On July 30th The Society of Motor Manufacturers and Traders (SMMT), the UK’s top automotive industry lobby, said that just under 11,500 jobs had been lost during the year so far owing to the novel coronavirus (Covid-19). The public-health crisis has forced companies across the board—from automakers to car dealers—to let go of non-essential employees in order to save costs as car plants and showrooms remained shut for more than two months to contain the spread of infection. The signs are that these jobs will take several years to reappear, as several companies take the opportunity to push through far-reaching restructuring.
Lay-offs are commonplace, and even characteristic, of an economic recession caused by a wide-ranging shock such as Covid-19. Since car plants across the globe were allowed to reopen in the second half of May, several automotive companies have laid out plans to cut jobs and, in some cases, shutter plants permanently. In late May ZF Friedrichshafen, a German auto-parts maker, revealed plans to cut up to 15,000 jobs, about 10% of its workforce, by 2025. Expecting the ill-effects of Covid-19 to last beyond 2022, the company does not expect to meet its sales targets even then.
At the same time Groupe Renault (France) and Nissan Motor (Japan) laid out a restructuring plan to trim costs and salvage their struggling alliance, along with Mitsubishi Motors (also Japan). The French automaker is reviewing the fate of six of its manufacturing facilities in France, and ending expansion in several other markets, including Brazil, Romania and Russia. In all, it intends to cut 14,600 jobs in its global workforce. Meanwhile, Nissan’s plan is to cut 12,500 jobs and shutter a plant each in Spain and Indonesia.
BMW (Germany) said in mid-June that it would make redundant about 5% of its workforce, or 6,000 employees, primarily affecting its German operations. The Munich-based automaker will reportedly let go of 10,000 contractual employees as well. British carmakers Aston Martin, Bentley, McLaren and Jaguar Land Rover (JLR) also plan to lay off a combined 500 to 1,000 employees to cope with the disruptions caused by the pandemic.
Commercial-vehicle (CV) manufacturers are scaling back as well. Ola Källenius, the chief executive officer (CEO) of Daimler (Germany), the world’s biggest CV maker, said in early July that the “significantly harsher reality” the market faces owing to Covid-19 will necessitate “drastic” salary cuts to protect corporate balance sheets and safeguard investment. Scania (Sweden)—part of Germany’s Volkswagen Group—has laid off 5,000 workers, whereas Volvo Group, also a Swedish truckmaker, will cut 4,100 jobs during the second half of this year.
Lastly, vehicle retailers in the US and UK have also shuttered some unviable dealerships and made several hundred workers redundant. US retailers AutoNation and Cox Automotive have revealed plans to lay off 3,500 and 1,600 staff, respectively, in North America, whereas Pendragon, a UK-based retailer will close 15 stores and cut about 1,800 jobs by end-2020.
According to the economic theory of boom and bust cycles, hiring and employment levels should rise on the back of monetary and fiscal stimulus after the shock subsides. While there will certainly be a post-Covid recovery, aided by the unprecedented state support across the world and the availability of a coronavirus vaccine, all the lost automotive jobs may not return, resulting in jobless growth for several years.
However, carmakers will find it difficult to increase production in line with demand owing to snags in the supply chain and strict social distancing at plants to prevent the spread of the highly contagious virus, therefore depressing the need to rehire workers. For instance, the SMMT expects UK factories to churn out just 880,000 cars this year, the lowest total since 1957, compared with a target of 2m set in 2019. Moreover, carmakers were already contending with overcapacity in many countries even when auto sales were buoyant. Balance sheets are fragile, particularly where they were suffering from low sales and costly overexpansion.
The Renault-Nissan-Mitsubishi Alliance was a case in point. All three partners had already outlined cost-cutting plans, which have become more drastic as the coronavirus pandemic took hold. Renault now aims to cut more than €2bn (US$2.3bn) in fixed costs over the next three years, cutting global capacity from 4m to 3.3m vehicles in 2024. Given vehicle sales last year came in at 3.75m, this reveals some pessimism about the recovery. Meanwhile, Nissan’s plan is to save ¥300bn (US$2.8bn) and cut manufacturing capacity to 5.4m vehicles from 7.2m units by March 2024. The Japanese automaker will shutter a plant each in Spain and Indonesia, along with lowering output in the US. It expects these measures to increase capacity utilisation to 80% from 70% at present.
Job losses will also be driven by the wave of consolidation in the global automotive industry, exacerbated by low margins and high investment needs. The mega-merger of Groupe PSA (France) and American-Italian Fiat Chrysler Automobiles, agreed last year, is likely to result in some restructuring of PSA’s operations across Europe. Although the companies had promised to protect French and Italian jobs and investment. PSA’s UK plants, too, are vulnerable, given the challenges of Brexit, which also threatens Japanese and even British-owned operations in the country.
In the longer term, carmakers will prefer to increase digitisation and automation on shop floors, which is less costly and cumbersome than hiring and firing workers—who are mostly unionised. There were already fears of job losses across the globe owing to higher production of electric vehicles (EVs), which have substantially fewer moving parts and need fewer workers to assemble them. However, with the right reskilling, vehicle-assembly-line staff can be re-employed in high-demand areas such as EV battery manufacturing and production of several parts needed in self-driving vehicles.
Given these trends, we do not expect the global automotive industry to regain 2019 employment levels until the second half of the decade at the earliest. With other industries also laying off staff, higher unemployment, lower wages and a fall in investment across the CV market will inevitably affect demand for new vehicles, with a possible downside of up to 5% to our forecasts for nearly 60 markets until 2024. The days of chasing sales volumes and blind capacity expansion are well behind us now.
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