Detroit auto show will kick off year of uncertainty
The last North American International Auto Show to be held in January is likely to set an uneasy tone for the year, as the show and the fewer automakers attending it encounter the most uncertainty in a decade.
Not since 2009, when two of Detroit's three automakers looked headed to bankruptcy, have so many questions loomed over this town's biggest annual event. The auto industry is reckoning with rising commodity costs, trade tensions and signs of a global economic slowdown at the same time borrowing rates for car buyers continue to rise and the stock market gyrates — all as General Motors Co. and Ford Motor Co. navigate sweeping restructuring plans.
As Detroit's automakers use their hometown show to tout the trucks and SUVs driving their long runs of profitability, deep cuts to unprofitable car lineups are endangering hourly and salaried employees. This year, GM will reconsider the viability of five North American plants, including two in southeast Michigan, and salaried layoffs. Ford is expected to follow with its own cuts.
"The difference between this year and 10 years ago is that the show has lost so much relevancy there's almost this feeling of apathy," said Mike Ramsey, an automotive analyst for research firm Gartner Inc. "In 2009, in the middle of an economic disaster, the feeling boiled down to ambivalence, like 'should we even be doing this?' It was depressing in a different way."
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The 30th anniversary of the Detroit auto show's rebranding as an international show will pass relatively unceremoniously as the contingent of foreign automakers has dwindled to the Volkswagen brand and just a handful of mainstream Asian rivals. The culmination is what show organizers call a "transitional" year before the show undergoes another rebranding with a move to June in 2020.
A likely focus of this year's Detroit show, opening to the public Jan. 19, is expected to be an industrywide consensus that profits and sales will start to contract this year, Morgan Stanley investor Adam Jonas wrote in a note Friday. Among the reasons: rising costs, trade friction, tighter credit, a China slowdown and increasing policy uncertainty in Washington.
GM is expected to set the tone Friday with a Capital Markets Day the Detroit automaker is hosting with investors in New York. With the move, GM is skipping the annual financial forecast at the Deutsche Bank Global Auto Industry Conference traditionally held during the Detroit auto show's press week, beginning this year on Sunday.
"The timing of GM's investor day immediately prior to the Detroit show is telling and we believe could set the tone for a challenging auto market environment for 2019 and the week of outlooks that follows," Jonas wrote. "GM announced very significant restructuring moves in late November, and we expect Ford to be preparing a series of global actions addressing underutilized facilities and potentially tens of thousands of employees. FCA has some of the most elevated (inventory) in the U.S. market that may need to be addressed early in 2019."
GM is embarking on a rigorous restructuring effort that could include up to five plant closures by the end of the year, following some 6,000 white-collar layoffs in the first quarter. The Detroit automaker, which weathered a federally induced bankruptcy in 2009, is making drastic moves amid record profits to reposition investments in future technologies while successfully navigating a potential downturn for the first time in its 110-year history.
It's unclear how — and when — that downturn would manifest. JP Morgan said in a note following 2018 full-year sales results that it continues to see resilience in the auto industry despite negative sentiment among investors.
Meantime, Ford CEO Jim Hackett has spent his first year and a half at the head of the company seeking ways to cut costs. Last year, Hackett and Ford chief financial officer Bob Shanks announced plans to cut billions in costs, to spend billions to restructure the global business, to cut sedans from the North American lineup and to lay off an undetermined number of white-collar positions around the world.
Fiat Chrysler Automobiles NV is expected to expand its manufacturing footprint this year by reviving an idled engine plant in Detroit as an assembly plant to build a three-row Jeep Grand Cherokee at the same time it quietly abandons a plan to repatriate heavy-duty truck production to the United States from Mexico in an effort to build more highly profitable Ram pickups.
The efforts by Detroit's automakers to pivot to more profitable product portfolios are expected to be evident in the product they tout at their hometown auto show. Ford takes a head start Wednesday with the debut of its redesigned, profit-rich Explorer SUV, followed Sunday by GM's all-new, three-row Cadillac SUV dubbed the XT6. FCA's Ram brand is also expected to debut a new product.
But the metal on the floor is expected to take a back seat to lower profit guidance from a "significant number" of auto companies at the show. Wrote Jonas: "The Detroit show historically included great anticipation around new products, designs, features and power trains.
"This year? Not so much."