Motown’s glitziest annual tradition kicked off Sunday night as Cadillac, one of the most venerable brands in the business, took the cover off its newest vehicle: a three-row luxury SUV it calls the XT6. Rolling out to a cheery soundtrack, fog and roving spotlights, the XT6 debuted with a flourish as Cadillac introduced it as “a vehicle that offers room for new possibilities.”
But behind the confident razzle-dazzle, a darkening cloud hangs over Cadillac’s parent company, General Motors, as well as the broader auto industry. Caught between political and economic crosswinds, carmakers in the United States face what could be the most challenging year ahead since the auto bailout.
Executives are grappling with a generational shift in consumer tastes as year-over-year sales of the sedan plummet in favor of SUVs and crossovers. Some, such as GM, have moved to halt production at sedan-oriented factories. But that has put them in the crosshairs of President Trump and others in Washington, who decried stoppages at factories, especially those in critical swing states such as Ohio.
The colliding pressures from declining car sales and politicians have put automakers in a lose-lose situation, some analysts said. Beyond that dynamic, they are also facing fears of an economic slowdown in China and Trump’s trade war, which automakers say has raised costs of manufacturing.
Few companies have been as exposed to Trump’s mercurial attitudes as GM and Ford Motor. Trump was quick to dole out praise and claim credit early in his administration when the firms announced big investments that would create U.S. jobs. But now, as GM prepares to wind down five plants in North America and discontinue many of its sedans, including the Chevrolet Cruze and Impala, it has found itself on the wrong end of Trump’s ire.
"The U.S. saved General Motors, and this is the THANKS we get!” he tweeted in November. Trump went further by threatening GM’s federal support, specifically invoking an industry-wide tax subsidy designed to juice demand for electric cars.
In her latest remarks defending the changes, which could cut as many as 14,000 jobs, GM chief executive Mary Barra told reporters Friday she is committed to “doing the right thing” for workers displaced by the restructuring and to be transparent about other necessary changes to GM’s business.
“To have job security, you have to have a successful enterprise,” Barra said on a conference call. She added, “We’re taking steps to make sure not only that we have a strong core business, but that we’re in a leadership position in new technologies.”
Ford is not far behind, with an $11 billion restructuring plan in the works that could lead to thousands of layoffs. Ford has announced deep changes to its own U.S. lineup, saying it will suspend nearly all of its passenger cars, including the Fiesta, Focus, Fusion and Taurus; the market’s only surviving Ford sedans will be the performance-oriented Mustang and the Focus Active, a hatchback crossover.
Yet just as car companies have begun putting their plans in motion, Trump’s own policies and proposals risk creating additional head winds, analysts said. Targeting the electric-car incentives could put U.S. automakers at a disadvantage when many foreign firms, such as Toyota, Mercedes-Benz and Volvo, are moving ambitiously to electrify their portfolio of vehicles. Meanwhile, by hiking the price of steel and aluminum, Trump’s tariffs are expected to make buying a car more expensive in the United States — which, along with rising interest rates, could suppress U.S. vehicle demand in 2019. Trump’s trade barriers cost GM and Ford up to $1 billion each last year, the companies have said.
Even Trump’s friendliest overture to the industry — a proposal to halt the toughening of emissions targets — is generating uncertainty. GM, Ford, Toyota and Honda have all argued against the proposal, saying it would invite legal challenges, complicate strategic planning and hinder the transition to electric cars.
“Certainly the auto industry has been steamrolled by Trump and all the policies ranging from proposed things in Europe to enacted things in China to the NAFTA renegotiation to steel tariffs,” said Jeffrey Osborne, an industry analyst at Cowen & Co. “It’s just been a never-ending barrage of one-off items they’re having to adapt to, and it’s an industry that’s not as flexible as, say, the computer industry or mobile phones, where you can move things around in terms of supply and production locations. It’s not something you can quickly mitigate.”
Trump’s moves have complicated the picture for automakers amid a major shift in consumer preferences.
The most visible example is a sustained surge in SUV sales. In recent years, breakthroughs in materials and manufacturing processes have mitigated some of the downsides of owning a sport utility vehicle, such as reduced fuel efficiency. With advances including lighter, unibody frames and electronically enhanced suspensions, analysts say, SUVs are offering much better fuel economy than in previous years and more cargo room than sedans.
Drivers are unsurprisingly voting with their feet: Half of new vehicle sales this year are expected to be SUVs, according to Edmunds forecasts. Just 1 in 4 will be passenger cars — underscoring the pressure on carmakers to retool their production to satisfy demand.
Meanwhile, the industry’s trend toward electrification is only intensifying as policymakers in Europe weigh new auto emissions rules and China, the world’s biggest auto market, saw massive jumps in demand for green vehicles last year. Those factors promise to make gas-guzzling vehicles less attractive globally as carmakers seek to simplify and streamline their offerings, Osborne said.
And innovations pushed by Uber, Waymo, Tesla and others are forcing traditional automakers to think differently about what it means to make and sell a car.
After decades of marketing vehicles to individual owners, automakers are increasingly confronting the prospect of subscription-based, self-driving taxis that are operated by fleets rather than owned by a single person or family. That approach requires big investments in software and tech.
Although legacy carmakers have devoted millions of dollars to catch up in these arenas, they still lack the technology prowess of some newer rivals, analysts say.
“They’re still figuring it out, and it comes down to access to talent and culture,” said Adam Jonas, an industry analyst at Morgan Stanley. “The average incumbent auto company is nowhere remotely near Tesla in terms of software and [tech] capability."