"I think we're in a recession, and 2023 is going to have a pretty bad recession. This is Tesla CEO Elon Musk's forecast at the end of 2022, and his words reveal deep worries about the future economic situation. In his view, the severity of the 2009 economic crisis will be on par with, and perhaps even more severe.
Musk warned that such a recession would be "comparable," meaning it would have a profound impact on the global economy, similar to the Great Recession triggered by the subprime mortgage crisis in 2009. In particular, he noted that high-priced goods, such as homes and cars, will be "disproportionately affected" in this recession.
And, at the time, he predicted that the U.S. economic downturn would last up to 18 months and advised investors to weather the storm by conserving cash, avoiding debt and reducing risk. "My best guess is that we're going to have a stormy period of a year to a year and a half, and then see dawn around the second quarter of 2024. ”
Now it seems that Musk has made a prophecy. Starting with Tesla, which he is in charge of, it will lay off 10% of its workforce globally, which could affect about 15,000 employees. In fact, Tesla's layoffs are big news because they are an industry leader and involve a large number of people. And in the U.S. auto industry, the wave of layoffs has already begun.
No business is immune
In recent months, particularly in the US state of Michigan, there has been an increase in layoffs and shift cuts related to the automotive industry. This trend has left the United States with a hint of anxiety about the future of the automotive industry. However, despite a series of fluctuations in the state's economic mainstay, the auto industry, Michigan's overall economic situation does not appear to have been significantly affected and has continued to grow steadily.
This anomaly has attracted a lot of attention from economists and market analysts. They point out that this reveals that the automotive industry is experiencing unseen turmoil and change in a century, while at the same time the labor market continues to show strong momentum. This seemingly contradictory phenomenon reflects the complexity and diversity of the current economic environment.
Detroit, the automotive capital of the United States, has had its three major automakers and their suppliers cut thousands of employees over the past few months due to expensive UAW (United Auto Workers' Union) contracts and poor sales of electric vehicles. This move has undoubtedly had a certain impact on the local job market, but it also highlights the difficulties and challenges faced by the automotive industry in the process of transformation.
At the same time, these automakers are investing billions of dollars to compete in the EV market. However, in this race, China is gradually gaining the lead. This makes the development of American automakers in the field of electric vehicles face great pressure and challenges. In response, automotive suppliers are actively seeking protection for their electric vehicle programs, but there is still a great deal of uncertainty about the success of these projects.
While the automotive industry is experiencing layoffs, some companies are also adjusting their businesses in response to market changes. For example, Stellantis plans to consolidate nine business centers in the U.S. into six in order to increase support for dealers, resulting in 30 layoffs. This initiative aims to optimize resource allocation and improve operational efficiency. Similarly, General Motors has laid off 1,314 employees in Michigan in response to market changes and the need for the company to adjust its business.
In response to the layoffs, Marick Masters, a professor of business at Wayne State University who studies labor issues, pointed out that the future of these companies is uncertain, and they must do everything in their power to complete the transition to electric vehicles. It's not just about facing typical economic issues, it's about tackling the more structural challenges that come with the transition to electric vehicles. Professor Masters' views reveal the difficulties and challenges faced by the automotive industry in the process of transformation.
In addition to General Motors and Stellantis, other automakers are making similar adjustments. In December, General Motors warned that it would lay off 1,300 employees at its plants in Lansing and Orion because plans to launch electric pickup trucks were delayed by at least a year.
Although GM said it would provide other employment opportunities for these unemployed workers, the specific resettlement plan has not been clearly announced, which undoubtedly brings great uncertainty and anxiety to the affected employees and families. A spokesman for Stellantis also confirmed that the company will lay off 2,450 workers at its Mack assembly plant in Detroit starting in February.
While the spokesperson stressed that "only a few hundred" of employees were permanently laid off, the exact number was not disclosed, which undoubtedly added to the sense of unease. In addition, the company has laid off about 400 employees last month, and further layoffs are likely to be planned in the future.
In Dearborn, Michigan, Ford Motor Company's Rouge Electric Vehicle Center was also affected. The center drastically cut the number of shifts, which led to the halving of the production of the F-150 Lightning. The change affected about 1,400 workers, some of whom had been assigned to work in other factories. For these workers, while they have temporarily avoided the fate of losing their jobs, the uncertainty of the future still worries them.
Professor Masters believes that while there is some volatility in the automotive industry, the current level of volatility is extraordinary. He noted that automakers are rapidly restructuring to meet rapidly changing market demands. For example, while EV factories are laying off workers, hybrid plants are increasing their workforce. This flexible adjustment strategy shows that automakers have a keen insight into market changes and their ability to react quickly. However, this adjustment has also brought a lot of pressure and challenges to employees.
Uncertainty remains high
Jonathan Smith, senior deputy director of the Michigan Department of Labor and Economic Opportunity, also said the state's labor market remains strong despite the recent turmoil in the automotive industry. He pointed out that the unemployment rate reached a record low of 3.9% in February, indicating that Michigan's economic situation remains solid. Smith's views instill some confidence in Michigan's economic outlook, but the future direction of the automotive industry remains challenging and uncertain.
"So why are we seeing layoffs? Part of the reason can be attributed to the fact that sometimes our skills don't match the needs of the business. So said the industry expert. In the context of the rapid development of the modern economy, the demand for talent is also changing, and if the skills of employees are not synchronized, they may face the risk of being laid off.
"So if you're thinking about a company making new investments to be globally competitive, they're likely to need people with different skills than they did in the past," he explains. "This means that as businesses expand and upgrade, the demand for some traditional skills is likely to decrease, while the demand for emerging skills will increase. This change in skill demand has directly led to the adjustment of human resource allocation by enterprises, that is, layoffs and recruitment.
Commenting on the current state of the automotive industry, Glenn Stevens, executive director of MICHauto, pointed out that sales of light vehicles have indeed increased compared to last year, which is a sign that the market is gradually returning to normal after years of supply chain disruptions. However, at the same time, sales of electric vehicles declined in the first quarter, which undoubtedly brought new challenges to the entire industry.
Stevens elaborated on the current state of the EV market in an email: "Sales and adoption are not accelerating as expected, which is directly leading to a slowdown in the growth of investment and production capacity for EVs. "This change has not only impacted the production schedules of EV manufacturers, but has further triggered the reduction of current factory shifts for EV production, the adjustment of investment in battery production, and the delay in production start-up at several EV assembly plants.
These production delays and customer production cuts have hit component manufacturers hard. So far this year, auto parts and service providers, from chassis manufacturers to trucking companies, have laid off about 1,200 jobs. The layoffs aren't just happening to small suppliers, with companies including Magna, Antolin, Dana and Dakota notifying the state before the holidays that they intend to lay off hundreds of employees.
Jobless claims surged to 13,000 in January, the highest in a year, but then declined, according to the state. However, these numbers only reveal the tip of the iceberg. Warning notices requiring employers to carry out mass layoffs and factory closures do not fully reveal the seriousness of what is actually happening. Tier 1 and tier 2 suppliers have been making small layoffs in recent weeks and months, and these layoffs, while smaller, have cumulatively taken a toll on the industry, according to supplier executives.
Waymon Halty, vice president of UAW Local 155, also pointed out the layoffs in his area. He said most of the 59 supplier factories in his area were affected, including those in the Detroit area. "This kind of layoffs are not common in the automotive industry, especially after January," he added. In the past we may have seen one of the automakers shrink, but now all three have been affected. ”
While the upward trend in auto supplier layoffs may not be directly reflected in the official unemployment figures, this is largely due to the dampening effect of a strong labor market. Executives have said that large manufacturers have struggled to find workers to meet production demand over the past few years, but the situation has only been partially alleviated.
"In the current strong job market, if a laid-off employee is at an average salary level for a manufacturing production job, they should be able to quickly find similar jobs in the labor market," Smith said. This may explain why the unemployment rate has not risen significantly despite the frequent layoffs.