Tag Archives: Auto Industry

“There Are Basically No Sales”: U.S. Auto Industry Enters Total Collapse As A Result Of Nationwide Lockdown

2020 is shaping up to be nothing short of a complete and total meltdown for the U.S. auto industry.

The industry was already barely holding on by a thread before the coronavirus pandemic started, with China leading the rest of the globe’s auto industries into recession over the last 18 months. Now, in a post-coronavirus world, automakers in the U.S. are expecting nothing less than full collapse.

And the things that were barely holding the industry up to start 2020, namely low rates and modest consumer confidence, don’t matter. Businesses are closed, would-be buyers are strapped for cash and the country’s economy has simply been turned off. The industry’s annualized selling rate could slow to 11.9 million in March, according to Edmunds.

Jessica Caldwell, executive director of insights for market researcher Edmunds, told Bloomberg: “The whole world is turned upside down right now.”

The coronavirus lock downs across the nation will also put a damper on April, which is traditionally a good month for auto sales. Ford is all but shutting down and names like Fiat and GM are expected to release extremely weak numbers later this week.

Morgan Stanley analyst Adam Jonas put it simply: “There are basically no U.S. auto sales right now. Investors have fully embraced the reality that the U.S. auto industry may be shut down for one or two full months. We’re now being asked to run scenarios of six-month or nine-month shutdowns.”

The President’s extension of his social distancing guidelines to the end of April will also act as a headwind for the industry. Factory shutdowns that started in March will now head toward their second month of no production, as the U.S. consumer, for the most part, remains stuck at home. 

Jeff Schuster, senior vice president of forecasting for research LMC Automotive commented: “We just don’t know when and how this ends, and that’s the biggest problem right now. All of this uncertainty creates a lot of angst and that has been spreading really like a wildfire through the industry.”

‘Big 3’ Detroit Automakers Shutter All Domestic Manufacturing

Wow, when was the last time this ever happened? 

At the urging of UAW leaders, all three of Detroit’s “Big 3” automakers announced around midday on Wednesday that they would shutter all domestic production. The decision follows Daimler, BMW and a handful of other car makers in Europe and Asia shuttering factories to combat the coronavirus outbreak – and to prevent a glut of supply.

Here’s the rest of the update, courtesy of the AP:

Detroit’s three automakers have agreed to close all of their factories due to worker fears about the coronavirus, two people briefed on the matter said Wednesday.

Automakers are expected to release details of the closure later in the day. The United Auto Workers union has been pushing for factories to close because workers are fearful of coming into contact with the virus.

The people didn’t want to be identified because the closures have not been formally announced.

The decision reverses a deal worked out late Tuesday in which the automakers would cancel some shifts so they could thoroughly cleanse equipment and buildings, but keep factories open. But workers, especially at some Fiat Chrysler factories, were still fearful and were pressuring the union to seek full closures.

Fiat Chrysler temporarily closed a factory in Sterling Heights, Michigan, north of Detroit after workers were concerned about the virus. The company said a plant worker tested positive for the coronavirus but had not been to work in over a week. One shift was sent home Tuesday night and the plant was cleaned. But that apparently didn’t satisfy workers, and two more shifts were canceled on Wednesday.

Under an agreement reached with the union, companies will monitor the situation weekly to decide if the plants can reopen, one of the people said.

Honda is also planning on closing its North American factories, the company said.

Honda Motor Co. announced Wednesday that it will temporarily close its North American factories for about one week starting on Monday.
The move by General Motors, Fiat Chrysler and Ford will idle about 150,000 auto workers. They likely will receive supplemental pay in addition to state unemployment benefits. The two checks combined will about equal what the workers normally make.

Automakers have resisted closing factories largely because they book revenue when vehicles are shipped from factories to dealerships. So without production, revenue dries up. Each company has other reasons to stay open as well. Ford, for instance, is building up F-150 pickup inventory because its plants will have to go out of service later this year to be retooled for an all-new model.

As the story explains, factories are typically reluctant to close factories since these companies book revenue when they ship vehicles, not when they’re sold – so it’s all gravy to them.

Source: ZeroHedge

U.S. Auto Industry Cut Thousands Of Jobs, Closed Factories As Economy Shrank In 2019

DETROIT – General Motors, Ford Motor and other automakers in the past year cut thousands of jobs and shuttered factories as industry vehicle sales slow and fears of an economic slowdown pick up.

American flags fly near a General Motors Co. 2019 Chevrolet Camaro displayed at a car dealership in Tinley Park, Illinois, U.S., on Monday, Sept. 30, 2019. Auto sales in the U.S. probably took a big step back in September, setting the stage for hefty incentive spending by car makers struggling to clear old models from dealers’ inventory. Daniel Acker | Bloomberg | Getty Images

(CNBC) No one is forecasting an industry downturn comparable to when vehicle sales dropped below 11 million in the U.S. in 2009. However, domestic sales next year are forecast to drop for a second consecutive year in 2020 to below 17 million vehicles. Global vehicle sales also are expected to fall by about 3.1 million in 2019 – the steepest year-over-year decline since the financial crisis a decade ago.

Automakers took lessons learned from the Great Recession, which led to the government-backed bankruptcies of GM and then-Chrysler in 2009, to proactively restructure operations this year amid robust profits and healthy, yet slowing, vehicle sales.

“The industry was ill prepared for the crash in 2009 and the people who are in charge of the companies were around then,” said Michelle Krebs, executive analyst at Cox Automotive. “They remember it like it was yesterday. They are not going to make the same mistakes.”

Unlike 10 years ago, many of the actions taken this year were done in an attempt to safeguard investments in emerging technologies such as autonomous and electric vehicles. Both are considered to be potential multitrillion-dollar industries.

“They’re doing this at a time when the economy and the car market are good but starting to slip,” Krebs said. “The pie is shrinking, and they’re setting themselves up for that as well as this new future … Everybody is in the same boat on this in a way we’ve never seen before.”

GM and Ford

Both GM and Ford this year cut thousands of jobs and closed or announced plans to close roughly a dozen factories globally, including four in the U.S.

“We are taking proactive steps to improve our core business performance, capitalize on future mobility opportunities, improve our downturn protection, and create shareholder value,” GM CEO Mary Barra said when announcing significant restructuring actions in November 2018, many of which occurred in 2019.

GM’s announcement included reducing its headcount by 14,000 people and closing seven plants globally, including five in North America (one of which will be retooled and reopen) and two elsewhere. It came weeks after Barra said the company was continuing to position itself to “outperform in a downturn.”

The Detroit automaker expects the cost-cutting initiatives to save the companyup to $6 billion annually.

Ford took similar actions for its business to remain “vital and vibrant business through all cycles,” as Ford CEO Jim Hackett described it in May.

Since starting to lead Ford in 2017, Hackett has executed a number of global cost-savings measures as part of an $11 billion restructuring plan through the early-2020s, including significant cuts to its workforce and operations in 2019.

In June, Ford announced it would cut 12,000 mostly hourly jobs at its operations in Europe by the end of 2020. The announcement came a month after plans to cut about 7,000 salaried jobs globally, including 2,300 in the U.S.

Under the plans announced this year, Ford said it would close a U.S. engineplant in Michigan and shutter or sell off six of its 24 European plants.

“We feel we are very lean now and we’re very positioned for a downturn in case one comes,” said Kumar Galhotra, Ford president of North America, during the J.P. Morgan Auto Conference in August.

FCA-PSA merger

Fiat Chrysler took a different route than its Detroit rivals in addressing its costs. After years of rebuffs, the Italian-American carmaker finally found a merger partner, French automaker PSA Group.

The sides last week signed a binding merger agreement to create the world’s fourth-largest automaker by volume. The 50-50 all-share merger fulfills former CEO Sergio Marchionne’s vision of creating a global automaker with the resources to successfully compete in the ever-changing auto industry.

Marchionne, who unexpectedly died in July 2018, called for industry consolidation in a presentation called “Confessions of a Capital Junkie” in 2015. He believed only a handful of the world’s largest automakers would survive and have the capital to compete as automakers push for autonomous and all-electric vehicles.

Fiat Chrysler CEO Mike Manley and PSA CEO Carlos Tavares, who will lead the unnamed combined company, last week stressed that the merger is occurring at the right time, as both companies report healthy profits.

The $50-billion merged company is expected to achieve cost savings of 3.7 billion euros (US $4.1 billion) a year without closing factories.

Other restructurings in 2019 included:

  • Volkswagen’s Audi luxury brand also announced plans in November to cut up to 9,500 jobs, or 10.6% of its total staff by 2025, saving 6 billion euros ($6.61 billion).
  • Nissan Motor unveiled its biggest restructuring plan in a decade in July. The company announced plans to cut 12,500 jobs globally by March 2023, slash production capacity and ax about 10% of its product line.
  • In May, Reuters reported Volkswagen workers backed a restructuring of the world’s largest carmaker after CEO Herbert Diess pledged to spend 1 billion euros ($1.1 billion) on a new battery cell production plant near its headquarters.

Source: by Michael Wayland | CNBC

GM To Fire 15% Of Salaried Workers, Close 7 Plants

Update 4: The massive job cuts that GM is undertaking as it closes five plants in North America have infuriated politicians in Ontario and the US who will be stuck grappling with the consequences of how to help thousands of soon-to-be unemployed blue-collar (and white collar) workers. As they have vowed to fight the cuts, autoworkers unions in both countries have raised questions about whether firing thousands of workers violates the terms of the 2009 Treasury funded bailout that saved the “Big Three” US carmakers from bankruptcy. 

Now, one former Obama official has weighed in: Steve Rattner, who led Obama’s auto task force, which helped organize and oversee the bailouts, said he doesn’t believe they do. It was always the Obama Administration’s intention that GM and its peers run their businesses responsibly, including implementing meaningful cost-cutting measures to adjust for changes in their business environment.

“I don’t think these violate the 2009 agreement, in part because we always made clear that GM should be free to run its business in the ordinary course,” Steve Rattner, former chief of President Obama’s auto task force, says in an email.

“The passage of more than nine years is an important factor – there has been much change in the auto world over that period and it’s important for GM to be free to adjust its business accordingly,” he added.

As a reminder, the federal government took over GM and Chrysler in March 2009, fired GM CEO Rick Wagoner and forced Chrysler to merge with Fiat before distributing nearly $100 billion in subsidies that eventually left US taxpayers with a $10.2 billion loss.

https://www.zerohedge.com/sites/default/files/inline-images/2018.11.26bailoutchart.JPG?itok=9Xp6WQXP(Chart courtesy of the Balance)

The bailout ended on December 18, 2014, when the Treasury Department sold its last remaining shares of Ally Financial, formerly known as General Motors Acceptance Corporation, which it had bought for $17.2 billion during the depths of the crisis to infuse cash into the failing GM subsidiary. The Treasury Department sold the shares for $19.6 billion, earning a tidy $2.4 billion profit that wasn’t nearly enough to offset the losses on GM and Chrysler.  

Circling back to the present day, GM workers at the plants slated for closure walked off the job on Monday after the company formally announced the cutbacks.

It used to be that “what’s good for the country is good for General Motors, and vice versa.” As any of these workers would tell you, that’s clearly no longer the case.

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Update 3: In case you were wondering why GM would be doing this amid ‘the greatest recovery’ of all time and global synchronized growth; this chart should help!!

https://www.zerohedge.com/sites/default/files/inline-images/2018-11-26_8-48-17_0.jpg?itok=aENozWFZh/t @M_McDonough

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Update 2: The cutbacks announced by GM Monday morning were more severe than most analysts expected – and were certainly steeper than leaked reports published late Sunday and early Monday had suggested.

After GM shares were halted pending news following a 2%+ jump after the open, Barra revealed that the company would shutter 7 plants (5 in North America and 2 international) after 2019, fire 15% of its salaried workforce and shift hiring priorities to more tech workers in a cost-cutting drive intended to save the company some $6 billion by the end of 2020 ($4.5 billion will come from cost savings, $1.5 billion from lower capital spending). As GM seeks more workers with “different skills”, it also plans to shift its investment focus toward electric and autonomous vehicles.

Canadian Prime Minister Justin Trudeau has expressed “deep disappointment” at GM’s decision to close its plant in Oshawa, Ontario. He reportedly spoke with Barra over the weekend.

The company’s shares ripped higher after the trading halt ended, climbing 7.6% in their strongest one-day jump since Oct. 31, when the company announced some of its cost cutting plans and said it expected EPS for 2018 toward the high end of its guidance.

https://www.zerohedge.com/sites/default/files/inline-images/2018.11.26gmthree.jpg?itok=9u9XWS4m

Here’s a quick rundown of the closures:

  • 1. Oshawa Assembly in Oshawa, Ontario, Canada.
  • 2. Detroit-Hamtramck Assembly in Detroit.
  • 3. Lordstown Assembly in Warren, Ohio.
  • 4. Baltimore Operations in White Marsh, Maryland.
  • 5. Warren Transmission Operations in Warren, Michigan.
  • 6/7. In addition to the previously announced closure of the assembly plant in Gunsan, Korea, GM will cease the operations of two additional plants outside North America by the end of 2019.

Barra said the cutbacks are a response to sagging car sales in domestic and international markets (sedan sales have floundered while pickup truck sales remain robust) and the impact of Trump’s trade war. The steel tariffs alone have already cost GM some $1 billion this year, the company said.

“We are taking this action now while the company and the economy are strong to keep ahead of changing market conditions,” Barra said during a conference call with reporters.

The firm will cut 15% of its salaried workforce, including a 25% reduction in the number of executives to streamline decision making. All told, the company is expected to cut nearly 15,000 salaried and hourly jobs. The company last month offered buyouts to 18,000 last month to try and reduce headcount.

The UAW, the union that represents most of GM’s hourly labor force in the US, says it will do everything it can to resist GM’s plans. Canada’s innovation minister Navdeep Bains also decried GM’s plans.

  • *BAINS: IMPACT OF GM MOVE `COMPLETELY DEVASTATING’
  • *CANADA INNOVATION MINISTER BAINS SPEAKS TO REPORTERS IN OTTAWA
  • *UAW SAYS GM PRODUCTION DECISION “WILL NOT GO UNCHALLENGED”

The company’s white collar workers number roughly 54,000 in North America, according to WSJ, which speculated that most of the job cuts would come from GM’s bloated product-development division.

GM outlined the cut backs in an investor deck:

https://www.scribd.com/document/394181986/GM-Investor-Call-Deck-11-26-2018

Read the company’s full press release:

General Motors will accelerate its transformation for the future, building on the comprehensive strategy it laid out in 2015 to strengthen its core business, capitalize on the future of personal mobility and drive significant cost efficiencies.

Today, GM is continuing to take proactive steps to improve overall business performance including the reorganization of its global product development staffs, the realignment of its manufacturing capacity and a reduction of salaried workforce. These actions are expected to increase annual adjusted automotive free cash flow by $6 billion by year-end 2020 on a run-rate basis.

“The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future,” said GM Chairman and CEO Mary Barra. “We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”

Contributing to the cash savings of approximately $6 billion are cost reductions of $4.5 billion and a lower capital expenditure annual run rate of almost $1.5 billion. The actions include:

Transforming product development – GM is evolving its global product development workforce and processes to drive world-class levels of engineering in advanced technologies, and to improve quality and speed to market. Resources allocated to electric and autonomous vehicle programs will double in the next two years.

Additional actions include:

Increasing high-quality component sharing across the portfolio, especially those not visible and perceptible to customers.
Expanding the use of virtual tools to lower development time and costs.
Integrating its vehicle and propulsion engineering teams.
Compressing its global product development campuses.

Optimizing product portfolio – GM has recently invested in newer, highly efficient vehicle architectures, especially in trucks, crossovers and SUVs. GM now intends to prioritize future vehicle investments in its next-generation battery-electric architectures. As the current vehicle portfolio is optimized, it is expected that more than 75 percent of GM’s global sales volume will come from five vehicle architectures by early next decade.

Increasing capacity utilization – In the past four years, GM has refocused capital and resources to support the growth of its crossovers, SUVs and trucks, adding shifts and investing $6.6 billion in U.S. plants that have created or maintained 17,600 jobs. With changing customer preferences in the U.S. and in response to market-related volume declines in cars, future products will be allocated to fewer plants next year.

Assembly plants that will be unallocated in 2019 include:

  • Oshawa Assembly in Oshawa, Ontario, Canada.
  • Detroit-Hamtramck Assembly in Detroit.
  • Lordstown Assembly in Warren, Ohio.

Propulsion plants that will be unallocated in 2019 include:

  • Baltimore Operations in White Marsh, Maryland.
  • Warren Transmission Operations in Warren, Michigan.
  • In addition to the previously announced closure of the assembly plant in Gunsan, Korea, GM will cease the operations of two additional plants outside North America by the end of 2019.

These manufacturing actions are expected to significantly increase capacity utilization. To further enhance business performance, GM will continue working to improve other manufacturing costs, productivity and the competitiveness of wages and benefits.

Staffing transformation – The company is transforming its global workforce to ensure it has the right skill sets for today and the future, while driving efficiencies through the utilization of best-in-class tools. Actions are being taken to reduce salaried and salaried contract staff by 15 percent, which includes 25 percent fewer executives to streamline decision making.
Barra added, “These actions will increase the long-term profit and cash generation potential of the company and improve resilience through the cycle.”

GM expects to fund the restructuring costs through a new credit facility that will further improve the company’s strong liquidity position and enhance its financial flexibility.

GM expects to record pre-tax charges of $3.0 billion to $3.8 billion related to these actions, including up to $1.8 billion of non-cash accelerated asset write-downs and pension charges, and up to $2.0 billion of employee-related and other cash-based expenses. The majority of these charges will be considered special for EBIT-adjusted, EPS diluted-adjusted and adjusted automotive free cash flow purposes. The majority of these charges will be incurred in the fourth quarter of 2018 and first quarter of 2019, with some additional costs incurred through the remainder of 2019.

* * *

Update 1: Former Nissan Chairman Carlos Ghosn is locked up in a Tokyo jail cell, but GM CEO Mary Barra is apparently channeling the spirit of the auto executive nicknamed “Le Cost Killer”. 

GM shares climbed 0.6% at the open after the company announced production cutbacks that were larger than initially reported. In addition to shuttering the Oshawa plant, the company is also planning to halt production at its Warren Transmission plant in Michigan, as well as another plant in Ohio (in addition to the closure in Oshawa). The company also plans to stop selling some of the company’s least popular models.

Lagging sales had already forced GM to cut production to one shift at its Hamtramck Assembly plant in Detroit and its Lordstown, Ohio, assembly plant. According to Reuters, the company is weighing whether to end production of the Chevrolet Volt hybrid, Buick LaCrosse, Cadillac CT6, Cadillac XTS, Chevrolet Impala and Chevrolet Sonic after 2020, amid a broader shift toward fully electric and autonomous vehicles.

General Motors Co will significantly cut car production in North America and stop building some low-selling car models, and was expected to announce significant planned reductions to its North American salaried, executive workforce, sources said on Monday.

GM plans to halt production at three assembly plants in Canada and in Ohio and Michigan in the United States by not allocating future new products, putting the future of those plants in doubt, the sources added.

The plants – Lordstown Assembly in Ohio, Detroit-Hamtramck Assembly and Oshawa Assembly – all build slow-selling cars.

The issue will be addressed in talks with the United Auto Workers union next year. GM Chief Executive Mary Barra made calls early on Monday to disclose the plans, the sources said.

The company is expected to officially announce its latest round of ‘cost cutting’ measures on Monday.

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With car sales in the US and China locked in a precipitous slowdown that is only expected to worsen, GM on Monday announced the closure of one of its oldest Canadian plants as the company hopes to move more production to Mexico and (hopefully) bolster its lagging shares, Reuters reported. The company’s plant in Oshawa, Ontario – the plant in question – produces slow-selling Chevrolet Impala and Cadillac XTS sedans, while also completing final assembly of the better-selling Chevy Silverado and Sierra pickup trucks, which are shipped from Indiana.

https://www.zerohedge.com/sites/default/files/inline-images/2018.11.26gm.JPG?itok=Z1UvlW9C

The outcry from the union and local officials is already causing political pressure on GM to mount after the carmaker accepted billions of dollars in subsidies from the Canadian and US governments after filing for bankruptcy nearly a decade ago. But the company must weigh these considerations against the demands of Wall Street analysts, who believe that GM has too many plants in North America. Signaling the start of the car maker’s latest cost-cutting initiative, the company said on Oct. 31 that about 18,000 of its 50,000 salaried employees in North America would soon be eligible for buyouts.

Two sources told Bloomberg that the announcement of the plant’s closure is expected on Monday.

The closure is not unexpected. In a message to employees last month, GM CEO Mary Barra cited the stagnant share price as a reason for tougher restructuring measures.

Unifor, the Canadian autoworkers union that represents the plant’s employees, told Bloomberg that it has been told there is no car production planned at the factory beyond next year, raising the prospect of talks to preserve jobs. Unifor National President Jerry Dias said back in April that the Oshawa complex had been slated for closure in June of this year. But he added that one top GM Canada executive had vowed that it wouldn’t close on his watch.

“We have been informed that, as of now, there is no product allocated to the Oshawa assembly plant past December 2019,” Unifor said in a written statement Sunday night. “Unifor does not accept this announcement and is immediately calling on GM to live up to the spirit” of a contract agreement reached in 2016, the union said.

[…]

The survival of the factory was a key issue in the automaker’s 2016 labor talks with Unifor, the union that represents tens of thousands of autoworkers in Canada. As part of that settlement, GM had agreed to spend some C$400 million ($302 million) in the Oshawa operations, Bloomberg News reported at the time. The union hailed the agreement as part of an effort to stem the loss of jobs to Mexico.

During its latest earnings call, GM CEO Mary Barra said at the New York Times DealBook conference earlier this month that the company had negative cash flow for the first nine months of the year and it needed to cut costs, according to the Detroit News.

Canadian lawmakers said they’re fighting to keep the plant open because thousands of jobs are on the line.

“We are aware of the reports and we will be working in the coming days to determine how we can continue supporting our auto sector and workers,” a Canadian government official said.

“The jobs of many families are on the line,” said Colin Carrie, a Member of Parliament for Oshawa. “Communities all over Ontario would be devastated if this plant were to close.”

Oshawa Mayor John Henry told CBC that he hopes the planned closure is “just a rumor”, and that he had not spoken to anyone from GM. According to the carmaker’s website, the Assembly plant in Oshawa employs roughly 2,800 workers – down from ten times that number in the early 1980s. Production at the plant began in November 1953.

“It’s going to affect the province, it’s going to affect the region…the auto industry’s been a big part of the province of Ontario for over 100 years,” Henry said.

As the CBC pointed out, the Oshawa plant was a talking point during the negotiations for Trump’s USMCA (Nafta 2.0) deal. “Every time we have a problem…I hold up a photo of the Chevy Impala,” Trump once said about the negotiations.

In a tweet, one conservative Canadian lawmaker lamented the news of the closure.

And while this closure would certainly be bad news for Canada, the situation could always get worse – particularly if Congress refuses to pass Trump’s USMCA trade deal, raising the possibility that the US, Canada and Mexico would revert to WTO rules, potentially throwing GM’s foreign North American operations into chaos.

Source: ZeroHedge

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Market Shifts – Major North American GM Workforce Reduction Announced Due to Declining Sales of Sedan Vehicles…

What the best solution for North American workers?

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Auto Production And Sales Plunge In Germany, Brazil

Following the recent dreadful auto sales numbers out of the United States, both Germany and Brazil have posted extremely weak auto production and sales numbers, prompting more questions about the state of the global economy.

According to JP Morgan, auto production in Germany has been surprisingly weak in recent months, with the prospects of a recovery delayed until “at least October.” This was unveiled with the German July Industrial Production data for July which was “a disappointment,” as manufacturing slumped 1.9%m/m and 6% annualized below 2Q18. Of this, automotive was the biggest weakness.

The shifting timing and pattern of holidays across the German states over the summer likely knocked the latest IP data around a lot, but this year the new emissions testing regime is adding a real drag. Since 1st September, all new cars need to be certified under the new testing regime, but some German producers appeared to have fallen far behind this deadline. Some car models have temporarily been removed from sales, while others have had to be modified to meet the new standards, resulting in reduced production levels to manage the changeover.

Meanwhile, according to more concurrent car production data from the German Automobile Association (VDA) which is now available for the month of September – and which counts the number of cars rolling out of factories – production has collapsed even further. An additional problem, is that the VDA data had already slumped in July (almost -20%m/m), while the IP data showed a fall of 6.7%m/m.

https://www.zerohedge.com/sites/default/files/inline-images/zee%20germans_0.jpg?itok=y7b3NWqg

While the VDA may be overstating the weakness, it is also possible that IP has much further to fall, adding to concerns about Europe’s slowing economy.

Not to be outdone by the United States or Germany, Brazil also posted plunging numbers for September. Auto production in the country was down 23.5% in September M/M, according to Reuters, while sales were down 14.2% over the same period according to the National Automakers Association. Brazil has traditionally been one of the world’s five largest auto markets until the country’s recent economic downturn. Companies like General Motors, Ford and Chrysler all have major operational facilities in Brazil.

And then there is the US, where earlier this week we reported the latest surprisingly poor auto sales numbers for September.

Results from Ford, Honda, Nissan, Toyota and Fiat all tell the story of an industry that had a terrible month, with few silver linings. Three of these names posted double digit percentage declines in YOY sales and three of them missed analyst estimates.

https://www.zerohedge.com/sites/default/files/inline-images/recap_0_0_0.jpg?itok=UGq020o1

Some details:

  • Ford posted an 11% drop, missing analyst estimates of 9.1%. The F-Series pickup line ended a 16-month streak of sales gains. Mustang sales were down 1.3%. 
  • Nissan posted a 12.2% drop in September. Nissan and Infiniti brand car sales fell by 36%, including a 28% drop for the Altima sedan as the company prepared to start selling an all-new version this week.
  • Toyota sales were down 10.4%, far below estimates of 6.7% for the month. Combined sales for Toyota and Lexus brand cars fell 25.3%. 
  • Fiat posted the only true “beat”, as sales rose 15% versus analyst estimates of 8%. However, the Chrysler brand fell 7% to 14,683 vehicles and the Fiat brand fell 46% to 1,185 vehicles. The deficit was made up on Jeep sales, which were up 14%, as well as sales of Ram pickups and minivans.
  • Volkswagen of America car sales were down 4.8%
  • GM third quarter total sales were down 11%. The company stopped reporting monthly numbers earlier this year, with many suspecting that weakness in the production pipeline is responsible; they were right. 

As discussed previously, the lack of auto incentives was the primary driver for the poor US auto numbers, prompting the question: absent carmaker subsidies, just how strong is the US auto market in particular, and the overall economy in general.

https://www.zerohedge.com/sites/default/files/inline-images/incentive_0_0_0.jpg?itok=3A_OBRcn

Source: ZeroHedge

Global Car Sales Tumble Amid Slowing Demand, Trade Wars

Global auto sales are in the midst of the first sustained slowdown since the 2008 financial crisis, according to new figures published by the WSJ. This complicates an already precarious situation for automakers, who have also been negatively affected by volatile global trade policy, rising commodity prices, declining demand and tariffs.

China and Europe are two key global markets that are recording the largest slowdown, while the United States continues to try and hammer out new trade agreements. 

The auto market in China – where new-car sales fell 5.3% to 1.59 million in July – compared with the year-earlier period has also slowed due to worsening trade tensions.  For the full year, sales are forecast to grow 1.2% over last year, according to LMC Automotive, down from a 13% growth rate in 2016 and 2.1% in 2017.

At the same time, demand for American vehicles, which generally has acted as a universal global catalyst, has also topped out, largely due to higher prices and higher loan rates, but perhaps also due to rising nationalistic sentiment amid a “don’t buy American” media wave.

Demand is also starting to wane in Europe, sliding to “pre-recession” levels. Many American car companies had already struggled to maintain profitability in Europe where the slowdown in demand is exacerbating the bottom line.

https://www.zerohedge.com/sites/default/files/inline-images/chart%201_2_0.jpg?itok=IyGArqiO

Of course, not all global demand has dried up: the global economic strength continues to support solid underlying demand. However, on the horizon, speed bumps are emerging: for one, President Trump’s trade policies are having a negative affect on consumer confidence and are seen outside the US as “the biggest threat to continued economic growth.”

By the same token, if tensions ease between the United States and trade partners, however, that could act as a tailwind for the industry as we saw yesterday when automaker stocks rallied following the announcement of the US-Mexico trade deal as part of Trump’s NAFTA overhaul. Similarly, German auto makers also outperformed their respective indices during Monday’s session.

But the United States still has Europe and China targeted for new tariffs. China has responded by taxing US built vehicles 40% when they are imported. Meanwhile, analysts believe that the entire industry is at a tipping point and that a trade war could push auto demand “over the cliff”. According to Oxford Economics, a “moderate trade war scenario” could cause a decline in global GDP by about 0.5% in 2019.

Both Ford and Fiat had been counting on the Chinese market to reduce their dependence on North America. U.S. auto sales, having peaked in 2016 at a record 17.5 million, are on track to decline in 2018 for a second year in a row.

This uncertain scenario has caused automakers and auto suppliers, like Ford and Continental AG, to cite lack of demand in China and Europe as a reason that profits may miss expectations this year. This all comes at a time when R&D spending for the industry is also on the rise:

“The slowdown comes at a very difficult time as [the industry] transitions to more electrification and the robocar arms race sucks up research and development money,” said Dave Sullivan, an analyst with consulting firm AutoPacific Inc.

At the same time, commodity prices are rising, led by steel and aluminum prices – the result of recent Trump tariffs. New emission standards in Europe and China are also causing car companies to spend billions to try and meet new rigorous standards.

Since 2010, global auto sales have been on the rise to the tune of more than 5% annually. This year, even though vehicle sales are estimated to hit 97 million worldwide, the growth rate should slow to 1.8%, according to the forecasting firm LMC Automotive.

All the while, President Trump sees the automotive industry as a bargaining chip – often threatening to introduce additional tariffs that may wind up acting as headwinds for the overall industry. From the WSJ:

In May, the White House asked the Commerce Department to investigate whether it could use a national-security law to impose tariffs of up to 25% on cars and auto parts imported into the U.S.

Such actions could further crimp car sales, auto makers and analysts say.

“This would produce a near standstill in the vehicle markets,” said Justin Cox, a senior analyst with LMC Automotive. The firm forecasts that, if the trade dispute escalates, new-car sales in 2020 are likely to come in three million vehicles lower than current forecasts.

In China, new car sales fell 5.3% in July, which was a shock to an industry that has been experiencing rapid growth as a result of new wealth accrued by the country’s middle class. China is now the world’s largest auto market by number of sales, with 28.6 million new vehicle sales last year, according to the report.

Meanwhile, back in the United States, Ford cut its guidance back in July, blaming rising costs and the trade environment in both Europe and China. As we previously reported, July car sales in the US also tumbling as profit-seeking automakers slashed discounts. 

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As we noted then, all major manufacturers reported a sharp drop in U.S. deliveries for July, led by a 15% plunge at Nissan Motor. The reason: for the first time in 55 months, the auto industry – perhaps due to concerns about the impact of auto tariffs – cut back spending on incentives, snapping a streak of monthly consecutive increases that began 4 1/2 years ago, according to J.D. Power.

Rising rates and blowing out summer inventory were also blamed for sales tumbling.

Charlie Chesbrough, senior economist for Cox Automotive, pointed out another possible issue: that while automakers are pulling back on new-vehicle incentives, there are great deals on used-car lots. Returns of vehicles that have been leased are on the rise, and that added supply gives consumers more choice of lower-priced alternatives to new models.

“There is such tremendous competition from the used-car market,” Chesbrough told Bloomberg. “We have so many off-lease vehicles coming back to market and they are cheaper than new cars.”

But as these new global sales figures show, the problem isn’t just contained to the US. If tensions between the United States, China and Europe don’t improve, global automakers will be forced to start looking at emerging markets – places like India and Africa – to begin growing new markets in order to help try to keep up with targets. 

Source: ZeroHedge