From A Jailed CEO To The End Of The World As We Know It

There were no catastrophes in the auto industry in 2018, but there was plenty of intrigue and change. Here are the top five stories of the year.

Carlos Ghosn’s fall was biggest story of the year for the auto industry.

1. The Fall Of Carlos Ghosn

Carlos Ghosn has been a remarkable CEO doing what many believed was the impossible. Since 1999, he has stood at the helm of both Renault and Nissan, and led the alliance that served as the model for any car company looking for a merger, acquisition, alliance, etc.

His acumen for bridging the cultural gaps between a French carmaker and a Japanese company, and spending a huge amount of time in the air to accomplish it became legendary. In turning around Nissan, former GM product boss and Chrysler President Bob Lutz said Ghosn had “done the impossible.” His reputation in Japan was such that a hero comic book featuring Ghosn was created to help tell the story.

But it all came crashing down in November when he was arrested in Japan, charged with under-reporting his income to avoid taxes, a major offense in Japan. Behind the arrest and charges was a rumbling volcano of resentment gathering steam among Nissan’s executive ranks as well as rank and file employees over Ghosn’s lavish spending, possible redirect of corporate funds for his own benefit and treating Japanese executives like second-class employees.

Ghosn remains in a Japanese detention house, eating a couple of prescribed meals a day and having limited contact with the outside world as Japanese prosecutors build their case. They have a nearly 100% conviction rate on corporate crime. Nissan dismissed Ghosn from its board, as did Mitsubishi, and Renault is making moves to put the Ghosn era in the rearview mirror.

Elon Musk is as unpredictable as Donald Trump. But his base of support may be bigger.

2. The Survival of Elon Musk

Tesla Motors founder and CEO Elon Musk does not remind us so much of Carlos Ghosn as he makes us think of Donald Trump. He has a talent. There is no question about that. He has built a company in a few years on an electric-vehicle-(EV)only business model that has rivaled GM and Ford for market capitalization. He is a visionary who made his fortune on PayPal, and then went on to start a company that is launching rockets into space and become a major partner with NASA.

But he’s also a nut. And, like Trump, he bristles under regulation and oversight, and believes he is the smartest person in any room. In 2018: he smoked marijuana while guesting on a podcast; attempted to save a soccer team trapped in a cavern in Thailand; launched a public campaign of criticism and slander at a rescue diver who criticized Musk’s attempt; teased the possibility of taking Tesla private on Twitter with no regard for SEC regulations on such matters; set up a giant tent to assemble vehicles at its Fremont factory site; succumbed to pressure to put new outside directors on the board.

Tesla’s share price has never been for the faint of heart. It is a day-trader favorite. But as the broader market has whipsawed in the last six months at the hands of Donald Trump’s Twitter rants and tariffs, investors have stuck with Tesla. Six months ago, the company traded at $335. On New Year’s Eve today, it was trading at $327. Ford shares are down 32% in the same period of time.

Say what you will about the speed in which EVs will gain scale with the American car buying public. But Tesla has a brand that is on the radar of every luxury car buyer. And with the Model 3, it is on the shopping list of an increasing number of middle-American car buyers who are interested in a gasoline-free driving future.

GM CEO Mary Barra is trimming sails at the automaker as a hedge against smaller industry sales and Trump tariffs.

3. GM Layoffs

General Motors went through a bankruptcy a decade ago, and trimmed its operations of long-time brands like Pontiac and Saturn that nobody wanted any more. President Obama essentially reorganized GM, and the company has done extremely well since then. So, it was a surprise when GM announced it was cutting some 15% of its workforce and closing plants.

This story ran against the narrative Donald Trump has been selling to his base that his efforts and tariffs on foreign steel, Chinese goods and potentially foreign-built automobiles would make U.S. manufacturing jobs surge.

The truth is that GM and Ford have both hired more people than they need since restructuring a decade ago, especially as we expect industry auto sales to sag by up to 2 million vehicles a year. GM, freed up from onerous retiree healthcare obligations it shed ten years ago, is doing preventive maintenance by cutting jobs, slow-selling models and surplus production.

Ford is gearing up to do the same, though its final numbers for employee cuts won’t be public until spring.

If the U.S. wants to stabilize manufacturing jobs, the best, most effective thing the Congress could do is genuinely reform the damaged, pathetic U.S. healthcare system, and invest properly in infrastructure, including that which will mitigate the coming coastal calamities of climate change. Let us not hold our breath.

Trump tariffs on foreign-made steel have created some steel mill jobs in the U.S., but hurt several other

4. Trade War and Tariffs

Donald Trump, his Commerce Secretary and his so-called trade advisor hatched a strategy of tariffs on steel and aluminum and tore up the North American Free Trade Agreement (only to re-sign it with fairly small incremental changes) as a device to stimulate manufacturing jobs in rustbelt states that voted for Trump in 2016. While some steel mills have, indeed, hired up, there is a net loss of jobs shaping up from the moves. Why? Because tariffs don’t work. The U.S. is part of a global economy. Centuries of commerce have taught us that time, innovation and progress creates “creative destruction” of jobs where jobs are lost in some quarters of the economy, while others are created in a modernizing world.

What the U.S. lacks is policy to create soft landings for people and places that get hammered by the natural flow. Policy is created by lawmakers and Presidents who, among other things, don’t deny the science of climate change. So, here we are.

5. The End Of The World As We Know It

Speaking of climate change. For those who bothered to read it in between Trump tweets, the Intergovernmental Panel on Climate Change issued a report outlining the planet’s demise and the fact that it is happening more quickly than we think. Wildfires, the decimation of bees to pollinate crops, ocean temperatures rising, fish migrating North to colder waters, and so on. The U.S. is currently responding by promoting greater use of coal, freezing auto emission standards and making it easier for mining, oil, chemical and real estate.

Auto companies at least seem wise enough to keep moving on developing electric vehicles and reducing the carbon footprint of vehicles, and improving the fuel economy of a coming generation of crossovers, which are rapidly displacing sedans in consumers’ driveways. They know that this era of head-in-sand policy making probably has a short shelf-life, and they’d rather keep making progress now than play catch-up later.


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