Fiat Chrysler car maker is going to lay off 1,300 workers at the factory in Sterling Heights, Michigan. The company has to cut so many jobs since 2009 because of the falling demand for cars in the U.S. market. The Sterling Heighs Fiat Chrysler factory will lose 41 percent of its workforce on July 5, 2016 (Bennett, 2016). The so called Detroit Three such as Fiat Chrysler, Ford Motor, General Motors practice large-scale jobs' cuts.
Fiat Chrysler CEO Segio Marchionne declared the company would shift from making sedans to trucks or even sport-utility vehicles. The transition to making trucks instead of sedans will cost $1 billion. The company expects to face lower scale of competition in the market of trucks and SUVs. The decision of large-scale jobs' cuts demonstrate ineffectiveness of the United Auto Workers union, but the employer claims it has hired 11,000 workers in Detroit since 2009 (Bennett, 2016). The point is that Fiat Chrysler hopes to cut costs thanks to transferring its sedan manufacturing facilities to Mexico. The new Mexican plant of Fiat Chrysler will cost $1.6 billion to the company. Fiat factory in Illinois, focused on manufacturing of Dodge Dart, will also be transferred to Mexico in the long run.
Fiat company claims light trucks are now the most popular vehicles in the U.S. because 57 percent of all vehicles sold in March 2016 in the U.S. were light trucks. Fiat Chrysler is forced to optimize its expenses because Toyota Motor threatens to push Fiat Chrysler out of Top 3 of American Car Makers. Fiat company has always been good at making Jeep SUVs and Ram trucks, but not tiny Darts or Fiat 500 cars. Heavy investments in the small car segment did not help the company to dominate the market of small cars. Moreover, Fiat company did not elaborate a completed production line for Dart and Chrysler 200. These brands require backing of the subsidiaries to become a success in the market. At the same time, CEO Marchionne assured Fiat 500 production line was self-sufficient. The sales of Chrysler 200 plummeted 60% in March 2016. The sales of Dodge Dart fell 30%.
Fiat Chrysler analyzed the flaws of its business model, deciding to transfer the Chrysler 200 and Dart production lines to Mexico to cut excess costs. Though Chrysler 500 is quite profitable in comparison with Chrysler 200 and Dodge Dart, the company decided to focus on the production of light trucks and SUVs. To this end, the Sterling Heights factory is exposed to large-scale layoffs. The Illinois-based Fiat Chrysler factory turned out to be more profitable than the Michigan-based one because the former one is focused on manufacturing Darts and Fiat SUVs.
As a conclusion, Fiat Chrysler cuts costs, transferring the production of Chrysler 500 to Mexico while planning to transfer the Illinois-based production line of Dodge Dart to Mexico several years later. The optimization of the business model is caused by the significant fall of demand for the Fiat sedans. At the same time, Fiat Chrysler will focus on the production of the light trucks and SUVs. 1,300 workers of the Michigan-based factory of Chrysler 200 will be laid off because of the 60-percent fall of the demand for the so called small cars. Fiat Chrysler is going to increase the output of the light trucks and SUVS in the long run.
References
Bennett, J. (2016). Fiat Chrysler to Cut 1,300 Jobs at Michigan Sedan Factory. WSJ. Retrieved 7 April 2016, from http://www.wsj.com/articles/fiat-chrysler-to-cut-1-300-jobs-at-michigan-sedan-factory-1459962002
