At this week’s North American International Auto Show in Detroit, General Motors’ (GM - Free Report) Buick unveiled its latest version of the Envision crossover. The 2016 Envision will be the first Buick sold in the United States to be made in China.
Buick’s new Envision is the latest example of a growing trend wherein domestic automakers are moving production outside of the United States. Interestingly enough, the Envision has some size to it, while domestic manufacturers like Ford (F - Free Report) and Fiat Chrysler (FCAU - Free Report) are struggling to profit from smaller cars.
Just this summer, Ford announced that it would be ending production of its compact Focus and C-Max vehicles at its Michigan plant. Its Focus vehicles are already made at several other locations, including Germany, Argentina, China, Vietnam, and Thailand. It is unclear where production from the Michigan plant will move.
International moves like Ford and General Motors are making put pressure on the United Auto Workers (UAW) union to lower wage costs. The UAW has been known to reduce labor costs in times of economic turmoil, but it will be interesting to see how the union reacts in a relatively solid economy for car-buyers.
In fact, 2015 nearly broke records for total US car sales. The problem for these companies is not selling vehicles; the problem is trying to turn a profit on smaller vehicles while reduced gas costs shift demand to bigger cars.
“Smaller cars” also means more fuel efficient cars. Consumers are heading into dealerships thinking that cheap gas will be around for quite some time. This means they are more willing to buy large, gas-guzzling trucks and SUVs.
UAW employees whose jobs may now be at risk will share their disappointment with the Obama administration, which has consistently encouraged US automakers to increase production of fuel efficient vehicles. With gas prices this low, consumers simply aren’t buying those cars.
While domestic manufacturers move production away from North America, foreign automakers are also looking to reduce their labor costs on the continent. Toyota (TM - Free Report) recently announced that it would move its North America Corolla production, which has been in Canada for 30 years, to Mexico. Honda (HMC - Free Report) already moved some of its Fit production to Mexico, and Mazda now builds its smaller Mazda 2 and Mazda 3 vehicles below our southern border.
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