Automaker to Shut Down Terminal
Fiat Chrysler Automobiles NV (NYSE:FCAU) is looking to cut nearly 100 jobs and close a terminal in Toledo, Ohio. This marks the first round of Fiat Chrysler layoffs in 2018.
The start of the new year has been mixed for the massive car company and its hundreds of thousands of workers. Following the passage of the White House’s tax reform plan, the company has offered some American workers Fiat Chrysler bonuses, while others are being left without work.
The Fiat Chrysler closing of the Toledo terminal comes at a time when the company is looking to bring jobs back to Michigan from Mexico. Overall, the future of auto industry layoffs in 2018 is hard to predict. Analysts project fewer overall vehicle sales, but the newly lowered corporate tax rate should add money to companies’ coffers.
The first Fiat Chrysler job cuts in 2018 in Toledo took place on January 2. Three more rounds are on the way on January 15, February 5, and February 28. In total, 92 people at that location will be cut, including mechanics, drivers, dispatchers, secretaries, managers, and supervisors.
Some Workers Get Fiat Chrysler Bonus
Amidst these Fiat Chrysler layoffs in 2018, the company has announced that it will be handing out a non-recurring bonus of $2,000 to 60,000 U.S. workers. That some employees are being cut while others are being rewarded does counter the narrative of generosity and prosperity the company may be trying to create.
Fiat Chrysler has also announced that it is looking to invest more than $1.0 billion in its Warren Truck Assembly plant in Michigan. This decision is expected to create 2,500 jobs.
“It is only proper that our employees share in the savings generated by tax reform and that we openly acknowledge the resulting improvement in the U.S. business environment by investing in our industrial footprint accordingly,” CEO Sergio Marchionne said in a press release.
It’s difficult to say, however, if the goodwill from the tax reform will last. Companies often make grand gestures immediately after the introduction corporate tax cuts, in part to generate good PR, but the effects of these gestures don’t always last.
Fiat Chrysler Layoffs in 2017
Back in April 2017, Fiat Chrysler temporarily laid off 3,200 workers in Toledo. These layoffs were instituted to shift production at the Toledo North Assembly Plant from the “Jeep Cherokee” to the next-generation of the “Jeep Wrangler.” The cost of the changeover was about $700.0 million.
The plant employed about 5,000 employees. 4,760 of those workers were on hourly pay while others worked part-time.
Rate Hikes Expected to Hurt U.S. Auto Industry in 2018
While the job situation in the auto industry may not be overly bleak, one area of concern is year-over-year sales. Many analysts are projecting weaker U.S. auto industry sales in 2018 in the face of rising interest rates.
A U.S auto industry decline in 2018 would be only the second annual sales decline since 2009—the first being in 2017.
One of the major reasons that analysts are so sure of a sales drop-off is the Federal Reserve’s position on interest rates. The Fed predicts three rate hikes in 2018, which would raise monthly payments on car loans and possibly convince consumers to opt for smaller vehicles or fewer features, Most critically, higher interest rates might convince consumers not to buy new cars at all. All of these outcomes would hurt industry profits.
Despite weaker U.S. auto industry sales in 2017, carmakers still enjoyed a fairly successful year. 17 million vehicles were sold for a third-straight year and only the fifth time in history. But in 2018, sales are projected to slump to 16.7 million, down from 17.2 million in 2017.
Even if the Fed raises rates, it would still be maintaining some of the lowest rates in decades. Consider 2000 and 2001, the only other period when annual vehicle sales surpassed 17 million—typical auto loan interest rates were in the range of six or seven percent. Now, auto loan rates sit around four percent. With the Fed expected to raise rates in small increments, each quarter-point increase would typically add $8.00 to $20.00 to the monthly payment on a new vehicle.
Another factor that may influence vehicle sales, as well as the future of Fiat Chrysler layoffs in 2018 and cuts among other major automakers, is NAFTA. Renegotiation of the free-trade deal was a key feature of President Donald Trump’s election campaign. In his attempt to fulfill that promise, however, he has raised hackles among both Canadian and Mexican diplomats, potentially putting NAFTA at risk.
Should NAFTA ultimately fail, this would have profound effects on the U.S. auto industry.
Trump’s bungling of NAFTA has overshadowed some of the good that he has brought to the auto industry, like the tax plan and a review of the fuel economy standards that were imposed under the Obama administration. A weakening of these fuel standards could potentially increase the profitability of trucks, SUVs, and other high-fuel-consumption vehicles.
“WARN Report,” Ohio, October 25, 2017.
“Fiat Chrysler will move Ram production to Michigan from Mexico,” CNN, January 11, 2018.
“Fiat Chrysler issues layoff notice for 3,200 Toledo workers,” The Blade, February 14, 2017.
“Fiat Chrysler to lay off 3,200 temporarily in Toledo,” USA Today, February 17, 2017.
“Fed Rate Hikes Expected to Hurt Car Sales in 2018,” Bloomberg, January 2, 2018