December 7, 2023

We’ve been telling you that the United Auto Workers’ contract negotiations are worth keeping an eye on this time because this union’s leadership has a different vibe than previous generations, which were kept “fat, dumb and happy” by their own ineffectiveness and outright corruption. Now, that showdown is finally heating up, and the UAW’s current president didn’t hide his feelings about Stellantis’ latest offer.

We have that story for today’s morning roundup, plus some good news for Honda, (additional) good news for Rivian and a fascinating scoop about how Volvo’s new EX30 dodges stiff tariffs on cars from China. Let’s hit it.

Into The Trash

Jeep Grand Wagoneer L 2023 1600 01
Photo: Jeep

UAW President Shawn Fain is proving to be a labor leader much more in the vein of Sara Nelson or, someone more militant than Detroit’s seen in decades. Under his leadership the UAW is arguing for a lot—retiree health care benefits, big pay increases, cost-of-living adjustments and the elimination of the hated two-tier wage system are just some of them.

Throw It In The Trash

The UAW is still early in contract negotiations, starting with Stellantis. And after seeing its early proposal, Fain got himself on Facebook Live and shot a video throwing the proposal into a trash can. Yeah, this is a very different approach than the $37,500 pen guys from years past. Here’s a recap from Reuters:

During the chat Fain tossed a copy of the Stellantis proposal in a waste basket. “That’s where it belongs – in the trash – because that’s what it is,” he said.

The July 27 company document seen by Reuters makes many proposals aimed at reducing absenteeism, which the automaker said cost it more than 16,000 vehicles of lost production, or $217 million in lost revenue.

Stellantis also seeks to cut pension, health-care and other costs, saying that amid government electric vehicle rules, it “is imperative we find ways to reduce the overall fixed cost structure of our business.”

The UAW is asking a lot from the automakers this time, arguing that their record profits haven’t been reflected in U.S. manufacturing jobs or wages that have risen with the drastic inflation we’ve seen in recent years. They’re also trying to fight for a future where an EV-centric auto industry could mean fewer jobs, period, as those cars don’t use as many parts or components as internal-combustion ones do. Furthermore, they’re mad that these new joint-venture battery plants may not be unionized.

The automakers, on the other hand, argue they need to conserve cash for the big (and initially likely unprofitable) investments into EVs. And the executives say overall, it’s a “bad time” to be asking for things given the precarious state of the auto industry post-pandemic and all the drastic changes coming soon.

Either way, these kinds of displays are increasingly common amid a summer of labor fights in Hollywood, Detroit and beyond. Stellantis and the UAW are still early in talks and they have many more rounds to go.

Meanwhile, Reuters also reports that President Biden’s top labor advisor is stepping down. Interesting timing for that given everything else going on lately, no?

How Volvo Beats The China Tariffs

Ex30 Selects
EX30 Selects

Everybody loves that electric Volvo EX30, huh? Even I’ll admit I’ve considered throwing down a deposit for such a good-looking EV that starts at around just $35,000. That price is especially aggressive considering the EX30 is built in China and exported here, which means it faces a 27.5% tariff. I recently asked Volvo how it pulled off that price and their people just insisted the tariffs are baked into the price tag. That’s impressive, even with the EX30’s other cost-cutting moves.

Now we know a lot more thanks to a great scoop from Automotive News‘ Urvaksh Karkaria: it turns out Volvo’s using a rare and obscure rule (loophole?) to offset the tariff. From that story:

By using the U.S. Duty Drawback program, the Geely-affiliated automakers can recoup import duties and the 25 percent U.S. tariff assessed on the Chinese-made Volvo EX30 crossover and Polestar 2 sedan against exports of the U.S.-made Volvo EX90 and Polestar 3 crossovers, sources familiar with the matter told Automotive News.

The Duty Drawback program allows businesses to claim a refund on duties and U.S. tariffs on imports from China when offset by certain exports in the same tariff classification, said Jedd Lancaster, sales manager with customs broker Alliance Drawback Services.

“Drawback is a little-known tariff mitigation strategy,” Lancaster said. “It’s very niche within trade compliance.”

Automakers with U.S. manufacturing that create export opportunities can recoup import duties paid on vehicles in the past five years, Lancaster said.

“That can result in tens of millions of dollars returning to the company’s bottom line,” he said.

I had never heard of this program before and I don’t think a lot of other folks have. But it seems that if you export a certain amount of goods (and Volvo builds a ton of cars in South Carolina) you can use that to offset your import tariffs. Automotive News reports General Motors does this too for its China-built Buick Envision; the Polestar 2 and upcoming Polestar 3 will make use of it as well.

It turns out Duty Drawback is pretty old-school; it dates back to 1789 (!!!) but was revised and modernized in 2016. As that story notes, the Japanese and German automakers have never had to use it because our tariffs on their exports are comparatively lower.

The story says Volvo and Polestar need to step up U.S. production of the EX90 and Polestar 3, respectively, to keep this scheme going. More than that, I wonder if the U.S. will clamp down on this eventually because it flies in the face of efforts to localize our battery and EV supply chain:

Bill Russo, CEO of advisory firm Automobility Limited, which is based in Shanghai, said the Duty Drawback program offers a way for Chinese-affiliated automakers to “bridge the moat” of U.S. import tariffs.

“Geely owns Volvo, and Geely is trying to find a way across the moat,” Russo said. “China finds a way.”

Industry analyst Michael Dunne said the drawback program threatens to “throw the doors open” to imported Chinese-made vehicles by creating an end run around the tariff.

Both the Trump and Biden administrations “have been crystal clear that Chinese imports are non-grata here in the U.S.,” said Dunne, CEO of ZoZo Go, a consultancy specializing in Asian car markets. “It’s a complete setback for everything the United States is trying to do to build up its own EV industry and battery supply chain.”

Either way, very clever, Volvo. Very clever indeed.

Honda: Doing Better, Thanks For Asking

01 2023 Honda Accord
Photo: Honda

Matt has a story coming soon about how the pandemic and chip shortage impacted car prices and trim levels over the last few years. Of all the major automakers, Honda was one of the worst-hit by the supply chain disruptions and it took a beating on profits as a result.

Now, Honda’s finally reporting Q1 profits (weird, I know) and they were up 78% year-over-year, thanks especially to the North American market and a weaker yen—which always benefits Japanese companies with big global operations. One more via Reuters:

Japan’s second-biggest automaker by sales said its operating profit totalled 394.4 billion yen ($2.76 billion) in the three months through June, handily beating the average 324.74 billion yen estimate in a poll of 10 analysts by Refinitiv.

That compared with a 222.2 billion yen profit in the same period last year.

Like other automakers, Honda said it benefited from strong sales to retail customers in the key U.S. market, posting a 44.7% year-on-year jump to 347,000 units, as the impact of post-pandemic disruptions in the supply of parts and chips eases.

The bad news? A 5% sales drop in China unlikely to abate soon as that market turns more to EVs and homegrown brands. Can’t be up all the time, I guess.

Rivian: Also Doin’ Better, Won’t Get Into A Price War

2022 Rivian R1t 14
Photo credit: Rivian

It’s always tough out there for the EV startups, but I choose to be optimistic about Rivian, because they’re nice folks who have thus far stayed away from insane Muskian antics while making a very compelling and attractive product.

And Rivian’s Q2 report showed some impressive signs of improvement, according to InsideEVs: it narrowed its net loss compared to Q2 2022, delivered more trucks than analysts thoughts, tripled revenue overall and raised its production projections by 2,000 vehicles by the end of the year. Nicely done, folks.

What Rivian won’t do, CEO RJ Scaringe said, is get into a Tesla- or Ford-esque price-cut war:

“We take a very methodical and thoughtful approach to how we look at our vehicle pricing. As we think about the positioning of the product, the capabilities of the product – on-road, off-road, dynamically – and the feature set that’s in the vehicles, we feel quite comfortable with the positioning of what we’ve done.”

Lucid, arguably the other major startup at Rivian’s level, is cutting prices, however. It’ll be interesting to see if Rivian reverses course here as production gets built up over time.

Your Turn

How do you see this summer’s UAW negotiations shaking out? I doubt the end result will be as apocalyptic as either side likes to say, but I think these workers do stand to win some major gains they may not get again anytime soon.

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