Everyone’s batten down the hatches for rougher times ahead. That’s the theme for The Morning Shift for Wednesday, August 14, 2019. Cheery, I know.
This isn’t exactly a revelation, but The U.S.’s top two automakers reiterated this week that they’re preparing for a major economic down turn by hoarding cash under the mattress, thanks in part to U.S.-China tariff wars and declining demand. From Reuters:
The top two U.S. automakers are preparing for a possible economic downturn, the companies said on Tuesday, as an ongoing trade war between Washington and Beijing fuels fears of a global recession.
Tit-for-tat tariffs have increased raw material costs for the global auto industry, which is already dealing with weak demand in both China and the United States.
Ford Motor Co (F.N) has a cash buffer of $20 billion for a potential downturn event, Ford North American Chief Financial Officer Matt Fields said at a J.P. Morgan Conference in New York.
General Motors (GM.N) has $18 billion in cash, with the potential to pay two years worth of dividends, the company’s finance head, Dhivya Suryadevara, said at the conference.
GM said they’re considering “a shift to lower-priced vehicles” depending on how bad the downturn is. Both companies have significantly curtailed production of small, affordable cars in these Good Times, with Ford bailing on sedans entirely, because they make way more money from trucks and SUVs. Recessions are hard to weather; doubly so if your company doesn’t sell anything cheap.
The UAW is preparing for a round of negotiations with the Big Three, and a Detroit Free Press report indicates they’re going to start with Ford because Ford is nicest. From the Free Press:
Half a dozen interviews with industry and union sources close to negotiations suggest the union’s relationship with Ford is widely viewed as the most stable and least contentious. Union negotiators consider Ford a good-faith partner in what is, at best, a brutal collective bargaining process that will include fights over steep health-care costs, hourly wage increases, the use of temporary workers, and shrinking an eight-year “grow-in” period required for full-time workers to reach top wages.
But workers, especially younger ones, are preparing for the worst:
No UAW member wants to support a family on the strike wage of $250 a week, yet workers are telling local leaders they are already making advance payments on bills and budgeting for hardship in preparation for the worst. Younger union members say they help companies make money and they’ve been disrespected by GM as it continues to show strong profits. The union maintains GM violated the contract by closing or idling factories during the the life of the current contract.
That’s a good quote to get in a major Detroit newspaper if you’re the union, just to let management know the labor force is ready for a fight. So is this one:
“We think Ford would be the best deal,” said one veteran UAW member. “The most anger is with GM, which is making a ton of money and still Mary Barra is trying to close plants. Our country bailed out GM during the bankruptcy. I mean, why can’t they build the Chevy Blazer in Poletown? Mexico didn’t bail out GM, we did.”
I suspect this is not the last time you will hear “Mexico didn’t bail out GM, we did.”
I don’t know how I got on this Batten Down The Hatches theme but I’m sticking with it. Anyways, Great Britain is still getting screwed by the greatest act of economic self-harm in recorded history, Brexit. The latest news out of the auto industry is what we in the blogging industry call Bad:
Investment in Britain’s car industry plunged more than 70% to £90 million ($109.5 million) in the first half of the year as global manufacturers held back their spending over the Brexit crisis.
The rate of first-half spending was well behind the annual average of £2.7 billion ($3.3 billion) over the previous seven years.
And here are some more numbers:
SMMT reports British car manufacturing first-half output fell 20.1% to 666,521 units. The 15.2% drop in June to 109,226 units marked the 13th consecutive month of decline.
SMMT says the number of cars built for export fell 19.8% to 90,788 units in June and 21.0% to 533,318 for the first half.
Exports to the sector’s top global markets fell by double digits, with the U.S. down 12.9%, China down 53.1%, Japan down 10.5% and Turkey off 93.0%. Demand in the U.K.’s biggest market, the EU, fell 15.6%.
SMMT says a no-deal Brexit would mean the immediate imposition of tariffs costing some £4.5 billion ($5.5 billion) a year and an end to the seamless movement of goods.
The numbers, they are bad.
This space is typically reserved for bad news these days, so here’s a little good news: Audi of America hired a replacement for Mark Del Rosso after he abruptly departed in May under mysterious circumstances. And that replacement is....Daniel Weissland, formerly Volkswagen Group Canada’s CEO!
In Canada, Weissland led VW to a record sales year in 2018. VW Group sold 118,448 new vehicles in Canada in 2018, a 3.6 percent year-over-year gain. VW Canada’s sales were down 8 percent to 63,023 units this year through July.
VW Canada CFO Lorie-Ann Roxburgh will become interim managing director of VW Group in Canada, according to spokesman Thomas Tetzlaff. Marc Guentermann, senior director of aftersales for the VW brand, will act as interim head of the Volkswagen brand in Canada, Tetzlaff said.
OK, maybe this technically isn’t a “new” job, more of a promotion, but there isn’t much good news these days. Meanwhile, it’s still not clear why Del Rosso departed.
FCA is building the first new vehicle assembly plant within Detroit’s city limits in three decades at the Mack Engine complex, which just hit a major construction milestone. From the Free Press:
“We’re setting up to erect the first column of steel for the new paint shop building. There are a total of 299 vertical columns and this is the first. A major milestone for a new paint shop at Mack,” said John Powell, senior manager for paint facilities. “Big day. Excellent day.”
The new paint shop is one of several new structures under construction at the former Mack Engine complex, soon to house the first new auto assembly plant built in the city in three decades. By the end of next year, vehicles should be rolling off the line. The plant is scheduled to produce a new three-row SUV as well as a redesigned Jeep Grand Cherokee.
And with that completed factory will come more jobs:
The tour of the facilities offered FCA a chance to showcase its efforts, part of $4.5 billion in investments announced in February for metro Detroit ($1.6 billion at the Mack complex). The City of Detroit just wrapped up its final major job fair tied to the expansion, formally registering more than 10,000 city residents to apply for the 4,950 jobs FCA said would be available (3,850 at Mack Assembly and 1,100 at Jefferson North). Detroiters get an early hire window after laid-off workers from Illinois.
Hopefully, those numbers will remain the same even if the Ford/GM-predicted recession hits before the Mack Complex is completed.
Ford and GM are hoarding cash, assuming they’ll need it to pay debts once the recession hits. What are you doing to prepare for the economic downturn, if anything, that is apparently going to come sooner rather than later?