Volkswagen, China, Mexico, the U.S., the UAW and GM ... The Automotive Future ... When the Going Gets Tough, the Tough Get Going

Remember this one? --- When the going gets tough, the tough get going.

Well, that's clearly the case today with the competitive situation involving global auto manufacturing and markets.

Will Volkswagen soon pass GM as the world's largest auto manufacturer? It sure looks like a done deal to me.

Will Mexico continue its recent outsized growth in automobile manufacturing? Well, that sure looks like a done deal, too.

And since China is already the world's largest market for cars, will it widen its lead? Of course.

So what will the global automotive industry of the future look like? The answer to that depends on a whole lot of things, including the attitude of the UAW union leadership in the U.S.

And what will all this mean for American jobs? Especially semi-skilled blue collar jobs. Perhaps nothing good.

As the strong get stronger, and the growers keep growing, unless something unforeseen happens to interrupt the obvious megatrends underway {including the trend toward more fuel efficient cars and low cost manufacturing sites (see our recent posting on "From Detroit to Mexico"} tomorrow's auto industry won't look much at all like today's. That's inescapable.

But first, let's very briefly review some background.

During the industrial and agricultural revolutions, labor productivity vastly improved as automation replaced manual labor. Today as a result of  the ongoing digital information based revolution, a similar thing is happening in automobile manufacturing. In the future, there will be fewer autmotive and related manufacturing jobs, and most of those jobs will require higher computer based skills from workers.

Taken as a whole, it's not a pretty picture for the highly paid, underskilled, globally uncompetitive and heavily unionized UAW led U.S. auto manufacturing work force of today.

But facts are facts, unpleasant as they sometimes are, so let's look squarely at the developing story of global auto manufacturing. We'll focus on the auto industry in general and specifically we'll look closely at Volkswagen, a clear winner.

Volkswagen Steps Up Investments tells about the investment plans of the German based company for the next few years:

"VolkswagenAG will increase investments in new vehicles, plants and technology to €50.2 billion ($64.55 billion) over the next three years, despite the market slowdown, to fuel its ambitious global expansion plans and try to dethrone General Motors as the world's largest auto maker.

"Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals," Volkswagen Chief Executive Martin Winterkorn said on Friday following a board meeting.

Europe's largest auto maker by revenue and sales volume is making the investment to boost production capacity across the globe by building new plants and expanding existing facilities. . . .

Unlike many of its mass-market peers in Europe, Volkswagen improved both profits and sales volumes in recent quarters, driven by its large presence in faster growing markets outside Western Europe and a diversified product portfolio ranging from Bugatti high-performance sports-cars to Scania heavy-duty trucks.

Volkswagen has also benefited from its financial muscle, which enables it to offer more attractive financing conditions to prospective car buyers in the fiercely competitive European mass-market segment, luring consumers who might otherwise have bought from a rival.

In the European Union Volkswagen's new passenger car registrations fell 1% to 2.55 million vehicles in the year to October end, compared with the same period in 2011, according to the Association des Constructeurs Européensd'Automobiles, compared with a 7.3% fall for the market as a whole to 10.33 million vehicles.

NordLBanalyst Frank Schwope said in a note to clients that Volkswagen's average annual investment was lifted to €16.7 billion from €12.5 billion under the previous plan, which shows that the company is pushing ahead full steam to leverage its strong market position to gain further market share at a time when many rivals struggle.

"A few months ago Fiat CEO Marchionne had to delay or cancel investments … Peugeot might probably have to accept state aid soon," Mr. Schwope said. . . .

European peers such as PSA Peugeot Citroën SA and GM's Opel brand, who rely largely on sales in Europe, are bleeding red ink and face increasing pressure to slash capacity at their core operations in France and Germany. . . .

Of the headline €50.2 billion 2013 to 2015 investment figure Volkswagen said €39.2 billion will be spent on property, plant and equipment, with sites in Germany accounting for about 60% of the spend. About €24.7 billion of the €39.2 billion figure will be invested in modernizing and extending the product range across all brands.

"The investment planning…represents a clear commitment to securing jobs and employment at Volkswagen, particularly in light of the difficult conditions seen in the automotive industry," Volkswagen labor chief Bernd Osterloh said.

On top of the total €50.2 billion investment, Volkswagen's two Chinese joint-ventures will invest €9.8 billion from their own funds in new production facilities and products between 2013 and 2015.  . . .Volkswagen is the market leader in the Chinese market . . . .

Defending its leading position in this dynamic market will be crucial for the company to claim the industry's top spot by 2018, which has been a long term growth target for the company.

China overtook the U.S. as the world's largest auto market and is already Volkswagen's largest sales region world-wide . . . .

Volkswagen will invest €14 billion by 2016 to develop new vehicles tailored to the taste of Chinese car buyers and boost local production, according to previous statements. This is more than the €12.4 billion invested so far in total since Volkswagen entered the Chinese market as the first Western auto maker in 1985."

Summing Up

To repeat the old adage, when the going gets tough, the tough get going.

In that regard, today's automotive market in indeed a tough one. And with respect to tough competitors, Volkswagen is the toughest. It's also very much on the go to continue to grow globally.

And VW is a very financially strong competitor, too. That financial strength will enable the company to invest heavily in its future success at a time when many of its competitors are playing defense, if not shrinking, due to their precarious financial status.

And it's never a good idea to underestimate the capability of a financially strong company, country or even entire continent, for that matter.

So now that Chinese consumers are buying more cars than Americans, and when it soon comes to pass that Volkswagen is producing more cars than GM, then GM won't look so big. And it's certainly not that strong financially.

Throw in Mexico as a highly competitive North American manufacturer, and the UAW doesn't look so strong either.

The auto industry is tough and is certainly going though interesting times. But they're exciting times, too.

The industry's competitors, including GM and Volkswagen, will make the future automotive road as they go.

The toughest competitors among them will determine just what that road will look like.

Thanks. Bob.