Recent news seems to favor American automakers over their foreign rivals. General Motors (NYSE:GM) and Ford (NYSE:F) are poised to benefit from a workable labor agreement with Canadian workers, brewing animosity between China and Japan, and challenges facing their European rivals.
China Protests Japan: Employee and Customer Rebellions
Organized protests across China erupted due to a long-standing territorial dispute with neighbor Japan, leading to lower sales for Japanese businesses in China. American automakers can benefit from this ill-will towards Japan by selling more American cars to the Chinese.
Both China and Japan claim territorial sovereignty over the islands, called Diaoyu in Chinese and Senkaku in Japanese. The islands sit on mineral and possibly oil and natural gas reserves. A private Japanese owner bought the islands recently, spurring protests in several Chinese cities and a diplomatic crisis that could continue to damage trade relations between Japan and China.
This animosity is focused on Japanese cars as a symbol of influence and economic power. Protests prompted widespread shutdowns of manufacturing plants and Japanese-run businesses in China, including car giants Honda (NYSE:HMC) and Toyota (NYSE:TM). Chinese protesters attacked Japanese businesses, setting fire to Toyota and Honda showrooms, destroying Japanese-made cars, and attacked dealerships of Japan carmakers, including the popular Nissan (OTCPK:NSANY). Aeon stores, also belonging to one of Japan's top car retailers, were also attacked. Honda will still reopen its China-based factories despite the protests, but the closers have made a dent in earnings, according to reports.
Anti-Japanese sentiment was not limited to Japanese automakers. Electronics giants Canon (NYSE:CAJ) and Panasonic (PC) also shut down factory operations due to employee concerns about protests. Some Panasonic factories are again up and running, although one factory is still shut down due to protests by several employees. Protesters also ransacked retail outlets, including Fast Retailing, which sells the popular Japanese Uniqlo brand. Estimates show that Fast Retailing sales in China will be down 20 percent due to the protests.
Japanese companies can recover from these short-term setbacks, but there is no way to know what damage has been done to the Chinese appetite for Japanese autos.
European Market On Steep Decline, German Market Weaker
American automakers could find relief from decreased competition if some European rivals go out of business.
Market weakness in Europe constitutes a critical, potentially mortal challenge for many European automakers. Even Germany, one of the most stable economies in Europe, is not immune to Europe's terrible auto market. Reports show that German exports are threatened by a record low for the European car market in the last 17 years. This is a broad sales decline in the market, which extends from economy to luxury brands. Daimler reports that it expects operating profits to fall for luxury Mercedes-Benz cars, failing to match figures in 2011. Porsche might also build fewer cars and SUVs than originally planned.
Although German carmakers have stood strong, they remain cautious as the European recession threatens to spill over, after wreaking havoc on sales of Fiat, Renault, and Peugeot Citroen. The weakening European Union economy has prompted Peugeot to sell a majority stake in the company's trucking unit if only to come up with cash, and it also plans to close its Paris plant. For its part, Fiat will take out a fifth of its management jobs in its volume brands in Europe; while Renault plans shorter workweeks to result in lower production.
Car sales are dropping in the European Union and have been declining steeply since the first quarter of 2012, according to analysts. Even car registrations in Germany fell by around 4.7 percent as August 2012 rolled around, signaling a 0.6 percent decline in sales for the year. The decline comes as a surprise as dealers in Germany have offered sales and discounts on their cars.
Canadian Labor Agreement for GM and Ford
Though U.S. carmakers have had spats with their labor unions for several years, the outlook for labor relations is improving. Recent negotiations have finally led to several agreements between Canadian Auto Workers (or CAW) and the U.S. carmakers General Motors and Ford. The labor agreement might extend four years, avoiding massive strikes.
The General Motors agreement will "create or maintain" over a thousand jobs, and ensures that the company will invest close to $700 million to keep its plants in Canada. The agreement will still need to be ratified by vote by the Canadian workers. Around 5,600 workers from Ontario are part of the agreement, which includes those working in vehicle assembly and engine production.
The Canadian workers also reached their own tentative agreement with Ford, which provided bonuses and brought in 600 more jobs, while taking out raises to accommodate the cost of living. According to reports, the General Motors deal matches the Ford agreement, which involves lump-sum payments and a ratification bonus instead of the raises.
In addition to this, the General Motors deal extends the life of the consolidated assembly line in Ontario. The plant was scheduled for closure in June 2013, but the agreement will keep the plant for another year; a flex plant in Ontario will have a third shift to bring in 900 more workers; and another engine and transmission plant, also in Ontario, will have 100 more jobs available.
The accord, among others, promises to strictly enforce rules that guarantee employment for temporary workers only during peak employment periods, which includes the times that new car models need to be produced.
Ford employees represented by CAW will vote on the ratification of the agreement soon. The CAW is also slated to finalize the language of the agreement with General Motors, although voting has not yet been scheduled.
These deals are substantial because as vehicles that are made in Canada also account for roughly 15 percent of the U.S. automobile sales. They are important because they demonstrate that these firms are capable of securing their futures through negotiations with stakeholders.
Ford and GM have recently taken steps to secure their labor relations as their Japanese and European rivals have struggled in international markets. Their losses might thin out the competition for Ford and GM. In the future, these American automakers could find easier sales in foreign markets.