Production shutdowns are continuing due to chip shortages, and protesters forming a blockade on the U.S. and Canadian border brought a new wrinkle to the supply chain issues. Automotive inventory decreased slightly in January and production continues to dictate sales performance. 

In this issue, A&M examines how the automotive industry is working through the labor crisis as the selected topic for the February Industry Focus.

The transaction market remains busy with automakers using partnerships to enhance electric and autonomous capabilities. 

In regulatory news, Tesla issued several new recalls and is being sued by California for racial discrimination.  Additional February insights are included below.

Financial Performance

Auto Forecast Solutions’ (AFS) numbers show that shutdowns and delays have resulted in 527,000 lost vehicles globally during calendar year 2022, a 42 percent increase from the prior week estimates. North America has seen approximately 221,500 units axed from factory schedules this year, which is more than double the year-to-date amount from the prior week. The latest AFS estimates suggest approximately 1.3 million total cars and trucks will be affected by chip-related disruptions in 2022. 

The industry also faced a new disruption in February when a six-day blockade was formed on the Ambassador Bridge, which connects Detroit and Windsor, Canada, as part of a pandemic restrictions protest. The Ambassador Bridge is one of the busiest land border crossings and a vital trade route for the automotive industry. The protests caused parts shortages and transportation issues that led to plant shutdowns in Canadian and U.S. locations. It is estimated the automotive industry lost $300 million from the blockade, with a $155 million direct hit to automakers and $145 million in lost wages from plant shutdowns. 

Industry Update

Automotive inventory decreased by 55,000 units in January, resulting in approximately 1.1 million total units. This translates to a days’ supply (DS) of 22, which is 61 percent below the five-year average. Typically, January is a time of inventory build, and the absolute decrease is a result of production improving slower than expected. Despite the disappointing results, it appears that the industry will not face further significant deterioration with inventory stabilizing around 1 million units on-hand the past few months. 

New light vehicle sales in the U.S. declined 10 percent year-over-year in January with a 15.0 million seasonally adjusted annualized rate (SAAR) of sales. It is anticipated sales performance will continue to be reliant on production as the industry largely sells every unit on-hand or delivered each month. Supply chain disruptions are expected to persist through the first half of 2022, and meaningful restocking will likely not occur until 2023. Given the industry doesn’t have additional inventory to work down, versus 2 million units of inventory worked down in 2021, the chances of a year-over-year sales improvement in 2022 are low. However, the constrained inventory and sales environments in 2022 will likely lead to a more robust recovery in the following years.

Industry Focus – Labor

Along with many other industries, the automotive industry is currently experiencing a labor crisis that has many companies struggling to staff shifts, incurring significantly higher labor-related costs as a result. In this focus section, A&M takes a closer look into several different aspects of the industry’s labor force, including worker participation, vaccine policies, and union affairs.

Current Labor Shortage Overview

At the beginning of the pandemic, the United States was struggling with a high unemployment rate; however, the current issue has shifted to a shortage of workers. When comparing pre- and post-pandemic labor demographics, there have been several important changes that extended the labor shortage into 2022. In response to COVID-19, the U.S. increased restrictions on immigration and travel, which resulted in the influx of immigrants essentially coming to a standstill. This ultimately led to 2 million fewer immigrants and a proportional decrease in Visa entries.

Another highly affected group, mothers, has approximately 1.5 million workers no longer participating primarily due to a steep increase in child-care costs and a lack of social policy support for parents. The last major demographic is older workers, now mostly retirees, in a movement some refer to as “The Great Retirement.”

Strong financial markets, unemployment and welfare incentives, and COVID related health concerns have led to an increased desire for retirement, which can be illustrated by 3.3 million more retirees in October 2021 than January 2020.

Job Openings and Labor Force Participation Rate

The labor force participation rate measures the percentage of the civilian population 16 years and older that is working or actively looking for work. As of January 2022, the labor force participation rate stands at 62.2 percent, which is still below the pre-pandemic value of 63.4 percent. Although this delta may seem small, it corresponds to approximately 3.4 million fewer people working than in February 2020. The participation rate is slowly climbing and according to the Bureau of Labor Statistics (BLS), the U.S. added 467,000 jobs in the month of January, bringing the 12-month tally to nearly 7 million jobs added. Please see the chart below for a display of the data from January 2019 through January 2022.

Low labor participation has multiple short-term effects for the automotive industry, including direct impacts such as rising wages and higher contractor costs. There are many other indirect impacts, however, including lower productivity, higher scrap and rework, and expedited/premium freight costs, among others. According to the BLS, the average hourly earnings for employees in motor vehicle and parts manufacturing has increased from $23.84 in January 2020 to $26.48 in January 2022, representing an 11 percent jump in the average hourly wage. In addition, current supply chain issues are wreaking havoc on the automotive industry, as described in the October Automotive Spotlight, and a shortage of truck drivers and railroad workers are a primary cause for the problems.

The Wall Street Journal estimates that a full recovery in the global labor market will take at least two years. Recent forecasts by the International Labor Organization (ILO) have stated that if the labor market trends continue, the number of unemployed workers is estimated to return to pre-pandemic levels by 2024. Kelly Services, a public staffing company, commented that staffing for their Professional and Industrial segment in the fourth quarter of 2021 remained depressed due to the impacts supply chain disruptions, uncertainty across manufacturing, and COVID. 

Vaccine Mandates

Throughout the duration of the pandemic, employees within the automotive industry have been at the will of their employers for COVID-19 vaccination, booster, and mask mandates. This will continue, as the Supreme Court has ruled against the Biden Administration, therefore halting government-enforced vaccine requirements under an Occupational Safety and Health Administration (OSHA) rule, which covered a total of 80 million U.S. workers.

Auto industry vaccine mandates have been best described as a mixed bag, with some major OEMs implementing their own rules as others wait for more information while practicing safe protocols. The Detroit Three of GM, Ford, and Stellantis present an interesting example of the dynamic that OEMs must consider when it comes to vaccination. GM is encouraging employees to get vaccinated but is not requiring it for employees. After previously announcing a companywide mandate in November 2021, Stellantis announced they are suspending the COVID-19 vaccine mandate for all U.S. salaried workers. Ford continues to have a vaccine mandate for U.S. employees. While Detroit Three workers at Mexican facilities do not have any mandates, all employees at facilities in Canada must have a vaccine to continue working. Automakers need to continue working with regulators, employees, and unions alike to implement the optimal guidelines of yet another factor weighing on automotive workforce. 

Major labor unions in the automotive industry have all publicly encouraged members receive the vaccine. The UAW has resisted agreeing to vaccine mandates, as their position is that vaccination is strongly encouraged, but a personal choice. Unifor supports vaccine mandates as long as the limits of reasonableness and fairness are not breached. The IBEW has strongly supported union members in receiving the vaccination and has not taken a strong stance in preventing vaccine mandates. However, they have focused on ensuring union members have sufficient time to receive the vaccine and that high standards of safety and fairness are maintained by companies that require the shots.

Transaction Activity

In recent transaction news, Faurecia has completed its $6 billion takeover of Hella. The combined company will be known as Forvia, but the two companies will continue to operate and sell products under each brand name. Jidu, an electric vehicle joint venture launched a year ago between Baidu and Geely, announced that it raised an additional $400 million in fresh funding from Baidu and Geely as it continues its quest to build “robot” cars. Additionally, Chinese authorities approved Volkswagen’s Audi and Chinese state-owned partner FAW to begin construction on their electric vehicle plant. The companies are planning to invest a total of $3.3 billion in the joint venture, with production beginning in December of 2024.

See below for additional detail on recently announced transactions.
 

•    Lightning eMotors has reached an agreement with GM to collaborate on the development of zero-emission electric trucks for medium-duty commercial fleet customers. Lightning eMotors will electrify medium-duty truck platforms provided by GM, which can be used for a variety of commercial applications. 

•    Self-driving truck company TuSimple is forming a partnership with the Union Pacific Railroad to haul freight on a major route in Arizona. TuSimple will carry goods for Union Pacific in trucks operating without humans in a deal that is believed to be the first between an automated-trucking company and a railroad.

•    Daimler Truck North America is forming a joint venture with NextEra Energy Resources and Blackrock Renewable Power to develop a nationwide charging network for medium- and heavy-duty electric vehicles and hydrogen fuel cell vehicles. Operations will begin this year and the initial investment of $650 million will be evenly split among the three companies. 

•    Volkswagen’s software unit Cariad is partnering with supplier Robert Bosch to develop autonomous driving systems for consumer vehicles. The partnership is aiming to install Level 2 systems on Volkswagen vehicles beginning in 2023, while additional autonomous functionalities will be developed for future deployment. 

Regulatory Landscape

U.S. Road Safety: The U.S. Department of Transportation unveiled a national strategy for addressing road safety to reduce serious and fatal injuries. The plan is partially supported and funded by President Biden’s $1 trillion infrastructure package. The announcement comes shortly after the NHTSA estimated that U.S. traffic fatalities increased by 12 percent in the first nine months of 2021 to reach the highest number since 2006. 

Tesla Recalls: The National Highway Traffic Safety Administration (NHTSA) continues to pressure Tesla as the automaker continues to recall vehicles for a myriad of reasons. As of late, Tesla has recalled 579,000 vehicles for insufficient pedestrian warning risk sounds, 817,000 vehicles for a malfunctioning seatbelt alert, nearly 54,000 vehicles for a rolling stop feature that can ignore stop signs, and 26,681 vehicles over windshield defrosting issues. Tesla now has 11 recalls in the past three months.

Autonomous Vehicle Regulation: Officials from the autonomous vehicle industry, highway safety advocates, and union workers are urging for federal action and legislation for autonomous vehicles. The Autonomous Vehicle Industry Association argues that autonomous vehicles will make roads safer, improve transportation equity, and create jobs as they seek for policymakers to establish a national framework for deployment. 

Tesla Sued for Racial Discrimination: California’s civil rights regulator is suing Tesla for racial discrimination after alleging Black workers at Tesla’s Fremont factory face widespread discrimination and harassment. Tesla has faced numerous complaints and lawsuits from former workers at the plant, but workplace disputes at Tesla are handled behind closed-door arbitration. A former contractor at Tesla’s Fremont was recently awarded $137 million by a California jury after complaining of pervasive racism. 

Stay connected to industry financial indicators and check back in March for the latest Auto Industry Spotlight.