Death of Detroit

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.nytimes.com/2026/07/15/magazine/electric-cars-american-evs.html?emc=edit_ufn_20260802&nl=from-the-times&segment_id=224093

Apologies if this was already posted. My connection is spotty, so I haven’t read everything.

Detroit appears to be making boneheaded decisions that are making it increasingly irrelevant. Can you imagine the impact to our economy if American automakers -for all practical purposes- cease to exist?

They are marketing almost exclusively monster trucks and SUVs. I almost never see an ad for an American sedan. And never for an American EV. If you didn’t market it, how do you expect to generate demand?

In the 70s-80s, Japan was eating Detroit’s lunch. Foreign EVs are likely going to repeat that pattern. Have they learned nothing?

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Different class, different lesson.

The Big 3 were all in for EVs, spending billions of dollars. The growth in US demand didn’t happen as expected; they had to write off some $55 billion.

DB2

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One EV brand did OK in the US, what did the Big 3 do wrong?

GoogleAI:

While Tesla succeeded by capturing nearly half the U.S. EV market with vertically integrated software, dedicated platforms, and direct-to-consumer sales, Detroit’s Big Three (Ford, GM, and Stellantis) struggled due to strategic missteps. [1, 2]

What the Big Three Got Wrong

  • Rushed, Flawed Adaptations: Instead of designing from scratch, they often retrofitted internal combustion engine (ICE) platforms or rushed specialty, high-end niche products (like ultra-expensive heavy trucks) rather than affordable everyday passenger vehicles. [1, 2, 3]
  • Dealer Network Friction: Traditional dealership models frequently hindered the EV buying experience through inflated “market adjustments,” unwanted dealer add-ons, and a lack of salesperson product knowledge or incentive to push electric models over high-margin gas vehicles. [1]
  • Capital Mismanagement: They tried to simultaneously fund massive gasoline truck/SUV production and expensive EV plant overhauls, leading to billions in losses and sudden pullbacks or project cancellations when short-term regulatory and tax-credit incentives shifted. [1, 2, 3, 4, 5]
  • Software and Ecosystem Lag: Unlike their rival, the Big Three lagged in proprietary software integration, over-the-air update infrastructure, and seamless charging ecosystems.

The Captain

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I would debate the use of the words “all in” here as they completely bungled every rollout, they put out product that was only half as good as imports/new start ups, and they tried to build theirs on existing platforms that hamstrung them.

Then you have the Bolts on fire. Then you have the lightning tow scandal. Then you have the reduction in initiatives (that they could have easily lobbied for). Then you have an electric Humvee (what was the POINT?!?!).

That’s off the top of my head. The big three did this to themselves.

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Agreed. Self inflicted. They are writing off, it’s true. But they could have pursued it. I think history will show they should have. Tesla may become the only US automaker at this rate.

I was in a town in Norway. Chargers everywhere, and most vehicles were EVs. I was surprised. Probably 10:1 (not kidding). Then in the Hague, except for trucks and scooters, lots of EVs again. Not 10:1, but maybe 5:1 (from personal observation). Plus lots of bikes, but that’s another topic.

Detroit is driving their own obsolescence. (Pun intended)

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At the same time, there is certainly no shortage of EVs in the US. Despite there being sufficient supply from both US and foreign companies, demand growth has essentially plateaued since 2022.

DB2

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Not so rosy for the Chinese industry at the moment - $230 net profit per sale:

Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers (CAAM), said at a recent automotive industry conference that manufacturers now earn only about $230 in net profit on a vehicle sold for roughly $15,500. That implies a per-vehicle net margin of just 1.5%.

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There is a reason why Tesla pivoted away from an inexpensive model 2. One of the flaws of the traditional automotive market has been to view success in terms breadth of models and then total sales. The more prudent companies are looking at profitability and where to maximize it with capital allocation.

Outside of a minority of consumers in the US, EV’s will continue to have probably limited appeal. The American driving habits are such that the price and limitations as the primary vehicle for most households is not yet worth the tradeoffs.

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There’s no big 3 anymore, one of them is already gone. The small remains of it are not even part of a US-based company anymore.

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The Chinese market space has become saturated.
Big Chinese EV manufacturers are looking overseas for higher margins.
Smaller EV manufacturers will either be absorbed by bigger manufacturers or go bankrupt & fade away.

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Without subsidies they are at the higher end of average for a new vehicle. But we have rising gas prices, which -if history is any indication- will drive people to trade in their ICE vehicles for electric. The perceived limitations of EVs is really false (i.e. there are almost no limitations), which people will realize if they dig a bit. Which rising gas costs will cause many to do.

And who’s positioned to capitalize on this inevitability? Not Detroit. They’ve taken themselves out of the game. They have done a crappy job of marketing, to the point of either incompetence or not really wanting to sell EVs. I suspect it’s the latter.

Dealers especially hate EVs because they make a lot of their money in service. But EVs require almost no service. Wiper blades, tires, shocks, and a few other bits. That’s about it.

Anecdote: when we were shopping for an EV, we tried to look at the Bolt. There were very few available, and the dealers were trying to discourage us. We ended up with an ID4. (German, obviously)

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To be fair, though, that may be the best move for them.

I know, I know - that doesn’t seem like the right answer, if you think that EV’s are inevitable. But the U.S. is one of the worst markets for EV’s, and always will be. Which makes it a poor choice for U.S. automakers to concentrate on those cars.

The reasons are structural, mostly due to two things: low gas prices and low population density. The first is obvious. If gas prices are low, you save less money by switching to an EV. Which means an EV is “worth more” almost anywhere else in the world than the U.S. The global auto parts market isn’t the most free of markets, but it’s free enough that the expensive EV batteries will generally land where they are most ‘profitable’ for both the producer and the consumer - and that’s in places where gas prices are higher rather than where they’re lower.

Low population density leads to a bunch of things that make EV’s a poorer fit for the U.S. We have longer trip lengths and more intercity travel by car. Low population density increases the benefit/reduces the difficulties of having large cars, which is part of why we have such a high consumer preference for larger vehicles (large parking spaces, large houses/less mass transit make hauling things by car more useful, etc.).

That’s why the U.S. is such a bad market for EV’s absent significant government intervention. Once the government intervention went away, for the most part, it’s just now a bad market for EV’s. That’s why Tesla - who no-one can accuse of not being fully committed to the EV side of things - has suffered such sales decline. They’ve fallen from 336,892 units in the first half of 2023 (their peak) to 242,100 units in the first half of this year - a 28% decline in sales, even while global markets are growing.

The U.S. is going to be one of the last countries to really electrify their vehicle fleet, absent a massive government intervention (which is simply not going to happen). It will have some EV’s, to be sure. Enough to possibly continue to support Tesla as a niche domestic supplier, and to attract some imports. But you can’t fit GM or Ford into that size hole. They’re too big and have too much legacy infrastructure. It is very likely that there is no way of making EV’s work for them - they have the misfortune of their industry changing to a product that’s a terrible fit for their domestic market, in an industry where there is considerable effort to prevent foreign competitors from displacing domestic producers of the finished product in other countries.

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Oh yes, and they’re still doing it. With just 18% of US auto sales going to pickups, Ford has practically resigned itself to being a niche company already. Chrysler is functionally dead. And GM is led by people who can’t get out of their own way for making bad cars.

Japan had this problem a half century ago and decided to fix it, even at short term cost. US managers can’t bear to do that, so they don’t. (The only valid argument so far I have heard to cease quarterly reporting.)

The US companies have decided to make functionally worse cars because they can, not because they should. And as their market narrows and narrows, they choose to go “upstream” to preserve what little bit of margin they can rather than FIX THE PROBLEM. It’s been going on for 30 years, no reason to change horses now.

And no, I’m now talking about EVs, although that’s one symptom. (Yes, at the very least they should be playing in that market, if only to learn something about it.) I’m just talking about bad design. Bad management. Bad unions. Bad, bad, bad.

When this has happened in other industries, their government steps in to “rationalize” the industry, i.e. withdrawing support, leaning on banks to stop lending to them, effectively driving half the business, uh, out of business. Then the remaining stronger players have an industry that becomes world class.

We’ve talked too much about “The Innovator’s Dilemma” but it’s very real here. First, Ford & GM are supposedly international companies. Both countries around 30% internationally based, plus or minus. So they are effectively withdrawing from 1/3 of their future customers. Worse, and even if US is a “worse” place for EV’s (I dispute), they’re effectively withdrawing from 1/3 of these (potential) customers too.

They’re moving up to “higher profit” vehicles because they think that’s their only path. And yet somehow the “lower profit” manufacturers are making those lower profits and thriving. Toyota, Hyundai, Honda, Kia, and others are dropping dealerships all over America and the world, while the Ford guy says “Hey, wanna buy a pickup?”

Ask Blockbuster, Kodak, or the entire hard drive industry how that worked out for them. Toyota started out as a low cost, low entry automobile producer, and Nissan used to be called Datsun when they made cars that crumpled like aluminum foil. There’s Xerox, of course, which laughed at the cheaply made Canon copiers, and Sears, which sneered at that old guy from Bentonville. Intel lost the iPhone for years because they thought the production would be too low to cover development costs, not thinking about other uses for such things (and vastly underestimating demand).

I can’t decide if the CEOs of the car giants are just stupid, or really stupid , or are locked in a maze from which there is no exit because of the demands of Wall Street vs the realities of Main Street. Mostly I go with “really stupid”, because I’ve seen the Pontiac Aztec, but maybe that’s just me.

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Two things I want to say. First is correct about ads for sedans and why there is no demand. Many people seem to think American wants large guzzly vehicles and that is why they are made. These people ignore advertising. Those vehicles are aggressively marketed, and that creates demand to a larger extent than most are willing to understand.

Regarding the EV, GM actually does advertise their EVs. I’ve seen them both for Chevy and Cadillac. And frankly they are very good offerings. The biggest problem is they need a refresh. Longer range, faster charging for today’s and tomorrow’s market. But they are roomy, comfortable, and great cars.

People have also mentioned the Big Three dealer network as part of the problem. In 2023 we test drove a Lyric. I loved the car but we were not ready to buy. But the test drive turned us off. The salesperson was completely disengaged about the Lyric, but spoke with much enthusiasm about anything V-Series or Blackwing. It was clear that selling a Lyric was uninteresting. It is a big part of why, a year later, we went with the ZDX instead (and with a much more enthusiastic sales process).

The number one advantage Tesla and Rivian have had is the lack of an existing dealership structure that depends upon service to make money.

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Yes, because those companies have the benefit of having their home markets heavily demand small sedans and non-pickups. They have tons of customers to spread those costs around in their domestic markets. That gives them an enormous advantage in those market segments. Because their primary market has heavy demand for more fuel-efficient or alt-fuel cars, they can economically produce those cars in high volume for their domestic markets and then efficiently service the smaller portion of the US market that demands those cars.

US companies face the opposite. Their domestic market is better suited for different kinds of cars than succeed overseas. They don’t have a big reserve of domestic customers that they can amortize the development and design cost of fuel-efficient or alt-fuel cars over. Their domestic market has low gas prices and low population density, favoring larger cars and less sensitivity to fuel economy.

I think it’s none of the above. They’re locked in a maze with no exit, but not because of the demands of Wall Street vs. the realities of Main Street. The maze has no exist because of the realities of Main Street. Because our Main Street has a gas station that sells fuel at half the price of Europe, tons of full-size parking spaces, little to no mass transit, and is full of big-box stores (including grocery) where people do large volume shopping to take back to their large residences.

We want to believe it’s Wall Street or stupid CEO’s, and not demographics and larger market forces, because you could theoretically fix the problem if it’s just Wall Street or stupid CEO’s. But you can’t fix it if it’s structural. If the reason our domestic auto market looks the way it does is because of factors that are not going to change, then you can’t just solve issues by having domestic manufacturers make better choices.

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They do. People like large vehicles. That’s why the SUV segment in Europe has risen from 1.6 million units in 2012 to 5.4 million units in 2023. Large cars have desirable traits that consumers enjoy. You can see the complete change in European car sales at the link below.

Big cars have downsides as well, most notably having higher operating costs due to lower fuel economy - which is why the European market is still “only” half SUV instead of the 75% SUV/truck share we have in the U.S. But there’s still a ton of organic demand for larger cars rather than smaller ones, up to the constraints of fuel prices and parking sizes and whatnot. So in the U.S., with fewer constraints, that demand for large vehicles results in a market that’s dominated by large vehicles. It’s not just all “artificial” created by big Detroit automakers.

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New cars in the EU by segment - ACEA - European Automobile Manufacturers’ Association

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Not sure I follow you, albaby. The fact that there are so many sedans on the road in the US, most of them made elsewhere, would indicate there is demand for sedans. If Detroit would just service it. Which they don’t. Even before we start talking EVs.

As for EVs, there is almost no downside. Except price, I really can’t think of a single one. Most vehicles go to work and run errands, spending most of their days in parking lots. Range isn’t an issue for 90+% of drivers. It’s like a Fox News talking point that affects a small minority, but is being presented as if it’s a catastrophe for America.

When I commuted, we could go 2 weeks between charges. Hardly an Armageddon problem.

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It’s a small niche, and still declining. Sedans make up less than 15% of the US new light vehicle market (coupes and hatchbacks make up the rest). Light trucks and SUV’s and vans make up about 83% of the market.

That’s completely different from 10 years ago. In 2016, passenger cars (sedans, coupes and hatchbacks) made up 40% of the new vehicle market. Compared to 17% today. The reason there are so many sedans on the road is because people used to buy more sedans than SUV’s. Now, they don’t. So the existing vehicle fleet has a ton of sedans in it, but for the new vehicle fleet - ie. what carmakers sell today - it’s now a niche product.

It’s an artifact of past consumer preferences. Today, the sedan is a small and declining market segment in the U.S.

Price and refueling. People mistakenly think of range anxiety as pertaining mostly to really long road trips. Which it is, a little bit. But it’s mostly whether you’re going to find yourself with less fuel in the tank than you need for the day for a day that isn’t planned out. Because of our geography and demographics, we drive a lot more and a lot longer than people in most other countries. It’s extremely common that someone in the U.S. might travel 60-80 miles (or more) on an ordinary day.

That means we intuitively want big “gas tanks” in our EV’s (which makes the price high), and we are nervous about what happens if we wake up in the morning with less than a quarter tank and find ourselves having to do 80 miles of driving that day. 19% of Americans do as just their routine commute (40 miles each way) every day, and even more will do that once or twice a week. An EV would be a very poor choice for them.

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It’s clear based on the survey data that the bulk of Americans are not considering EV’s and for a variety of reasons.

  1. 76% of Americans buy their vehicles used. This presents some issues in terms of understanding how EV’s were charged and maintained and what future degradation may look like for subsequent owners. That aside, the average price spent on a used vehicle is in the $26 to $30k range. For consumers looking for versatility and size, traditional ICE vehicles provide more options, even if things like long term trips are rare but still a consideration.

  2. American driving habits. First off, there is a mindset that informs purchasing not based on the most frequent use case but a just in case expectation. The average American considers a weekend trip of 5 to 6 hours each way. For long term and less frequent vacations or trips, they may easily consider a 1000 miles roundtrip as perfectly acceptable before deciding to fly. With that, even if most time is spent by a single person in the car. the expectation on average is to comfortably seat 5 with additional capacity for luggage.

  3. The geographical breadth of the US vs Europe, couple with public transportation. Europeans tend to walk, bicycle and then take public transport way more frequently. By some estimates, Americans drive twice as much as many Europeans. Obviously, much of this is driven by the span the US that one can visit and vast distances that offer little in the way of public transport.

  4. Charging times and range limitations and cost. Even new, most of the larger EV’s are priced well above the average ICE offering. With that, range is well below the distance most Americans are willing to go on a single trip. Ultimately, if EV’s can solve these issues, the reasons for ownership are highly compelling. For those that want a vehicle solely for day to day short trips, it makes perfect sense. But, Fox News isn’t influencing EV sales. Consumers are smart enough to figure out what works for them. Survey data on Tesla purchases indicates the political leanings are relatively equally divided amongst, left, independent and right leaning. The actual number one indicated reason for purchasing was performance.

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You won’t find yourself low if you plug in when you’re getting low. Actually, more convenient than a gas station. I can plug my EV in any time. I know our Jeep is low, and I’m going to have to go fill up before I can do anything else. A disincentive to take out our Jeep right now. I can wake up in the morning with a full charge on my EV.

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