Automakers' Dilemma: How To Pander To Trump Without Ruining Their Business
The disastrous effects of the 2008-2009 financial crisis have been seared into the minds of everyone connected to the global auto industry. Nobody wants to go back to those awful days. Detroit automakers alone closed 14 U.S. assembly plants, cutting tens of thousands of jobs amid a stunning 40 percent drop in car sales.
Overall, in fact, the auto industry is achieving record U.S. production with six fewer plants than before the crisis. While the Detroit Three closed 14 plants in the U.S., foreign automakers opened eight new ones on U.S. soil. Today, the U.S. has 79 vehicle assembly plants, compared to 85 a decade ago, according to consulting firm Oliver Wyman.
But with unmistakable signs that growth is slowing, automakers need to manage factory staffing to avoid overproduction. General Motors, for instance, recently said it would eliminate a shift of workers at three of its car factories, cutting about 3,300 jobs. It was a prudent, if painful, move, tied to market realities. GM is also idling some plants for a few weeks at a time to keep inventories in check. Ford Motor did the same in 2016. Fiat Chrysler Automobiles said it would stop making slow-selling cars altogether in the U.S., and focus instead on stronger-selling trucks and Jeep SUVs.
“Most companies have held back on investment (in new factories) because they think we’re at a peak of production volume,” said Oliver Wyman productivity expert Ronald Harbour. (That’s not to say they haven’t been investing in existing plants; since 2009, the industry has spent $85 billion on U.S. manufacturing facilities, according to the Center for Automotive Research.)
That’s how you end up with silly press releases like the one from General Motors yesterday saying it would invest $1 billion in its U.S. manufacturing operations, “adding or retaining” 1,500 jobs, without providing details. There was very little news in the release, which was mostly a recap of what GM has already been doing over the past few years to shore up its business, including adding a finance company and bringing information technology work in house after years of outsourcing. In the past four years, GM has created 25,000 jobs in the U.S. − approximately 19,000 engineering, IT and professional jobs and 6,000 hourly manufacturing jobs. The one bit of news is that GM said it would “begin work on insourcing axle production for its next generation full-size pickup trucks, including work previously done in Mexico, to operations in Michigan, creating 450 U.S. jobs.”
Trump seized on the announcement as another example of his influence, thanking GM on Twitter for “starting the big jobs push back into the U.S.!”
GM executives had a different explanation: “All of the decisions behind our investments are good business decisions and they have been in the works for some time,” said spokesman Patrick Morrissey. Acknowledging that “there is an emphasis on job creation in the U.S. right now,” he added, “This was good timing for us to share what we are doing, including our ongoing commitment and track record for U.S. investment over the last several years.”
As with previous announcements from Ford and FCA, GM’s announcement was a way to curry favor with the new president while highlighting business decisions they’d already made, or planned to make. Fiat Chrysler, for example, said earlier this month it would invest $1 billion to overhaul existing plants in Michigan and Ohio to produce more Jeeps and pickup trucks, adding 2,000 jobs. The move had been telegraphed back in 2015, when FCA laid out a revised business strategy. But it made the president-elect happy, based on his Twitter feed.
Ford’s decision to cancel plans for a $1.6 billion factory in Mexico, and to invest $700 million in an existing factory in Michigan, seemed to be a direct result of pressure from Trump, who had been blasting the automaker for months about its plans to build small cars in Mexico.
But when you talk to Ford executives, it’s clear that the decision was part of a complex puzzle to carve out manufacturing capacity for two highly anticipated trucks, the reborn Ford Bronco and Ranger, while minimizing losses on lower-margin cars like the Focus and Fiesta. “We needed to find a truck plant,” explained Ford’s North American chief Joseph Hinrichs. “It took us time for that to play out,” and moving small car production to lower-cost Mexico was part of the calculus.
In fact, I’d venture to say that Ford was beginning to regret that $1.6 billion investment decision by mid-2016 as passenger car sales collapsed in favor of what officials see as a permanent shift toward SUVs and crossovers. Pulling the plug on the plant, while expensive, will end up saving Ford $500 million in the long run, company execs say, and probably came as a relief given current market trends. Despite Trump’s victory claim, Ford still plans to move Focus production from the U.S. to Mexico, albeit to an existing plant. Meanwhile, the $700 million it’s investing in Michigan is to revamp a plant for electrified vehicles, a strategy it announced more than a year ago.
Trump bristles at reports that such decisions were already in the works, calling an NBC News report on GM’s announcement “fake news” because it failed to mention his role in the move. Those jobs “came back because of me!” he tweeted.
It’s no wonder automakers are willing to let Trump claim credit for their business decisions – they are hoping to score political points when it comes to important issues like fuel economy regulations or tax policies that could have a major impact on their operations.
Ford Chief Executive Mark Fields plainly called his company’s decision to cancel the Mexico plant “a vote of confidence in President-Elect Trump and some of the policies he may be pursuing,” adding, “We see a more positive U.S. business environment under Trump.”
It’s really just a guess, though, since Trump has yet to say whether he’ll roll back tough fuel economy standards, and it remains to be seen what policies he can push through Congress.
Meanwhile, the automakers will just keep doing what’s good for business – their employees, their customers and their shareholders.