In Trump’s heartland
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!’