Analysis of the Financialization in the automotive industry: an exploratory study

Type de publication:

Conference Paper

Source:

Gerpisa colloquium, Paris (2017)

Résumé:

The automotive industry goes through a process of financialization (FROUD et.al.2002, 2006, ELIAS, 2013, 2014, 2015). Financialization has been considered as the preference for capital appreciation through financial activities rather than productive activities. There is, in this process, a tendency for capital to value itself more by means of activities that do not need to go through production or that happen after production itself (CHESNAIS, 1996, ZILBOVICIUS and DIAS, 2006). In addition, the sector has become the object of acquisitions and increased participation of banks, investment funds and financial institutions in their property rights (ELIAS, 2013, 2015).
The objective of this paper is to analyze how the process of financialization in the automotive industry takes place. In order to analyze financialization, five categories of analysis were investigated: 1) comparison of the profit from the financial sector of automakers with the profit obtained by the real production; 2) shareholding composition of companies; 3) stock acquisitions; 4) origin of managers and 5) payment of dividends to shareholders, compensation to executives, salaries of employees and employment.
To make this research feasible, a multi-case study was used to select the five largest automakers, according to data from the International Organization of Automobile Manufacturers (OICA). The top five automakers in 2014 were Toyota, Volkswagen, GM, Hyundai and Ford.
Through the process of financialization, we see enormous pressure for an increasing return on investment. This maximization of shareholder value has become a recurring practice for automakers, where the goal is to achieve 12%, 15% return on capital employed annually through financial activities and not in the mature and cyclical automotive products market (FROUD et.al, 2006). The automotive industry has historically performed poorly and narrow profit margins, although the consumer market has been increasing year after year. It is only through the intensification of financial activities such as leasing, financing and other "products" launched by its subsidiaries that the automakers have achieved the profitability required by shareholders and controllers.
The results of the research indicate that data corroborate such theoretical questions. Consider: 1) Profits from financial activities were proportionally higher than profits from productive activities in all five automakers analyzed. 2) About 1% of shareholders hold more than half of the shareholding control in all automakers. 3) Stock acquisitions have shown that few banks and financial institutions are increasingly acquiring shares of the automakers. 4) The leaders of the companies in some automakers, such as Ford and GM, come from the world of finance, while in Toyota, Volkswagen and Hyundai they come from the manufacturing organizations, which did not prevent them from practicing the same policy of distribution of dividends to shareholders. 5) With the exception of Hyundai, which distributed less dividends, the other four automakers distributed almost all of their net income to shareholders, leaving almost nothing for reinvestments, research & development, innovations and capabilities. 6) Compensation to the managers was many millions of dollars in the four automakers analyzed, with the exception of Toyota, more contained in its policy of remuneration to the leaders. 7) Employee salaries evidenced an abysmal difference between employee earnings and CEO earnings. 8) In the case of employment, we observe opposite movements. Ford and GM have shrunk their workforce in the last few decades. Hyundai and Toyota increased employment while Volkswagen doubled its workforce in just over a decade from three hundred thousand workers to more than six hundred thousand, half of that contingent operating outside Germany in joint ventures abroad.
Many changes have been taking place in automakers in many ways. On the issue of wages, at least at Toyota, there would be a gradual dismantling of the previous salary structure (SHIMIZU, 2015) and in Hyundai, the "Fordism Light" applied there would be far removed from Toyotism, not having reached the South-Korean automaker (NOBLE, 2010), as many might think.
Financialization has shown to be an important and striking aspect in the automotive industry situation. In addition to the r/evolutions in this sector, notably that of electric cars, urban mobility, geographic change in production, financialization is one of the dimensions impacting the industry, increasing income inequality, uncertainty and precariousness of work in a world considered as flexible and liquid. We hoped to contribute to the research agenda of Economic Sociology, knowing in a broader way the process of financialisation of the automotive industry, one of the largest and most important industrial sectors of the economy.

Copyright© Gerpisa
Concéption Tommaso Pardi
Administration Géry Deffontaines

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