Unemployment Down; How Coronavirus Will Force The Auto Industry To Decide Where To Rehire

Today’s U.S. unemployment number of 13.3% is a surprise. Indicators such as 1.9M new claims last week and Detroit’s 48% unemployment report suggest recovery will be slow and uneven until a vaccine is widely available. Add this offsetting data to a record drop in consumer confidence, decreased household spending and significant decreases in transportation and travel outlays, and the woods are still dark and deep. For automotive there have been bright spots in reporting like Ford’s 2020 retail sales being higher than 2019, but overall estimates are showing global sales dropping 22%. That said, it took only nineteen months after 2008’s seemingly catastrophic unemployment to start the arduous recovery and associated re-hiring (along with the inversely-correlated automotive sales) despite the full recovery spanning eight years. And given unprecedented governmental stimulus packages, that re-staffing may be much earlier; today possibly being the beginning of that recovery.

At potentially the zenith of the Unemployment Mountain, there is a Buyer’s Market for employers with a glut of unemployed, motivated workers desperate for a paycheck. Therein, making those key hiring decisions shall be impacted by current events as well as the age-old balance between cost and risk.

One Campus To Rule Them All And In The Darkness Bind Them

For many moons, enlightened leaders espoused the benefits of having a monolithic campus: better communications, easier coordination, lesser duplication of services (e.g. onsite Human Resources) and greater harmony of culture and thought processes. “I’m a Silicon Valley guy. I just think people from Silicon Valley can do anything. Silicon Valley has some of the smartest engineers and technology business people in the world.” said Elon Musk, Co-Founder and Chief Executive Officer of Telsa Motors. Companies have identified a critical mass of needed resources, and set-up elegant facilities.

For some employees, this additionally translates into better perks. Apple workers at their Cupertino, CA, campus enjoy “concierge-like healthcare experiences” as well as outdoor bashes with cameos from the likes of Stevie Wonder and One Republic. Reebok has a fantastic gym (*that I’ve personally experienced) with employee crossfit classes. Even autonomous transport around campuses like General Motor’s Warren Technical Center can be a perk for an employee, albeit temporarily suspended. And, per the Harvard Business Review, companies with “… highly-engaged people outperform firms with the most disengaged folks—by 54% in employee retention, by 89% in customer satisfaction, and by fourfold in revenue growth.” Everyone is happy.

Or not.

In March, we saw how the centralized manufacturing hub in Wuhan, China, not only caused the rapid transformation of a virus into a pandemic, but how the subsequent sheltering of fourteen Chinese providences shuttered two-thirds of the world’s largest economy, bringing global manufacturing to its knees and creating medical supply issues around the world. Then in May, the aforementioned lover of Silicon Valley threatened to move Tesla to Texas since he felt the governmental sheltering-in-place mandates were fascist, and eventually flirted with felonies for violating local authorities to reopen his manufacturing. Even prior to COVID-19, several companies nearly lost everything when the wildfires descended upon on Colorado Springs (2012) and Los Angeles (2019). And when a tsunami caused a massive nuclear spillage at the Japanese Fukushima Daiichi power plant (2011), the evacuation temporarily closed the plants that make 17 of the top 20 models of Japanese vehicles sold in the United States.

Having a centralized location certainly has its pros, but a crisis can quickly expose the risk.

Offshoring Has Advantages and Risks

The largest advantage to hiring offshore teams is obvious: cost. Many automotive headquarters are located in expensive, first-world countries (e.g. Japan, USA, Germany) with higher commercial real estate costs and employee wages. But there are many additional reasons why executives would consider a remote staffing strategy while ramping back to full strength including an easier ability to throttle capacity, greater diversification of culture and avoidance of many Human Resource issues.

There are, though, multiple cons which coronavirus has brought to light worth considering. For instance, global all-employee gatherings have always been difficult, but for the remainder of 2020 it will likely be very hampered due to 40% of flights being cancelled. Yes, online meetings work well for many areas such as software development, but complex products such as chassis or powertrains require extensive test equipment or vehicles which makes purely online development difficult, if not impossible. Not to mention, the feeling of team is significantly hampered. Lonely workers think about quitting their job more than twice as often as non-lonely workers.

Another interesting con is the difficult balance of criticality for the resources. If the hired guns are ineffectual, the budget is wasted on incompetence. If the contractors are critically essential and shrinking budgets force additional cuts, they are fired via executive edicts akin to FCA laying off 2,000 contract workers in March. Harmonizing between valuable and mediocre is difficult.

Last but certainly not least is the quandary of training. In lower-cost portions of the world, even full-time employees are temporary workers since wage wars create larger turnover. Prior to the pandemic, Chinese turnover for engineering was a whopping 32% as companies fought for talent. Providing training for in-house resources that will assuredly stay is a no-brainer, avoiding training for temporary workers is a no-brainer but everything else in-between is a head scratcher. Leaders dislike ignorant, untrained employees, but also don’t want outlays that make transients more marketable.

Amputation Is Painful

Creating a redistribution of the corporation via moving whole divisions or offices akin to “we’re moving to Texas” seems implausible or distasteful, yet corporations have employed this at times. Nissan moved most of its headquarters from expensive Irvine, CA, to the more frugal Franklin, TN, in 2005 and HARMAN is presently moving its amplifier business from the more expensive Novi, MI, to India and Mexico.

A silent pro of such a strategy is quietly pruning less desirable resources in the corporation while keeping key personnel. “We aim to preserve as many of our employees as possible,” was Nissan’s sound byte at the time, but assuredly there were different compensation packages for better performers.

The reality, though, is that pruning leaves a scar and sometimes undesirable losses. Nissan lost over 50%  during that move; some retired, some quit. That meant not only did Nissan have the cost of the physical move, but over 700 job openings and the opportunity costs of undone work.

No Matter The Strategy, A Few Items Need Extra Attention

Some pros or cons will stand out for a given organization. Nevertheless, there are several threads which tend to be fulcrum between smoother successes and chaotic difficulties depending upon the chosen solution:

“Effective” Communication:  Nearly every executive training course has taught the cliché phrase of “effective communication”, but few seem to delineate the tenants that define effective and specifically how unproductive communication quickly unravels even the best of teams. Tailored strategies will depend upon the team size, the global distribution and the project overlaps, but just like any organizational task it should be measured versus value-oriented goals, e.g. keeping the collective eye on the prize, sustaining a sense of community, assimilating new employees, and increasing organizational morale.

Organizational Flexibility: The ugly truth about one-size-fits-all policies or ways of working is that they are akin to cafeteria food: so lacking in flavor and desirability that it’s actually “one-size-disappoints-all”. That’s not to say that an over-arching strategy is a bad thing; just not a rigid recipe. Ways of working need to understand the talent, tools and needs of a particular team to achieve the needs of the customer and corporation. Period.

Strong Project Management: Complex projects are already difficult to manage to the time and budgetary commitments, but globally distributing the team can make that exponentially more arduous. And, when purchasing services to augment the team, monitoring actual progress versus the desired progress is the difference between overpaying and missing those commitments. Therein, Agile Development has become increasingly popular with impressive Returns on Investment based upon better transparency and understanding how to react quickly throughout the project’s progress.

Final Thoughts

The more complex the product, the more “people are our greatest asset” is truly accurate. Finding, training, coordinating and retaining those employees is the way towards continuous improvement versus continuous restarts. Deciding on those greatest assets and the strategy behind global positioning of resources is a crucial part of how to thoughtfully improve. There’s a lot more to it than finding the cheapest labor.

“I think that’s the single best piece of advice: constantly think about how you could be doing things better and questioning yourself.” — Elon Musk