What’s behind GM’S job cutting?
On Monday, General Motors announced it would be cut some 14,700 jobs and shutter five North American plants in what it said was an effort to become more streamlined.
CEO Mary Barra said the restructuring would allow GM “the flexibility to invest in the future,” but this doesn’t look entirely like a bid to compete with Tesla for the coolest electric car or with Waymo for the first self-driving vehicle. After all, those companies are growing, and other legacy makers like Ford are eying the future without such drastic trimming.
What’s behind the cuts?
The GM plants to be closed — in Detroit and Warren, Michigan; Lordstown, Ohio; Baltimore, Maryland; and Oshawa, Ontario, Canada — are those that manufacture the Chevrolet Cruze, Impala and Volt, the Buick Lacrosse and the Cadillac CT6 and XTS... all sedans that GM has said it won’t be making anymore. GM is no doubt looking to shift production capacity to build vehicles that are more popular (SUVS and trucks) and have higher profit margins.
There are other financial issues lurking behind GM’S announcement. One is the $1 billion in added costs steel tariffs have placed on its operating expenses. Another is the fact that — though GM’S balance sheet has been sound lately — it’s seen lost ground in the huge Chinese market, suspects North American sales will follow, and is no doubt looking to buffer those decreased revenues.
What can the president do?
Such a big loss is bound to attract the attention of a president who campaigned on preserving American (and especially manufacturing) jobs. President Trump tweeted he was “very disappointed” with the news, and insinuated the administration might be “looking at cutting all @ GM subsidies, including for electric cars.”
No one’s sure what he’s talking about. Industry analysts aren’t aware of any significant subsidies beyond the $7,500 tax credit for plug-in vehicles, which goes to the consumer and not the manufacturer, and is not exclusive to GM. Also, that subsidy ends when the maker reaches the threshold of 200,000 electric vehicles. GM is predicted to hit that figure by the end of the year. So it remains to be seen what the president can or will do, if anything. His tweeting did cause a single-digit dip in GM’S stock, but by the end of the week it was still ahead after the announcement.
Thanks a lot!
However, when the Trump tweets that “[t]he U.S. saved General Motors, and this is the THANKS we get!” he may have a point. The U.S. government bailed out the domestic auto industry following the 2008 crash, and GM received some $49.5 billion. After the dust finally settled and the government unloaded the interest in GM it received in the deal, it amounted to a loss of about $10.6 billion. Still, as Mitt Romney discovered in the 2012 presidential campaign, even suggesting the American auto industry should be allowed to fail is political poison.
Analysts say the loss of all those jobs — not just in manufacturing of the actual vehicles, but in ancillary industries like parts supplies — as well as lost tax revenue and the increase in costs like food stamps and unemployment would have been much greater than that bail out loss. But that doesn’t make this recent, drastic round of cutting feel any better.