Auto worker wipeout: Why car companies are cutting thousands of jobs

Volkswagen has announced plans to close three production facilities.

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Major automakers around the world have announced layoffs and factory closures in recent weeks.Companies affected include Ford, GM, Stellantis, and Volkswagen Group.This is due to unprofitable EV investments, Chinese market losses, and more domestic competition.

Major automakers around the world have announced multiple rounds of layoffs and factory closures in recent weeks as they struggle to turn a profit on EVs and face a potential onslaught of cheaper competition.

Ford, General Motors, and Stellantis plan to slash thousands from their workforce in the coming months. Volkswagen has announced plans to shutter three of its factories in Germany, which could come with massive layoffs.

Unfortunately for the world’s major carmakers, they aren’t facing one issue but an agglomeration of several significant interconnected challenges at once. Add to that an ultra-competitive business with high overhead costs and low profit margins, and things quickly get very difficult.

When there are wild shifts in market dynamics, regulatory requirements, and financial costs in a relatively short period of time, the results can be dire. That’s what we’re seeing play out.

The all-electric Chevrolet Silverado EV on display at the 2022 Los Angeles Auto Show.

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A massive and expensive pivot to EVs has failed to turn a profit

The auto industry has invested or announced plans to invest more than $300 billion in US EV and battery production since 2016, according to estimates by the NRDC. That’s led to a slew of new models on the market and (relatively) much cheaper pricing for consumers.

But despite that growth — and with EVs accounting for roughly 10% of US auto sales — companies not named Tesla have struggled to make their EV businesses profitable.

GM, for example, has invested $35 billion in its EV and autonomous driving businesses. That’s led to new electric models like the Hummer EV and Cadillac Lyriq. Despite the warm reception from the public, the company’s profits this year are entirely driven by the strong sales of its internal combustion trucks and SUVs.

Although GM does expect its EVs to reach profitability sometime before the end of the year.

It’s the same story at Ford.

The company’s Model e EV division lost nearly $3.7 billion during the first nine months of this year, including $1.2 billion in the last quarter alone.

A Ford Mustang Mach-E.

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The rapid transformation of the Chinese market

The exponential growth in China’s appetite for cars over the past two decades made it a steady profit center for global automakers like VW Group and GM. The latter took in an average of $2 billion a year from its Chinese joint ventures from 2014 to 2018.

But in recent years, Chinese consumers have increasingly turned to increasingly competitive domestic automakers like BYD and the Geely Group, whose brands have sold 1.6 million vehicles in the market so far this year.

GM’s market share in the country peaked at around 15% in the middle of the last decade and was down to just 6.5% during the most recent quarter.

German carmakers are losing out to Chinese EV upstarts like BYD.

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So far this year, Volkswagen Group’s sales in China, its largest market, are down around 10% over last year, and the company predicts the situation may deteriorate further.

In response to the potential competition, European leaders have readied tariffs on cars imported from China. VW warned that potential retaliatory tariffs on European cars by China could only make things worse.

An increasingly competitive domestic market

Competition for automakers in their domestic markets has heated up.

In the US, Stellantis saw its sales plummet by 17% this year thanks to slower sales of its Jeep-branded SUVs and Ram pickup trunks.

Price seems to be a major factor. The average price of a Stellantis vehicle is around $56,000, far above the industry average of $48,000.

The company had to offer aggressive incentives (on top of lower production) during the third quarter to help dealers clear the glut of unsold cars off their lots. Analysts say inventory levels are improving at Stellantis and industry-wide as automakers react to a slower sales environment.

But uncertainty looms large as president-elect Donald Trump threatens tariffs on all goods imported into the United States and eyes ending tax credits for electric vehicles, which could be another headwind for sales, experts say.