State Of The U.S. Auto Industry

By Amanda Earing, News Editor, Manufacturing.netThe U.S. automakers’ announced plant closings and layoffs prompt questions about the Detroit Three’s impact on the U.S. manufacturing industry and the future of the auto plant employees and executives.

As U.S. automakers announce plant closings, layoffs and product realignments, questions are have surfaced about the Detroit Three’s impact on the U.S. manufacturing industry and, sadly, the future of auto plant employees and executives.

Rich Folts, a partner at executive search firm Battalia Winston who specializes in recruiting executives in the automotive industry, offers insight into the state of U.S. automakers and their future.

Mnet: With auto plant closures, layoffs, and even the potential sale of certain product lines, which employees will be most impacted by these changes?

Folts: Those affected immediately will be in engineering and marketing departments as automakers eliminate certain vehicle models and product lines.

In addition, executives from the Detroit area are at a disadvantage and could be severely impacted if laid off. The Detroit housing market has depreciated significantly, making it difficult for some people who want to sell their homes and leave the state for new jobs elsewhere. Because of that anchor, potential employees that hail from the area are less desirable as job candidates. The issue is not their employability, but housing. It’s an interesting twist to the problem.

Auto workers and executives who are unemployed in the marketplace are at a disadvantage due to a limited amount of jobs and a huge supply of workers.

Mnet: What potential industries can laid-off auto executives transition their skills into?

Folts: Most of these people have been in the auto industry since they were in their early 20's and worked their way up. Their personal and professional lives are all tied to the auto industry. It is a very close-knit community. To move to another industry is difficult, but not impossible.

However, I’ve seen people do it -- even some with 20 years in Detroit have moved to different industries. But generally speaking, most don’t want to do that and prefer to stay in the automotive industry because they’ve made an investment. The auto industry is very unique in its terminology and how it’s managed, so it can be very different from other industrial companies.

An auto executive would be better off joining an automotive supplier, because they have transferable skills, but if they go to a different industry, they may not be compensated as well and their skills will not be as easily transferable.

Mnet: General Motors has mentioned it might consider selling the Hummer line. What will happen to those executives?

Folts: Some executives will go with the sale, while some will likely remain with GM. My experience is that since GM is trimming down across the board, those executives focused on the Hummer line will likely be severed out, as opposed to being integrated into other business units.

Mnet: What does the current instability in the auto industry mean for the future of U.S. manufacturing?

Folts: Many auto manufacturers have been moving away from Detroit to China, Mexico and Central Europe. But because of the weak dollar versus the euro and some of the other currencies around the world, manufacturing may see a resurgence here -- perhaps not in Detroit because it’s still high cost, but in other parts of the country such as the Deep South where unions aren’t as prevalent.

As a result, it’s now cheaper to manufacture here than it is to move that manufacturing offshore. My opinion is we’ll see a resurgence of manufacturing due to the dollar versus other currencies in the short term. However, that could change as the value of the currencies change.

Mnet: How will the automakers’ actions impact parts suppliers? 

Folts: Domestic suppliers are shrinking. Plant closures are going to have a downstream effect on suppliers. But because of the lead time on products, especially for cars, it may not happen immediately. The auto industry is typically based on a three- to five-year cycle, so what the suppliers are engineering today will be on the road and produced three to five years from now. Dana and Magna are all producing car parts that are coming out over the next 18 months, so the plant closings you’ll see will affect future programs that have not yet gone beyond the drawing board. Those models could be re-evaluated and potentially cut and that will affect Magna, Johnson Controls and other suppliers’ personnel.

On the other hand, primarily driven by the value of the dollar versus the euro, both domestic and foreign suppliers are finding it’s cheaper to manufacture in the U.S. than in central Europe or China. As a result, we’re seeing a lot of European suppliers looking to build a presence here.

Mnet: How is the landscape of global automotive manufacturing changing?

Folts: Working with global European suppliers, I see a greater emphasis on moving operations to the U.S -- particularly the South. They see the potential to expand because we’re still the largest economy in the world. It provides them the opportunity to increase their capacity at a lower cost and be closer to their customers.

Mnet: Mercedes has a plant in Alabama, BMW in South Carolina, and Volkswagen is currently considering a plant in the south. As these automakers and their suppliers move set up shop in the U.S., will we see more jobs available to U.S. auto executives and autoworkers on their way out?

Folts: Certainly. I’ve been working with German and other European auto parts suppliers that have a presence here or are beginning to establish markets here in the U.S. and many are currently searching for executives to run their U.S. operations.

Mnet: What are the challenges U.S. automotive executives face in turning around their companies? Can they do it?

Folts: Compared with the cost structure of Japanese manufacturers, domestic automakers can’t compete because of the high cost of labor. The cost per hour for an employee is significantly higher for U.S. automakers than their Asian counterparts. Once U.S. automakers bring their costs down, they’ll be far more competitive.

Over time the auto industry will be healthier because the cost structure has to change.

Moving manufacturing to the Deep South and cutting models that don’t sell well will also help bring the hourly cost per employee down. Cutting production and getting out of certain lines of business will make them more profitable.

In addition, the unions have lost a lot of power. That change will certainly benefit automakers and their relationship with the unions. Automakers are more in a position today to negotiate versus 10 years ago when unions could take a harder stance. Instead of opposing each other, they now have to work together.

Mnet: What long-term actions must the U.S. auto industry take to remain competitive in the future?

Folts: The U.S. auto industry hasn’t been very good at looking ahead and adjusting quickly to market trends -- and they certainly did not expect the drastic shift from SUVs to cars. If something works and sells well for them, the way SUVs and trucks did, they keep making it.

However, the American pubic is also fickle and if automakers were to produce an electric car over a year ago, hardly anyone would buy it. It wasn’t until oil prices skyrocketed did people realize that they needed smaller, more energy-efficient cars.

But the auto industry can’t change that fast. Even if they were able to predict the future and had something on the drawing board, they would still be 18 months away from a new product.

Most automakers don’t want to incur high engineering and R&D costs only to have the car sit on the showroom floor, so it’s sort of a Catch 22. They can’t predict too far ahead without possibly sustaining major losses if the car doesn’t sell.

Meeting executive recruitment needs for over 40 years, Battalia Winston is currently ranked as one of the 12 largest executive search firms in the U.S. For more information visit www.battaliawinston.com. Rich Folts can be reached at R_Folts@battaliawinston.com

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