German Cars Have The Most To Lose From a Changing Auto Industry

[Adam Varga + 123]

Siemens AG CEO Joe Kaeser warns Germany's carmakers of dire consequences if they fail on electric vehicles: "Manage a electric automobile series jolt adult a industry, or face aroused consequences that fundamentally come with mass unemployment." To supplement to a urgency, German carmakers Volkswagen AG, BMW AG, and Daimler AG are also confronting a fallout from scandals associated to diesel emissions that have led to outrageous fines and a jailing of executives. 

[LAOIL + 33]

Every country has a lot to lose but also a lot to gain. No one knows where the industry will truly head or how fast the switch will occur. I believe that companies that sacrifice a little profit now to develop the tech and capacity will be the winners in the end.

[BlackTortoise + 103]

I think Germany  is ahead and still the best car producers in the world. Volkswagen group sales rose around 10.7 million cars last year keeping Germany ahead of Toyota as the world's largest automaker. VW and BMW already have electric vehicles  on the road. The EVs are their opportunity to gain the trust they lost in emissions scandal. 

[Jan van Eck + 7,558]

1 hour ago, LAOIL said:

Every country has a lot to lose but also a lot to gain. No one knows where the industry will truly head or how fast the switch will occur. I believe that companies that sacrifice a little profit now to develop the tech and capacity will be the winners in the end.

Yup, I agree.  It has always been my goal to set up a plant to produce steam-powered cars, a knock-off of the Stanley Steamer (which, incidentally, could run at 100 mph back in the day, which I recall was a century ago).  some years back a fellow attempted to build a new steam engine, it had the power pistons shaped in a Delta formation, used a flash boiler, but still could not get the start time to below two minutes.  Since nobody could get the instant start you get with gasoline, the project was abandoned.  Yet, you would think that with these ubiquitous key-chain transmitter devises you use to unlock the doors, a sender could be built to start up the boiler while you are sitting toasty warm inside, then the auto is all warmed up (in the cabin and engine) before you trudge out in the snow.  That would be neat!

Such a steam engine caan have an expanded firebox, with an injector capable of multi-fuel, presumably running on farm alcohol, and below that a wood grate and firebox, for the die-hard rural folks who cut and split firewood. Wood is the ultimate product substitution for oil, if you can get it organized. With modern technology, CNC machines, and automated casting lines, a simple steam firebox would be cheap enough to go build.  Cheers.

[Sefko Trafikant + 35]

 I guess we have to wait for 2030 when Germany will be 100% electric

[PaulG + 21]

5 hours ago, BlackTortoise said:

I think Germany  is ahead and still the best car producers in the world. Volkswagen group sales rose around 10.7 million cars last year keeping Germany ahead of Toyota as the world's largest automaker. VW and BMW already have electric vehicles  on the road. The EVs are their opportunity to gain the trust they lost in emissions scandal. 

Audi have already pulled of 24 hour racing to concentrate on Formula E (single seater electric car, motor racing), as have Renault who are last years champions.

Formula E started in the 2014 - 15 season so is now in its 4th year. BMW joined in 2017, Mercedes will join in the 2019-20 season along with Porsche

Edited July 10, 2018 by PaulG

[Jan van Eck + 7,558]

The question arises as to how this market will segment, at least in the next decade.  I predict that the market and adoption of electric cars and buses will be driven by governmental mandates - both the carrot  (subsidies) and the stick  (prohibitions). 

To expand, think of the last time you were sitting in some outdoor or sidewalk cafe in a busy city such as New York.  You are attempting to enjoy a nice meal and all you get are vast wafts of gasoline and diesel fuel fumes.  It becomes somewhere between impossible and unbearable.  Now in the "old days" people put up with it because there were no obvious alternatives.  The introduction of reliable electric cars and buses has changed the dynamics.

I predict that cities will soon start adopting ordinances that prohibit the operation of fuelled vehicles inside certain city boundaries.  The push will come not just from public-health advocates, but from dwellers seeking a better quality of life.  And once that starts, I predict it will be an unstoppable force.  If you take say Manhattan, which is densely populated and also choked with vehicles, it becomes inevitable that restrictions on gasoline/diesel power will be there soon enough.  Since the Metropolitan Transit Authority has trains running a hundred miles out into the countryside, the argument of the necessity of the gasoline auto is not credible. So the imposition of such an ordinance is not one that has push-back that can be supported by rational argument. 

I just don't see people in Iowa buying electric cars, not in any numbers in the short term.  The population is thin enough and the fumes are rapidly dispersed.  Sure, some will, but most folks in the rural areas are not going to spend the premium.  That then pushes the market, through the command system of city politicians, to the cities.  

And besides, just think how pleasant it would be to sit at a cafe on Upper Broadway and have no exhaust anywhere in the air.  Lovely!

[Guillaume Albasini + 851]

5 hours ago, Jan van Eck said:

The question arises as to how this market will segment, at least in the next decade.  I predict that the market and adoption of electric cars and buses will be driven by governmental mandates - both the carrot  (subsidies) and the stick  (prohibitions).

More than subsidies or prohibitions the falling price of EV's will be a determinant factor in EV adoption.

In less than 10 years EV's will be cheaper than ICE's even without subventions.

 

[Jan van Eck + 7,558]

3 minutes ago, mthebold said:

I can think of one, minor exception to this: farm equipment. 

Farm equipment is not cheap; even a small tractor can cost as much as a BMW.  On top of that, farmers typically own fuel tanks and pay a premium to have them filled.  I imagine the cost differential between electric farm equipment and gas farm equipment would be small. Maintenance is also a bigger issue for farm equipment, both in time and cost.  A large-scale farmer would have much to gain from reduced maintenance.  Farms also tend to be in remote locations.  A Texas rancher, for example, might be 45 minutes from the nearest small town, which drives up the cost of parts and fuel. 

 

Kudos!  You are exactly right.  I had not thought of private farm equipment. 

And the additional motivation for farmers is that now John Deere, the oligopolist in heavy farm equipment, is making the electronic software inside their tractors and combines proprietary, and they refuse to let that information out, so a farmer has to tow, or flat-bed, his machine to the dealer at enormous expense to pay a dealer to fix some glitch inside the machine.  This is enormously angering farmers, but Deere does this because it is extra revenue and they can get away from it.  The logical solution for these farmers is to buy tractors from Belarus, but the current political situation makes that unrealistic if not impossible.   Farm equipment is capital intensive to manufacture and thus has high barriers to entry, or else the bad behavior of Deere would already have brought in new entrants.  Thus someone new (the Tesla of farm equipment?) could introduce electric machinery, with direct electric drive, and that GPS positioning system to guide the combine etc, and yet you would end up with automated farming. 

The handicap I foresee is the enormous weight of those machines and the tractive effort required to pull through plowed farm fields, that consumes quite a bit of power.  So you would get into storage problems.  Once past that barrier, then you would be anchors aweigh.  In some of the more parched areas of the West you see these circular sprinklers to put water on the field; if a power cable were run down the spine of the sprinkler machine, could that serve as a power conduit and avoid huge batteries?  Hey, who knows? 

[Jan van Eck + 7,558]

29 minutes ago, mthebold said:

I've read about John Deere locking down electronics.  Has the open-source community gotten involved in this?  They're already leaders in autonomous drone software; I imagine they'd jump at the chance to protect agriculture from big, evil corporations. 

Not really.  Deere has made it impossible to crack.  Some amateurs in isolated cases seem to be having a little success.  What Deere does is invalidate the warranty if you mess with it.  Then Deere decides when they no longer support the software, leaving you with a useless tractor.  In effect, Deere has converted the purchase into nothing more than a rental, and they determine when you need to re-rent from them.  It is a breath-taking arrogance.  Unreal. 

[Jan van Eck + 7,558]

Just now, mthebold said:

So tractors are now leased.  That makes some sense, given how expensive a failure is for an individual farmer.  Not only do the parts cost thousands of dollars, but downtime at the wrong time can ruin crops.  If the manufacturers owned the fleets of tractors outright, farmers could purchase a service.  If your tractor breaks, John Deere brings a new one out to you so you can keep farming while they fix the problem.  That would make more sense than the current system, actually. 

As long as multiple vendors compete in the market, it shouldn't be a problem. 

I think you misunderstood.  Tractors are purchased, not leased.  However, Deere effectively treats them as if they were a "rental," by forcing the purchaser to buy a new one on the Deere-determined schedule, when they refuse to support the software further!  Amazing arrogance.  And they get to keep your capital, that you used to buy the machine, and the machine has no resale value because nobody can fix it.  

[Jan van Eck + 7,558]

1 hour ago, mthebold said:

Ah, I left out some details in my thinking.  My apologies. 

Yes, Deere is treating them as though they're leased while taking the farmer's capital.  They saw an opportunity and took it.  I always look at things in terms of a dynamic market though, and market dynamics suggest this is temporary.  If there's enough demand for better products, competitors will attempt to undercut Deere, and Deere will be forced to change. 

My question is, "Where will the market go next?"  Based on how large-scale farmers operate, tractors as a service could make sense.  I know the guys out on the farms love their independence, but if they can't compete with a business model that outsources, they'll just have to adjust. 

Another question is why tractor software requires support beyond working out the bugs.  Once an embedded system is working, it's working.  You might be able to tweak it, but that effort would be better spent on new products.  That's how it's always been done, so I don't understand the complaints about discontinued support.  What am I missing?

 

To answer your last question, I dunno.  I also do not totally grasp the nature of the Deere conflict with their customers, other than to say that the way Deere sets this up, you have to take the entire machine to the Deere dealer, who might be several hours away, and doing that might require a truck and trailer to haul it, at huge expense, and then you lose use of the machine until someone at the dealership gets around to looking at it and fixing it, assuming the parts are in stock. And no, the software seems to have some bizarre self-destruct in there that causes the machine to stop running at unpredictable intervals, but again I dunno.  Whatever it is, it is seriously angering the farmers. 

When Deere makes the decision to cut off support, then the Farmer has a boat anchor.  And he cannot even sell the machine, as who is going to buy a used machine with no support?  Nobody. Could you rip all the wiring out and start over, make it a hard-wired relay machine  (i.e. no electronics)?  Yes, in theory, but you lose the GPS feature. 

If you are prepared to give up the GPS system for maintaining the furrows, then you could go buy yourself some machine made in Russia, or Belarus, or Kazakhstan, or Ukraine, those would work, they are brute machines with totally analog control systems. YOu lose all the fancy stuff and go back to the 1950's.  It will be more labor-intensive, and if you have to go that route, then you need cheap labor, which in the USA means Guatemalans or Salvadorians. So keep an eye out for the ICE Patrol. 

As to your earlier comment, no I don't think the market is dynamic, and the reason is that the high requirements for bapital bo build machines and distribute them prevent new entrants.  So Deere can abuse its customers and the customers have to put up with it.  Cheers. 

[Jan van Eck + 7,558]

31 minutes ago, mthebold said:

Are there no competitors in the market?

The market for heavy farm machinery is inherently oligopolistic, with high barriers to entry due to the requirements of vast pools of capital.  And although you have these international builders, they are hampered by lack of dealer networks, service abilities, language barriers, US buyer prejudice to anything from say Poland or Ukraine, and import problems including the usual, tariffs.  Oligopolies tend not to compete, rather they become price fixers. 

And I now recall what it was that Deere was doing.  There is this Engine Control Module that does both diagnostics and control, and when there is a part failure or fault, a Code is generated.  It is the Code deciphering machine that is kept under wraps, one of those electronic plug-ins, and no list of the codes is provided, so when the tractor conks out, and you try to figure it out, you cannot access the Codes.  And then when Deere thinks it is time for you to buy another machine from them, it stops access to the codes, so your machine becomes unusable and scrap.

[Guillaume Albasini + 851]

Interestingly the challengers - New Holland and CaseIH - have already introduced autonomous tractors concepts in 2016 ...

http://www.bigag.com/topics/equipment/autonomous-tractors-future-farming/

... but the market leader John Deere seems more reluctant...

https://qz.com/1042343/after-trying-to-build-self-driving-tractors-for-more-than-20-years-john-deere-has-learned-a-hard-truth-about-autonomy/

 

And on how Deere worked with the NASA to improve the use of GPS for self-driving :

https://www.nasa.gov/feature/directorates/spacetech/spinoff/john_deere

 

[Guillaume Albasini + 851]

I've found also this australian review of autonomous tractor developments by the six tractor manufacturers (John Deere, Case New Holland, AGCO, CLAAS, Same Deutz-Fahr and Kubota) :

https://grdc.com.au/resources-and-publications/grdc-update-papers/tab-content/grdc-update-papers/2017/07/developments-in-autonomous-tractors

[Jan van Eck + 7,558]

1 hour ago, Guillaume Albasini said:

Interestingly the challengers - New Holland and CaseIH - have already introduced autonomous tractors concepts in 2016 ...

http://www.bigag.com/topics/equipment/autonomous-tractors-future-farming/

... but the market leader John Deere seems more reluctant...

https://qz.com/1042343/after-trying-to-build-self-driving-tractors-for-more-than-20-years-john-deere-has-learned-a-hard-truth-about-autonomy/

 

Just so that you are aware of it, Case and New Holland brands are the same machine, just different paint.  Both brands are owned by FIAT, which became the majority shareholder of the combined Case and the New Holland Tractor companies about 20 years ago. Don't be fooled by different brand names and paints on the same tractor. 

The US market is a lot more consolidated than the brand names might suggest.  You have Deere as the market leader and the price setter, and FIAT falling in behind with their brands, and farther down the ladder sit the Japanese/Korean players.  The Russians, Poles, Belorussians, and Ukrainians don't make the cut in the USA, although there has been a little market penetration in Canada. 

At one time I wanted to start importing Russian/Belorussian tractors into Canada, it looked like a good opportunity due to good exchange rates and the Russian designs (built under license by Belarus) were plenty sturdy.  But I could not see large-scale market penetration in the face of deeply entrenched existing brands, including Ford Tractor (since combined into New Holland), the Case plant, and the 800-lb gorilla, John Deere. A very difficult market.

Edited July 12, 2018 by Jan van Eck

[Jan van Eck + 7,558]

2 hours ago, mthebold said:

That's a half-explanation though.  There are multiple vendors operating in the US, and they do have pressure to compete with each other.  For example, if there were enough interest, New Holland could offer a better deal than John Deere.  These guys will have to learn negotiation skills though. 

Not really.  Deere remains the market leader, and they are the 800-lb gorilla.  The others are market signal followers.

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As an alternative, farmers could signal to to Deere that this particular behavior is unacceptable, and they'd be willing to abandon their local buying preference if Deere doesn't change.

Farmers have been grumbling about this for years to Deere;  John Deere turns a deaf ear, basically the attitude is, You don't like the way we do business, go get yourself a team of horses and a plow and do it by hand. 

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Another angle of attack is duplicating engine control systems.  Farmers organizations could get together with Tier 1 suppliers, engineering firms, and open-source groups to build replacement control systems.  If the control system is truly too complex to reproduce, then farmers are getting value and shouldn't complain about the terms. 

You get into patent problems and infringement.  The Tier 1 suppliers are not going to risk their businesses on some litigation onslaught from Deere just to sell some product to disgruntled farmers.  Ain't gonna happen. Interesting thought, though.  Would not surprise me if some guerrilla warfare starts up on the Prairies.  Or in Illinois.

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Finally, there are methods of farming that don't require so much expensive equipment.  The ultimate competition to Deere would be developing and adopting methods that cut Deere out of the loop entirely. 

Yup, that is always the ultimate risk to screwing over your customers!

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If none of these options are worth their cost, then the simple fact of the matter is that Deere knows the value of their product, and farmers will have to pay it.  You've mentioned the capital intensity of making farm equipment.  That's not evidence of oligopolistic behavior; it's because a ton of engineering, investment, and expertise goes into these machines, and the machines add value.  Few companies are capable of providing that value.  That's not a tragedy; it's the free market. 

"Traagedy" is a function of whether you are the guy with the busted tractor, or the guy who gets handsomely paid to fix it with the proprietary diagnostic tool.  It has a certain 13-th century Guild exclusiveness to it.

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You make their plight sound awful, but I'm not willing to concede there's a problem when the usual market mechanisms are at play.