the sales of multinational car companies have dropped, why are only europe and the united states "crazy" layoffs?
2024-10-06
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since this year, european and american automobile companies have launched a wave of layoffs.
ford, tesla, general motors, volkswagen group, stellantis group and other multinational car companies have successively announced layoff plans. most of the layoffs by car companies this time are more than 1,000 people, among which volkswagen group (which is in negotiation with the union, not the final layoff data) and tesla have more than 10,000 people.
the cold wave has spread to the parts supply chain. chip manufacturer infineon, charging equipment manufacturer blink charging, swedish battery manufacturer northvolt and other component companies have also confirmed or planned to lay off employees.
it can be seen that this round of layoffs is mainly concentrated in the two major automotive industry centers in europe and the united states. in contrast, japan and south korea are also facing a decline in global sales, and there is little news of similar layoffs at this stage. is such a disparity simply caused by sales performance and the pressure of smart electrification transformation, or is there a deeper reason behind it?
behind the wave of layoffs among european and american car companies
behind the wave of layoffs among european and american car companies are the dual pressures of declining sales and poor smart electrification transformation. in order to reduce operating costs and cut excess production capacity, multinational car companies have unanimously chosen to use the "big knife" of layoffs.
take the volkswagen group as an example. since the demand for automobiles in the european market has not yet fully recovered to pre-epidemic levels, its production in germany has been reduced by about 500,000 units, which is close to the annual production capacity of two factories. in the first half of this year, the volkswagen group's global sales were 4.35 million vehicles, a slight decrease of 2% year-on-year, and a difference of millions of vehicles from the 5.4 million vehicles in the first half of 2019.
coupled with the decline in sales in the chinese market and the impact of price wars, the volkswagen group fell into the dilemma of "increasing revenue without increasing profits" in the first half of the year. its revenue was 158.8 billion euros, a year-on-year increase of 1.6%. operating profit fell 11% year-on-year to 10.1 billion euros, and operating profit margin dropped to 6.3%. affected by this, volkswagen group lowered its full-year operating profit margin forecast to 6.5%-7%.
in order to "reduce the company's costs in germany to competitive levels," the volkswagen group plans to abolish a series of labor agreements, including employment guarantee agreements that last until 2029 at six german factories. ceo oliver blume revealed that in the medium term, the number of employees in germany will be reduced by 30,000, accounting for about 10% of the total number of employees in germany. the volkswagen group is negotiating with german labor unions regarding its layoff plan.
at the same time, the volkswagen group will reduce expenditures on production capacity and software. for example, the new battery plant in germany will give up half of its planned production capacity.
tesla has also experienced a decline in electric vehicle deliveries for two consecutive quarters due to lower-than-expected demand in the new energy markets in europe and the united states, and has failed to achieve its profit target for four consecutive quarters.
specifically, by the second quarter of 2024, due to the impact of delivery volume (production volume of 411,000 vehicles, a year-on-year decrease of 14%) and decline in selling prices, tesla's automotive business revenue fell by 7% year-on-year, and its net profit was cut in half to us$1.48 billion. profit margin also fell from 9.6% to 6.3%. the day after the second quarter financial report was released, tesla’s stock price fell by 12%, and its market value evaporated by more than us$100 billion.
general motors' layoffs are related to obstacles in its intelligent transformation and factory renovations. general motors will lay off more than 1,000 software and service department employees worldwide because it failed to meet expectations for entering the software field. previously, some new cars were delayed from launch due to software failures.
in addition, general motors' temporary layoffs at its kansas plant are being renovated to produce the next-generation chevrolet bolt ev and gasoline-powered xt4 models.
it is worth noting that by focusing on high-value models and pickup trucks and appropriately adjusting investment in intelligence and electrification, general motors' profit fundamentals continued to improve in the first half of the year. during the reporting period, revenue reached us$91 billion, a year-on-year increase of 7%; net profit reached us$5.8 billion, maintaining a year-on-year growth of 20%.
japanese and korean car companies are “very stable”
in sharp contrast to european and american car companies, in addition to setbacks in the chinese market, japanese and korean car companies have stable operations in overseas markets, especially the local market, and there has been no news of large-scale layoffs.
an important reason for this stable situation is that the profitability of japanese and korean car companies continues to improve and is not affected by the slight decline in sales.
the sales of multinational car companies have dropped, why are only europe and the united states "crazy" layoffs?
take kia as an example. benefiting from the sales of high-profit suvs and gasoline-electric vehicles, its profit in the first half of the year hit a new high. during the reporting period, kia's revenue reached us$41 billion, a year-on-year increase of 7%; net profit was us$4.4 billion, a year-on-year increase of 16.9%, and the operating profit margin rose to 13.2%.
kia's revenue target for this year is 100 trillion won. if it achieves its goal, it will be the first time in more than 60 years since its establishment that it has exceeded the 100 trillion won mark.
toyota's performance was equally impressive. revenue in the first half of the year reached us$161.1 billion, equivalent to more than one trillion yuan; net profit was us$16.4 billion, a year-on-year increase of 25%, making it the world's most profitable car company.
this performance was achieved despite toyota's sales in the first half of the year (5.16 million vehicles) falling slightly from the same period last year. growth in sales of hybrid models and favorable exchange rates are the two main reasons for toyota's net profit growth. in the first half of the year, toyota's electric vehicle sales (including hybrid, plug-in hybrid, hydrogen fuel cell and pure electric) increased by 71.8% year-on-year, accounting for 40% of total sales.
in addition, the avoidance of large-scale layoffs by japanese and korean car companies is closely related to their corporate culture.
japan promotes a "lifetime employment" culture. according to analysis by xu jingbo, president of asia news agency, since the beginning of konosuke matsushita, long-term employment of employees has become a social responsibility that japanese companies must fulfill. "the three years before the epidemic were also the three years when japanese companies laid off the least people."
in addition, japan's strict layoff system and high compensation payments make layoffs more costly for companies. japanese labor law stipulates that companies must give one month's notice before laying off employees, and direct large-scale layoffs are not allowed.
japanese companies usually adopt an "early retirement bonus system" and generally formulate phased layoff plans lasting up to five years. retrenched employees can receive severance pay equivalent to 24-36 months' salary. south korean car companies also rarely carry out large-scale layoffs due to their unique corporate culture and management concepts. this year, japanese and korean car companies have also generally raised wages for employees around the world.
for example, because toyota hit a new profit high in fiscal year 2023 (net profit reached us$31.3 billion), it made the largest salary increase commitment in 25 years during labor negotiations this spring: starting from april this year, the wages of local employees in japan will be increased by at least 5%, the maximum monthly salary increase is 28,440 yen (approximately 1,387 yuan), and the year-end bonus is increased from 6.7 months' salary to 7.6 months. it is reported that toyota's factories in japan account for one-third of its global production capacity, with currently 14 factories.
not only toyota, but also japanese car companies such as honda, nissan, and mazda have also announced substantial salary increases. in addition, starting from january this year, north american employees of japanese companies such as toyota and honda (as a result of negotiations between u.s. labor unions and companies, almost all employees of u.s. auto companies have received salary increases) have also generally received increases of 9%-11%. salary.
south korea's hyundai motor group also reached an agreement with local labor unions in july this year (local production capacity accounts for about 40% of its global production capacity) to increase employees' basic wages by 4.65% in 2024.
everything has pros and cons. this stable employment strategy can protect the rights and interests of employees and lays the foundation for the long-term development of the company. however, when management or operation is not good, it can easily lead to redundant positions and a large number of employees.
in china, a consensus has been reached on “layoffs”
in china, the world's largest auto market, both european, american, japanese and korean auto companies are now facing unprecedented challenges - the market is shrinking and profits are plummeting.
data from the gasgoo automotive research institute outlines this picture: in the first half of 2024, the output of major joint venture car companies in china generally declined, with four of them even experiencing double-digit declines. only a few brands such as changan mazda, saic volkswagen, and changan ford managed to maintain slight growth.
the most eye-catching is the plight of saic-gm, whose output plummeted 54% year-on-year, from 451,000 vehicles in the same period last year to 207,000 vehicles. coupled with the impact of the price war, saic-gm's revenue shrank to 32 billion yuan and turned from profit to loss, with a net loss of 2.275 billion yuan.
at the same time, general motors' financial report for the first half of 2024 showed that it suffered a loss of us$210 million (approximately rmb 1.47 billion) in the chinese market. who would have thought that this joint venture, which once contributed more than 30 billion yuan in annual net profit to the parent company, would now be reduced to this.
since it is temporarily unable to produce highly competitive smart electric products to cope with the chinese market, general motors has re-examined its strategy in china - shifting its focus from mainstream models to luxury models. general motors also recently stated that it will cooperate with its chinese joint venture partners to restructure its business in china so that it can continue to make profits.
japanese car companies are also not immune. in the past two years, the output of the three major japanese joint venture brands honda, toyota and nissan in china has declined to varying degrees. in the first half of this year, guangzhou automobile honda's output plunged 42% year-on-year to 185,000 units, and guangzhou automobile toyota's output also fell 26.3% to 340,000 units. under the impact of chinese brand plug-in hybrid models, the traditional advantages of japanese cars in terms of "durability and fuel economy" are gradually being weakened.
however, for general motors, ford and japanese car companies, the impact of poor performance in the chinese market on their overall performance is within control, because their main markets are in europe, the united states and other regions. for japanese car companies such as toyota, the fierce offensive of chinese brands in the thai market may cause a greater impact. at present, the share of japanese cars in the thai market has fallen below 80%.
in contrast, german car companies have been hit hardest. the chinese market accounts for nearly one-third of the sales of the three major german car companies, volkswagen group, bmw and mercedes-benz, and their performance in china directly affects the overall situation.
take the volkswagen group as an example. although the sales volume in the chinese market still accounts for one-third of the volkswagen group's global sales, the proportion of net profit has dropped to 10%. sales in china in the first half of this year were 1.345 million vehicles, a year-on-year decrease of 7.4%. net profit in china was 801 million euros (approximately rmb 6.26 billion), a year-on-year decrease of 30%. the net profit of bicycles has dropped from 8,200 yuan in 2022 to 4,700 yuan today.
the bmw group's global performance in the first half of 2024 was also affected by the chinese market. bmw delivered 376,000 new cars in china in the first half of the year, a year-on-year decrease of 4.3%. what’s even more troublesome is that in the face of the price war initiated by local chinese car companies and the impact of tesla, bmw was forced to increase terminal profit margins to maintain competitiveness. however, this strategy not only failed to stabilize market share, but also led to a decline in profits.
affected by the chinese market, the bmw group's global pre-tax profit in the first half of the year fell 14.2% year-on-year to 8.023 billion euros (approximately rmb 62.79 billion). due to weak demand in the chinese market, the bmw group lowered its full-year profit margin forecast to "6% to 7%."
at the same time, in order to maintain profits, the bmw group took the lead in making a decision in july this year: to withdraw from the price war in the chinese market. subsequently, joint venture brands followed suit. however, this move seems to have backfired, causing bmw's sales in china to plummet. in august, bmw sold only 34,800 vehicles in the chinese market, a year-on-year drop of 42%. in order to recover the lost market share, there is recent news that its dealers have independently decided to return to the price war.
this also reflects the dilemma faced by foreign brands in the chinese market: profits will be lost if they participate in a price war, and market share will be lost if they withdraw from the price war. however, reducing production costs is the consensus of everyone, and cutting production capacity and layoffs are the most direct and effective means.
therefore, we have seen that foreign brands represented by toyota, honda and volkswagen have launched layoff plans in the chinese market. according to gasgoo, volkswagen china, gac/dongfeng honda, gac toyota, tesla and many other foreign/joint venture brands have started layoffs since last year. in terms of compensation, foreign brands in china are generally more generous, and most of them are higher than the "n+1" conventional compensation plan.
obviously, in this wave of smart electrification, multinational car companies (except tesla) have not been able to take the lead for the time being. especially in the chinese market, local brands have taken the lead in restructuring the price system, while foreign car companies are passively following.
however, looking at the global market, involution wars and price wars are not a panacea. chinese brands still need to continue to improve their electrification and intelligent technology levels while ensuring profitability before they can find a way out in the international market. (gasgoo cars xiang tiange)
source: gasgoo
