Back when the COVID-19 pandemic was in full swing, wreaking havoc across the world, automakers enjoyed record-high profits as they raised prices because of a shortage of new cars. Now though, that honeymoon period is over, and these companies aren’t in a position to recover without a lot of pain.
Automakers around the world like Nissan, Volkswagen and Stellantis are considering massive layoffs and plant closures as they deal with dropping profits and other issues, according to the New York Times. Each of these automakers have their own problems, but there are a lot of similarities to be found, as the Times explains:
They include a tricky and expensive technological transition, political turmoil, rising protectionism and the emergence of a new class of fast-growing Chinese carmakers. The many woes raise questions about the future of companies that are a critical source of jobs in many Western and Asian countries.
Many of these problems have been apparent for years but became less pressing during the pandemic, lulling some automakers into complacency. When shortages of semiconductors and other components slowed production and limited inventory, carmakers found it easy to raise prices.
But that era is over and the industry has reverted to its prepandemic state, with too many carmakers chasing too few buyers.
Many car factories around the world are making many fewer cars than they were built to produce. When automakers don’t earn a decent return on their factories and machines, there is “a massive effect on profitability,” said Simon Croom, a professor of supply chain management at the University of San Diego. “The difference between profit and loss is a very fine line in the auto industry.”
Unfortunately, but not unsurprisingly, workers are one of the first groups to suffer when stuff like this happens. Right now, there are over nine million people working worldwide in manufacturing, and a million of them are right here in the U.S. Additionally, over two million Americans work at dealers and other related businesses. Basically, lots and lots of folks work in the automotive industry, so there could be real dire consequences if the ship isn’t righted soon.
Here are some of the automakers around the world are doing to contain rising costs and why they’re struggling, according to the Times:
Nissan, which has factories in Mississippi and Tennessee, has not detailed where its layoffs will take place. It is not alone in cutting jobs. Ford last month announced 4,000 job cuts, mostly at factories in Britain and Germany. The company cited “unprecedented competitive, regulatory, and economic headwinds.”
Ford was partly referring to Chinese carmakers. Barely a factor before the pandemic, they have charged into the international market with cars that can match Japanese, European or American vehicles on quality, at much lower prices.
BYD, Chery, SAIC and other Chinese carmakers are still effectively barred from the United States by trade rules and hobbled by tariffs in Europe. But they are pushing into places like Australia, Brazil, Chile and Thailand, luring buyers away from the likes of Fiat, General Motors and Toyota.
Competition from China is “starting to hit the safe places that Western carmakers had,” said Felipe Munoz, global analyst at JATO Dynamics, a research firm.
Some of the hardest hit companies are simply doing poorly because they aren’t putting out compelling products, whether it’s an old model lineup or uncompetitive electric vehicles, as the New York Times explains:
Companies that were slow to replace aging models are doing worst. That has been the case for Nissan, Stellantis and even Tesla, which analysts expect to end the year with sales that are roughly unchanged from 2023. Others have struggled to build appealing electric vehicles and develop software, an increasingly important element of car design.
Volkswagen was among the first established carmakers to develop electric vehicles, but the models underwhelmed buyers and critics. Sales in the United States of the company’s ID.4 sport-utility vehicle plunged by more than half in the third quarter from a year earlier, according to Kelley Blue Book. Buggy software handicapped sales of the ID.4 and other electric models that Volkswagen sells in Europe and Asia.
“The Chinese are winning market share and the Germans are losing,” said Ferdinand Dudenhöffer, director of the Center for Automotive Research in Bochum, Germany. “It’s not only the electric cars, it’s the software in the cars.”
Changing government policy is adding to the carmakers’ woes. Sales of electric vehicles plunged in Germany after the government, facing a budget crisis, abruptly eliminated financial incentives.
With all that being said, not every automaker is struggling right now – especially General Motors. Its stock has risen over 40 percent this year as other automakers see drops in their stock prices. The Times explains why this is happening:
In part, Wall Street is rewarding G.M. for popular electric vehicles like the Cadillac Lyriq and Chevrolet Equinox. Mary T. Barra, the G.M. chief executive, has said the company is close to making a profit on electric vehicles, unlike other American carmakers excluding Tesla.
But G.M. is also retrenching, announcing last week that it would stop developing robotaxis, autonomous vehicles that can carry passengers without drivers. The decision raised questions about whether established carmakers can compete with Tesla and Waymo, a division of Google’s parent company, in the next generation of automotive technology.
Toyota is also doing fairly well for the moment. It has doubled down on hybrids and cut back on its EV plans, and that seems to be working for now.
Toyota could be left behind if sales of electric vehicles grow faster than market analysts expect. Prices for battery-powered vehicles are dropping while the distance they can travel on a charge is growing. In China, electric vehicles are already cheaper than comparable gasoline models. More than half of new cars sold there are electric or plug-in hybrids.
Stellantis is also doing its best to right the ship following the departure of CEO Carlos Tavares, but it’s not going to be an easy road.
Stellantis […] as new models lined up for 2025. They include several electric vehicles, among them Jeeps, Ram pickups and a Dodge Charger muscle car. The company is also working to repair its relationship with dealers who feel that Stellantis waited too long to lower prices and offer incentives to help them sell cars that were piling up on their lots.
Time will tell if these companies are headed in the right direction, but something is very clear: they’re going to have to act quickly, because buyers are becoming less and less willing to pay extremely high prices for cars, and workers are suffering for it.
