Transformations, Disruptions, Automobiles, Boeing and AI All in the News

Can the future of the automobile industry survive without its German giants? Join us as we uncover the drastic decisions by Volkswagen, Mercedes-Benz, and BMW to slash production in response to plunging global demand. We'll also delve into the fascinating story of Jaguar Land Rover’s massive £500 million investment to spearhead EV production in the UK, and unravel the peculiar journey of vehicles bypassing sanctions into Russia through Armenia and Georgia. We won't shy away from controversy either, as we discuss Elon Musk’s contentious social media escapades that led to his exclusion from the UK's International Investment Summit. From global weather anomalies to US East Coast port strikes, this episode covers it all, offering a comprehensive view of the challenges and shifts reshaping the world.

Switching our focus, we bring you the latest on Hurricane Helene's devastating impact across Florida and southeastern states, resulting in catastrophic damage and loss of life. We'll then turn our attention to Boeing's ongoing crisis, shedding light on the company's cultural and quality issues, financial struggles, and a paralyzing strike by assembly line workers. Episodes Up Next: Hear from Madhu Hosadurga of Schneider Electric as we discuss the transformative role of AI in supply chains. With insights into future episodes on artificial intelligence and sustainability within Fortune 500 companies, this is an episode packed with crucial information you won't want to miss. Subscribe to stay informed and ready for our upcoming discussions.

You can follow Chain Reaction on LinkedIn, Twitter and Facebook

Chapters

• 0:07 Global Supply Chain and Automotive News
• 7:32 Impact of Hurricane and Boeing Crisis
• 19:07 Future Episodes and Subscription Information

Transcript

Tony Hines: 0:07

Hello, tony Hines. Here you're listening to the Chain Reaction podcast all about supply chain advantage and you're listening to the News Roundup all things impacting global supply chains this week. Well, the macro environment for automobiles is not looking good at present and there are a number of companies that are forecasting weaker demand and looking to lower their output forecasts, and among them Volkswagen, mercedes and BMW, the three giant car makers in Germany. Volkswagen has cut its annual forecast for the second time in less than three months, citing weaker demand for cars, weaker than expected performance of its passenger car division and also a deteriorating environment as weaker demand in China, and Mercedes-Benz and BMW have already downgraded their outlook. Also. Volkswagen had expected to increase sales this year by around 5%, but instead of that, they're looking at a fall of around 0.7%. So they've gone down to about $320 billion from $356 billion last year. Profitability has also fallen significantly. They were expecting somewhere between 6% and 7% on profit, and that's likely to be lower. As they have to give away some discounts to keep the sales output up, it's likely to be under 5%.

Tony Hines: 1:51

Jaguar Land Rover has declared plans that it will spend half a billion pounds to upgrade its EV production at its Hailwood plant on Merseyside in the UK. It also produces combustion and hybrid models at the plant. It's part of a £15 billion global investment by the car giant in electric vehicles that was announced in 2023. Jlr said it's already spent £250 million on new car production lines, machinery, people and digital technology at the Merseyside plant, with plans to spend another 250 million in the coming years. They haven't said which vehicles they'll produce at the plant yet, but it's a pretty hefty investment. Jlr is now, of course, owned by India's Tatar Motors.

Tony Hines: 2:43

Now there was a pretty good report on Sky News this week and I think it's worth bringing that to your attention. It was by Ed Conway and he writes on all kinds of business matters. He's written a really good book Material World on materials that change the world, and there was a report, a special report on the Sky News, which was really enlightening, and it was about the failure of the sanctions against Russia since the Ukraine war began because it was on the border between Armenia and Georgia with Russia, and, of course, what's happening in Russia is that they're sucking in vehicles from those countries, so they're getting around the sanction in effect, because, for example, jaguar Land Rover, which we just talked about, jlr some of their vehicles were going to destinations in Georgia or Armenia and then they found a way into Russia. They were, were moved across the border and they have individual drivers that take them across the border. So a very interesting supply chain indeed. And if you think about that, if we're just dealing with cars here and it's like Ed Conway said, what else is going in Could be all kinds of parts for weapons and electronic equipment and so on all passing through those routes. So there's a very clear supply chain that's still working despite sanctions.

Tony Hines: 4:14

Well, the world's richest man, elon Musk, threw a bit of a tantrum this week after he wasn't invited to the UK government's International Investment Summit. And he wasn't invited because he made some social media posts on X during last month's riots, which I think the Prime Minister and the government thought were unhelpful. Musk said on X I don't think anyone should go to the UK when they're releasing convicted paedophiles in order to imprison people for social media posts. Well, of course, that's completely inaccurate. The government released some prisoners because of overcrowding, but no one serving sentences for sex offences were included in the release. So we'll just have that on the record, shall we? Is it a sensible thing not to invite Elon Musk? Maybe not, because perhaps we should invite him, because he's got lots of money to throw around and swish about and some investment could possibly be welcomed.

Tony Hines: 5:08

So pros and cons aren't there. It's all about balance and it's difficult to get right. Well, the weather's very strange, isn't it? All over the world at the moment We've got droughts in the Amazon basin and we've got floods in the United States as a result of the hurricane hitting the coast in around the Gulf of Mexico, in Florida and even as far north as Atlanta in Georgia. So very peculiar weather. And of course, that's not the only disruption that's taking place on the east coast, because there are strikes at East Coast ports which are planned and the Biden administration have said they'd like to see those talks concluded quickly to prevent any port disruption. So they want that sorted out. Will it happen? Well, we'll have to wait and see. It's all in abeyance. Presently.

Tony Hines: 6:05

Artificial intelligence has moved apace this year and from the broad introduction of CHAP-GPT and the large language models that were introduced that we're all becoming more and more familiar with. There are also some very serious developments in my supply chain book, because I've got them in a particular chapter talking about the transition and the new arrangements for AI, but it's such a fast-moving field and it's important to see how things are developing, and I was fortunate enough to talk to Madhu Hosadurga, who is VP for AI at Schneider Electric, and you can listen to our discussion about some of those developments and how they're playing out in a global Fortune 500 company that's been voted number one supply chain company by Gartner in 2023. So I'm sure you'll want to stop by and pick up that episode. And while we're talking about the Chain Reaction Podcast, you might also want to make sure you subscribe so you're first to know when a new episode drops and you can be there right away, because you'll get an email telling you a new episode is out. Look forward to seeing you in the Chain Reaction Podcast when you drop by. Look forward to seeing you in the Chain Reaction Podcast when you drop by. Chain Reaction Now.

Tony Hines: 7:32

The latest news on Hurricane Helene is that it struck Florida and the Gulf of Mexico area, caused floods in Jacksonville and it moved northwards into Georgia, parts of South Carolina and as far as Tennessee, and there have been 43 reported deaths so far. After the wind comes the rain, and it's the rains and the floods that do the damage to road networks, housing, industrial sites and, of course, threaten people's lives and livelihoods. Hurricane Helene is one of the most powerful storms to hit the United States. It's a Category 4 hurricane and it's left the landscape in chaos. A driver was killed in his car, and Florida and Georgia have suffered power outages. The tropical storm is estimated to have killed about 43 people so far, and it rapidly flooded neighborhoods and it's left more than 4 million homes and businesses without power. It hit Florida's Big Bend region as a powerful Category 4 hurricane on Thursday at around 10 past 11 in the evening, eastern Time. Overturned boats in harbors, felled trees, submerged cars on highways and flooded streets. Thousands of rescues were carried out by the police and firefighters and emergency services. Winds of about 140 miles an hour or more at about 225 kph, hit the coast. It's probably too early to assess the full damage from the hurricane at the moment, but it's probably one of the biggest on record. And, of course, after the hurricane strikes, the rain comes, and if the wind doesn't do the damage, then the rainwater does. We hope that the situation gets resolved as quickly as it possibly can, and the one thing that's certain is that people are very resilient, so we wish them well.

Tony Hines: 9:47

Now, there's an old saying that the fish rots from the head, and that could be said of some companies, couldn't it? And you wonder, with all the things going on at Boeing, with the quality problems and the issues that they've faced, whether it comes from the top or has come from the top, and it's a question that many are asking presently. It's widely reported that there are major cultural issues inside the company, and the evidence for that comes from the inquiries that have been made and the whistleblowers that have stepped up to talk about bad practices at Boeing. And at the moment the company is going through a strike. The plant's been closed and production numbers will fall, and it was estimated a while back that Boeing was burning through cash at a rate of about $1 billion every month. So how long can the disruption go on, how long can the troubles last? And there must be concerns in government about the state of play at Boeing. Of course, the new CEO that stepped into the company was hoping to put things right and, to be fair to him, he hasn't had time to do that because events have overtaken.

Tony Hines: 10:51

Many are calling the present situation, with the strikes of Boeing in Seattle and in Portland, oregon, an existential moment for the company. Well, is that overstated, or is it truly the moment at which Boeing has to think about its future carefully? There have been many strikes at least seven or more since 1948, but the present strike threatens the company's very nature of being. The outward fallout of Boeing began with the Alaska Airlines' reported door blowout, but there were troubles before that with the 737 MAX, and they were bumping, along with lots of quality issues. Boeing has tried to resolve the current strikes, but the International Association of Machinists and aerospace workers that represent the 33,000 assembly line staff have not accepted the offers from the company.

Tony Hines: 11:45

So far, boeing's finances are probably at an all-time low. The company. So far, boeing's finances are probably at an all-time low. Investors were hoping that there was going to be a period of stability, and the new CEO's arrival was heralded as a stabilisation project. There were two fatal crashes of Boeing's 737 MAX aircraft in 2018 and 2019, and that left the company with debts of around US$45 billion. The current stock market valuation for the company is about double that. The market for aircraft, of course, has become more buoyant after the return of travel following the COVID-19 pandemic, and many carriers are looking to replace their fleets and, in effect, there's only two companies that ever bid for those fleet contracts Boeing and Airbus. This time last year, boeing's shares were about $260, but today they're much lower. The current share price on the New York Stock Exchange is $156. Back in September 2019, the share price for Boeing on that stock exchange in New York stood at US$382.

Tony Hines: 12:54

The supply chain of Boeing is under stress. It's under stress from quality issues and it's under stress to reach output targets. This is all not good news for the United States government, of course, because Boeing is a provider of defence equipment, the production and cash flow cycles are all entwined together. You will know that as production falls, so does cash flow. As production increases, cash flow does too, and the problem with Boeing is they haven't been able to get the planes out of the factory. Last year, the company promised investors that it would achieve £10 billion a year in free cash flow, but this year analysts have said it will peak about 2027, which is much later in the timeline, and it's likely to be less than the £10 billion promised. Kelly Orberg took over from Dave Calhoun and he's walked into a storm. Boeing will need to raise billions of dollars in new equity to keep the cash flow moving through, and that will mean a rights issue or perhaps more debt. So this strike currently taking place is probably existential.

Tony Hines: 14:05

There are two major reasons why the United States watchdog is concerned. Firstly, the United States watchdog is very reluctant to let Boeing have an easy ride and they're very concerned about the revelations in respect of quality control on the production lines. The National Transport Safety Board has issued a new urgent safety instruction to airlines. They've identified some aircraft rudders with problems and Mike Whittaker, the head of the FAA, gave evidence to a Senate committee saying it would take years to carry out the necessary change to the company's culture. Then there's the problems with the Defence Division. It's loss-making and this week Ted Colbert, the boss of that division, has stepped down, and you'll recall the two astronauts were stranded on the International Space Station after Boeing's Starliner experienced problems.

Tony Hines: 15:01

Boeing has also metaphorically shot itself in the foot by putting the 30% pay offer directly to the workers, leaving the union out of the loop, and that hasn't gone down well with the union, the workers or the general public. The company has said it's making a best and final offer better retirement benefits and 30% is on the table but the workers so far haven't moved to accept the offer. The union has rejected the offer and it criticised the four-day window set by the company. Workers only have four days in which to accept the offer, so keep watching this space. Brent crude oil closed the week at around US$71.6 per barrel and West Texas at about US$67 a barrel. Potential strikes by port workers on the United States' eastern Gulf coasts are in the news this week. The International Longhorns Union, representing about 45,000 port workers across the eastern Gulf coasts in the United States, is poised to take strike action if a new contract agreement isn't reached by September 30th, and this strike could severely disrupt global supply chains, affecting the flow of goods into and out of major US ports. The potential strike highlights the ongoing labour disputes and the critical role of port workers in maintaining supply chain stability.

Tony Hines: 16:30

Supply chain bottlenecks are also in the news. Recent discussions have emphasised that supply chain bottlenecks are not just transport issues, but they also involve upstream factors, and these include production delays, inventory management challenges and the coordination issues among suppliers. Addressing these bottlenecks requires a holistic approach involving strategic planning and better coordination across the entire supply chain. So that old chestnut I've been writing about that for years and years when we talk about AI, of course, in parcel delivery it's very important. It's increasingly being utilised in the parcel delivery industry to enhance efficiency and accuracy when it comes to deliveries. Ai technologies are helping companies provide more precise shipping time estimates, optimise delivery routes and reduce instances of package theft, commonly known as porch piracy. The technological advancement is transforming the logistics sector, making deliveries faster and more reliable.

Tony Hines: 17:30

This week saw the launch of a federal tool to assess supply chain risk. The Biden-Harris administration has introduced the new tool from the Commerce Department. It's called SCALE Supply Chain Assessment and Logistics Evaluation. The tool is designed to assess risk across the economy and prevent supply chain shortages by identifying vulnerabilities in supply chains. Scale aims to enhance the resilience of US supply chains by providing detailed risk assessments and recommendations for mitigation. Gold Delays USA are collaborating to reduce supply chain emissions by focusing on supply sheds, which are regions where ingredients are commonly sourced. This initiative is aimed to lower the carbon footprint of the supply chains by improving sustainability practices in key sourcing areas. The collaboration reflects a growing trend among companies to address environmental impacts within their supply chains.

Tony Hines: 18:30

In a recent survey undertaken by Supply Chain Advantage, global political unrest was number one as the major concern of senior supply chain professionals, labour shortages, those with the right skills was also a major concern, as were cyber security threats, and moving up the agenda has become regulatory changes and compliance issues was also a major concern, as were cyber security threats and moving up the agenda has become regulatory changes and compliance issues. And there's still, despite falling oil prices, there's still concerns around energy security. Well, that's it for this week.

Tony Hines: 19:07

I hope you've enjoyed the news roundup and I hope you've learned something from listening, and I'll be back in October with new episodes coming your way A couple of very interesting episodes around artificial intelligence and also one on sustainability and how it's being applied to one particular Fortune 500 global company. In the meantime, hope you have a great week and also don't forget to subscribe to the Chain Reaction Podcast so you'll be first to know and you'll also receive additional news about special episodes when they're coming along your way. So I'd urge you to sign up. Look forward to seeing you in the Chain Reaction Podcast. I'm Tony Hines. I'm signing off. See you next time. Bye for now, thank you.