The automobile manufacturer enters into contracts with dealer companies and provides incentives based on sales volume.
When incentives increase, the dealer’s share also grows. Naturally, they will become more proactive in selling to move even just one more unit.
Therefore, when sales volume or market share declines, it is common to increase incentives for the dealer companies.
However, if increasing incentives does not lead to the anticipated rise in sales, it can actually lead to losses. This is because if we increase the dealer’s share, our profit margin naturally decreases.
The automotive industry’s operating profit margin is not particularly high compared to other manufacturing sectors. Even premium German brands like BMW and Mercedes barely exceed 10%, with many operating below 5%.
In the case of Eunsung Motors, the sales margin peaked above 10%, but it currently hovers around 6%.
“If the dealers decide to boycott sales, we may have to partially halt factory operations.”
One of the three big lies in business is that “we sell at a loss.” However, sometimes this is true.
Companies will sell below cost when inventory piles up. They do this because it ultimately becomes more profitable than holding unsold stock.
Automobile companies have significant fixed costs. Whether cars sell or not, these costs continuously accumulate. If production begins to slow down, losses can escalate uncontrollably.
Taekgyu asked me, “Do other companies also have to watch the dealers closely?”
“There’s one exception.”
“Where is that?”
“Nikola.”
Unlike other automobile manufacturers that contract with dealer companies, Nikola has established company-owned showrooms in major cities for exhibitions and test drives, selling their vehicles online.
This is possible for two reasons.
First, Nikola is a startup. Since there was no initial contract with dealers, they could adopt an online sales model without friction.
Second, they occupy a unique position in the electric vehicle market. Consumers seek them out for purchases, so there’s no need to rely on the dealer network.
Not long ago, the newly launched Model TH serves as a prime example.
The company started taking reservations a year before its release, and despite requiring a $1,000 deposit, they attracted 500,000 reservations.
When you think about it, Nikola’s ability to continue investing despite massive losses is largely due to the absence of margins paid to dealerships.
Taek-gyu scratched his head.
“I thought that just investing money would solve everything. Reality is indeed tough.”
“That’s true.”
He never anticipated facing such a complex situation.
“So, what’s the reason for the declining sales?”
The answer is obvious.
“Other companies’ cars are simply better.”
I asked Sergi, “How much cash do we currently have?”
“Just under $10 billion.”
OTK Company has invested $25 billion in Carros. They have already spent over $15 billion on mergers, acquisitions, and factory construction.
It’s hard to slow the pace of building factories in the Rust Belt. Increasing manufacturing jobs in the U.S. is Ronald’s core promise, and it’s not an exaggeration to say that’s what got him elected.
If he now tries to back out, both Rust Belt voters and Ronald won’t stay silent.
Once the factory is completed, production will more than double.
However, if sales don’t pick up, the factory will end up being a bottomless pit. The maintenance costs will keep rising, causing losses to snowball.
With technology development, new car development, factory construction, and mergers and acquisitions, there are endless places for money to go.
On the other hand, the incoming cash is on the verge of stopping. If things go wrong, the company could collapse before even launching a proper new car.
Ryan said.
“How about launching a facelift model and strengthening promotions?”
“That might extinguish the immediate fire. But how long will that last?”
Due to a lack of timely investments, both the frame and engine have aged. Changing only the design and interior materials has its limits now.
I looked around the executives and said coldly, “It wasn’t Chrysler that acquired CarOS; it was CarOS that acquired Chrysler. You are not the executives of Chrysler but the executives of CarOS. Do you understand what I mean?”
The executives looked at me in unison.
“The Chrysler brand will disappear in the future. What you need to create is not Chrysler cars, but CarOS cars.”
Ryan spoke up. “The question is whether we can hold out until then. If our relationship with dealers deteriorates, future sales will also be affected.”
“Don’t worry about conflicts with the dealers. If we create cars that consumers want to buy, they will reach out to us.”
We can’t be dragged along by dealers forever. We should consider direct sales like Nikola this time.
The real question is whether we can create cars that attractive… but I need to trust in CarOS’ technology.
“I invested in CarOS because I had a dream of creating a car that no one has been able to make until now. You don’t need to worry about funding. Whether we sell another company or go public, I’ll secure the support somehow. So, focus on making the cars you want to create.”
***
The CEO of CarOS, Daryl Segan, was also invited to the inauguration ceremony.
As I was getting ready to head to Washington D.C., I received a call from Golden Gate’s CEO, James C. Goldman.
[I heard you’ve arrived in the United States. How have you been?]
“Thanks to your concern, I’ve been doing well.”
We exchanged greetings after a long time.
[Is Henry doing well there?]
“He’s been a tremendous help.”
James chuckled.
[Ha ha, that’s good to hear. The inauguration is just two days away, isn’t it?]
“Will you be attending as well?”
During the presidential election, almost all financial firms supported Diane. The only exception was Golden Gate.
Golden Gate withdrew from Diane’s camp at the last minute and sided with Ronald. It was probably his decision.
[Someone else will be going in my place. I’m not a fan of crowded places.]
“I see.”
True to his reputation as a reclusive investor, he won’t show up at official events.
[I heard you’ll be stopping by Detroit before heading to Washington D.C., so I’ve arranged a private jet at the airport for you.]
You even arranged a private jet for me?
It feels a bit burdensome, but it wouldn’t be polite to refuse such generosity.
“Thank you for your consideration.”
[Then I look forward to seeing you soon.]
I said my goodbyes and hung up.
Taek-gyu asked, “What did James say?”
“He said to cancel the plane ticket.”
***
At the airport, a Gulfstream was waiting.
Daryl spoke with a hint of amazement, “Thanks to you, I get to ride a private jet.”
We sat facing each other comfortably. I had been on one before, and the seats were spacious and cozy.
“I’ve never attended a presidential inauguration in Korea, yet here I am invited to the U.S. one.”
“Right? It is quite amazing.”
Thinking about it, it really was extraordinary.
Taek-gyu pulled a beer from the refrigerator and handed it to me. “Remember when we went to Japan and got stuck on that trip?”
“Yeah.”
I first realized how cramped budget airline economy seats were back then.
“That trip was fun.”
“……I didn’t find it that enjoyable.”
For four days, we barely got to tourist spots and were dragged around Akihabara, Comiket, and various places. I ended up with my suitcase packed full of manga and game CDs, having bought nothing for myself.
I should’ve seen it coming when they offered to cover accommodation. But it must have been a good memory for Taek-gyu.
I asked Daryl, “What’s the current public opinion on Ronald?”
He gave a wry smile. “His support in the Rust Belt remains high.”
“That’s a relief.”
“But not in other regions.”
“…….”
I figured as much.
Typically, when a new government is launched, there’s a rise in approval ratings due to expectations. Surprisingly, however, Ronald’s approval ratings have been on a downward trend since his election.
Currently, his approval rating is even lower than his vote percentage.
Protests against Ronald continue across the globe, including in the U.S. For business to succeed, Ronald really needs to improve.
I kept discussing the future situation with Daryl.
“If we hurry, we could launch an internal combustion vehicle with autonomous driving technology this year. But ultimately, the future cars are electric or hydrogen cars equipped with self-driving technology. Right now, though, we only have the software technology available.”
No matter how good the operating system, we still need CPUs, semiconductors, and motherboards to run it.
“The problem lies with the batteries.”
Electric vehicles require large-capacity batteries instead of fuel tanks. However, there are only a limited number of companies capable of mass-producing car batteries.
Thus, collaborating with battery companies is essential for launching electric vehicles.
From the perspective of automakers, selling electric vehicles means sharing profits with battery companies. This hesitation has slowed the expansion of electric vehicles.
However, while changes can be postponed, they cannot be halted.
As established automakers hesitated, the startup Nikola swiftly entered the market in partnership with the Japanese battery company Technics.
As Nikola began to lead the electric vehicle market, established automakers, who had been idle, all began developing and launching electric vehicles. However, they are currently just trying to catch up with Nikola.
“It’s like Kodak sticking to film cameras and missing the shift to digital cameras.”
Taek-gyu nodded.
“Just as Nintendo, which pushed for ROM cartridges, was outcompeted by Sony PlayStation, which chose CDs?”
That’s surprisingly accurate.
The operating system created by CarOS is a system that can control not only autonomous driving but the entire vehicle.
Because of this, it’s more suited for electric vehicles than for internal combustion ones.
“We should consider acquiring or collaborating with a battery company.”
Is the problem ultimately about money?
As we talked, the private jet flew toward Washington, D.C.
***
The presidential inauguration took place in front of the Capitol Hill.
Security was tight. Invitations were checked, and attendees had to undergo thorough body searches, much like when boarding a plane.
While the scrutiny felt excessive, no one complained. Since the 9/11 attacks, this level of security has been a part of everyday life for Americans.
The weather had been bad for the past few days, and it seemed about to rain. However, umbrellas were prohibited due to security concerns.
Outside the inauguration site, a protest against Ronald was in full swing.
Hundreds were staging a surprise demonstration, holding signs while police forcibly dispersed and arrested protestors. Despite this, the inauguration venue was packed with spectators.
Delegates from 92 countries attended to congratulate Ronald.
Taek-gyu said, “Isn’t that our country’s Prime Minister over there?”
Turning to look, I spotted Prime Minister Hwang Kyusang among various politicians and business leaders. It was hard to see their faces from a distance.
I told Taek-gyu, who was anxiously scanning the area, “Stop looking around so much; it’s distracting.”
“Why? It’s fascinating!”
“…”
Honestly, I felt the same way.
“Wow! Diane is here too!”
Her arrival stirred a light buzz in the inauguration venue. This was her first public appearance since her defeat in the presidential election.
She greeted several people with a bright smile and handshakes.
“You look cheerful.”
“Inside, it’s a different story.”
Diane came from the prominent political Underwood family and had served as a senator and Secretary of State, making her an elite politician. Ronald Stamp, a political maverick, was her opponent.
However, the results were unexpected.
In the voting results, Diane led Ronald by over three million votes, but she fell significantly behind in the Electoral College. It would be fair to say that her political career was effectively over after this presidential defeat.
As Diane was shaking hands with those around her, she suddenly walked over in our direction.
Taek-gyu poked me in the side.
“Is she coming to you?”
“No way….”
But truly, Diane stood right in front of me and extended her hand.
“Nice to meet you. I’m Diane Underwood.”
There was a natural dignity in her expression and voice.
I absentmindedly took her hand.
“Nice to meet you. I’m Kang Jin-hoo.”
She gave me a pointed remark.
“We had a chance to meet before, but it seems this is our first time seeing each other here.”
It seemed she remembered that I had requested a meeting before the election. Diane had declined, and I went straight to Ronald afterward.
“It’s an honor to meet you.”
At my words, she smiled.
“I wish we could have met a bit earlier.”
If that had been the case, would the person being inaugurated today have been Diane instead of Ronald?
Well, assumptions in history are often meaningless.
