Facing a slowdown in car sales and increased competition from Chinese automakers, Western automakers are turning their attention to the military market. They hope to find new business opportunities through the growing defense spending in Western countries, thereby revitalizing factories that are not operating at full capacity.
According to a report by Reuters on September 28th, automakers such as Ford, General Motors, and Jaguar Land Rover are bidding for military contracts by offering modified versions of their existing pickup trucks and off-road vehicles. Other automakers have even sold underutilized factories to military enterprises that are expanding their production.
The report indicates that decades ago, most major Western automobile manufacturers gradually withdrew from military contracting business. However, in recent years, as governments in Europe and North America continue to increase military spending, the defense sector has become one of the few growing markets in the automotive industry.
Ford, General Motors, and Jaguar Land Rover are bidding for a vehicle contract worth 900 million pounds (approximately 8.01 billion RMB) from the UK Ministry of Defence. The initial procurement will involve 3,000 vehicles. The models participating in the bidding are all modified versions of existing pickups or off-road vehicles owned by these companies.
Ford participated in the bidding with its Ranger pickup trucks; the two models in General Motors' proposal were modified from Chevrolet Silverado pickup trucks to meet British military requirements. Jaguar Land Rover, under the Indian Tata Motors, bid with its Defender off-road vehicle. These companies all hope to gain an advantage in competing with professional defense companies, leveraging their decades of engineering expertise, large-scale manufacturing capabilities, and global supply chains.
Ford's European head of operations, Jim Baumbick, said that providing vehicles to the military fits well with Ford's existing strengths, which are the production of "durable and capable vehicles".
General Motors Defense Department International Sales and Marketing Vice President Gilbert Nelson said: "The vehicles' performance itself is very strong, so modifying them isn't a big project."
Jaguar Land Rover North America's CEO and former head of the Defender brand, Mark Cameron, said that the company has already contacted many European countries, as well as further regions, regarding similar tenders. He indicated that there will be even more related projects in the next 12 to 18 months.
Cameron said that the existing models of Jaguar Land Rover that have achieved large-scale production have 'strategic value', but the company does not rely on such businesses.
The Western automotive industry is seeking opportunities from the increasing defense spending in the West. However, several corporate executives and analysts told Reuters that such businesses have limited impact on actual revenue for automakers.
"In fact, the impact of these opportunities on financial performance is extremely limited." said Vanessa Jeffriess, a automotive industry analyst at J.P. Morgan. However, she indicated that in response to demand slowdown and increased pressure from Chinese competitors, car manufacturers need to demonstrate to investors that they are trying to achieve business diversification.
The largest automaker in the United States, General Motors, expects its defense business to generate revenues of $700 million this year, with a growth rate of 30% per year in the coming years. However, even so, the revenue from this business will be only about $1.5 billion by 2029, which is less than 1% of General Motors’ total group revenue of $18.5 billion by 2025.
Jaguar Land Rover produces over 100,000 Defenders each year, but the company does not plan to expand into other military-related fields in order to compete directly with professional defense companies. Cameron said that in those unfamiliar areas, automobile manufacturers will face very strong competitors.
The report indicates that another attractive opportunity for the Western automotive industry is to sell surplus capacity to companies that wish to expand military production without having to build new factories from scratch.
Italian automobile manufacturer Stellantis is planning to sell its idle factory in Canada to armored vehicle manufacturer Roshel. Earlier this month, German automaker Volkswagen also agreed to sell its factory in Osnabrück to Israeli Aurelius Capital and the state of Lower Saxony, for a project in collaboration with Rafael Advanced Defense Systems.
Analysts say that instead of trying to convert existing automobile production lines for military use, selling idle factories could be one of the most tangible benefits that car companies can gain from this wave of defense spending.
