Sunday Strategist: Carmakers Tap the Brakes
Breaking down the week’s boldest bets in business.
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It was a grim week for the mass of workers who bolt together cars and trucks in Europe.
Ford, which has 54,000 continental employees, laid out a “step-change” to wring more profit from its European business. The plan entails idling at least a couple of plants, and it may well throw its Russia endeavors into reverse. Tata Motor’s Jaguar Land Rover said it would lay off 4,500 workers, primarily in the U.K.—a smaller crowd, sure, but from a smaller company. The pink slips at Jag represent 10 percent of its workforce: a literal decimation.
These are tough decisions. They’re also quite possibly overdue. Brexit, which is behind an ebb in EU car sales, is almost three years in the making. China, a major market for Jaguar, has been skidding since June. General Motors high-tailed it out of Europe in 2017, flipping Opel to Peugeot like an old Impala.
A 21st century automaker, however, is about as tidy as a Hanoi intersection. It’s split into numerous factions, each with its own agenda and incentives that rarely align with the others’. The folks in charge of the factory want to maximize production to sweeten the economics of making each individual vehicle. That volume, however, forces the finance department to lower credit standards and increase bad debt expense. Then there’s the persistent lobby for production capacity and marketing dollars for vehicle design, a three-year process at minimum. In a company with several different brands, this dysfunctional, cacophonous gang of siblings is multiplied. (You should hear what the Porsche engineers say about their Audi cousins behind closed doors.)
This is all to say that at any given time, in any given automotive C-suite, there’s tremendous pressure to do nothing at all. For Ford and Jaguar, however, the path of least resistance is no longer an option. The late great Fiat Chrysler boss Sergio Marchionne knew this dynamic well. He gutted Chrysler and built a global empire of Jeeps, all while struggling to pay off a TARP bailout.
His summation of big personnel decisions: “When you’re broke, you change your ways a lot faster.”
Kyle Stock is a senior correspondent covering corporate strategy. He holds a master’s in business administration from Columbia University, a master’s in journalism from Northwestern University.
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