The American automotive industry has now completed the first six months of a very financially stressful year. The coronavirus pandemic has significantly added a dimension of uncertainty to automotive companies already experiencing a diminishing 2020 sales volume.
The Big Three, Chrysler, Ford, and General Motors, have all experienced extraordinary events, in addition to all the problems brought about by the virus.
General Motors filed a lawsuit accusing Fiat Chrysler of bribing union officials to gain an advantage on labor costs. Simply put, GM said that Chrysler agreed to pattern bargaining with the United Auto Workers that would force GM, being a part of pattern bargaining, to pay higher wages.
GM filed civil-racketeering charges against Chrysler claiming UAW leaders were paid to agree to win more favorable contract terms for union-represented factory workers. The lawsuit has been thrown out of court but GM has stated it plans to pursue the case further.
The whole episode between Chrysler and GM started with an investigation of Fiat Chrysler and a misuse of training center funds used for union educational operations at most plant sites.
That investigation has led to the conviction of 14 high ranking union officials, culminating with the prosecution of ex-UAW president, Gary Jones who has pleaded guilty and will serve 47 to 56 months in prison.
Jones was convicted of conspiracy to embezzle union funds, aiding racketeering activity and tax evasion. A Chrysler executive vice-president has been convicted and is now serving time.
The situation at Chrysler and the ever-evolving investigation at GM could result in the federal government taking over the UAW as happened to the Teamster Union. Roy Gamble, new UAW president, has had a meeting with U.S. attorney, Mathew Schneider where they discussed needed changes in the UAW.
Schneider said a federal takeover of the UAW under the Racketeer Influenced and Corrupt Organizations Act remains a possibility if the union cannot implement meaningful change. The investigation of GM, Chrysler, and the UAW continues.
In the meantime, the Big Three is manufacturing cars and trucks, at a time when the coronavirus has been responsible for reducing new-vehicle sales by one-third. In the second quarter of this year, trucks became the U.S. auto industry’s largest segment. Full-sized pickups outsold No. 1 compact crossovers while U.S. new vehicle sales dropped by 34 percent in the second quarter.
While sales are dropping, the automotive companies are cutting costs. As an example, Ford’s CEO Jim Hackett announced to Ford employees the company was freezing executive pay and stalling employee merit raises as part of a program to reduce costs, fortify the balance sheet and improve the cash position. Chrysler and GM are making strategic moves that parallel Ford’s cost reduction programs.
There was some good news for Chrysler. Chrysler has, for many years, been near the bottom of vehicle quality surveys, but not anymore. The Dodge car was rated by J.D. Power Initial Quality Studies in a tie with Kia for the No. 1 spot.
This was the first time a domestic brand finished No. 1 in 34 years of the study. In addition, the Ram truck finished No. 3 and Jeep finished above the industry average of 11 conditions per one-hundred, just above Lexus and ahead of Toyota. All around good news for the Chrysler brand.
Tesla remains, to me, strange. They have, in five plus years, been profitable in one quarter. Tesla’s stock price closed on Friday of last week at $1,544.65.
Ford Motor Company has been consistently profitable most of the last ten years. The price for Ford stock on Friday was $6.10.
Tesla’s market capitalization is now approximately $100 billion versus $50 billion for GM and $37 billion for Ford, with Tesla’s market capitalization larger than Ford and GM combined. GM sold 20 times more vehicles than Tesla in 2019 and Ford sold more than six times more vehicles.
What happens when Tesla’s primary market, California, where Tesla has sold 40% of U.S. production, is saturated?
One good sign for the automotive industry, the companies are going in with more liquidity for this recession. Liquidity is cash and marketable securities divided by debt, and the companies have improved by an average of 80 percent, and they are going to need large amounts of cash to survive the coronavirus.
The total year, financially, is shaping up to be a disaster.
John F. Floyd is a Gadsden native who graduated from Gadsden High School in 1954. He formerly was director of United Kingdom manufacturing, Goodyear Tire & Rubber Co., vice president of manufacturing and international operations, General Tire & Rubber Co., and director of manufacturing, Chrysler Corp. He can be reached at firstname.lastname@example.org. The opinions reflected are his own.
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