General Motors (GM) announced the end of production of six sedans by the end of 2019. The GM announcement is part of a broader shift among the Big Three to curb domestic production of smaller, lower-profit vehicles and focus more on higher-profit, roomier sport-utility vehicles and trucks. The company previously said that it would launch 20 new battery electric models in North America by 2023, and at least 10 in China by 2020.
GM is both adjusting to changing customer behavior and proactively planning for its future. The company announced massive layoffs of 14,800 jobs and the closing of five North American facilities as it transitions to a future of self-driving, electric cars.
The closures—affecting plants in Michigan, Ohio and Canada—will reduce GM’s annual costs by $4.5 billion by the end of 2020, allowing investment in electric and self-driving vehicles. The decision was called “callous” by the main auto workers union and prompted President Trump and Canadian Prime Minister Justin Trudeau to both call GM Chief Executive Mary Barra to express their disappointment.
Ms. Barra said she wants to act now, despite a strong economy and healthy corporate earnings, to help GM sustain profits through an expected downturn in the U.S. car market and continue investing in advanced technologies.
President Trump, irate over the cutbacks, threatened to punish GM by ending federal tax credits that have helped underwrite that automaker’s electric-vehicle fleet. “Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland,” Mr. Trump said in a Twitter post. “Nothing being closed in Mexico & China.”
On Wednesday, Trump said GM’s factory closings have prompted him to take a more urgent look at imposing new tariffs on imported cars noting that pickup trucks and work vans have long been protected by 25% tariffs, compared with a 2.5% tariff on cars. GM’s announcement appears to be further justification of the possibility of new tariffs by the president. Beijing has raised tariffs on U.S.-made cars to 40% from 15% in retaliation for Trump’s existing tariffs.
Despite President Trump’s tweets, an administration official said that any decision on the auto tariff issue still wasn’t expected imminently. The official said the president was likely to raise the matter in talks with EU officials later this week at the Group of 20 summit in Argentina.
The U.S. government’s $80.7 billion bailout of the auto industry in 2008 allowed G.M. and Chrysler to avoid bankruptcy and the loss of I million jobs. Ford had already cut costs and didn’t need the funds. The Treasury Department lent money and bought stock ownership in GM and Chrysler. It provided incentives to spur new car purchases. In effect, the government nationalized GM and Chrysler just as it did Fannie Mae, Freddie Mac, and the American International Group.
- The profit potential for self-driving technologies is uncertain. GM has poured billions of dollars into its autonomous-driving unit, GM Cruise, and has recruited Honda and SoftBank, the Japanese technology giant, as partners.
- GM and others are producing electric vehicles, but sales for each model have usually amounted to a few thousand cars a month, far too few to turn a profit. GM has sold only about 13,000 Bolts so far this year.
- The company is working on a dozen or more electric vehicles planned for roll out in two to four years. Those models will need manufacturing facilities, and some could end up in one or more of the five idled plants.
Quests and Actions (Q&A):
- What responsibility does G.M. have to employees and their communities? As pointed out by Terry Dittes, UAW vice president, “Closing domestic plants while expanding production in China and Mexico is “profoundly damaging to our American work force.”
- What structural changes do you see the auto industry going through? Do lay-offs have to be a part of any transformational strategy?
- Should GM have made more dramatic changes immediately after the bailout? What civic responsibility does GM leadership have given the earlier government assistance?