By on November 1, 2018

Nissan Leaf 2018 factory

On Wednesday, we reported General Motors’ plan to buy out salaried employees as part of a long-term cost-cutting strategy, with further reductions in headcount looking likely. Despite its healthy profits, GM knows industry forecasters predict a period of economic hardship and continuously dwindling car sales. OEMs need as much money as they can cling to in order to weather the costs associated with advancing their collective shift into electrification and autonomous vehicles, while at the same time preparing for a global trade war.

A bad moon is rising and every manufacturer needs a way to cope. 

Ford choose to abandon models with lower profit margins, focusing primarily on cash-friendly trucks and utility vehicles for the foreseeable future. While General Motors also benefited from strong pickup and SUV sales, it also saved a bundle via ongoing cost-cutting measures. However, GM also saw its global retail sales fall 15 percent over the last quarter. The Chevrolet Cruze, which suffered a 26.5 percent sales decline this year, has a factory in Ohio that only operates at 30 percent capacity, necessitating only a single shift.

Volume and vehicle profits aren’t the only thing worrying automakers. There’s also share price performance (ask Mark Fields if you don’t believe us), and most automakers haven’t done so well on this front in 2018. GM’s self-driving ambitions helped stimulate sizable investments from SoftBank and Honda, but they’re largely dependent upon delivering the goods in a timely manner.

Most automakers, GM included, have watched their stock valuation shrink in 2018. In fact, the only one to see a sizable increase was Tesla. Meanwhile, Japanese manufacturers are also seeing investors get skittish, only to a lesser degree than the likes of Ford or General Motors. This may be due to not diving headlong into electro mobility or ransacking their lineup to adhere to present-day consumer tastes and the hypothetical self-driving tomorrow. But it also might be due to their innate flexibility.

General Motors might shoot the moon in terms of profits if it can get autonomy, electrification, and data to work in its favor. Ford, which has similar goals, could also be in line for a healthy future payout. But they’ll both have wasted a fortune if things don’t shake out as planned, and could become crippled if a sudden fuel crisis obliterates truck sales in the West. Japanese automakers have taken a safer approach, placing an added emphasis on flexibility in these uncertain times.

Honda designed the CR-V and Civic so they could be put together on the same line, which is exactly what happens at the assembly plant in Greensburg, Indiana. If car sales continue to slide, they’ll simply build more sedans. Likewise, Nissan’s facility in Smyrna, Tennessee, which builds six models, uses a system of lights that clues workers in on what parts to use for the next vehicle. That way, if one model sees a decline in demand, Nissan can simply bolster output of another model. Reuters reports that this system helped vehicle throughput. Smyrna produced 623,000 vehicles, more than 97 percent of its total capacity, last year, and is running over 90 percent now.

European and, to a lesser extent, American brands also see plenty of platform sharing and co-optive line work, but it’s the Asian companies that seem to have mastered line flexibility. However, drawbacks exist in pursing this strategy en masse — less specialized vehicles being the most noteworthy. That said, if you’re saving a fortune on building your most popular models, you can often afford to offer something more interesting on the side.

One thing no automaker has been able to master is global demand. North America appears to have surpassed peak demand and China, which was expected to be a growth market for at least the next decade, recently saw its auto sales weaken by an alarming amount. Meanwhile, the United States is threatening increased tariffs on imported models while China has already dumped 40 percent on American exports. Figuring out where to build cars will soon be as important as deciding how to manufacture them.

[Image: Nissan]

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13 Comments on “How Do Automakers Plan to Cope With Their Upcoming Nightmare?...”

  • avatar

    This is one of those times where the future is coming a little faster than we think. From my own perch in North America’s most northerly city of 1M, the view is startling. In traffic here, I am surrounded by quad-cab four-bys and a good number of the larger SUVs. The city is only just building trains to the suburbs. And yet, elsewhere they are looking at eliminating cars as we know them. My city and province’s economy is still based around building and fixing the machines that pull stuff out of the ground, grown or buried. And yet, we have a Google DeepMind artificial intelligence lab here too. And wait until some clever, clever ones in Silicon Valley get a hold of that. The first thing they’ll do is figure out a way to monetize the very air you breath.

    • 0 avatar

      Probably so. I find myself much south of you and working in manufacturing. The great majority of vehicles in our lot, and those on my commute, are enormous. Having lived through a couple of crises, what I find to be the most ugly item looming in the future is that many of our own employees are probably shackled to payments way north of $500 per month, as one’s truck here is a point of pride. That’s real money in a good economy, but when companies start removing extra overtime, reducing force, and projecting lower and lower spending it becomes crucial to get out of those notes. A sudden glut of full-size trucks and SUV’s on the market at a loss would mirror the gas crises of the 70’s and the domestic dinosaur selloff (my father went the VW Bug route while we maintained a wagon for distance drives). The good thing is that fuel costs are not rising all that quickly due to supply. History may not repeat, but it does rhyme (Mark Twain?)

    • 0 avatar

      Edmonton has a million people?

  • avatar

    Pickups, SUVS, larger CUVs are the only sources of significant profits for ALL the world’s automakers. Yes Porsche and Ferrari make some good money on each sports car they sell, but they don’t sell very many units, and a few of the luxury sedans make some profits, but nearly everything else is breakeven at best, and everything green (i.e. EVs, hybrids, small gasoline cars) are serious money losers. The Greens and Politicians are doing everything they can to handicap or stop the sales of all the profitable vehicles, while forcing automakers to build more vehicles that are unpopular (without subsidies) and unprofitable. Hard to see a profitable future for mass-market brands if current trends continue.

  • avatar

    The past few years of the auto industry have been too hot. We’ve been long overdue for a correction in sales, models and brands.

    Add to that the fact that used cars are as robust and reliable as ever, and that rates are increasing… it’s hard to find any optimism in the new auto market. Only the benchmarks and top brands will weather the storm.

  • avatar

    Today’s “trucks” are nothing like what they once were. An Ecosport or HRV for example are little more than slightly higher hatchbacks. They get enough MPG to weather a fuel crisis.

  • avatar
    SCE to AUX

    No mention of FCA; I guess they’ll be OK.

    • 0 avatar

      Good point. Of the (what used to be known as) Big Three, FCA seems to have the least tenuous grip on future plans. Poo-poo all you want on electrification, autonomous driving, car sharing and all of the other “wild and crazy” schemes Ford, GM, Toyota, etc. are exploring at least they are trying to look to the future.
      When Sergio and Fiat snapped up ChryCo their initial long-term plan looked bright and ambitious but all started to dwindle and fall apart.
      Now we’re left with…
      Chrysler a two-car brand
      Dodge a 5-car (6 if you count the Journey) brand – all large cars/SUVs – as the MORE POWER division.
      Fiat was supposed to be the small car source for FCA – and we all know how well that is going.
      That just leaves Jeep and Ram as lone profit sources
      Can FCA survive such a tangled mess?

  • avatar

    FCA is building what the market wants – the 2019 RAM as one example.

  • avatar

    ” If car sales continue to slide, they’ll simply build more sedans.”

    Good strategy.

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