By John D. Stoll and Mike Colias
Faced with softening U.S. car sales and mounting investor
skepticism about Detroit's ability to weather the first industry
downturn in nearly a decade, auto executives are facing a tough
choice in who to please -- Wall Street or the White House.
Detroit has been an engine of growth for U.S. employment since
the financial crisis, with General Motors Co., Ford Motor Co. and
Fiat Chrysler Automobiles NV adding tens of thousands of jobs to
keep pace with growing demand and fund autonomous-car engineering
and other moonshot programs. Earlier this year, the auto makers
have promised to add head count at certain factories in response to
criticism from President Donald Trump.
Those executives are quickly retreating. GM and Ford are making
cuts to American workforces that could far outpace the job
commitments made in recent months amid political pressure. Armed
with union contracts that were reworked a decade ago, domestic car
companies can respond more rapidly to investor concerns.
"There is a lot of a balancing act going on," said LMC
Automotive senior vice president of forecasting, Jeff Schuster.
"We're finally at the point where we're likely to see a contraction
in demand (and) obviously the new administration pushing for
jobs."
Mr. Schuster said with "pressure on both sides of the equation,
something has to give."
Auto executives are leaning on Mr. Trump for significant
reforms, including relief from emissions standards set during the
Obama administration and lower corporate taxes. GM, Ford and
Chrysler, pressured for reliance on Mexican production and the
protections afforded by the North American Free Trade Agreement,
have said Mr. Trump's pro-business stance could be a factor in
rerouting investment to American factories that could have
otherwise headed south of the border.
The message for Wall Street has a different tone.
GM in recent months has disclosed plans to lay off more than
4,000 workers as demand for certain passenger cars, such as the
Chevrolet Malibu or Cadillac CTS, dwindles. Ford is planning to cut
10% of its staff to shore up sagging profit. Even though auto sales
have fallen only modestly off 2016's record pace, market
capitalizations at both companies now trail Tesla Inc., a much
smaller company that is believed to be better positioned for
growth.
GM executives, citing changes made to United Automobile Workers'
contracts before its 2009 bankruptcy, recently told analysts about
one-third of its hourly workers have relatively short layoff
benefits and that percentage will rise, making it easier to cut
jobs.
"We have a much more flexible workforce, enabling us to react to
market dynamics and take costs out more aggressively compared with
past cycles, " GM finance chief Chuck Stevens told analysts last
year. RBC Capital estimates GM could slash up to $1 billion in
annual labor costs if U.S. sales slip 20%.
Ford, aiming to cut $3 billion in costs, had been reluctant to
lay off hourly workers, instead staggering assembly-plant schedules
by giving workers weeks of downtime. It will now slim down its
global workforce, cutting 10% of jobs mostly from its salaried
ranks, according to people familiar with the plan.
Even as car companies, including foreign makers such as Toyota
Motor Corp., have been chastised by Mr. Trump for increasingly
reliance on Mexican factories, the auto industry has helped drive
U.S. employment gains in recent years. Assembly-plant employment
hit the highest point in more than eight years in December, with
more than 211,000 people employed, according to the Bureau of Labor
Statistics.
Those gains include additional staff added by non-domestic auto
companies, such as Volkswagen AG, which is expanding in Tennessee.
Tesla on Monday announced its workforce has reached 10,000 people
at a California factory purchased in 2010.
Total auto manufacturing employment, including parts suppliers,
hit 945,000 in April, 50% higher than industry employment in 2009
when GM, Chrysler and several auto suppliers were undergoing
bankruptcy restructuring.
GM's U.S. employment during the decade has been rebuilt, growing
from 77,000 in 2010 to 105,000 last year. It recently committed to
add $1 billion in fresh investment, which could lead to 1,500 new
factory jobs. Ford and Fiat Chrysler also promised jobs early this
year, many of which had been committed during 2015 negotiations
with the UAW.
Nissan Motor Co., among the only auto maker expanding in the
U.S. market, is looking to adding U.S. capacity, but many --
including Subaru Corp. -- are considering production cuts that
could affect overall employment.
The Trump administration's push for additional jobs from car
companies could get a boost if Nafta undergoes significant changes,
but much of the industry's fate is tied to U.S. light-vehicle
demand.
Auto makers are facing a growing glut of inventory, a sign that
production capacity is too high. RBC auto analyst, commenting
earlier this month on April's weak car-sales performance, said the
slowing pace of demand adds "to investor angst and the belief that
production cuts are needed."
--Christina Rogers contributed to this article.
Write to John D. Stoll at john.stoll@wsj.com and Mike Colias at
Mike.Colias@wsj.com
(END) Dow Jones Newswires
May 16, 2017 14:57 ET (18:57 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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