Jun 28, 2019

Automakers' big profit squeeze

Illustration: Sarah Grillo/Axios

Carmakers are in a tough spot: Global auto sales are slowing faster than they can reinvent themselves as transportation service providers.

Why it matters: It will be years before investments in new technologies like electric, self-driving cars pay off — if ever. With sales stagnating in major markets like the U.S. and China, and traditional sources of revenue drying up, carmakers are slashing fixed costs and contemplating their place in the new order.

Driving the news: Ford is the latest automaker to announce layoffs, this time in Europe, as part of a broader corporate restructuring that aims to slash $25.5 billion in operating costs over the next few years.

  • Ford said it would cut 12,000 jobs, close 5 plants, and trim shifts at 2 other factories throughout Europe.
  • The announcement follows news in May that it would eliminate 7,000 salaried positions worldwide.
  • Ford is hardly alone. GM, Nissan, Honda, Daimler, Tesla, Fiat Chrysler, Jaguar Land Rover and Audi have all announced job reductions in the past 6 months, totaling at least 38,000 people, Bloomberg reports. And more cuts are likely.

What they're saying: "The industry is right now staring down the barrel of what we think is going to be a significant downturn," Bank of America Merrill Lynch analyst John Murphy said at a recent Detroit forum, adding that the pace of decline in China "is a real surprise," per Bloomberg.

  • The timing couldn't be worse, just as companies are ramping up spending on new technologies — $225 billion on electrification between now and 2023, and another $85 billion on autonomous vehicles, says global consulting firm AlixPartners.
  • Industry profits began falling in 2017, and return on capital employed is shrinking toward levels not seen since the Great Recession, a studyfrom the firm found.
  • Mark Wakefield, co-leader of AlixPartner's automotive and industrial practice, warns of a "multi-year profit desert" the industry will have to crawl through.

What to watch: In the midst of the turmoil, automakers need to figure out what role they will play in the new transportation ecosystem, Wakefield tells Axios.

  • The largest players will likely continue to invest heavily in EVs and AVs in hopes of dominating the field in a winner-take-all fight, he says.
  • Others will be more strategic, putting together pieces of the mobility puzzle with partnerships but not controlling the game.
  • "Your starting position matters," Wakefield says. "Big OEMs want to play a bigger role. Smaller companies are willing to sell pick axes to gold miners."

Go deeper: Billion-dollar bets on electric vehicles await payoff

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Trump walks to historic St. John's Church outside White House as protests rage

President Trump walked to the historic St. John’s Episcopal Church, located just steps away from the White House across Lafayette Park, on Monday night as protests linked to the murder of George Floyd raged across the capital and cities around the country.

What we're seeing: Military police and park rangers used physical force and tear gas on peaceful protestors to clear the area so that Trump could "pay respects" to the church that was damaged by a fire on Sunday.

Trump threatens to deploy military amid national unrest

President Trump announced from the White House Rose Garden Monday evening that he is "mobilizing all available federal resources, civilian and military" to stop violent protests across the country, decrying "professional anarchists, looters, criminals, antifa and others" whose actions have "gripped" the nation.

The backdrop: Trump's announcement came as police clashed with protesters just outside of the White House, using tear gas and rubber bullets to disperse crowds chanting, "Hands up, don't shoot," and other slogans. Flash bangs used outside the White House could be heard from the Rose Garden.

Updated 2 hours ago - Politics & Policy

Autopsies say George Floyd's death was homicide

Police watch as demonstrators block a roadway while protesting the death of George Floyd in Miami. Photo: Joe Raedle/Getty Images

Preliminary results from an independent autopsy commissioned by George Floyd's family found that his death in the custody of Minneapolis police officer Derek Chauvin was "homicide caused by asphyxia due to neck and back compression that led to a lack of blood flow to the brain," according to a statement from the family's attorney.

The latest: An updated official autopsy released by the Hennepin County medical examiner also determined that the manner of Floyd's death was "homicide," ruling it was caused by "cardiopulmonary arrest complicating law enforcement subdued, restraint, and neck compression."