US Auto Overcapacity at 10 Plants 20,000 Direct Jobs: Not Just a "Car" Recession

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Published : January 15th, 2019
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Category : Crisis Watch

The collapse of the sedan market has left Detroit automakers with too many plants. An auto recession has begun.

Detroit is in the grips of a car recession marked by the collapse of demand for traditional sedans, which accounted for half the market just six years ago. Buyers have made a mass exodus out of classic family cars and into sport utility vehicles. Familiar sedan models such as the Honda Accord and the Ford Fusion made up a record low 30 percent of U.S. sales in 2018, and things will only get worse.

Sales of the passenger-car body style that’s dominated the industry since the Model T will sink to 21.5 percent of the U.S. market by 2025, according to researchers at LMC Automotive, relegating sedans to fringe products. That leaves automakers with excess factory capacity that can turn out about 3 million more vehicles than buyers want. And overcapacity is precisely what spurred losses the last time a recession wracked the industry.

An optimist might seek solace in the better-than-expected profit predictionissued Friday by General Motors Co. But a deeper look at the numbers reveals that the biggest contribution to the company’s rosy forecast were cost-cutting plans—including closing five North American plants—which it said will help boost profit this year by as much as $2.5 billion.

The overcapacity plaguing U.S. automakers is the equivalent of 10 excess plants, which would account for at least 20,000 jobs directly, and thousands more as it ripples through the suppliers and support services to the massive industry. “GM has taken some actions, but they still have some well-underutilized plants,” Schuster said. “So we may not be done with this yet.”

GM Halts Sales Reporting

On April 3, 2018, GM announced it would end monthly sales reports. Its pretext was that "quarterly figures were more useful." Yeah, right.

That was the first guaranteed clue that something was amiss.

On April 25, in its First Quarter Results, Ford announced it was giving up on cars totally, except Mustang and Focus.

Winning Ford Portfolio

  • By 2020, almost 90 percent of the Ford portfolio in North America will be trucks, utilities and commercial vehicles. Given declining consumer demand and product profitability, the company will not invest in next generations of traditional Ford sedans for North America.
  • Over the next few years, the Ford car portfolio in North America will transition to two vehicles – the best-selling Mustang and the all-new Focus Active crossover coming out next year. The company is also exploring new “white space” vehicle silhouettes that combine the best attributes of cars and utilities, such as higher ride height, space and versatility.
  • The company’s battery electric vehicle rollout starts in 2020 with a performance utility, and it will bring 16 battery-electric vehicles to market by 2022.

Ford Sales Plunge

By the way, Focus sales fell 66% in November from a year earlier. That's one of the two models Ford will keep. , Ford reported that its sales for December were down 9%. Ford's fleet sales and car sales both cratered, falling well into the double digits, or -19.5% and -27.8%, respectively.

Ford Halts Monthly Reporting

In January, with December sales down 9%, Ford followed GM by halting monthly sales reports.

The message is pretty clear: When sales are bad make like an ostrich and stop reporting the numbers.It;s not just the US.

Chinese Annual Car Sales Slip for First Time in Decades

Chinese passenger-vehicle sales fell last year for the first time since 1990 as economic uncertainty weighed on consumers, producing a wreck for Ford Motor Co. , General Motors Co. and other manufacturers.

The collapse in sales looks particularly challenging for foreign makers. GM and Volkswagen AG sell more vehicles in China than anywhere else, while Ford, Peugeot SA and Hyundai Motor Co. face acute overcapacity problems.

EU New Car Registrations Drop 8%

Let's finish our auto roundup with the EU where car sales fall for a third-straight month.

New car sales in the European Union fell in November, marking the third consecutive month of decline as demand continued to contract in most European markets.

New car registrations, a reflection of sales, fell 8.0% in the EU compared with a year earlier to 1.12 million vehicles, the European Automobile Manufacturers' Association said Friday.

That report came out on December 14, so another bad report is due soon.

Not Just a Car Recession

  1. Industrial Production in Germany, France, Italy Production Collapsed Collapsed: Europe is Likely in Recession Now.
  2. Moreover, China Trade Data is Nail in the Coffin of Global Economy.

Let's cut to the chase. This is not just an "Auto Recession" as Bloomberg labeled it.

The global economy is slowing immensely and a global recession is at hand. The US will not be immune.

Source : moneymaven.io
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IMG Auteur
Mish 13 abonnés
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit http://www.sitkapacific.com
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