Chrysler Dodge Jeep And Especially Ram Are No Longer The Worst In This Key Measure

It’s Friday. It’s also St. Valentine’s Day. This is the time of year when we commemorate the beheading of a 3rd-century Italian priest by giving our loved ones heart-shaped boxes filled with crinkly paper and chocolate. What is my Morning Dump gift to you? A discussion of economics, trade, and how it relates to the broader car market.

What ultimately may have doomed Stellantis CEO Carlos Tavares was not his attitude or his vision. It was the simple fact that his company’s major American brands built a ton of vehicles that few wanted to buy at the price he was selling. For much of the last few years, the CDJR brands were saddled with huge inventory. No more!

I have to talk about the latest Trump tariff threats/promises because, well, I gotta talk about them. Specifically, we need to chat about the idea of Comparative Advantage. Sorry! As a reward, I’ve got a little anecdote about the failed Honda-Nissan merger that’s too funny to pass up.

And, finally, I couldn’t end the week without sharing a touching interview with Ford CEO Jim Farley about his cousin Chris.

Ram Isn’t At The Bottom Anymore!

When I want to know how the auto market looks there’s one chart I always go to. It’s the one above, from Cox Automotive, called the monthly Days’ Supply of Inventory by Brand chart. What it’s showing is each brand and determining how much inventory it has. Cox/vAuto does this by looking at how many cars dealers have and how quickly those cars are selling.

It’s not just as simple as: the left side of the chart is good and the right side of the chart is bad. If a brand has brisk sales but a lot of cars, it might still show a high number. If a brand’s sales are slow, but it doesn’t have a lot of cars, it might be low.

There are two big things that I want to understand when I look at this chart. First, I want to see how tight inventory is nationwide. Are there more cars than buyers? Right now the answer is a big “Yes!” In October of last year, this chart showed the nationwide supply at about 68 days. In general, a healthy number is around 60 days.

That number is currently 96 days. That’s much worse! What’s going on here? Should everyone freak out? Nah. Cox explains why this isn’t that abnormal:

December brought an optimistic end to the year, with consumer sentiment riding high and high-priced vehicles selling like hotcakes. As is common in the new year, consumers slow down; new-vehicle sales in January were down by 25% month over month. Weather disruptions and the general desire to focus on the year ahead leave more buyers on the sidelines, but sales are expected to pick up as tax refund season begins.

The other big thing I want to know is where the brands are on this list and how they’re moving. Here’s a chart from October, modified by me, showing how Stellantis was doing:

All the brands highlighted in red are Stellantis brands. This includes Ram, which was so bad it couldn’t even fit on the chart. Now compare that to the one at the top. You’ll notice that the CDJR brands are starting to get a lot closer to the average (though it helps that the average is also moving toward them). Cox also noticed this:

While these are still heavy in supply compared to the overall industry average of 96, many other brands are carrying more inventory, including Ford, Lincoln, Buick and Hyundai. Lower prices and aggressive sales work have helped bring Stellantis inventory into relatively normal levels.

The end of the LX platform also helps here because, in addition to increased sales, its replacement is only coming online slowly. That’s the other side of this that’s important to consider. If a small brand like Mini, for instance, sends a bunch of new cars to dealers it’ll jolt the numbers higher for a short period of time. If Mini stays high for the whole year, that’s a bad sign.

Let’s Talk About Comparative Advantage

Apologies in advance to anyone who has taken any basic college-level course on free trade or economics, but I’m going to do a quick hitter here on a simple principle of trade. If you’d like, you can skip straight to the comments and inform me about how I’m wrong. I don’t mind! I learn a lot from being wrong.

Specifically, I wanna talk about this guy David Ricardo. He doesn’t get quite the same attention that Adam Smith or, even, his own student J.S. Mill gets. It happens!

For many reasons, people in the late 1700s in Britain went crazy for theories of liberty, governance, and economics. They hadn’t invented The Beatles yet, so this is how they passed the time.

The concept of trade was largely based on the idea of different countries either being really good at something (making silk boxers) or having a lot of stuff (the silk necessary to make silk boxers). It made sense for the country that was good at cultivating silkworms to trade its silk to the country that was good at making silk boxers, in exchange for money or other goods.

What Ricardo wanted to know was, well, what happens if one country is good at making and growing/mining everything? Would it make sense for it to import stuff from anyone else? The answer, though not obvious, is probably “yes.”  This led him to the Theory of Comparative Advantage.

Basically, you may be better at making silk boxers than other people, but if you can make something complicated like a computer, then given limited resources (like workers, for instance) then you’re better off making the thing that makes you the most money. This is the idea of opportunity cost.

I mention all of this because there are only so many people in this country who will be auto workers. It’s a hard job. We might be able to make cars better than other people, but we don’t necessarily want to when some of those people could be making Nvidia chips in Arizona, or pop albums in Los Angeles.

President Trump believes that it’s better to have more reciprocation in trade and, in particular, he hates the idea of a trade deficit. That’s why he has a new plan called the “Fair and Reciprocal Plan.”

The United States is one of the most open economies in the world, yet our trading partners keep their markets closed to our exports. This lack of reciprocity is unfair and contributes to our large and persistent annual trade deficit.

The President is good at naming things. This is a good name. There’s also some truth to what he says. There are a lot of countries that we trade with that take advantage of us in terms of tariffs on various items. For instance, Japan sends us way more cars because it’s more expensive for consumers there to buy our cars. In addition, countries like China do steal our intellectual property.

President Biden saw similar issues and, during his administration, tried to strengthen our supply chains and encourage jobs here by investing in certain industries. That was the carrot. President Trump seems a bit more interested in the stick and wants to impose equal tariffs on everything.

That is, definitely, one way to do it.

Historically, I do not agree with the CATO Institute. It is a conservative/libertarian think tank and, cards on the table, I am none of those things (well, at the rate I’m eating chocolate this week I am becoming more tank-like). Still, this post about why trade deficits aren’t necessarily bad makes a good point:

Simply, it is in everyone’s interest to get the best deal. This applies to both the buyer and the seller who voluntarily engage in an exchange where each feels he is benefiting. If American consumers and businesses end up buying more goods from foreign manufacturers than they sell to foreign consumers, resulting in a trade deficit, so what?

“American citizens and firms deal with partners all over the world,” reports Cato adjunct scholar Daniel Griswold. “There is no rational economic reason why Americans should be expected to sell exactly the same value of goods and services to people in a particular foreign nation than they buy from them.”

Trade deficits or surpluses will always occur and will vary by product and from country to country. Keep in mind, you may buy lots of things from Amazon or Whole Foods yet they never buy anything from you. That’s a huge trade deficit on your end. But it does not matter because both parties benefited. The same economic relationship exists on the international level.

One of the biggest areas this will impact is cars and, particularly, President Trump’s plan calls out the EU, though South Korea is also a big player here. From Bloomberg:

A broad levy on all imported vehicles would have sweeping impacts across the industry. The U.S. imported about 8 million new passenger cars and light trucks last year, with a total value exceeding $240 billion, according to Commerce Department data.

Decades of free trade agreements have helped make North America a hub for automotive manufacturing, with highly integrated supply chains across the continent.

It’s possible all of this is just bluster. It’s just the “art of the deal” and we’ll come to some sort of concessions that make everyone happy, or appear to make everyone happy. I don’t know.

Saying “just balance everything” is a simple idea that sounds instinctively good. But “Keep It Simple Stupid” is a smart mantra that also sounds good yet, within itself, contains an implicit judgment about the person receiving the advice.

Honda Wanted To Call The New Company ‘The Honda Corporation’

I’m starting to think that Honda never wanted this Nissan deal to actually work. While there’s a lot of reporting that indicates Nissan wasn’t exactly a realistic partner, Honda maybe didn’t do Nissan a lot of favors.

From Nikkei Asia:

Nissan Motor executives expressed astonishment and outrage when Honda Motor proposed “Honda Corporation” as the name for the holding company under which the two automakers were to integrate operations. But Honda’s executives dismissed such concerns, noting their belief that the tie-up was not supposed to be an equal merger.

LOLOLOLOL. From a value perspective, Honda appears to have seen the ratio of Honda-to-Nissan at somewhere like 5-to-1 and Nissan, well, Nissan didn’t:

Honda tried to proceed with the negotiations based on this figure, but Nissan criticized that premise, which it believed favored Honda. According to a source close to the talks, however, Honda had never said the merger would be equal.

Give Honda credit for learning the lesson of Daimler Chrysler. If it’s not really a merger of equals, don’t pretend like it is. It never works.

My Cousin, Chris

I was at a Ford event in the Bay Area many years ago and now-CEO Jim Farley was then still somewhat new at the company, having come off a successful stint at Toyota and Scion. Someone at the event mentioned that Jim Farley was the cousin of beloved comedian Chris Farley. Once you see it you can’t not see it.

There was always an implication that they were close, but I can’t remember hearing Jim Farley address it in any detail. That’s why this interview from The Detroit News about the relationship between the two cousins, I think, hits so hard:

“Chris always got in trouble, but it was innocent,” says Jim, who said Chris had a habit of crashing family cars and blaming deer for jumping out at him in the road, even if that was never the case.

“It was very childlike, these ‘live in the moment, let’s have fun’ type-of mannerisms he had. He was always very physical, and he always loved taking over the bar, taking over the family function, taking over the airport if he could.

“He was always performing,” he says. “Always.”

It’s a great read and I don’t have anything to add other than to say: go read it.

What I’m Listening To While Writing TMD

I almost made my daughter late to school today because Aretha Franklin’s “Daydreaming” came on Apple Music as we pulled into her school. You can’t not listen to a full Aretha song when it comes on the radio so we waited together. Those are the rules.

The Big Question

Do you care about the trade deficit?

Top Photo: Stellantis