Analyst insight: Despite its profitability, the U.S. and global automotive industries are struggling with labor costs and sales declines as they aim to meet consumer demand for new technologies.
In recent years, automotive manufacturers in the U.S. and worldwide have made massive adjustments in response to tariffs, skilled labor shortages and foreign competition. How is the industry taking advantage of growth opportunities while dealing with piling stalemates?
Here’s a breakdown of both bad and good:
Trade wars and a fixation on debt are weighing on national wealth in Europe, especially in Germany. Declining auto sales indicate there may be a significant withdrawal or redistribution of capital investment across the industry, making it more challenging to meet the high costs of model changes — especially electric vehicles. Experts project that pressure on auto sales from the U.S.-China trade war may result in nearly $770 billion in lost sales over the next five years.
Customized vehicles remain a challenge for the U.S. auto industry, demanding that manufacturers stock extra parts, engage in expensive parts shipping and meet peak staffing demands.
Ongoing negotiations to repatriate manufacturing jobs to the U.S. are disrupting both short- and long-term supply-chain planning.
Last year’s General Motors strike meant thousands of non-union factory workers in the U.S. and Mexico were temporarily laid off. The strike impacted about 575,000 employees supporting GM operations directly or indirectly, and car dealers have suffered — with some customers waiting weeks for service. A restructuring effort and gain in market share from GM’s new heavy-duty pickup trucks have made up for losses.
Meanwhile, the company corrected capacity by closing three of its plants. A fourth planned closure in Detroit will instead remain open to build electric trucks and vans — a $3 billion investment in 2,225 jobs. GM will invest another billion in other factories to build mid-size SUVs. The company managed to keep adjusted pre-tax margins in North America above 10%, in line with the same period in 2018 and sharply better than its 6.9% performance in the first quarter of 2019.
Investors remain concerned over a possible worldwide economic slowdown, as well as the significant cost of transitioning the industry to new electric and autonomous technologies. Although profits will be difficult, low global interest rates will help manufacturers, and new technologies such as autonomy and 5G connectivity will likely appeal to buyers.
Auto companies are adjusting to the forces of globalization, which are proving to be stronger than the power of collective bargaining. GM and others will spend more of their capital dollars on emerging technologies — including electric vehicles — requiring a significant shift in manufacturing processes and labor demands.