Big automakers are reorienting production plans in order to meet increasing demand for pickup trucks and large sports utility vehicles (SUVs). Rising demand for pricey pickups and SUVs helped automakers fight back amid waning sales this year.
In the past week, the number one automaker in the United States, General Motors Company GM decided to realign its manufacturing capacity and axe jobs to improve its business performance. From 2019, General Motors will halt production at three of its factories in North America — including Detroit-Hamtramck assembly of Detroit, MI; Lordstown assembly of Warren, OH; and Oshawa assembly of Oshawa, Ontario. However, the announcement made by General Motors was not welcomed by President Donald Trump. He threatened to eliminate subsidies for the company.
Ford Motor Company F has announced that it is about to cut shifts at its Louisville Assembly Plant and Flat Rock Assembly Plant. However, this move will not result into any layoff as Ford will relocate workers to other facilities.
Further, the electric vehicle pioneer Tesla, Inc. TSLA reported that its car sales witnessed a 70% year-over-year drop in October. This steep sales decline in the world’s largest automotive market, along with the ongoing tariff war between China and the United States, is expected to put pressure on Tesla’s financials.
Recap of the Week’s Most Important Stories
1. Honda Motor Co., Ltd. HMC announced that it is recalling 122,000 Odyssey minivans globally, per AP. While driving, the sliding doors of the vehicles may open that makes driving dangerous. The minivans manufactured between 2018 and 2019 are covered in the recall, which majorly consists of vehicles in the United States and Canada.
Per the company, some parts of the vans’ sliding doors can stick, which prevent the doors to close securely. On receiving the notification by late December about the defect regarding power sliding doors, customers can take their vans to dealers, where the latches are going to be replaced.
This is not the first recall issued by Honda in 2018. In September, the company issued a recall of approximately 1.4 million cars due to defective front passenger-side airbags manufactured by Takata.
Of late, automakers across the globe are frequently recalling vehicles to fix software or manufacturing defects. These recalls not only hurt the company’s profit but also damage its reputation. (Read more: Honda Recalls Odyssey Minivans for Flawed Door Latch)
Honda currently carries a Zacks Rank #2 (Buy).
2. General Motors announced that it decided to realign its manufacturing capacity and reduce salaried workforce in an effort to improve its business performance. A declining demand for combustion-engine based sedans impelled the company to halt auto production at the assembly plants in North America and reduce workforce.
From 2019, General Motors will stop production at three of its factories in North America — including Detroit-Hamtramck assembly of Detroit, MI; Lordstown assembly of Warren, OH; and Oshawa assembly of Oshawa, Ontario. Further, some models that are currently being manufactured in these hubs will also be discontinued — including Chevrolet Cruze, the Chevrolet Volt hybrid, the Cadillac CT6 and the Buick LaCrosse. Nevertheless, the company will keep producing these models in Mexico to cater to markets outside North America.
Per Reuters, General Motors has numerous plants to manufacture a single car model, which places it in a difficult position in case a model production halts. Manufacturing several vehicle models at a single hub like Japanese automakers enables carmakers to cease a particular model production, without incurring any major change in the production lines.
Additionally, the company’s two powertrain component manufacturing hubs situated at Baltimore, MD, and Warren, MI, don’t have any production assignments post 2019. Outside of North America, it will close two factories by the end of 2019.
Apart from decreasing the number of production plants, General Motors will cut its global workforce. It will slash 15% of its salaried contract staff, consisting 25% of executive ranks.
Per the company’s CEO, the actions will raise long-term profitability along with improved potential of cash generation. These decisions are projected to elevate annual adjusted automotive free cash flow by $6 billion by the end of 2020 and lower capital expenditure by roughly $1.5 billion. Additionally, General Motors will increase its investments for next-generation battery-electric architectures.
However, General Motors projects to record a pre-tax charge of $3-$3.8 billion for these actions in the near term. The impact of these charges will majorly be incurred in the fourth quarter of 2018 and the first quarter of 2019. (Read more: General Motors to Lay Off & Halt Production in North America)
General Motors currently carries a Zacks Rank #2.
3. Tesla car sales in China incurred a 70% year-over-year drop in the last month, per Reuters. China Passenger Car Association, the country's passenger car association, also reported that this American automaker sold only 211 vehicles in October. This waning sales figure in the world’s largest automotive market, along with the ongoing tariff war between China and the United States, is expected to strain Tesla’s financials.
In July, the government in China imposed a counter tariff of 40% on all U.S. vehicles that are imported to China.
In October, this U.S.-based electric carmaker announced that tariff hikes are hampering its sales in China as it imports all of its vehicles that are sold in the country. However, in spite of lowered revenue generation, Tesla recently reported a price cut for its Model X and Model S cars in China. With an aim to make the cars more affordable, the company slashed prices of these two models by 12-25%.
In a bid to avoid steep tariff charges and lower costs, Tesla acquired a plot in China to set up its new factory outside the United States. In the last month, the company bought an 864,885-square-meter plot in Shanghai by investing 973 million yuan or $140 million. With an initial production target of 250,000 vehicles and battery packs a year, the factory is expected to manufacture its first batch of vehicles in three years.
Demand for clean-energy vehicles is witnessing a growth in China, majorly due to initiatives taken by its government. However, the broader automotive industry is observing its first major sales decline in nearly three decades. (Read more: Tesla's Sales in China Drops in October Amid High Tariffs)
Tesla currently carries a Zacks Rank #2.
4. Per Bloomberg, Fiat Chrysler Automobiles N.V. FCAU is mulling over selling its robotics arm, Comau, for $1.7 billion to $2.3 billion. Notably, the sale of its non-core business will allow the company to concentrate more on manufacturing and selling of vehicles. Given the present problems faced by automakers due to trade face-offs, waning vehicle sales in China and stringent regulations, Fiat Chrysler is reorienting its business.
The company is engaged in designing, engineering, manufacturing, distributing, and selling of vehicles and components production systems. In order to become fully compliant with emissions regulations, this seventh largest automaker in the world chalked out a plan in June to invest €9 billion (£7.88 billion) in electric and hybrid vehicles over the next five years.
However, the final decision has not been taken yet on the sale of the unit that manufactures automated systems and industrial robots. People familiar with the development stated that the sale process could start in early 2019 and it could attract bidders from China. (Read more: Fiat Chrysler to Sell Comau to Focus More on Core Business)
Fiat Chrysler currently carries a Zacks Rank #3 (Hold).
5. Ford has announced that it is cutting shifts at its Louisville Assembly Plant and Flat Rock Assembly Plant, per CNBC. However, this move will not result in any layoff as this automaker will relocate workers to other facilities.
This Dearborn, MI-based automaker resorted to this move in order to meet the increasing demand for pickup trucks and large sports utility vehicles. Rising demand for pricey pickups and SUVs helped automakers to cope up with declining sales in this year.
In order to boost the production of Ford Expedition and Lincoln Navigator, the company is relocating around 500 workers from its Louisville Assembly Plant to its Kentucky Truck Plant. Further, the second-largest automaker in the United States of America is planning to shift 500 workers from its Flat Rock Assembly Plant to its Livonia Transmission Plant. Notably, Livonia Transmission Plant makes transmissions for its F-150 full-size pickup and the mid-size pickup — Ranger.
Ford currently carries a Zacks Rank #3.
In the last week, all the stocks gained. Shares of Harley-Davidson, Inc. HOG gained the most, whereas shares of Honda witnessed minimum increase.
In the past six months, Advance Auto Parts, Inc. AAP has increased the most, whereas Ford declined the most.
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What’s Next in the Auto Space?
Watch out for the usual news releases over the next week.
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