For those who’ve been keeping tabs on the automotive industry, the technology disruption is not news. What may surprise you, however, is just how quickly, ruthlessly, and thoroughly these changes are taking over the industry: from to global legislation to shifting consumer interests, traditional auto manufacturing is under incredible pressure to modernize.
The impact of this has only become more apparent in the last year. Consider the unprecedented activities, including automaker collaborations (Ford-VW and Daimler-BMW), supplier mega-mergers (Magneti Marelli-Calsonic Kansei and Federal Mogul-Tenneco), and supplier spin-offs or divestitures (Veoneer, APTIV, Garrett, GKN, Tower). All types of automotive companies have begun making big moves in order to prepare themselves for the upcoming shift to electric, autonomous, and mobility; these big changes are far from over and have the power to impact the industry in an unprecedented way.
Restructuring is yet another tool in the strategic toolbox for organizations to position themselves for future success. Most of us equate the term “restructuring” with mass downsizing, like GM’s significant layoff of 7,000 blue collar employees in the past year. The reason for that is simple: generally, management’s singular focus during restructuring is on reducing employee head count; in GM’s case, their strategic shift toward an autonomy and electrification meant they no longer needed those employees to accomplish their strategy. What was not widely reported was that those employees were replaced with people with electrical and software skills.
Along the same lines, the shift from internal combustion engines to battery electric vehicles will threaten the traditional forging and casting industries. A typical vehicle today with a 6-cylinder ICE engine and 8-speed transmission has over 100 forgings and $650 worth of aluminum die castings. A typical electric vehicle has only nine forgings and less than $200 worth of aluminum die castings. Simply put, companies who cannot adapt via divestiture, mergers, and spin-offs will be forced to restructure.
This will have an incredible impact on all types of companies with ties to the automotive space, even those who are currently involved in the shift to electrification and autonomy. No one will be immune to this activity – and the uncertainty of this changing environment will force organizations to constantly reposition themselves. For this, strategic restructuring will be a key tool.
Consider Ford’s acquisition of Chariot, Ford’s entry into ride-sharing services. Just two-and-half years after being acquired by Ford for a reported $65-million, the app-based shuttle service announced would stop service in February, leaving 650 employees without jobs. Was this the wrong strategy for Ford? I argue it wasn’t, because this business model has the potential to significantly disrupt the automaker model. This is just a prime example of the starts and stops this technology disruption will force on the industry.
I cannot overemphasize that workforce reductions, to the extent they are required, should be the outcome, not the objective. The restructuring process must be directed toward positioning the organization for the future, not implementing a downsizing. In planning any restructuring, managers need a link between the reorganization and the company’s ongoing revitalization — a link that traditional methods of downsizing fail to provide. That link requires a strategic approach that enables executives to focus on making sure the organization has the right team in place after the reorganization is completed.
Because restructuring companies usually focus first and foremost on overhead cost reduction by trimming head count in a seemingly mysterious way, employees see the process as unfair, which diverts their attention from strategic goals. But when a restructuring is driven by strategy, the company can emerge revitalized. Redeployment requires that the most capable employees recognize the emerging competitive forces confronting their organization and see that management is committed to implementing a positive and winning strategy, to building a stronger and sustainable organization.
Senior management must raise and address the most relevant issues and focus the company’s attention on organizational and staffing implications. The more individuals focus on the concepts of strategic restructuring and redeployment, the clearer it becomes that the problems of downsizings and restructurings in the past are the result of managers who asked the wrong questions.
Asking the right questions is critical to success in this dramatically changing automotive environment. Companies that are predominantly involved in the traditional automotive business will need to take a hard look at their strategies for the next 10 years. This goes beyond their plans to maintain the status quo, but to understanding of what these businesses are transitioning to, not just for shareholders, but for the sake of their workforce.