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Diversification—and Survival—in the Auto Industry

From investing and finance, to energy policy, to biology, the adage, “Don’t put all your eggs in one basket,” is sound advice—and an implied warning. While one cost of diversification can be forgoing some short-term gains by reallocating resources to other potential sources of return, the buffering effects of diversification are widely accepted to promote stability and broaden growth potential. In some cases, those buffering effects may prove the difference between survival or failure over the long run.

Traditionally, in the automotive industry, the concept has applied primarily to product mix, overreliance on profit-leading models, single markets for suppliers, and utilization of a disproportionate share of localized labor forces. Weaknesses in these areas have periodically been exposed by softening demand during cyclical downturns. Sales fall, whether overall or in a certain class of vehicle, profits decrease and plants close, with concentrated job losses and ripple effects down the line.

Leading up to the economic collapse in 2008 and the subsequent downfall of the big three U.S. automakers, the industry as a whole was made vulnerable by a lack of diversification at many levels. It was inherent in the manufacturers themselves and all the way down through the supply chain. In turn, local and regional economies that relied on these businesses, sometimes almost exclusively, found themselves on very hard times.

Read the rest of the article by Dustin Jones, Senior Client Advisor with highlights covering:

  • Signs of Mounting Stress
  • Preparing for Impact Again
  • The Workforce vs. Product Equation
  • Confronting an Unknown Future

Access the full story on Trade & Industry Development here: https://www.tradeandindustrydev.com/industry/automotive/diversification—and-survival—-auto-industry-15685

 

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