Automotive OEMs are slashing costs amid margin squeeze and market shifts in 2025

We reported recently on the intense cost pressures that automotive OEMs are under due to the likes of inefficient vehicle production, an increasingly crowded and competitive marketplace, a looming price war from Chinese imports, and the need to remain profitable to fund the large-scale investment and transition to EVs.

Fundamentally, the automotive industry has shifted back from a production-constrained industry (during Covid) to a more traditional demand-constrained market dynamic. Furthermore, topline demand also didn’t quite bounce back to the pre-Covid volumes that were expected, particularly in the US (1m units down) and Europe (3m units down). OEMs are now in a price war triggered by carmakers like Tesla and are fighting for market share to avoid European CO2 emissions fines. The emerging threat of Chinese EVs flooding western markets is also having a considerable downward pressure on prices. Furthermore, OEMs face increased energy, material and labour costs.

This has resulted in a classic margin compression for OEMs which we are now seeing play out across the wider automotive industry, with an increasing focus on lean manufacturing, efficiency and competitiveness to bring down both structural and fixed costs including assets and people. This has resulted in announcements from VW, Ford, Stellantis and others around plant closures, wage reductions, job losses and restructuring.

How cost cutting impacts automotive logistics

As a consequence, OEMs are looking at all areas for efficiencies and cost savings, including both inbound logistics and outbound FVL. But that’s a real challenge the sector remains highly fragmented – as in most areas of automotive logistics (with the notable exception of North America’s Class 1 railroads) – and therefore highly competitive in an already low margin business.

Automotive logistics constitutes around 8% of a vehicle’s retail price. Therefore, OEMs will be looking at every part of the value chain to eke out any possible efficiencies and savings they can find, which will undoubtedly include both inbound and outbound finished vehicle logistics. The inevitable impact will be that OEMs will exert increasing cost-pressure on logistics providers.

However, it’s important to note that cutting rates and jobs won’t be enough in itself, and a lot of cost elimination will need to come from optimisation, upgrades and updates to processes and in some cases design and supply chain changes - some of which may actually increase investment.

Network optimisation and supply chain restructuring

Cost pressures are also likely to result in a huge emphasis upon network redesign, investment in adapting locations to better fill the network and enhance capacity optimisation, and a growing need for logistics to influence some long-term cost decisions (i.e. sourcing, manufacturing footprint, packaging, etc). 

For example, logistics providers such as BNSF, GMXT , & JB Hunt are advocating cost savings of the intermodal approach whilst OEMs on the inbound logistics side such as Stellantis are transforming supply chain design to help reduce costs. On the FVL side, OEMs are implementing Control Towers, and in some cases gaining more control over raw material supply, inbound and FVL flows, as can be seen in the case of Volkswagen North America trying to reduce costs in finished vehicle logistics and its raw materials.

Low inventory strategies to reduce costs and boost cash flow

There will also be a strong focus on maintaining low vehicle inventory to protect working capital and cash flow. Due to vehicle overproduction and demand not bouncing back in North America and Europe to pre-Covid levels, vehicle inventory is particularly high in these regions, with Stellantis stockpiling unsold vehicles. Many ports in Europe are at bursting point. Part of the solution is for OEMs to reduce costs by migrating from a Build To Stock (BTS) to a Build To Order (BTO) model. Clearly, trying to address these inventory levels will likely impact port, compound and yard operators.

Freight rates, contracts and cost pressures on logistics

When logistics contracts are negotiated or renewed, the rates will be a major decisive factor, so we expect there to be a strong focus on rates in new tenders and negotiations.

There are upward pressures on road freight rates, while shipping freight rates have moderated notably since their 2022 Covid-era peak, although we should note that there has been resilience too with an uptick during 2024. Nonetheless, in some specific automotive areas, rates are still high. For example, European FVL rates have come down but are still higher than pre-crisis, and ro-ro rates remain particularly high due to a lack of capacity. Therefore, it suggests there may not be a rate collapse – and illustrates that the market still needs investment in capacity despite the challenges.

Digitalisation, AI and automation in cost-cutting strategies

Wherever possible, investment is being made to upgrade technology to achieve better efficiency, increase automation, or deploy AI solutions – something Stellantis is implementing, using AI solutions for in-plant logistics – in hopes of reducing costs. However, the return on investment (ROI) will be more challenging to measure, and it will be important to try to understand the full payback of key system and technology investments over time.

Consolidation and partnerships to achieve cost savings

One effect of cost pressure may be to increase industry consolidation due to the potential synergies and economies of scale that can be realised. There has been some evidence of that with DSV acquiring DB Schenker, in part to help reduce costs. Fundamentally restructuring can be implemented as a way to reduce costs whilst also developing new service offerings. One example of this is how Mosolf has restructured to create synergies and streamline business.

Workforce and job cuts in the push for profitability

The effects of cost cutting can be more dramatic and painful. For example, whilst there were specific mitigating circumstances, after 40 years of partnership, Ford recently decided to prematurely terminate its FVL contract with Teamster unionised Jack Cooper. This was likely to be motivated by cost-cutting, but also fears about the company’s finances, with the risk of significant job losses, restructuring, or potentially even bankruptcy.