In Trump’s heart­land

The Sunday Telegraph - Money & Business - - Transport trouble -

when de­mand for cars is drop­ping, es­pe­cially with Uber and car clubs.”

Trump’s much vaunted new trade deal, the United States-mex­ico-canada Agree­ment, which the ad­min­is­tra­tion has ne­go­ti­ated with its neigh­bours to re­place Nafta, is un­likely to be a panacea for the in­dus­try.

The agree­ment stip­u­lates that at least 30pc of cars – ris­ing to 40pc in 2023 – must be made by work­ers earn­ing $16 (£12.50) an hour.

This pro­tects jobs in the US and Canada, while still leav­ing scope for a lot of pro­duc­tion to be shifted to Mex­ico, where labour costs are lower.

But it would be sim­plis­tic to sug­gest that GM’S woes are purely a re­sult of Trump’s tar­iff and trade poli­cies.

The lat­est avail­able sta­tis­tics show a 12pc drop in US car sales over the past year. The fig­ures would have been worse but for sales be­ing in­flated by mo­torists re­plac­ing cars dam­aged by hur­ri­canes Har­vey and Irma. Not only that, but Amer­i­cans are not buy­ing the same type of car. The sa­loon – or sedan as the Amer­i­cans call it – has been dy­ing a slow death for some time. In 2007 it ac­counted for 35.6pc of the mar­ket: a decade later the pro­por­tion had dropped to 27.7pc.

In­stead, Amer­i­cans are opt­ing for SUVS and trucks, which is good news for the fac­to­ries where they are made, but not for pro­duc­tion lines ded­i­cated to cars that are go­ing out of fash­ion.

GM’S de­ci­sion to ditch the Im­pala was hardly a sur­prise. An­a­lysts had long pre­dicted it would, like the Chrysler 200 and Dodge Dart, be con­signed to mo­tor­ing his­tory,

Even drop­ping the Volt makes sense, said Linda Kong Ting, di­rec­tor of credit re­search at Sun Life In­vest­ment Man­age­ment.

“I think the hy­brid has been fall­ing out of favour be­cause there’s no need to have two power trains,” she added. “For prac­ti­cal and cost reasons it makes sense. With elec­tric cars im­prov­ing their range, you re­ally don’t need a backup gas en­gine any­more.”

Like a num­ber of in­dus­try experts, she be­lieves Barra’s de­ci­sion is a rational one. “I think she did it for busi­ness reasons. If you look at the mod­els these plants were pro­duc­ing, sedans are fall­ing out of favour, peo­ple pre­fer to sit higher in their cars.

“GM is ra­tio­nal­is­ing as it pre­pares for a cycli­cal down­turn. All the car­mak­ers see that the writ­ing is on the wall with de­mand fall­ing in the US and China. His­tor­i­cally GM has been caught flat-footed, as re­cently as the last fi­nan­cial cri­sis. Now the com­pany is do­ing the smart thing in bring­ing its costs down while the go­ing is good.”

Put sim­ply, the money could be bet­ter spent by GM, which is vy­ing with Ford to be at the fore­front of the next gen­er­a­tion of mo­tor­ing – elec­tric and self-driving cars.

A num­ber of states have al­ready passed leg­is­la­tion al­low­ing au­ton­o­mous ve­hi­cles on their roads and there is a groundswell of sup­port in Wash­ing­ton for the fed­eral gov­ern­ment to fol­low suit.

But this in­vest­ment costs money and GM be­lieves the $6bn it will save by clos­ing the old plants will gen­er­ate the cash it needs. It seems to be a view shared by Wall Street. GM’S shares jumped 5.5pc af­ter the an­nounce­ment.

“The moves are bolder than ex­pected,” said Jeff Schus­ter, an­a­lyst at LMC Au­to­mo­tive. “The two US plants were un­der 40pc utilised and the in­dus­try con­sid­ers 80pc healthy. Some­thing had to give.

“Over­all, I would ex­pect the in­creased mar­gin and cash­flow to be used for au­ton­o­mous ve­hi­cle devel­op­ment and ac­qui­si­tions, set­ting GM up for fu­ture mo­bil­ity.

“The chal­lenge is that there will be lit­tle or no re­turn on that in­vest­ment for sev­eral years.”

The furore that ac­com­pa­nied Mary Barra’s an­nounce­ment was to be ex­pected, but Willy Shih, pro­fes­sor at Har­vard Busi­ness School, be­lieves she had lit­tle al­ter­na­tive.

“One of the hard­est things for a com­pany to do once it has built in­fra­struc­ture such as plants and ne­go­ti­ated union con­tracts is to change when the mar­ket changes.

“The com­pany will get crit­i­cism for the im­pact on jobs. But they are do­ing it at a time when un­em­ploy­ment is low. If you have to do it, this is a good time, be­cause peo­ple are more likely to find other jobs than in a re­ces­sion.”

‘Noth­ing be­ing closed in Mex­ico and China. The US saved Gen­eral Mo­tors and this is the thanks we get!’

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