Ford Motor Co is reducing 10 percent of its workforce. General Motors Co has shut down operations in major, emerging markets. Volkswagen is gearing for a massive round of layoffs. Toyota’s record-breaking run of making profits is over. The auto industry leaders are absorbing losses, year after year, killing high hopes of many major investors. What’s behind the turbulence, Industry Leaders Magazine finds out.
Board Turns Heat Up on Ford
Last week, Ford Motor Co announced substantial job cuts to squeeze profits and raise its stock price. The cuts are largely said to target salaried workers, although, it’s unclear whether hourly factory workers are included. For quite a while now, the Detroit-based automaker has been under immense pressure to take action to buoy its lagging stock price. When chief executive officer Mark Fields took over in 2014, he was caught between pleasing a board pressurizing him to boost fading profits while pacifying President Donald Trump, who is relentlessly pushing U.S. automakers to bring back the manufacturing jobs.
Today, Ford is strong-armed into refocusing its strategy to fortify its so-called profit pillars, as it transforms its luxury and small-car business to grow electrification, autonomy and mobility is gaining traction. Moreover, Ford is slashing jobs despite maintaining profits.
Ford isn’t the only automaker beset with impatient shareholders.
Toyota Slides to Profit fall Two Years in a Row
Toyota Motor Corp, which has relinquished the title of ‘World’s Biggest Automaker’ for the past four years, predicts its profits will fall two years in a row. Two weeks ago, Akio Toyoda, the president of Japan’s largest carmaker warned of an impending “sense of crisis.”
The automaker has now sprung into action to streamline operations to bolster margins. It is under pressure from Prime Minister Shinzo Abe to raise workers’ wages to boost the country’s economic recovery. Last year, Toyota reorganized the company to create internal sub-companies that are freed to act more independently and nimbly. The company recently poured $1 billion to set up an institute in Silicon Valley for artificial intelligence research.
Automakers sitting under piles of cash are reluctant to raise wages as they’re anxious about the economic outlook, currency swings and the possibility that President Donald Trump’s trade policies might hurt their sales.
General Motors Co. Terminates Operations in Russia, India, and Europe
Yesterday, General Motors Co announced that it is pulling the plug on its sales operations in India and South Africa. It has taken aggressive steps in its overarching agenda to maximize returns from fewer, more profitable markets. Retrenching in the US, the automaker has ditched five international markets, including Russia, India, and Europe.
The Detroit automaker announced plans to withdraw the $1 billion investment to build a low-cost vehicle family in India. It has also been a bumpy ride for the automaker in South Africa, given the sluggish domestic economy, the increase in interest rates, the new vehicle production inflation, and low levels of consumer confidence.
For auto industry leaders, it is becoming increasingly frustrating to gain acceptance in emerging markets like India, South Africa and China. The decline in India is attributed to short-term headwinds such as demonetization and the intricate tax environment. At the same time, these companies are finding it tough to compete with larger domestic incumbents such as Mahindra & Mahindra Ltd, Maruti Suzuki India and Hyundai, all of whom have seen profits improve in the last couple of years.
Under Mary Barra’s leadership, GM is now investing about $600 million a year in efforts to transform mobility and develop autonomous vehicles and transportation services. Barra doesn’t buy the notion that emerging market is a requisite for greater revenue and profits.
In Preparation for Autonomous Vehicles
The slow tension between the traditional automakers and impatient shareholders is magnified. This is because the traditional car companies aren’t just competing with one another. They're up against Google, Apple, Tesla, Uber and many others. These tech companies are enjoying a favorable position as the general demands from vehicles shifts towards self-driving cars. This is a lot of change.
Auto industry leaders are spending billions on R&D of autonomous cars, electric vehicles and pumping out billions in companies like Uber and Lyft.
Technological evolution has brought to our feet the ride-share technology, which is rapidly diffusing around the world. Consumers will soon be able to commute in driverless vehicles as the autonomous-vehicles industry fulfills its tremendous potential. To remain solvent, players in the auto industry have no choice but to cut budgets, lower R&D activities without it affecting the nascent “innovative and agile” part of the sector.