Ed Wallace

When Puffery Becomes Hype

By Ed Wallace

We all want to be optimistic that our future is going to be much better than our past. That hope seems to drive us and to move our socioeconomic society forward. We want to know that the next time we buy insurance it will have better coverage, better claims service and lower costs. The same is true for our automobiles, political leadership, and many other issues. But there is a fine line between what the Federal Trade Commission has in the past referred to as “puffery” and objective hype.

As the FTC wrote in 1996, in terms of advertising, “we will not pursue subject claims for puffery, claims like ‘this is the best hairspray in the world.’” However, if the claim is “our hairspray lasts longer than the most popular brands,” that’s a statement one would have to prove. But to an outsider, there’s little difference between claiming your hairspray is the world’s best and claiming that it outlasts others.

Let’s face it, America runs on puffery. After all, how many times do we hear or say, we are the greatest country in the world? But it seems that over the past two decades puffery and pride have too often become hype and deception. That’s a problem.

It infects the auto industry, too. Last week, for example, hype gave way to truth throughout the auto industry. Let’s put things in perspective for everyone to see.

Somehow He Should Have Known

The hype started falling apart with Ford CEO Jim Hackett’s admission that “we overestimated the arrival of autonomous vehicles.” Nice of him to admit that, but years overdue: Automotive and computer engineers, tech journalists, even this column, have all said for years that truly self-driving vehicles are decades away from reality and that they may well never happen; the investment needed to put our infrastructure into perfect condition, so that such vehicles can work, is a financial nonstarter. But Hackett was in charge of Ford’s mobility unit, which was way behind GM’s, and he still managed to become CEO of the company anyhow. So Hackett knew all along that his promise of fully self-driving cars within a few years was not true in any way. Yet he kept pushing that false narrative. To be fair, Hackett was not the only automotive executive making that false claim.

In its place, Hackett relates that the autonomous cars coming out in three to four years will be “limited in application” and used in geofenced areas. Meaning they’ll be city cars with restricted speeds — which we wrote years ago would become the near-term reality.

When Uber came out with its IPO, it admitted in its prospectus that it has never made money and maybe never will. Lyft said the same thing, but that’s legalese; when the public puts tens of billions into those companies and they later fail, no one can sue for being misled about their investment’s potential. But these stories on Uber’s IPO came out at the same time as numerous other stories detailing how miserable Uber drivers are becoming because their incomes and percentages are being cut so drastically. One such story in the April 10 Philadelphia Inquirer told of Patrice Davis, a former office manager sidelined by MS in 2016. She took to driving for Uber that year and claimed she could pay her bills and make a living working five days a week as an Internet taxi driver. Three years later with the pay cuts she’s often had to add nights on weekends and driving on Sundays.

The article mentions that UberX drivers saw their per-mile rate drop from 86 to 69 cents, although their per-minute rate rose. However, on surge pricing days where Uber and drivers once cleaned up on super high prices, from now on drivers will be cut back to a flat $2 or $3 per ride.

Uber spokesperson Harry Hartfield was quoted as saying, “Uber would not be where or what it is today without drivers. When they do well, we do well and we are committed to finding success together in the months and years to come.” Possibly Harry should have read the Uber IPO prospectus, since it acknowledges that the company’s driver contractors are not happy. And it’s going to get worse, as Uber admits in that IPO filing: “As we aim to reduce driver incentives to improve our financial performance, we expect driver dissatisfaction will generally increase.” So the corporate spokesperson happily states Uber is nothing without its drivers, yet its SEC filing says those same drivers are unhappy and will get unhappier when their pay is slashed again.

For the record, the public that likes Uber does so simply because they like the drivers and service. And if the drivers and service deteriorate, Uber’s chances of long-term success dwindle to nothing, and that is what they are suggesting to potential shareholders.

This was complicated by a study, one of many, by JP Morgan Chase that shows from 2013 to 2017 Internet taxi drivers saw their incomes fall by 53 percent. It’s gotten worse since then and is going to be worse going forward. Yep, looks like a $100 billion corporation to me.

Gigahype

But more hype fell by the wayside. Remember Elon Musk’s promise of a super Gigafactory? It would adorn the middle of nowhere in a northern Nevada desert, and workers there would change the future of motoring by mass producing battery packs for cars (and homes); which in turn would bring the price down so far that everyone would want to drive and own the future. All it was going to take was a $5 billion investment to make it so. Well, even as Musk made those claims, manufacturing engineers and executives pointed out that you don’t need to spend $5 billion on a factory in the middle of nowhere to get into the battery business.

That’s now coming undone, too.

Bloomberg started an April 11 story with the line, “Investors should be relieved Panasonic Corp. and Tesla are parting ways.” Ouch. Turns out Panasonic lost $180 million in its battery division, and its executives are frustrated with how erratically Tesla has been managed. They also were upset when Musk backed out of a promise to purchase Panasonic solar cells and modules for his factory in Buffalo — and Panasonic hasn’t been able to ignore that Musk has been flirting with other battery partners. So the Gigafactory never lived up to its hype, and now Panasonic is holding back on further expansion, while at the same time seems to be done with Musk’s China Gigafactory. On the other hand, Panasonic announced a battery production joint venture with Toyota, which it correctly believes is a more reliable partner.

Then, just weeks after Tesla announced it was finally taking production orders for that $35,000-base-price Tesla Model 3, that version disappeared from its website. Those who put up $1,000 three years ago to get one, then another $2,500 to put it into production have been told they might have to wait months and months to ever see that car at that price. Some also claim they have taken delivery of that base model Tesla. (Imagine what would happen if a new car dealer pulled that stunt.)

Finally, the Verge ran an article on April 12 saying that the electric push scooter companies, such as Bird and Lime, likely won’t be with us much longer. They pointed to studies by ARK and others that show the average life of one of those scooters is less than a month. And based on what they charge, each scooter doesn’t bring in enough to cover its $550 cost, much less turn a profit. This follows Quartz magazine’s study, which shows it would take each scooter 5.5 months and five rides a day just to pay for itself; and in their study, using real world data from Louisville, Kentucky, the average scooter’s lifespan was a mere 26 days.

The Bushwah Behind the Curtain

So Ford finally admitted true self-driving cars are years in the future, if even then. Uber admitted it doesn’t make money, its drivers don’t earn what they used to and, as unhappy as they are becoming, their pay will be slashed more and their disillusionment will grow.

The Tesla Gigafactory has not lived up to its hype; Panasonic is losing huge money on it, is questioning further expansions other than to improve production on current lines, and walked on major investments in the Tesla China Gigafactory.

And then we find out that the electric push scooters, heralded as the future of mobility in major cities, don’t bring in even enough money to cover 20 percent of the scooters’ real net costs. In a nutshell, every story we’ve had hyped to us about the future of the automotive industry had the curtains pulled back on it last week to show it’s often been a house of cards.

Well, hope springs eternal. Maybe those self-flying taxis that are coming will still show up on time. We should keep our fingers crossed and hope that our homes are not under their flight paths.

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: edwallace570@gmail.com

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