By John D. Stoll and Mike Colias
Amid softening U.S. car sales and mounting investor skepticism
about Detroit's ability to weather the industry's first downturn in
nearly a decade, auto executives are facing a tough choice in whom
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, company executives
promised to add head count at certain factories in response to
criticism from President Donald Trump.
Now, those executives are quickly retreating. GM and Ford are
making cuts to their U.S. 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 about the
bottom line.
"There is a lot of a balancing act going on," said Jeff
Schuster, LMC Automotive's senior vice president of forecasting.
"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 that 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, under pressure from the President over their 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 would otherwise head south of the border.
The industry's 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 and Cadillac CTS, dwindles. Ford is planning to
cut 10% of its staff to shore up sagging profit.
Frank Giamboy, an adviser with financial planner Waddell &
Reed in Wilmington, Del., said it is clear that executives are
"still trying feel their way around" in the early days of the Trump
administration. But "I don't think Ford should be kowtowing," he
said. "It's got to do what it has to do to stay alive."
Mr. Giamboy, a longtime investor in Ford with his own money,
said the auto maker needs to show it is focused on managing costs.
His concern is shared by the auto maker's board, which granted
Chief Executive Mark Fields a $2.5 million stock incentive for
"developing a lean mind-set," even as he focuses on future
initiatives at the car maker.
Shares of Ford and GM are trading well below their value when
Mr. Fields and his countpart at GM, Mary Barra, took the helm in
2014. GM's stock price, closing at $33.42 on Tuesday, is only
slightly above the company's 2010 post-bankruptcy initial public
offering; Ford's share price, stuck below $11, is down about 40%
from when Mr. Fields succeeded Alan Mulally three years ago.
Ford and GM slipped behind Tesla Inc. earlier this year in
market capitalization, underscoring a rapid shift in the way
investors view the industry, which is expected to change
dramatically as autonomous cars and electric vehicles replace
conventional transportation.
Both companies have sought to boost value by implementing stock
buybacks or special dividends in recent years. The measures, coming
as Detroit auto makers report historically strong profitability,
have had little impact on investors due to their concerns about the
cyclical nature of the car business.
GM executives, citing changes made to United Automobile Workers'
contracts before the company's 2009 bankruptcy, recently told
analysts about one-third of hourly GM workers have relatively short
layoff benefits and that percentage will rise, making it cheaper to
cut jobs.
"Clearly, as we see a downturn, there is a component, I hate to
even bring it up...that's a significant opportunity for reduced
cost," GM finance chief Chuck Stevens told analysts in April. "It
doesn't make any of us happy, but that's a fact." RBC Capital
estimates GM could slash up to $1 billion in annual labor costs if
U.S. sales were to 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 though 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 foreign auto
makers 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., one of the few auto makers 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, 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 17, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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