Rick Haglund: Warning light is flashing for Michigan’s auto industry

September 1, 2019 7:20 am

Vice President Mike Pence visits a Ford Factory in Southeast Michigan, April 24, 2019 | Official White House Photo by D. Myles Cullen via Flickr Public Domain

It’s been a great decade for Michigan’s critically important auto industry, which almost died 10 years ago during the Great Recession.

Annual U.S. sales for all automakers jumped from 10.4 million in 2009 — the lowest since 1982 — to an almost-record 17.2 million last year, a 65% increase. 

Automakers and their parts suppliers in Michigan added 68,7000 jobs in the same period, a 63% increase from the 108,300 people they employed here in 2009.

Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles racked up a combined $55.9 billion in net profit in just the past four years.

But the industry could soon be careening into a ditch. And anyone who has lived in Michigan during past auto-led recessions knows what pain might lie ahead.

The usual warning light is flashing: softening sales in a record-long economic recovery that appears to be losing steam.

Michigan could already be in the early stages of a recession as job growth has flattened over the past year, Michigan State University economist Charles Ballard told Michigan Radio.

Low-wage working households on the rise in Michigan

And while sales are slowing, automakers are grappling with a number of issues they’ve not experienced in past downturns.

“I think the biggest worry for automakers is that there’s just uncertainty all over the place,” said Kristin Dziczek, vice president of industry, labor and economics at the Ann Arbor-based Center for Automotive Research. “It’s like standing on quicksand.”

Automakers are making huge bet on the future by spending billions of dollars on electric vehicles and self-driving cars. No one knows for sure when that investment will pay off.

“It’s going to be the biggest change we’ve seen in the last 100 years, and it’s going to be really expensive even for the biggest companies,” said Erik Gordon, a professor at the University of Michigan Ross School of Business told the New York Times.

Automakers must do this at the same time they’re making big investments in the kind of cars and trucks consumers want now. Slower sales and potentially lower profits put them at risk.

Rick Haglund: U.S. automakers aren’t toasting Trump’s tariffs

GM, Ford and Fiat Chrysler are in the final weeks of negotiating a four-year contract with the United Auto Workers union, which is embroiled in a sweeping kickback-and-bribery scandal that also has ensnared several auto executives.

They also are dealing with a remarkably hostile and confounding President Donald Trump, who’s giving them heartburn on a variety of issues, including vehicle fuel economy, tariffs and assembly plant location decisions.

Trump recently said top executives of Ford and several other automakers were “foolish” for agreeing to abide by California’s stringent fuel regulations, which are similar to rules set by the former President Obama administration.

The president wants to roll back the Obama standard, which requires cars and trucks to average 54.5 miles per gallon by 2025. Trump also is seeking to eliminate California’s right to control fuel economy.

Ford, Honda, Volkswagen and BMW signed on to the California agreement and others are expected to follow. Thirteen other states have adopted the California standard. 

Dingell, Upton push for national fuel economy standard

Some automakers see the California rules as the best path forward to reaching a single national fuel economy standard. U.S. automakers also are facing higher government fuel economy standards to combat greenhouse gases for the vehicles they sell in other countries.

Trump’s steel tariffs have cost automakers and suppliers billions of dollars. And the president’s escalating trade war with China threatens to upend the entire global auto industry.

Citing the International Emergency Economic Powers Act of 1977, Trump on Aug. 23 ordered American companies to leave China and move production to other countries, including the United States.

It’s not clear that Trump has the power to enforce his order, and the edict might be just more of his blustering. 

Rick Haglund: Michigan’s auto industry faces historic changes

But such a move would be particularly devastating to GM, which sells more vehicles in China than it does in the United States. Most of the cars and trucks GM sells in China are built there with Chinese joint venture partners.

Trump slammed GM for its Chinese investments on Friday and suggested the automaker move its Chinese production to the United States.

Experts say it would be impossible for GM to supply the Chinese market from its U.S. assembly plants, as Trump seems to want. Plus, China has announced it’s resuming a 25% tariff on U.S.-made cars that was suspended in April.

Automakers also face uncertainty over the fate of a renegotiated free trade agreement that would replace the North American Free Trade Agreement (NAFTA). 

Dems, GOP offer contrast on trade ahead of debates

The United States-Mexico-Canada Agreement (USMCA) has yet to be ratified by Congress. It’s stalled in the Democratic-controlled House, which wants more labor and environmental protections added to the pact.

If Congress fails to ratify the USMCA, Trump has threatened to kill NAFTA. That would be a major blow to Michigan’s automakers, which have greatly benefited from free trade in the region and low manufacturing costs in Mexico.

In criticizing automakers for agreeing to play by California’s fuel economy rules, Trump tweeted that Henry Ford and legendary GM chief executive Alfred P. Sloan are “rolling over at the weakness of current car company executives,” even though GM hasn’t signed on to the pact.

If Ford and Sloan are rolling over in their graves, it’s not because of the actions of their successors.

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Rick Haglund
Rick Haglund

Rick Haglund writes the "Micheconomy" column for the Michigan Advance. He's a former reporter and business columnist for Booth Newspapers, now the MLive Media Group, with extensive experience covering Michigan’s economy and the auto industry. He now works as a freelance writer based in Southeast Michigan.