Automotive Repair News Today

Braxton Critcher [00:00:00]:
So I'm shocked. And by you clicking on this video or this podcast, you are too. And you want to know more, and so do I. So this is Automotive Repair News Today. Thanks for being here. I'm Braxton. He's Praz from Yahoo Finance.

Braxton Critcher [00:00:19]:
Praz, thanks for joining.

Pras Subramanian [00:00:21]:
Hey, man, how you doing?

Braxton Critcher [00:00:23]:
So what are we shocked about? Nissan, Honda, they were going to merge and now they're not. So first of all, I'll say this Praz, and I'll give it to you. But when I first saw the news, I was like, oh, wow, two big automotive powers are going to join here. And I was like, wow, this, this could be a neat, interesting move for the industry. And then the longer it took to get it done, the more skepticism there became around the move. And then suddenly, it's not going to happen. They nixed it. Nissan and Honda are not going to merge.

Braxton Critcher [00:00:57]:
So first you tell me your initial reaction to the merger, and then now your post reaction to it's not going to happen.

Pras Subramanian [00:01:06]:
So I think it was about two months ago when this was announced, and it really shocked me seeing these two giant Japanese icons, Honda and Nissan, merging, joining forces. You know, I think a lot of people in my office were saying, oh, that's interesting. That's a big deal. I'm like, this is a major deal. This is as if Ford and GM merged to very different companies, different cultures coming together to take on the automotive world, where you need size and scale, the ability to share costs to survive, I guess is what the thinking. But, you know, we can get into this over time. We heard a drift drip, drip of bad news about how this merger wasn't going well for various reasons. Then finally we had them actually announced.

Pras Subramanian [00:01:43]:
The two boards announced, we're going to not do this. We're going to end our merger discussions. And then by doing that, by cooperatively doing that, they're not. No breakup fee, right. So they're able to kind of walk away. They did say they, they would sort of partner on some technologies like EV stuff, but nothing compared to an actual merger.

Braxton Critcher [00:02:00]:
So the reporting that I heard, you've been following this story closer than I have, but it was Nissan didn't want to be a subsidiary of Honda. And that's what I've been told is why this happened. Is there more to that? Or is that simply, bottom line, they wanted more control.

Pras Subramanian [00:02:21]:
I think what was happening was that Honda was seeing that Nissan was in pretty bad shape. And so a couple of things. One, they didn't think that Nissan was doing enough Cost cutting is my understanding from various reporting out of Japan. They wanted that to be a bit more extreme and it wasn't happening as fast or as deep as they would have liked. The second thing is that Honda executives are concerned that emerged company will be so large that it couldn't actually be nimble and react to the market, react to the global automotive market. And even Honda's CEO, global CEO said that they thought that this merger wouldn't create a speedy enough company that could react that way. And finally what you said also, apparently when things were breaking down, Honda tried one last ditch way to make it work and said, hey Nissan, you should be our subsidiary and we'll be the corporate owner. And that was not attainable for them.

Pras Subramanian [00:03:08]:
Nissan was saying, hey, we need to be together and have a holding company down. That would show us as both equals. You know, I think Nissan is a little soar from the Renault partnership. Renault is considered the leading partner then and had a very kind of dominant sort of position over them. They did not want that to happen again. So I think that's why that was sort of the way that from the exit was. Hey, Honda was saying be our subsidiary. And Nissan said we can't do that.

Braxton Critcher [00:03:32]:
So who broke up with who?

Pras Subramanian [00:03:35]:
It sounds like to me because Nissan was pretty desperate, right? They, they were seemingly in bad shape. They, they cut their profit forecasts again. They really sort of just kind of fell off the cliff in terms of how bad the China business was. Business in the US not so strong, doing okay, but not so good or not not so great. And then Honda's chugging away, right? They're doing just fine in the US in the alternate home market. And I think what happened was that, you know, Nissan was like, we need to make this, make this happen. And for only Honda to get out of it was saying, hey, you're going to be our subsidiary. And that was just a, that was the one, the one part where Nissan couldn't agree to that one condition.

Pras Subramanian [00:04:11]:
And that's my understanding as to why it broke apart. Nissan really needs a partner is what's happening now.

Braxton Critcher [00:04:17]:
So it was almost like the boyfriend didn't really want to break up with the girlfriend. And so he was like, hey honey, you've got a couple of issues and made it kind of clear. So she ended up breaking up with him, but he wanted to break up with her first, right?

Pras Subramanian [00:04:37]:
Almost saying, hey. The boyfriend saying, hey, I want to, I want to date other people while still, we'll still be together. And then the girlfriend said no, that's not happening. So, you know, maybe that's what happened. That's how we can analyze, analyze it. But you're absolutely right is it seems to be that Honda got a little bit of cold feet because of how, just how, how deep the problems were and they created a way to get out of it. This is just my speculation, my, my thoughts and based on the reporting that we're seeing that how this thing unraveled so, so quickly.

Braxton Critcher [00:05:07]:
Yeah, I mean it makes sense. So obviously the next question is what's next? And we can, we'll talk about each Honda and Nissan, but I think the bigger deal is what happens for Nissan because like you said, the past couple of quarters Nissan's been going way down. And so I mean they, they could really be in trouble here. What, like what do you think is next for them?

Pras Subramanian [00:05:31]:
I think a lot of people, you know, Braxton out of that industry were surprised how bad Nissan, the shape that they had gone into. Right. What do you mean they're in trouble? I see Nissan's on sale, I see the cars everywhere. What's going on? Well, it turns out a lot of their, you know, their products were kind of a little long in the tooth issues selling those older products and they had some new, like new Nissan kicks, new Murano is out, but it's not maybe doing nothing with the needle. A lot of deterioration in China was the big problem is my understanding for Nissan is that they lost a lot of business there and that was a big kind of driver for them. So that's a problem. So what happens next is aside from the fact that they're working with Honda on a partnership for EV and technologies sharing, they need another big partner of cash infusion, something like that. It turns out that there aren't many big partners left that would like to merge Nissan.

Pras Subramanian [00:06:19]:
Right. There's just not that many. It's not an attractive partner. It may be cultural issues with working with a Japanese company, who knows. So now they're looking at do we sell a stake? And that's where potentially Foxconn, which is this Taiwanese device maker that makes iPhones and other things like that, they got into the EV game. They want to make some EVs and they thought, hey, Nissan has 40 something factories. Why don't we have them use their access capacity? So there might be a deal there. It's not going to be a merger.

Pras Subramanian [00:06:43]:
It sounds like it's going to be a sort of a stake away block by Foxconn, give them some cash, who knows what else to kind of make it happen so they can use their Nissan's excess capacity and give them some capital to work with. And the last thing I heard was that is a Bloomberg reporting that kkr, which is a big private equity concern, is kicking the tires, so to speak, of Nissan looking to possibly make an investment there. And apparently KKR has a big Asian business and they've done quite well with investing in Japanese and Asian companies. So that's possibly. But there's no big white knight sort of sitting around like a Hyundai or something like that that's going to come in and swoop in and take Nissan. It just doesn't seem like something happened.

Braxton Critcher [00:07:22]:
So, you know, when this first came out, it was, you know, people were saying Honda, Nissan trying to merge to compete with Toyota. You know, that was the big deal. And so, I mean, Honda is not in the shape of Nissan. Honda is going to be okay. Competing with Toyota is, is just not really possible. It's just hard to do. They're just, they're just Toyota. But.

Braxton Critcher [00:07:46]:
So what do you think is next for Honda? What does this mean for them?

Pras Subramanian [00:07:49]:
So at the time when this merger was announced, you know, it's VW and Honda are the top. I'm sorry, VW and Toyota the top two by, by. By unit sales. Right. Globally. Right. A merger of Honda and Nissan would have created the third biggest by. By unit sales, by size, which would be you have the ability and scale to compete with Toyota.

Pras Subramanian [00:08:10]:
Right now Honda and Nissan are like 8 and 9, right. They're big, but they're not major players. They're not biggest. Hyundai, Kia, vw, not even as big as gm. Right. So it's going to be a struggle for them to compete in a world now where we're seeing, however you feel about it, new powertrain technology is coming. You got to keep developing ICE technology. It's going to cost a lot of money to not only build these powertrains, but also the breadth of products that people want.

Pras Subramanian [00:08:36]:
You talk about those synergies of Honda and Nissan. Nissan has all these body on frame trucks that Honda could use. Right. Meanwhile, Honda has all these hybrid types of technology and very power popular model sets that could work in Nissan's favor too. So you had a good union there potentially. And this is just. This is. I spoke to a guy named Sam Fiorani who works for Auto Forecast Solutions, a manufacturing expert.

Pras Subramanian [00:08:59]:
He said that's where the match is, right? It's those Nissan's body on frame trucks and pickups. And then Tonda with this great Cuv and Sedans, they could just kind of merge and have a great portfolio. So that not happening. What's going to happen to Honda? You know, they had a partner with GM for EVs and that sort of went away. Are they going to kind of strike a deal with someone else to work on some of these technologies? I think that's the future for them. Again, I don't think they're going to be merging anyone anytime soon.

Braxton Critcher [00:09:25]:
So big picture, you know, what, what do you think this means for the industry as a whole?

Pras Subramanian [00:09:34]:
You know, it's, that's, that's, it's tough because first thing that comes to mind is the fact that are we gonna have a shakeout? Right. Are we going to have a major automaker potentially not be around? Not because of a global crisis, but because it's just it this untenable because we haven't even talked about the big sort of gorilla in the room when that's Chinese automakers. Right. You know, they are throwing leaps and bounds in their home market, making cars that are cheap and actually from what I hear, pretty good. They've been kept out of our market. They're, they're sort of coming into Europe and they're, you know, taking some share there. So the question is, if they ever come to the U.S. what's going to happen then? It's gonna be a big shakeout.

Pras Subramanian [00:10:12]:
But the Nissan no longer survive? You know, I don't think so. I think they'll figure it out. They're too big and too important in Japan. I don't think the Japanese government would allow that. But the writing is clearly on the wall, right?

Braxton Critcher [00:10:24]:
Yeah, well, I think, you know, you sort of mentioned things coming to the US And I. The other question is what, what about tariffs? And you know, Trump has put a lot of these tariffs on and I, I wonder if that even played a little bit of a role in this merger not happening perhaps.

Pras Subramanian [00:10:44]:
I didn't think about that really. You know, my understanding is Nissan, Nissan is a huge plant in Tennessee, but they make a lot of cars. The U. S market. But then they also have plants in Mexico. Yeah. And that's a concern. Notice Toyota.

Pras Subramanian [00:10:56]:
That's a concern. I'm not, I don't, I'm not sure about Honda. Correct me on this. But I don't think they have a big Mexican presence. But I'm not positive. So maybe that's. They didn't want that exposure to countries that Trump is not targeting. You know, Canada and Mexico in particular border countries.

Pras Subramanian [00:11:12]:
Maybe that was played a part in it, you're absolutely right. They could, that could have played a role in why this may have unraveled.

Braxton Critcher [00:11:18]:
Yeah. What about automotive repair? So this is, you know, automotive repair news today. And obviously things that affect automotive in making vehicles certainly affects automotive repair. And a lot of times, you know, auto repair will see the trickle down effect. So things that happen with Nissan and Honda today, you know, auto repair may not see it for a couple of years because of warranties and the dealership, all that kind of stuff. But, but you know, these kind of moves are big deals and a lot of it had to do with EV and hybrid and ice. You talked about it. And so auto repair is trying to figure out how they fit into all that mess right to repairs happening.

Braxton Critcher [00:11:58]:
There's a lot of issues going on right now in automotive and automotive repair. So what do you think it means for the repair industry?

Pras Subramanian [00:12:05]:
You know, you've probably seen this in industry with just rising parts, rising cost of parts. Parts and labor are increasing repair costs overall. And you know, potentially big picture, if you would have had two of these big companies merged together, they would have had been able to share parts, technology, maybe share costs in developing these parts and maybe that would bring down some of that, bring down some of those cost repairs. And then also, you know, if you have, if you have two big companies ordering a lot of parts, you have the, you can, you can actually bring down costs of production based parts. Right. So you know that we would have seen some, some synergy there, some, some cost cutting there from the parts point of view to helping out with the repair side of things. You know, we just saw, we just had consumer price index come out just a couple days ago and auto repair stuff still is taking a bit higher. And I've been reading about it, maybe you can talk to me about this too.

Pras Subramanian [00:12:54]:
But the fact that because cars are getting so expensive, the parts are getting expensive and then that combined with higher labor is giving people bigger repairables and that's internally to bigger insurance premiums. Right. So it's all this big kind of vicious circle.

Braxton Critcher [00:13:07]:
It all affects everything affects each other. It does. But you know, the, the repair industry, you know, within the industry and automotive is, is really the same. But they're all saying it's recession proof. It's recession proof. And I mean I'm with them. People need transportation. And so far a lot of repair shops have done just really a lot of them have done very well.

Braxton Critcher [00:13:30]:
Through all the inflation they've been able to maintain their car counts. And there is a little Bit of a technician shortage right now, trying to get pay up for technicians. But I mean, people got to fix their cars and prices go up. People still need to eat, so they're going to buy food when groceries go up. Same thing for fixing your car. You have to get it repaired. So I mean, so far the inflation and the repair industry, they've, they've really, they've done just fine. But it is interesting.

Braxton Critcher [00:14:04]:
All this stuff does play together like you said. And the big push for EVs, you know, that's. The repair industry's got to figure out how they're going to sift through that in the next decade. Right. To repair is a big issue for this season. And so it's just there's a lot going on right now. And I've only just. Admittedly, you know, perhaps you don't know me all that well, but I've only been in the repair industry for just over a year.

Braxton Critcher [00:14:31]:
And so my, my knowledge is growing daily. And so I'm not an expert, I would say to this point yet, but it's just crazy. Maybe I'm wrong, but it seems like more is happening in the repair industry and the automotive industry in the past six months than there has been in the last six years. I don't know, but it's wild.

Pras Subramanian [00:14:53]:
I think you're absolutely right. You know, I, I have a source out in California, dealer, I'll name it, they believe he has a. It's Toyota and Ford is some of the brands that he works with. And he was telling me that, you know, there's this. The thought is that oh, EVs don't need to be repaired that often and they're more, less maintenance needed. And I asked, well, that's the thought. I said how does that affect your business? And he said, actually we're seeing the opposite. Yes, the cars generally don't need that much service and they're pretty trouble free.

Pras Subramanian [00:15:24]:
But when they do come in, they need a lot of special parts. They need special, like you said, technicians, expensive. And that's where he said is the big problem is we don't have that many technicians who work on EVs. That causes delays in the repair bay. These cars kind of sit there and they're not getting fixed. And that what that means is that the car is sitting there. They're not getting. The service center is not getting money for the repairs because they can't fix the car yet.

Pras Subramanian [00:15:47]:
The customer's upset because the car's sitting in the repair bay. So there's a Lot of problems there. Whereas traditional gas ICE powered cars, they know how to fix them pretty quickly and that, that business. Fine. It's just the EV stuff is they have to get up to speed because. And this dealer friend of mine is in California and there's a lot of EVs there.

Braxton Critcher [00:16:05]:
Yeah. Oh, yeah, yeah.

Pras Subramanian [00:16:07]:
And they got to fix them and it's becoming a problem. And that's inflating costs too.

Braxton Critcher [00:16:11]:
Well, I mean, I don't know if this is right, but I, I've heard some people say if the EV battery fails, that's a $15,000 repair.

Pras Subramanian [00:16:18]:
Oh, yeah, yeah, yeah. If not under warranty. Yeah.

Braxton Critcher [00:16:20]:
That's crazy. It may not have to have as many. But the repairs are expensive.

Pras Subramanian [00:16:27]:
I mean, the part itself could be 10 to 15 grand. So you're not including the cost of labor. Yeah. And oftentimes it's not worth repairing. The car's not worth 15 grand or so. But even then it's. Do you want to spend that much money to, you know, put a new battery and then in 10 years it goes bad? I don't, I'm just saying, like it's, it's a tough repair to deal with when you're out of warranty.

Braxton Critcher [00:16:48]:
Yeah. I think the next 10 years are going to be very telling for both industries. A lot of things are going to change, a lot of people are going to leave and it'll, we'll see where things wind up. But next 10 years, it's, it's very different from now.

Pras Subramanian [00:17:10]:
Yeah. I mean it's for me as working in the space, like covering the industry, it's, it's actually good because there's so much happening for me. Oh yeah.

Braxton Critcher [00:17:18]:
There's a lot to talk, there's lots to write about, that's for sure.

Pras Subramanian [00:17:20]:
Yeah. For us, it's great. Yeah. We get to kind of dig into it and it's, it's. Every day is different and I think that's, that's a great part of my job that I love so much. And talking to you about, you know, for me, I'm not well versed in the automotive repair side. I just sort of, I see and I write about here and there. I'm more about the automakers, the OEMs, but the parts business is big business.

Pras Subramanian [00:17:40]:
I, I spoke to Ford CEO Jim Farley a couple weeks ago talking about, for performance. And that performance parts business is huge. Right. So everything kind of feeds into, you have the racing, you have the, you have the enthusiast vehicles like Mustang and Bronco and Raptor. And then you have the parts and then where, where did parts installed? Dealer install parts. Fantastic business, right? Warranty parts. Everyone's, everyone's happy but someone's got to put the parts in. So it's all sort of part of the industry.

Pras Subramanian [00:18:05]:
It's like is this huge repair and parts and customizations.

Braxton Critcher [00:18:10]:
What else, anything else that you know, we haven't talked about for the Honda and Nissan merger that you think needs to be brought up?

Pras Subramanian [00:18:20]:
You know, it's interesting because you mentioned Toyota earlier and Toyota, it's not just Toyota. Right. They have a relationship with Subaru and Mazda. Right. They have their own kind of, I believe in Japan they call it the Koretsu. Right. Where this again it's a unspoken alliance where the industry support each other. And that's what I think might be the wild card here with Nissan is that, and we touched on it too is I think that the Japanese government cannot allow Nissan to fail.

Pras Subramanian [00:18:50]:
So I personally believe that it needs to be rescued. It will be rescued in some fashion and it won't be popular, but they won't let Nissan go away. It's just too old and too important of a company in Japan. And what might happen is they might say, hey Honda, you are going to merge with Nissan and they might actually force one of these companies. I don't know, maybe it's Mazda. I don't know. Really?

Braxton Critcher [00:19:09]:
You think that might happen?

Pras Subramanian [00:19:11]:
I'm just having some fun here.

Braxton Critcher [00:19:14]:
I, I, I mean that, that I, I, I can't, I don't know. You're the expert.

Pras Subramanian [00:19:19]:
But I mean I, it's not my original thought I had heard of this from someone else that I don't want to quote but the thinking was that because the Japanese government is so, is so much ingrained in a lot of local to corporate structure. Right. They're, they're part of the government's part of the, of the whole country.

Braxton Critcher [00:19:39]:
Yeah.

Pras Subramanian [00:19:39]:
And they can have the power to do so and they could compel a company to do so because they just say third the greater good. So I'm just throwing that out there as a wild card. It's something that I heard, yeah, Japan and how that works. But that's just what I've heard is that they already do these, you know, these, on these alliances that aren't necessarily codified in stone. Right. But it's possible that Nissan, they're going to go away, but they might be reformed in some way.

Braxton Critcher [00:20:06]:
Right. Wow.

Pras Subramanian [00:20:07]:
We'll see.

Braxton Critcher [00:20:08]:
Watch that. That's for sure. That's something to keep a keep an eye on.

Pras Subramanian [00:20:13]:
I should start a conspiracy theory podcast.

Braxton Critcher [00:20:15]:
You may have. Yeah, you just started something there press. Well thanks for coming on. I appreciate it man.

Pras Subramanian [00:20:23]:
Thank you man. I really appreciate being with you. Anytime. I'd love to come on chat again.

Braxton Critcher [00:20:31]:
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