Amid softening U.S. car sales and mounting investor skepticism about Detroit's ability to weather the industry's first downturn in nearly a decade, auto executives are facing a tough choice in whom to please: Wall Street or the White House.
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Detroit has been an engine of growth for U.S. employment since the financial crisis, with General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV adding tens of thousands of jobs to keep pace with growing demand and fund autonomous-car engineering and other moonshot programs. Earlier this year, company executives promised to add head count at certain factories in response to criticism from President Donald Trump.
Now, those executives are quickly retreating. GM and Ford are making cuts to their U.S. workforces that could far outpace the job commitments made in recent months amid political pressure. Armed with union contracts that were reworked a decade ago, domestic car companies can respond more rapidly to investor concerns about the bottom line.
"There is a lot of a balancing act going on," said Jeff Schuster, LMC Automotive's senior vice president of forecasting. "We're finally at the point where we're likely to see a contraction in demand [and] obviously the new administration pushing for jobs." Mr. Schuster said that with "pressure on both sides of the equation, something has to give."
Auto executives are leaning on Mr. Trump for significant reforms, including relief from emissions standards set during the Obama administration and lower corporate taxes. GM, Ford and Chrysler, under pressure from the President over their reliance on Mexican production and the protections afforded by the North American Free Trade Agreement, have said Mr. Trump's pro-business stance could be a factor in rerouting investment to American factories that would otherwise head south of the border.
The industry's message for Wall Street has a different tone.
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GM in recent months has disclosed plans to lay off more than 4,000 workers as demand for certain passenger cars, such as the Chevrolet Malibu and Cadillac CTS, dwindles. Ford is planning to cut 10% of its staff to shore up sagging profit.
Frank Giamboy, an adviser with financial planner Waddell & Reed in Wilmington, Del., said it is clear that executives are "still trying feel their way around" in the early days of the Trump administration. But "I don't think Ford should be kowtowing," he said. "It's got to do what it has to do to stay alive."
Mr. Giamboy, a longtime investor in Ford with his own money, said the auto maker needs to show it is focused on managing costs. His concern is shared by the auto maker's board, which granted Chief Executive Mark Fields a $2.5 million stock incentive for "developing a lean mind-set," even as he focuses on future initiatives at the car maker.
Shares of Ford and GM are trading well below their value when Mr. Fields and his countpart at GM, Mary Barra, took the helm in 2014. GM's stock price, closing at $33.42 on Tuesday, is only slightly above the company's 2010 post-bankruptcy initial public offering; Ford's share price, stuck below $11, is down about 40% from when Mr. Fields succeeded Alan Mulally three years ago.
Ford and GM slipped behind Tesla Inc. earlier this year in market capitalization, underscoring a rapid shift in the way investors view the industry, which is expected to change dramatically as autonomous cars and electric vehicles replace conventional transportation.
Both companies have sought to boost value by implementing stock buybacks or special dividends in recent years. The measures, coming as Detroit auto makers report historically strong profitability, have had little impact on investors due to their concerns about the cyclical nature of the car business.
GM executives, citing changes made to United Automobile Workers' contracts before the company's 2009 bankruptcy, recently told analysts about one-third of hourly GM workers have relatively short layoff benefits and that percentage will rise, making it cheaper to cut jobs.
"Clearly, as we see a downturn, there is a component, I hate to even bring it up...that's a significant opportunity for reduced cost," GM finance chief Chuck Stevens told analysts in April. "It doesn't make any of us happy, but that's a fact." RBC Capital estimates GM could slash up to $1 billion in annual labor costs if U.S. sales were to slip 20%.
Ford, aiming to cut $3 billion in costs, had been reluctant to lay off hourly workers, instead staggering assembly-plant schedules by giving workers weeks of downtime. It will now slim down its global workforce, cutting 10% of jobs mostly from its salaried ranks, according to people familiar with the plan.
Even though car companies, including foreign makers such as Toyota Motor Corp., have been chastised by Mr. Trump for increasingly reliance on Mexican factories, the auto industry has helped drive U.S. employment gains in recent years. Assembly-plant employment hit the highest point in more than eight years in December, with more than 211,000 people employed, according to the Bureau of Labor Statistics.
Those gains include additional staff added by foreign auto makers such as Volkswagen AG, which is expanding in Tennessee. Tesla on Monday announced its workforce has reached 10,000 people at a California factory purchased in 2010.
Total auto manufacturing employment, including parts suppliers, hit 945,000 in April, 50% higher than industry employment in 2009 when GM, Chrysler and several auto suppliers were undergoing bankruptcy restructuring.
GM's U.S. employment during the decade has been rebuilt, growing from 77,000 in 2010 to 105,000 last year. It recently committed to add $1 billion in fresh investment, which could lead to 1,500 new factory jobs. Ford and Fiat Chrysler also promised jobs early this year, many of which had been committed during 2015 negotiations with the UAW.
Nissan Motor Co., one of the few auto makers expanding in the U.S. market, is looking to adding U.S. capacity, but many -- including Subaru Corp. -- are considering production cuts that could affect overall employment.
The Trump administration's push for additional jobs from car companies could get a boost if Nafta undergoes significant changes, but much of the industry's fate is tied to U.S. light-vehicle demand.
Auto makers are facing a growing glut, a sign that production capacity is too high. RBC auto analyst, commenting earlier this month on April's weak car-sales performance, said the slowing pace of demand adds "to investor angst and the belief that production cuts are needed."
--Christina Rogers contributed to this article.
Write to John D. Stoll at email@example.com and Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
May 16, 2017 19:37 ET (23:37 GMT)