Car sales dip alerts auto parts plants

6/14/2017

Ever since car and truck buyers began pulling the U.S. economy out of the deep recession in 2009, employment has surged in Tennessee’s nearly 900 automotive plants. But the longest sustained boom in American automobile sales since the 1920s has begun fading.

Sales of new cars and trucks slipped 4.5 percent nationwide last month, raising concerns of eventual layoffs for some of the state’s 193,000 autoworkers if demand for new vehicles continues falling.

Small plants first

With vehicle assembly lines at Chattanooga, Smyrna and Spring Hill, Tennessee stands out as a major automobile state, although sizable layoffs are not likely to appear first in these big plants run by Volkswagen, Nissan and General Motors.

Most Tennessee autoworkers are employed in smaller supply plants. These factories make parts or fashion several parts into components destined for vehicle assembly lines in more than half a dozen states.

Even though most economists foresee no recession in the months ahead, if auto sales ebb month after month, profits will slide. Smaller manufacturing plants located throughout the state could start to idle workers first.

Impact of robots

Many smaller plants bulked up for the auto boom by hiring workers, including large contingents of temporary employees assured they'll be let go before the permanent crew if the market falters.

While the small plants added staff, their bigger customers across the country — the component plants and the vehicle assembly lines — added workers and also automated, spending almost $1 billion on robots since 2015 to help shoulder the rising demand for automobiles.

The typical vehicle assembly plant now uses more than 1,000 robots, notes Jay Baron, chief executive of the Center for Automotive Research, a think tank in Ann Arbor, Mich.

Relying on machinery allows these high-tech auto plants to slow output without immediately cutting deep into the payroll, said manufacturing consultant Dennis Cuneo, former senior vice president of Toyota North America in Georgetown, Ky., and presently head of D.C. Strategic Advisors of Reno, Nev.

When demand began to spike for auto parts, expensive robots were out of reach for many smaller plants. So they tended to hire workers, said Kinion Dunn, president of DBT Inc., a designer and manufacturer of automated machinery east of Nashville at Sparta.

“The whole auto industry expanded to meet the capacity needs after the recession. But robots are fairly capital intensive,” Dunn said. “They are harder for smaller companies to afford.”

While the auto industry has been a leader in robotic use, Dunn figures the sector is only 20 percent along the way on its use of automation. Once auto sales ease further, he said, harried executives at smaller plants will have more time to plan their operations and will likely make greater use of high-tech equipment.

May sales

The auto sector, which now accounts for one of every three manufacturing jobs in Tennessee, bloomed as automakers sold 17.55 million vehicles in 2016, the most counted in any year since the U.S. auto industry began to take off after 1905.

Using the highest level of incentives ever recorded, about $3,583 per vehicle, 20 manufacturers from around the world sold 1.51 million new vehicles in May in the United States, compared to 1.52 million in May 2016.

Although only a slight decrease, May’s decline marks the fifth straight month auto sales in 2017 measured below the level in the same month the year before. Almost every analyst who forecasts vehicle sales for auto parts manufacturers and dealers has adjusted their own 2017 auto sales forecast downward. Most are between 17.2 million and 17.5 million vehicles.

IHS Markit auto analyst Tom Libby in suburban Detroit forecasts 17.3 million vehicle sales, a level that probably won’t provoke mass job cuts but does likely mean hiring has peaked in auto manufacturing.

He figures the nearly 120 million new cars and trucks sold since 2009 has satisfied motorists’ pent-up demand for new autos following the recession. The number of vehicles registered in the United States surpasses 260 million.

Tennessee auto plants

While U.S. vehicle sales slipped in May, automakers with Tennessee assembly lines countered the trend. Nissan sales rose 2.9 percent, while Volkswagen surged 6.9 percent and General Motors counted double-digit sales gains for the pair of sport-utility vehicles assembled at Spring Hill – the GMC Acadia (up 32.4 percent) and Cadillac XT5 (up 103.1 percent).

Ashley Frye, executive director of the Tennessee Automotive Manufacturers Association, a Nashville group representing 930 members, said he doubts flattening sales will trigger widespread layoffs in the state’s assembly plants.

Assembly lines usually make more than one model. So if sales fall on one model, demand usually rises on another. That tends to keep employment stable, said Frye, who notes Nissan Smyrna, where he was a manufacturing executive for 22 years, has never recorded layoffs.

Nissan’s complex near Nashville assembles six cars and trucks. In May, sales of the Altima mid-size sedan fell almost 19 percent while sales of the upmarket Maxima rose 13.5 percent, Rogue crossover sales climbed nearly 14 percent, and Pathfinder sport-utility sales rose 3.6 percent, reports the research firm Market Intelligence of Mahwah, N.J.

Source: Knoxville News Sentinel, by TED EVANOFF

The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org

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