What Do OEMS Do In A Global Sales Slump? Build More Factories

Nissan is reportedly cutting about 10% of its global workforce — some 12,500 people. Ford is supposed to be in the process of showing some 7,000 salaried workers the door, which is to be complete by the end of August.

Car sales in western Europe were down 3.5% in the first half of 2019 compared with 2018. In China, passenger car sales were off 14% for the first half of 2019.

Globally there is a consensus that things are slowing economically (e.g., the U.S. Commerce Department reported that U.S. GDP grew 2.1% in the second quarter, which might seem good except that (1) it was 3.1% in the first quarter and (2) that is the lowest level since Q1 2017), and that the auto industry is likely to see so-so sales for the next few years.

With all that as prologue, you might imagine that global OEMs are planning to reduce their global footprints.

However, according to May Arthapan, director of Asia Pacific Forecasting for LMC Automotive, a global analysis firm, the OEMs are building more factories.

Yes, factories are being closed, like Lordstown. But according to Arthapan, there will be 36 net new plants added to the global automotive manufacturing base: 14 plants will be closed in 2019, 50 will be opened, so it goes to 36 new ones.

The capacity being added in China isn’t wholly predicated on indigenous brands. Arthapan’s data show that VW Group and Hyundai Group are putting a considerable amount of manufacturing investment in China.

Yet the U.S. is also going to be getting additional capacity between now and 2026, some 1.3 million units.

Consider that there is a $1.6 billion investment being made in Huntsville, Alabama, to build the Mazda Toyota Manufacturing U.S.A. plant, which is to go online in 2021 for the production of SUVs for both brands.

While there’s nothing that says that there won’t be more plant closings as there are more plant openings, should sales continue to go south — or not go very far north — things may get troubling for auto workers the world over.