement for efficiency when the government's changing CAFE for vehicles. So California is saying we have to maintain fuel efficiency as a car was produced, but then the new cars are going to have a lower requirement that they're going to have to meet. What's the metric that California is using? So the efficiency of the tire to begin with, and then five years later, you replace a tire. They want the same efficiency. What is rolling resistance? There's a standard test. It's an ISO test that they have selected.

9:53And all the tires will be graded on that test with a certain efficiency. It's rolling resistance. but they don't call it rolling resistance. They call it fuel efficiency because most consumers are like, what's rolling resistance? But they'll have a, there's a requirement to say, okay, these tires have this certain level of rolling resistance or fuel efficiency. And if you can't meet that, that tire can't be sold in California. And the tires will be labeled. You know, I think the number, the first stage, it has to be a nine and then it goes down to a seven. And if you're at a 10 above it, you're not allowed to sell that tire.

10:29if it was tested on that ISO test. So there'll be labels and gradings for tires. The tire dealer will have to be able to know if it doesn't meet the requirement, are they allowed to sell it or not. And then there's supposedly penalties for the tire dealer if they sell a tire that doesn't meet the requirement. So how do you regulate that and make sure that all the tire dealers are following that and all the tires are graded? So would Bridgestone have to measure all of its tires and then put the sticker on it? We would, yep. But you probably measure rolling resistance anyway. Yep. And in Europe, there's already labels on tires in terms of what they are for what grip and rolling resistance.

11:13So California is similar to Europe, not exactly the same. They're trying to put regulations on the tires and grade the tires. and the tire manufacturer would be on the hook to make sure the tires were graded. Is there any indication of what this may do to price of these California spec tires? I think the expectation is in California, the consumer will save money at the gas pump because they'll have more efficient tires, but they're going to be paying more for the tire up front because, you know, as we were just talking about, technology is not free. Right. So to have a fuel-efficient tire that still is safe in the wet and the dry and gives reasonable wear, you know, it's going to take some technology to make sure that the tire meets all that.

12:06Okay, but somebody buys a new car and it comes with a set of tires, your tires or anybody else's tires, and they buy this car in California. So whatever the number is on that tire is the number, right? It's less than 10. So now they have to replace the tire. If they replace a tire that comes from a manufacturer that has a sticker that's below 10, everybody wins, right? I mean, it isn't a penalty to the tire dealer. It isn't a penalty to the consumer. It isn't a penalty to anyone. So I don't understand why it would be more costly because the tire to begin with was X and the later tire has to be X.

12:53You have to look at the whole market of the tires. So if they buy a car in California and they have the OE tire on it and they go back to the OE tire, one, typically the OE tire is more expensive than the cheapest replacement tire you can buy. Because of the technology that's in it. Which is good for me because I want to sell more of my OE tires. But from a consumer standpoint, if they buy a car, it has the OE tires. They can be safe by going back to the OE tire. But if they wanted to save some money and go with a cheaper brand, some of that is being taken out of their hands because that cheaper brand probably will not meet the fuel efficiency requirement.

13:40So they're forced to go with the more expensive tire or the OE tire. And that's where the cost comes in because there's a lot of lower tier competition that's coming in. That's why I'm okay with the standard because selling more of my tires are great. And we have the technology, but in terms of the consumer, it's taking some of what their options are off the table because they can't go in and say, hey, I want a$50 tire. I don't care about rolling resistance. I just want it to last.

14:11Gary Vasilash: They'd buy it off the back of a truck somewhere. Right. So is this that big of a problem that's got to be addressed? Is there a significant drop-off in fuel efficiency going with a decent replacement tire, maybe not quite to OE grade? Clearly, California thinks so. they estimated billions of dollars of savings for the consumers in California so they did some math to say yes it's worth it it's just more regulation I again from our perspective Bridgestone's perspective I don't think it's going to be a problem for us but from a consumer standpoint I think consumers are like I have less choice now was that the rationalization in Europe fuel efficiency or was it something else?

14:55I think it's more because they have more than just fuel efficiency they also have wet grip so they have a a minimum threshold more from making sure all the tires in europe are safe so they have a wet grading as well see does this apply to like snow tires as well i'm thinking you know there's parts of california where you got to go drive in the snow obviously i mean no so there are some exceptions okay cool and i think it's the loopholes that people will be concerned about because no tires or winter tires are exempt. Competition tires, thankfully, are exempt. There's certain truck tires that are exempt.

15:36And then if you sell less than 15 ,000 of a certain article, so you don't sell very many if it's less than 15 ,000, those are exempt. So that's like a loophole. Maybe it's you create five different articles for essentially the same tire. And so I think some of the importers will try and find the loopholes and say, well, tire A and tire B aren't exactly the same, even though when you look at them, they're like, they look the same, but they have different labels on them or they have different part numbers that we put on them. So there are some loopholes, but I think for the general public, the general public is going to go into a tire store.

16:18The tire dealer is going to say, I can't sell you a tire that you wanted yesterday because it doesn't meet the requirements. You have to buy from this list of five tires now. Or, you know, there's clearly loopholes and people will find their way around it. But for the general public, the general public is not going to be searching for loopholes. They're going to go to a tire dealer and just ask for, OK, I need a new tire for my car. Yeah. Honestly, have you ever gone to a tire dealer and the guy wants to sell you the lowest price tire?

16:50Gary Vasilash: never hey you mentioned competition tires what do you see going on in the industry in the sense that excuse me the performance vehicles that are coming out now are astonishing and in the performance that they deliver and we're seeing so much heavy duty off-road stuff going on and the public's just or at least the you know the performance oriented public is just eating this stuff up Yeah, it's a great time to be in the industry. You know, I think with all the high horsepower cars that are coming out and all the high horsepower trucks that are coming out, street versions of the trucks that are coming back, there was off-road versions for the last several years.

17:33I think it's a good time to be a car guy. It's the golden age, I'd say. The golden age of performance. It just doesn't seem to be endless. you know, still amazed on a thousand horsepower car that's street legal, um, that's coming out in, you know, 2025, 2026, you think back to the seventies and that was the heyday for muscle cars. It's like, we might now be in the heyday for muscle.

18:02Gary Vasilash: I think we are. And you know what, not only are you getting thousand horsepower cars and everything like that, they meet all the emission standards and that's what you know is so impressive to me the engineering that's gone into that yes everything you know the cars and the tires that are on those cars and the performance you can get out of the whole system is is amazing that they meet all the safety requirements that are needed to sell a car in the u.s um you know and the competition tires there's more variance I would say, of the cars. I think as car companies are trying to eat into the aftermarket and find margins, there's opportunities there to come up with special additions and put special tires on them or special brake packages.

18:51Because the consumers, even though people have maybe said car guys are kind of dying off, our kids aren't going to want to drive, there's still a lot of people that are really interested in cars.

19:02Gary Vasilash: And in fact, a younger generation that wants manual transmissions too. I'm talking not all of them, but there's a lot of young people totally into cars. Absolutely. I know, you know, and I live with one. So I think that, you know, it's just a great time to be in the car industry and having special edition cars gives margins to the car companies and allows us to have specially neat packages. And I'm proud of the Bridgestone race tires that we have available and gives consumers options. And they seem to really like it. We got to throw this in here. Bridgestone's just become the official tire partner of the Sports Car Club of America.

19:48Gary Vasilash: And I just saw the announcement you guys are going to be supplying tires for Formula E. Yep. Yep. Yeah. I mean, we have a long history in motorsport, 60 years. Our new CEO in Japan is a huge car guy. He races. He's done endurance racing, amateur stuff like what we do. So he's a big car guy. And we want to get back into motorsports. So Formula E, FIA, that was a big announcement that came out today. Racing will start later this year. And then SCCA, Sports Car Club of America. Grassroots Motorsports. Got a great product there. a lot of excitement around the product, and it helps build the brand, right?

20:32The Bridgestone brand, performance. So wherever we can place that to get our name out there a little bit more, people know us for selling OE tires and being a big tire company, but really be more performance because we are performance. So both of those announcements help kind of build that performance brand. So I was looking at your LinkedIn profile, and I saw pictures, One Lap of America. Did you participate? I did. Talk to us about that. Yeah, I mean.

21:02Gary Vasilash: See, which I love. Here's the president, right? And the president's, what? You had to take a week or whatever. A week off, yeah. So One Lap of America has been going on for 40 years. It was kind of a bucket list item for me, a dream item I wanted to do going back to probably 20 years ago when a lot of my friends in the industry were doing it. And I always wanted to do it. And so Bridgestone basically called me. Actually, I was in the office, and they came down and saw me and said, Hey, David, we got an opportunity for one lap of America. And before they could even ask, I was like, let's go. It's a great adventure driving around America, an American muscle car.

21:49What did you drive? We had a Cadillac CTS-V that GM was nice enough to loan to us. We did it as a Bridgestone team. Kind of did it as a promotion of the new RE71RZ, which we were launching, and a lot of competitors were using it. We were using it, and it was just fantastic to be representing Bridgestone with a product that we could be very proud of. that performed very well, and driving an American muscle car around the United States, going to a different racetrack every day, and doing three laps of the track, packing up and going to another track, it was unbelievable. A great experience. I would do it again.

22:39It was a lot of fun. It's hard, you know, 3 ,500 miles in a week, driving six to eight hours to a track at night. it's grueling but man it was so much fun so how many drivers, I mean is it just you in the car or did you have a teammate we did it as a two car team and we partnered with Savage Geese so I was with Jack from Savage Geese we were in a car together and then Mark was another car from Savage Geese with Chris and you can only have essentially, you have to have two people in the car and you share some of the driving duty. Basically, it's just you and another guy sitting in a car for six or eight hours going to a racetrack every day.

23:25As a car guy, it's awesome, right? Because I don't mind driving to a racetrack and I love driving around a racetrack. I think some people would be like, man, that's terrible. I would never want to do that. For me, I'm like, let's go.

23:38Gary Vasilash: Bring it on. Let's go. So the question everyone listening is going to want to know, how did you do? We did pretty well. Totally stock car. GM gave it to us. We put our tires on it, and that was it. I mean, didn't have race brakes on it. We didn't do anything quick with the suspension, nothing with the power, just a stock car. We ended up finishing second in our class, which was better than we expected. For your first time out, that's pretty damn good. And against modified cars. So the other cars in the class had aero and power and different brakes and modified suspension. We were totally stock.

24:22I'm always proud, especially when I borrow people's cars, is I didn't crash. right so i've been driving other people's cars for 20 years and i never want to be the guy to put a car on the wall so the biggest success for both of us was we did not want to bring that car back to gm in pieces so that was really that was how we we wanted to make sure because you never know what's going to happen i was at road america and when we were at road america i think three cars went into a wall whoa and um so it's a little daunting you're going to fast racetracks

24:54Gary Vasilash: That little kink, that right-hand kink. Brakes fail. Yeah. So even turn one, you go into turn one and brake fade, pedal goes to the floor, and you just go off. So, you know, GM's cars were fantastic. We had no issues with the cars at all. But the success was coming back in one piece, and then it's like, okay, how do we finish? Well, I'm sure with that many miles, too, you've got to worry about breaking down while you're going from one place to another, too. Yeah, we... We were all concerned about that. Like, let's make sure we have a spare tire and jacks and tools and all this stuff. And these new cars, getting back to what we were talking about earlier, they're so good.

25:36We had no issues. We totally overprepared. We could have just bought our helmets and our driver suits. Well, that's a good thing. I mean, yeah, that's not bad. So you didn't have to change tires? You're not allowed to change tires. you have to do the whole week with all the events, all the road miles, all the track miles with the same set of tires. You can bring a spare if you like hit a pothole and you have to demonstrate to the organizers that you hit a pothole, you destroyed the tire, and you didn't just burn it up on the racetrack, but you're not allowed to change the tires for track wear.

26:13So that's another thing is like there were some tires during that event that didn't make it. They wore out. And if you wear out, you basically get disqualified because you can't change the tire. And again, I was very proud of our tires and the cars that we had no issues with the tires, no issues with the cars. And the cars, I think, are amazing today. But 20 years ago, people used to break down all the time. Yeah.

26:41Gary Vasilash: You don't just do the one lap of America, though. You do a lot of autocrossing, racing, and the like. In fact, you were at the SCCA Nationals for autocrossing this year. Yep. I've been going since 2016 to SCCA Solo Nationals in Lincoln, Nebraska. It's the largest grassroots motorsports competition in the U.S. There's 1 ,400 people there. Spend basically a week in Lincoln, Nebraska with your 1 ,400 closest friends. But, you know, I'm a tire guy and a car guy every weekend. Usually I'll see John on the weekends, not this year. But, I mean, I probably race almost every weekend from April to October.

27:28It's just ingrained in me. I just like the cars and the tires, and I just continuously do it. See, I love it because, you know, I love it when I come across executives

27:41Gary Vasilash: in the automotive industry who are not just car gearheads, but are racers too. Not a whole lot of them. There is a whole subset of executives who do race, however, but so many people in the industry just don't take it to that degree. I love finding the ones who want to get out there and compete. Yeah, I do. I mean, I do a lot from I work on my cars. I trailer my cars to the track. I mount my own tires. I drive. I mean, so it's not just, I don't just show up and drive a car. I prep the car. I do everything on the car. So self-sufficient, which I've been in the industry for quite a while. And it makes me understand more about how things work, how cars get put together.

28:30I think I've learned a lot about tires by mounting them and balancing them myself. Like I understand what the difficulties are that tire shop will go through in terms of mounting a tire or trying to balance it. So little things like that, that you can't get in a PowerPoint presentation, if you're actually doing it yourself, you figure out, okay, this is a problem for the customer. If we had something like that, or it was hard to work on or hard to mount or hard to balance or whatever case may be. I just like getting my hands dirty. Yeah. So, so what is the one thing that surprises you that most consumers don't know about tires?

29:09I think they, I mean, I'm an observer of tires because I think it's interesting. I think they take them for granted in terms of what they do. One, safety, right? It gets you from point A to point B. And as I was talking about for one lap, you're not worrying about, am I going to make it? Right? So I think that just taking for granted the safety aspect of the tires, that your car is riding on four tires. People don't always inflate them. It amazes me that I'll be driving around and you can see a tire severely under inflated. It might have 10 PSI instead of 30 PSI and the car is still driving. I'm like, it's amazing that that tire is not blown up and the car is sitting on the side of the road.

30:01But I think just taking for granted how much safety and how much engineering goes into the tire that consumers don't, they just take it for granted that they can get from point A to point B and not have to worry about their tires. That's probably the big thing. You can get on nuances about, you know, did I stop three feet shorter? Did I get a couple miles per gallon? But it's really the safety aspect and the fact that you got from point A to point B and the tires didn't let you down.

30:33Gary Vasilash: Hey, look, we got to take a quick commercial break right here and give a shout out to our sponsors. Thank you again, David. We'll go to that and come back and talk a lot more about what's going on in the automotive industry. We act. We grow. We transform. We protect. We rescue. In moments that define the future, we are the partner you can trust. Alex Partners, when it really matters.

31:04Knowing that a little rain won't slow down your day.

31:07Gary Vasilash: That's what really matters. Bridgestone Toronza Quiet Track Tires. Confident control in wet conditions.

31:17Gary Vasilash: All right, we're back talking about all things automotive. But Gary, I think, has got a question to stump us. All right. So on October 1st, 1908, the first Model T was produced at the Piquet Avenue plant. Right. Yeah. So October 1st, 1908. Now, something significant also happened across town, as it were, on October 1st, 1908. What was it? Across, how far across town? I'm putting this for those of you who are listening to this I'm using air quotes when I'm saying across town yeah so it had something to do with some other company oh man some other company did something that day that's significant same day the Model T came out that's amazing so well the same day the first one was produced from that plant I'm just oh you guys will know I mean So that's the day Chevrolet was formed.

32:23Well, you're pretty close, John. It's the same day William Durant acquired Buick for General Motors. What are the odds? Yeah. Everyone's shaking their heads. So Buick was in Flint at the time, so it wasn't exactly across town.

32:45Gary Vasilash: But still, yeah, very interesting that they would both happen the same day. Of course, there was a lot happening back then in this town. There's a lot happening now. Right. So, I mean, I think some of the big news that came out this week, and David, I'd love to get some of your input on this, too, is NHTSA changing the fuel economy standards, corporate average fuel economy standards, lowering what they're going to be versus the Biden administration. But the other big thing I think is reclassifying what really constitutes a truck versus a car. So right now in the U.S. market, 70 % of all the vehicles being sold right now are officially classified as trucks.

33:28Gary Vasilash: But so many of them include crossovers and minivans. And the new Nitzreggs are going to flip that to where 70 % of the vehicles being sold are going to be cars. and they actually have to meet a higher fuel economy standard. Gary, what do you think? All right. So basically, you know, so the name of the program is, we should mention it, Freedom Means Affordable Cars. So that's how this is being positioned. And part of the positioning was, is that it will save$1 ,300 for the cost of a new vehicle, which, you know, part of that is, well, the companies won't have to do the EV compliance anymore, So they'll save a boatload of money by doing that.

34:12But then this reclassification of crossovers as passenger cars, and the third one is credit trading will go away. So people won't have to buy credits as they used to for emissions. But this middle one of reclassifying crossovers, so the point is that the money will be saved because there won't need to be an elevated ride height for a crossover. There will not need to be optional all-wheel drive for a crossover. there will not need to be roof rails nor will there need to be tow prep reinforcements so you know you look at that and you say well you know if you're buying a crossover chances are you want to ride a higher ride high right and people sort of like all-wheel drive even if they don't need all-wheel drive they still buy it anyway right because it's all drive um people like, you know, SUV styling, which of course is predicated on things like, oh, I don't know, roof rails.

35:09So I don't see how any of this is, this is actually going to be necessarily beneficial because these things aren't going to go away. And if they don't go away, then we don't get this reduction in more affordable cars. Let me make another prediction. Prices will not come down. Right. I think it's almost feels almost more like cost avoidance than cost down. Correct. Totally. Right. That's what it is. It's not going to take cost out of cars. I don't. It doesn't feel that way. I mean, I think getting to 50 miles per gallon, there was concern about how much investment would be needed in the technology to get there.

35:53If that investment's not needed, you just don't do it. And it's cost avoidance. You're not actually decontenting a car. Maybe some of the OEs will take some stuff out. Will the cost to consumers come down? What we buy a car for? It doesn't feel like that. It feels like maybe they'll take content out because they're trying to save costs just like we talked about earlier. I just don't know if it's passed on to the end consumer, though. It doesn't feel like it.

36:24Gary Vasilash: Right. No, I think we will just not see the cost of cars go up faster because they don't have to meet the Biden administration level of regulation. Well, according to the Department of Transportation, it wasn't the Biden administration. It was the Biden Buttigieg administration. So this is from their press release. This is a quote. Quote, the Biden-Buttege administration previously broke the law by setting standards that went far beyond the requirements mandated by Congress, all to artificially juice supply for electric vehicles that American consumers didn't ask for. Okay. So it sounds like, oh, my God, these guys, they broke the law.

37:06No, they didn't. There was no court that's ever said this was illegal. No judicial finding of illegality. No federal judge ever vacated the rule. No inspector general report ever came out and said there's wrongdoing. The GAO didn't come out and say that there was some problem statutory. And no congressional committee ever came out and said it was illegal. Yeah.

37:26Gary Vasilash: Well, it may not have been illegal. But look, I mean, these standards were damn near impossible to me. They assumed that EV sales with plug-in hybrids would have to account for 62 % of all vehicles sold by 2031. That ain't going to happen. I mean, in no scenario is that going to happen in the American market. And so to me, this was maybe a Ponzi scheme isn't the right word to describe it. But the government set standards that were literally technologically and market driven wise impossible to achieve and then said, by the way, we're going to fine you billions of dollars when you don't achieve them.

38:07And to me, this was just like if you want to keep an auto industry that is a jobs generator,

38:14Gary Vasilash: this is a way of going about destroying it with that don't you think that vehicle classification was kind of wonky anyway yes automakers were probably almost incentivized to almost do that but like no they were incentivized they were gaming they were gaming the system but yeah but i mean don't you think it's stupid that a pt cruiser was technically considered a pickup truck like i mean so i think there's instances like you shouldn't be able to do that like i mean a pt Cruiser is not a truck. It was based off a neon platform, if I'm not mistaken. So, right. Well, you know, a little history. So if you go back to the 1970s, which is when Congress mandated these fuel economy standards, a truck was a truck.

38:55Gary Vasilash: I mean, contractors and fleets use them. You went to the construction site, you towed your lawn equipment. And then, you know, starting in the late 70s, Detroit started adding nicer colors to their pickups. They put in nicer their interiors, they put in better sounds. And, man, the public just went crazy for them. And then the rules came in, the fuel economy rules, and Detroit especially was like, oh, trucks are much easier to meet. And, by the way, we can make more money on them. And it just took off from there. So, okay, playing devil's advocate here. Now, so according to the DOT, that the regulation now is written will reduce manufacturers' average cost per vehicle to comply by$1 ,300.

39:47Gary Vasilash: I'd like to see how they come to that number. Well, I mean, because it's cost avoidance, not taking cost out of these cars. They say it's going to reduce the cost. So here's a question. what if we just get rid of airbags and seatbelts and reinforcements for safety purposes? Because that will save$2 ,400 per vehicle. So it's basically a grand more in terms of savings. I think you got to start pitching this idea to the government, Gary. You got something going on here, I think. You know, the other, I mean, the other thing is that they're going to say it's going to, It's going to save the American people$138 billion over the next five years.

40:34Well, that's probably spent. This is predicated on buying new cars that are safer. And then if you look at what the insurance companies have as what it costs for a fatality, what it costs for a given, that's the$138 billion. It makes it sound like, hey, we're going to be rolling in dough here because it's going to be all those money's going to be coming back and the car company's going to be like,

40:57Gary Vasilash: whoo-hoo, 138 billion. I think one important point that has not been made in the media whatsoever on this is that the fuel economy of cars is not going to go down. In fact, the new regulations still push the industry to improve every single year. One percent. They just don't have to improve as much as the Biden administration rules were forcing them to do. They wanted 2%. Well, that depended. There was certain years it was 2%. This year it was 10%. I think next year it's 8%. So there was a big ramp up that they now get to avoid. But the point is, is that the industry will still continue to build vehicles that will get cleaner every year, more fuel efficient every year.

41:45Gary Vasilash: They're just not going to try to do it at the rate that the old regs did. But as I've said before, the old regs were not achievable. The industry was just going to end up paying billions of dollars to the government. So this sort of goes back to our discussion before about, you know, the high performance vehicles that are coming out. You know, so last week I was driving a Ram TRX, you know, 770 horsepower, which I thought was rather amusing. Speaking of tires that you'd had a tire mounted in the bed, but I guess it's an off-road vehicle. So you just, you want that just in case. And so I suspect when the Rumblebee comes out, which is the street version, it won't have a tire back there.

42:23But, you know, isn't it sort of ironic that this is all happening? You know, they're saying, oh, you can have high-performance engines, and oh, by the way, the cost of gasoline is nothing but high, even worse for diesel. this just seems like odd timing that that people will not be rushing out to buy things that don't have good fuel economy because they realize that you know weekly you're paying a penalty if you

42:53Gary Vasilash: buy something the general public you're absolutely right the general public is going to look at the fuel economy sticker and go boom i want the one with the highest number for the performance crowd That's not an issue. I mean, do they like playing five bucks a gallon or six? No, no. Is that going to stop them from buying the Rumblebee? Not at all. In fact, what do we see? We saw released today. The Rumblebee allocation for this year sold out in 90 minutes. For the 5.7 liter, right? For the 5.7 liter, right. And in fact, I think they're sold out their allocation through March of next year. So, you know, for the performance people, they want that performance.

43:33Gary Vasilash: And if they got to peel off another couple of 20s to fill the tank, whatever. Well, and I wonder about truck buyers, too. You know, you say they look at the sticker and they want, you know, whatever is the best. But we know from Ram that they have the Hurricane engine in their 1500 pickup. And it wasn't selling that great. So they brought the V8 back. Worst fuel economy, lower towing, I think. Less power. uh the hemi weighs more than the hurricane has less power than the hurricane has less fuel economy than the hurricane costs 1 700 more and they can't build hemis fast right it's a lot to go it's what the customer wants exactly so so having driven that 1500 with a hurricane in it the difference is this the hemi sounds one hell of a lot it sounds like a truck it sounds right I mean, I mean, and it feels right, too.

44:28So the high output Hurricane, I mean, it's a good engine. Oh, yeah. But the thing of it is, is that depending on what speed you're driving at, the engine note is variable. And some of that variation is not good. And it seems to me that the Hemi, like across the whole band, sounds good. You know, what we're talking about here is that a lot of car buyers are emotional. And car companies know that, and they're playing on that emotion. The fuel economy is for the unemotional person, the average consumer that it's not a car's an appliance. But we're talking about on the fringes here, especially a TRX or high horsepower cars, those are emotional purchases.

45:17And people, when something sounds good, that's emotional, right? That's playing on the emotions of it makes me feel better. which I think, again, is more on the fringes. The high-performance vehicles are a niche, and that's why you can make them. They're not destroying your cafe because it's not the average, right? The TRX owner is not the average truck buyer. He's the extreme truck buyer.

45:42Gary Vasilash: And by the way, he's probably, or is she possible? They're not using it for everyday commuting. And they don't care about fuel efficiency. Right. No. Right. Yeah. So, Gary, what do you think of the news that Hyundai is on track to outsell, the Hyundai group, on track to outsell Ford in the U.S. market? Well, okay, so we've got to first point out the Hyundai group also includes Kia and Genesis. So it's just not Hyundai. But then when we talk about Ford, those numbers include Lincoln as well. So it's not exactly apples to apples. But, I mean, Kia, as we've said on the show many times before, I mean, it is growing immensely.

46:25And it's just, you know, getting some really, really sweet gains out there.

46:28Gary Vasilash: In fact, they've outsold Hyundai in certain months. Yeah. And look, if you look at their portfolio, it's got something, you know, from inexpensive, you know, the, you know, Hyundai Venue, you know, low cost crossover vehicle, you know, all the way up in ranks to, you know, the, you know, Ioniq 9. I mean, you know, expensive but inexpensive three-row EV. I mean, so... Not only that, every powertrain you could want in between. Right. Yeah, so they've got hybrids, they've got plug-in hybrids, they've got electric. They've even got hydrogen. Yeah, and importantly in the U.S. here, they have hybrid right now.

47:19Right. And have a number of models that have hybrid. And I want to say Kia has five hybrid models. Yeah. And then you look at the Ford portfolio. I mean, they've basically been trimming it down. I mean, and so, you know, this gets back to the average consumer. The average consumer wants choice. You know, the average consumer wants to go to a dealership and say, you know, I want a car. You know, I mean, and I will sell them an Elantra or they'll sell them a Sonata. Or they'll sell them a what, a Mustang? Hmm. Not so sure that the average person's. all that interested. So it doesn't surprise me.

47:57Now, you know, those numbers came from Cox Automotive and Cox said they are not sure that they're going to, you know, beat them for the year. They'll beat them for the quarter, but maybe not for the year. You know, there's something to be said for the F-Series. Yeah, I was going to mention that, you know, the aluminum fire at Novalis really hurt production. It seems like there's been reports this week of production being down of the F-150 again. So I have a feeling that is probably playing a large part of this.

48:25Gary Vasilash: I think Farley came out this week and said that the latest production disruptions of the F-150 are definitely going to hurt third quarter sales. See, I think what's perhaps even more interesting than the numbers is the fact of Hyundai announcing they're going to spend half a billion dollars in Montgomery, Alabama to increase their capability in that plant to build more hybrids. Man, I mean, that's a big commitment. I mean, that whole group has been kind of marching along for years, slowly, I think, and maybe underneath people's radar. They've been gaining market share. They do very well with reliability, dependability scores.

49:12They win awards, and they're just slowly creeping in with choice. They got two major brands, kind of the third with Genesis. They cover the full range from luxury with Genesis to kind of the Kia or entry level. And they're investing in the U.S. I mean, I think maybe six months or a year ago, they announced a billion-dollar investment. Now it's another$500 million. I mean, they're coming and I don't see them going away anytime soon. And they're definitely a threat, I think, for some of the American car companies because they're going to be here to stay. And we just had a report recently on AutoLine Daily of the van partnership between Hyundai and GM that could potentially require another plant in the U.S.

49:59Gary Vasilash: right the other thing that i find fascinating about hyundai and kia especially kia is there's no family resemblance across their model line you know companies like bmw you got to have that that double kidney grill uh you know other brands throughout the market you know the the feeling feeling is that you have to have a family resemblance a ford should look like a ford a should look like a Toyota. Hyundai, Kia, they don't care. They just go out for designs that they want, you know, to be head turning designs. And there's some similarities here and there, but it's not the family resemblance that you see in others.

50:39Gary Vasilash: They're just going for, you know, rifle shots of design that's going to get people run into the showrooms. I'd especially agree in China with the new vehicles that they have coming out in China, look nothing like they have in the rest of the globe but i would disagree about genesis genesis has a very strong no that's a good point and that may be important for a luxury brand going back to your bmw point well the look the big problem that i think genesis faces right now has nothing to do with the product i think their products are terrific i think the design is terrific it's name recognition you know we get to test drive these cars and and it invariably happy somebody i'll be driving a genesis somebody will come up and go wow that's a beautiful vehicle what is that and i'll go it's a genesis and they'll go what's a genesis not they just don't know it not only that i've had multiple people tell me what's this new bentley that i see because the winged logo looks similar to a bentley and i didn't know bentley's got into like you know everyday more everyday type vehicles and it's like no no no that's not and even though genesis is the upholstery like Bentley.

51:46It's not a bad thing, though. Like my dad said, it's not the product. It takes a long time to make a brand. Genesis has been around not even for a decade. It was Hyundai Genesis for a while, and now they've spun off Genesis as its own brand. You think about Lincoln, you think about Cadillac, you think about BMW, you think about Audi. They've been around for decades. Genesis has maybe been around for a decade. I think, again, man, they're in for the long haul. They're just chipping away. And, okay, not everybody knows them now, but what's it going to be like in 20 years? You know, I think it's going to be more common that people are going to know that brand.

52:28And the product is good. It looks good. And they're just building the foundation slowly,

52:34Gary Vasilash: getting market share. Right. The next step that they have to take, and they're taking it, is they need more standalone Genesis stores. There's still some pairing with the Hyundai stores. And I don't think you can appeal to a premium buyer that has to walk into a Hyundai store or next door to a Hyundai store even. But yeah, the product and the design is not the issue. So I've got racing enthusiasts here, so I've got to ask a question. So there's some controversy in the Formula One world, specifically in terms of Cadillac, which I should still point out has got zero points, but I won't go too far there.

53:22But apparently there's concern because, you know, right now their operations are in Silverstone in England, which is sort of like the Silicon Valley of Formula One racing. but they're building a facility in Indianapolis and they're building a, uh, another, um, a powertrain facility in Charlotte, North Carolina. Now, my reading is, is that some of the people who are long-term formula one people are like, no, that's that they shouldn't be doing that. So what do you guys think? I mean, Is it appropriate for them to have things here in the U.S. when the center of gravity for Formula One is in Europe?

54:12I think that's a challenge. I think we've seen this before, haven't we? I mean, we've seen U.S. F1 teams try to set up shop here in the U.S. And they don't seem to work. I mean, Formula One is a European kind of based series. Yes, it's become global, but kind of the core has been in Europe, whether it's in England. And you have it's kind of like for me, it's kind of like Detroit. Right. I mean, people ask, like, why do you live in Detroit and why are the car companies there? Because of all these people. Right. I mean, you can't transport hundreds of thousands of people that just have tribal knowledge of the automotive industry for decades.

54:59and just say, well, we're going to move the Motor City to California. It just doesn't work. So when you have maybe tens of thousands of people that have Formula One tribal knowledge in the UK, you can't just move all those people. You can move some of them. It's just kind of the center. And I think I feel like we've seen it before where we've tried to set up shops in the U.S. for Formula One teams. and those teams decades ago, they just didn't work. Maybe GM can do something different, and they got a lot of money, and they got really invested in it, and I hope they're successful. I think it's difficult to be outside of Europe, though.

55:42That's my take.

55:43Gary Vasilash: Yeah, I think it's going to depend on what the U.S. operations do versus they're going to keep the Silverstone operation. They've invested immensely in there. I mean, some of the pictures I've seen of it, it's a really impressive facility. So if they do engine development work here and maybe chassis development work here, but run the team out of England, maybe that could work. The disappointment for me with Cadillac this year is it has shown zero gains on the field this season. I'm sure the team has gotten better and faster, but relative to the field, they're still three seconds a lap slower, which they were at the beginning of the season.

56:32Gary Vasilash: And when you look at an Audi that came in, now Audi bought an existing team, right? They had the Sauber team. They didn't start from scratch like Cadillac has. but I look when Cadillac announced it I said look it's going to take three seasons before this team is competitive where it's consistently scoring points I'm not even talking about winning I'm just saying scoring points regularly it's three seasons but I thought we'd see a little bit better progress and I think they did too because they fired the team principal and hired a new guy to come in so I mean but don't you think that this this whole thing is a distraction for these guys I mean, this is causing roiling within the F1 community in terms of what they're doing by setting up the shop here.

57:17And they don't need that, right? They need to be laser focused on whatever it is they need to be winning.

57:25Gary Vasilash: Right. Well, number one, I mean, the whole Formula One circus is chock full of primadonnas that are always complaining about something. So it's why you joined the circus, John. You want to be a part of that. All right. I'm going to switch quickly here to another thing, and this is sort of in your space. This is going to be a long quote here. Quote, rally is also where our cars are pushed the hardest. A circuit is built to be repeated, Formula One, but a rally stage is different every time. Surfaces change, grip drops in a matter of meters, and blind crests hide what comes next. The driver has to read the road, trust the car, and respond in an instant.

58:04Not everyone wants that. Some want an appliance that fades in the background. Ford has a different ambition. We are done building boring cars and we refuse to build toasters on wheels. We will build vehicles for people who want to be part of the experience, who enjoy a road that changes, a corner that opens up, and a car with a soul to respond as they drive it. We guarantee to deliver on that promise. We are putting our engineering to the ultimate test. Today, we are officially announcing that Ford is returning to the FIA World Championship as a full factory team starting in 2028. Now, that was not Jim Farley.

58:43That was Jim Bombeck, who is the president of Ford of Europe. So, he's saying that it's not a circuit. It's all about rally racing for vehicles. What do you guys make of that? I don't know. So, well,

59:02Gary Vasilash: number one, David, I think you would agree with me. That's kind of like autocrossing. Every time you race, it's a different layout. And that's one thing that appeals to me about autocrossing is there's no such thing as going out and practicing. There's no such thing as warming up and getting in a groove. When they tell you to go, you go like a bat out of hell. And that's the same thing that Bombeck's talking about there in rally. Every stage is different. And so, you know, now they do a lot of site prep and the like, so it's not quite like it. But to me, it's very interesting. Ford's in Formula One.

59:39Gary Vasilash: Ford's going back for the hypercar category for the overall Le Mans win. They're getting into rallying again, which they've been very heavily involved in in the past. And as a motorsports fan, I love seeing them getting into all these categories and going full bore with it. And I know, Gary, where you stand, that maybe that money is better spent elsewhere. But I'm selfish. As a motorsports fan, I love to see this. Yeah, me too. The thing that surprised me was we are done building boring cars. Okay, so you're admitting you've been building boring cars. And we refuse to build toasters on wheels.

1:00:18What was the company that Ford people used to describe as building toasters on wheels? Toyota. Right. So I happened to look at that. Toyota has won six manufacturer's titles in a row in the FIA World Rally Championship. And it has won 10 overall since it's been in it, tied with Lancia. So Lancia left at the end of 1992. It's come back, but it's in the WRC2 class, not the one class. So I think he ought to be a little concerned about it. There's a little bit about throwing shade at Toyota at this point, since they seem to be kicking ass in the series.

1:01:03Gary Vasilash: Well, I don't know that he's singling Toyota out specifically, but I think there's an opportunity for automakers right now. Because, look, the major markets of the world are not growing. They have not grown since somewhere around 2017. So how do you grow your company if your market's not growing? and, you know, number one, you got to protect the market share that you got. How do you claw new market share? All the white spaces have been taken pretty much. You got to come out with cars and trucks and vans that people go, oh, my God, I got to have that. And I think that's what Bombeck's talking about.

1:01:43Gary Vasilash: We're not going to do nice cars that pass the customer clinics. And no, you got to go for the edges, the extremes. That's where you can grow. I mean, that's what, that's what Atlantis is doing with Rumblebee, right? I mean, they made plenty of trucks. Let's try and go to the street trucks again. It's the same thing with Ford, with the GTD. I mean, who needs a$500 ,000 Mustang, but it's like these small niches to try and grow the brand is just doing toasters on wheels. There's only so much margin there. How can we have a unique product and get into a smaller space and have some margin? And that's what I think motorsports is building a brand, kind of like we're trying to build a brand in motorsports and getting some enthusiasm for consumers to go into these other spots because the market is so saturated.

1:02:36I can keep going.

1:02:38Gary Vasilash: Well, actually, we burned up our hours. So save it for next week. We'll get to that then. But David Coletti, thanks so much for coming on the show. Sean, thanks for riding shotgun on it. Gary, love all the questions that you bring along. And thanks to all of you for having tuned in. AutoLine After Hours is brought to you by Alex Partners. For more than 40 years, we have helped companies and their stakeholders around the world harness opportunity, overcome challenges, and achieve outsized outcomes. Alex Partners, when it really matters. And by Bridgestone Tires, solutions for your journey. Thank you.