Fri, Nov 30, 2018 - Page 10 News List

With US sales boom over, automakers tighten belts

DOWNCYCLE:US makers such as General Motors are eliminating jobs and shuttering factories in the face of slower US demand and a shift to newer technolgies

AFP, NEW YORK

Rita Clark, an electronics tester, tests components on a front end of a General Motors Co Chevrolet Cruze at Jamestown Industries in Youngstown, Ohio, on Wednesday.

Photo: AP

Automakers have talked glowingly of a future with emissions-free vehicles, smart transportation systems and cars that drive themselves.

However, in the interim, companies like General Motors Co (GM) — which on Monday unveiled major job cuts — face decidedly more mundane questions: how to respond to slowing US demand as higher interest rates bite into new car sales while more used vehicles are also entering the market?

“It’s going to be a smaller market,” Cox Automotive Inc economist Charlie Chesbrough said of GM and Ford Motor Co, which is likewise expected to eliminate jobs and perhaps shutter factories.

GM and Ford want to be major players in autonomous driving and other newer technologies, an objective that will demand billions of US dollars in new investment and could ultimately lead to more industry consolidation, analysts said.

“The pie is starting to shrink a little bit, or at least that’s their view and they’re trying to get themselves right-sized before things get much worse,” Chesbrough said.

Cox Automotive projects new US car sales would slow to 16.6 million units next year and 16.5 million units in 2020, a drop below the 17 million level that sales are expected to again eclipse this year.

The forecast includes the effect of higher interest rates and the drag from a trove of leased cars manufactured during the boom period.

However, it does not assume an all-out trade war, which would further dent sales, Chesbrough said.

On Wednesday, US President Donald Trump on Twitter threatened new tariffs on car imports, amplifying his response against GM, whose job cuts affect the politically crucial states of Michigan and Ohio.

Auto cycles typically end with a 5 or 10 percent drop, a relatively modest decline that automakers take as a signal “to get their production house in order,” DataTrek Research cofounder Nicholas Colas said.

“You know that once you’re passed the peak, you have nowhere to go but down and that’s what scares auto executives,” Colas said, adding that auto sales could go as low as 13.5 million in a recession.

Adding to the dilemma is uncertainty about the outlook for new car sales in the medium term given potential technological disruption.

Will more drivers opt for ridesharing and against owning their own vehicle? How many consumers will opt for an electric car once more vehicles hit the market at lower price points? When will autonomous driving arrive in a meaningful way?

“No one has any idea what the next cycle is going to look like,” Colas said. “In this case, GM not only has to plan for normal cyclicality, but GM clearly feels it needs to plan for the next five to 10 years.”

GM plans to shutter seven plants worldwide, including five in North America that build sedans that have not been selling well in the US.

The company did not release an estimate of the total potential employment hit, but some news reports have put it at 14,000 workers or more.

GM chief executive Mary Barra characterized the move, intended to save an estimated US$6 billion, as part of an effort “to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future.”

Many expect the GM downsizing to be followed by cuts at Ford, which has announced plans for an US$11 billion restructuring.

“We know there’s more to come,” Michigan-based Chesbrough said, alluding to Ford.

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