“Very disapponted with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland. Nothing being closed in Mexico & China. The U.S. saved General Motors, and this ithe THANKS we get!”
—Donald Trump, President of the United States
“We think it’s appropriate to get in front of it while the business and the economy are strong.”
—Mary Barra, CEO, General Motors
General Motors CEO Mary Barra
Creative Destruction is forcing some tough decisions in Detroit. GM announced this week that will close five North American plants. The consequences of this momentous decision will be the loss of roughly 14,000 jobs. CEO Mary Barra is trying to get ahead of the many looming unpredictable changes that are upending the automobile industry. President Donald Trump took to his Twitter pulpit and dolled out harsh criticism of her plan and even threatened to end GM’s federal tax credits that have helped subsidize GM’s electric cars. Washington DC appears oblivious to the seriousness of the many threats facing America’s automobile industry. When you peel back the onion, it is obvious that GM’s plant closures are not a desperate move by the automaker to beat next quarter’s Wall Street earnings estimates. Quite the contrary, GM is currently enjoying strong profits from robust sales of pick-up trucks and SUV’s. Instead, the cost-cutting measures are part of a proactive and strategic initiative to shift resources towards crucial investments to help shore up GM’s future. President Trump is using the job losses to create political theater by painting a picture that GM is not committed to U.S. manufacturing.
The reality is that disruptive technologies like autonomous driving and battery propulsion are already beginning to impact automakers. These radical changes (and many others) have the potential to turn the industry upside down. Automobile manufacturers must invest and plan now or risk being left behind by Google and Amazon or other cash-rich tech titans that might decide to enter the car business. By closing these factories, GM can focus on profitable models and factories while shifting capital towards developing critical new products and technologies. Three of the five plants GM is closing are not making money. These moves are s painful but necessary path. GM is not alone. Back in April, Turtle Garage reported on Ford’s similar decision to focus on SUV’s and stop producing passenger cars—you can read that post here.
Barra is rightfully trying to refocus GM’s research and development spending toward the future. Over the next decade, developing competitive electric autonomous products will cost the industry billions. There will be many winners and losers as the future unfolds. On top of the emergence of autonomous vehicles and electrification, we are witnessing a significant sea change in consumer tastes. Given low gas prices, buyers are moving away from efficient sedans and are demanding SUV’s. Many radical market changes occurred while GM was developing the Volt—they ultimately brought to market a high quality, successful and competitive plug-in hybrid. The market dynamic here is very confusing, especially for car companies that work on products today that will not be in showrooms for at least three to five years in the future. Like a complex fly fishing stream with multiple cross-currents, it is becoming increasingly difficult for auto manufacturers to read the river. GM has finally launched a successful hybrid car that can rival the Prius, and now nobody wants to buy fuel-efficient vehicles. Even efficiency pioneer Toyota sees waning demand for its renowned high-quality fuel-efficient vehicles. Consumers are signaling they want big inefficient cars, yet at the same time, there is a radical change in the air with electrification coming. All of these trends and possibilities were largely unthinkable and unknowable just five years ago—its hard to imagine what the next five years will bring. GM is trying to transform the company to survive and thrive in the future, and it should not receive government punishment for making tough but necessary business decisions.
While the plug-in hybrid Chevrolet Volt is a competitive offering, the market wants SUV’s and fully electric vehicles. GM plans to discontinue the Volt.
The folowing article from the NY Post gives a thorough summary of the situation:
NY POST
By Carleton English
November 11, 2018
General Motors said it will slash thousands of jobs in Michigan and Ohio as it scuttles slow-selling sedans and shifts toward electric cars — a plan that’s getting no traction from President Trump.
The Detroit auto giant, looking to slash $6 billion in costs by 2020, said Monday it will halt production at several plants in the US and Canada, cut as many as 14,800 jobs and ditch several models including the Chevy Volt, Impala and Cruze, as well as the Cadillac CT6.
Wall Street cheered the move, sending GM shares up 4.8 percent, to $37.65.
But the cuts will hit GM plants, including one that employs more than 1,600 workers in Lordstown, Ohio — a voter stronghold for Trump in a swing state that helped him clinch the 2016 presidential election.
On Monday, Trump — who has repeatedly promised to add jobs to the struggling manufacturing belt — said he had spoken to Chief Executive Officer Mary Barra on the phone ahead of GM’s Monday announcement, urging her to at least open a new plant in Ohio to offset the job losses.
“Hopefully she’s going to come back and put something in, but I told her, I’m not happy,” Trump told reporters Monday. “You know, the United States saved General Motors, and for her to take that company out of Ohio is not good. I think she’s going to put something back in soon.”
Trump — who in the past has threatened US automakers with tariffs to penalize moving manufacturing outside the US — amped up his language further in a Monday interview with The Wall Street Journal.
“They better damn well open a new plant there very quickly,” Trump told the paper. “I told them, ‘You’re playing around with the wrong person.’ ”
GM officials confirmed to The Post that Barra and Trump had spoken late Sunday but declined to elaborate.
In addition to shutting down seven plants, GM said it will cut its salaried workforce by 15 percent through a mix of “voluntary and involuntary programs.” The cuts will result in 25 percent fewer white-collar executive jobs, which it said will “streamline decision making.”
GM will scuttle the Cadillac CT6, the Impala, the Cruze and Chevy Volt — a hybrid car that hasn’t sold well as consumers focus increasingly on all-electric vehicles.
Barra said she’s making the drastic cuts in a bid to “transform the company” with a focus on electric and self-driving cars — despite healthy profits at GM.
“We think it’s appropriate to get in front of it while the business and the economy are strong,” Barra said.
General Motors’ move was “callous” and “will not go unchallenged,” the United Auto Workers union said Monday.
For more on the New York Post and to download our apps, visit NYPost.com
The following article is from the New York Times and written by Obama “Car Czar” Steve Rattner:
THE NEW YORK TIMES
By Steve Rattner
November 29th 2018
In 2016, as he crisscrossed the country for his presidential campaign, Donald Trump promised repeatedly that he would make American factories great again. “My plan includes a pledge to restore manufacturing in the United States,” he told a cheering crowd in the nation’s automobile capital, Detroit.
In truth, Mr. Trump’s promise was false hope, a cynical campaign pledge divorced from economic reality. That was illustrated vividly this week when General Motors announced that it would cut about 14,000 jobs.
Mr. Trump promptly attacked the company, but he is tilting at the wrong windmill: Rather than some arbitrary downsizing, the company’s decision was a rational response to many worrisome factors.
Its sales have begun to soften. Consumers have shown little interest in small cars, and G.M. lacks a strong line of crossover vehicles. Like many of its competitors, the company continues to increase production at less costly Mexican plants. Moves toward electric vehicles, in particular, will vastly change the types of factories and workers that G.M. needs. What’s more, the whole industry faces disruption by the sudden rise of ride-sharing apps and other innovations that will discourage vehicle sales.
Having served as head of President Barack Obama’s Auto Task Force, I might be expected to be critical of G.M., which received more than $50 billion of government assistance. (All except $11.2 billion was ultimately repaid.)
But I’m not. When Mr. Obama decided to save the auto companies in 2009,electric cars were just beginning to be produced, ride sharing was in its infancy, and I can’t remember a single expert telling us that self-driving vehicles would arrive in my lifetime.
Some critics argue that workers should come ahead of G.M.’s robust profits and hefty share repurchases. However, the company’s stock price is only modestly higher than it was in 2010, when shares of the post-bankruptcy company began to be traded. And as painful as layoffs and plant closings are, it was a failure to see tougher times ahead that helped send G.M. off a cliff a decade ago.
Autos are hardly the only part of the manufacturing sector facing challenges. Factory employment, which fell from 17 million jobs two decades ago to about 11.5 million in 2010, has regained only 1.3 million jobs during the post-2008 economic recovery. Just 434,000 of those jobs were added after Mr. Trump took office.
Yes, automation played some role in lowering employment, but the bigger problem has been competition from countries like China that are now able to produce goods as well as we do or better using much cheaper labor. For carmakers, that has meant moving production to Mexico.
In addition to lost American jobs, the consequence of this competition has been lagging earnings for factory workers. Once paid a premium, manufacturing workers now earn below-average wages.
The president’s main policy response has been to start a trade war. Mr. Trump is correct that some countries — notably, China — don’t play fair, but his strategy has led only to acrimony, a jittery stock market and rising international tensions.
Even manufacturers don’t like the trade war. General Motors said that Mr. Trump’s tariffs on steel and other products would add $1 billion to its production costs, which puts more pressure on the company to cut workers.
Mr. Trump’s responses to G.M.’s decision also miss the mark. He called on G.M. to close one of its plants in China, even though G.M. doesn’t import a meaningful number of cars from there. He said G.M. should no longerhave access to incentives to stimulate electric car production, which would simply damage the government’s effort to make the industry more competitive by spurring investment in new technologies.
Instead of Mr. Trump’s ham-handed approach to manufacturing, we should be pursuing more sophisticated remedies. I’m all for pushing back on the protectionist policies of China and other nations, but let’s do it with our allies and with the support of international organizations.
Similarly, while modernizing regulation is long overdue, simply throwing the rule book overboard, as Mr. Trump seems to be doing, is a mistake.
In addition, the American government should increase spending on education and training and finally begin that the long-delayed infrastructure initiative. We need to foster Americans’ pioneer spirit, and encourage them to move to where the jobs are.
For some Americans, it’s too late for retraining or relocation. They deserve a stronger social safety net, including programs to reduce the tendency to turn to alcohol and opioids.
We’re not going to return American manufacturing to its halcyon days, but we can do better. Sadly, Mr. Trump’s policies are taking us in the wrong direction.
Have you been to Tokyo lately? Lots of Japanese cars and lots of European cars too, but no American cars. Why is that? Have you been to the EU lately? Lots of Japanese cars and European cars, but no American cars. Why is that? I suggest that the reason is that these countries all maintain barriers to entry that prevent American cars from entering those countries at reasonable prices. I am not an expert on tariffs imposed on American cars by other countries. But American cars are not so terrible. I think that Trump is trying to force a level playing field. something that his predecessors failed to do. Sure, the USA is a high cost manufacturing country. So is Germany. So is Britain. The only competitive disadvantage we have is the barriers to entry, aimed at US production, in every foreign market where cars are produced.
Trump campaigned all over the Midwest to save US jobs, especially auto jobs. And in many respects his belligerent moves have been effective in causing foreign automakers to commit to building more cars and car parts in the US. So it appears to this unbiased observer that this part of his agenda has been successful. Unfortunately, job growth in this industry isn’t happening in the unionized upper midwest, but in the sunbelt states that have foreign-owned facilities. Ohio has Marysville, where Honda will be making, I understand, the NSX. But that is low volume production. Trump’s push to get GM to do something in the states that will lose jobs is understandable, even though in the short run it will not cause any plants to remain open. Retooling Lordstown will be a major rebuild of the production line there.
Fiat Chrysler was the first to exit the US-built small-car business when they dropped the Chrysler 200 and Dodge Dart (ironically, the 40-MPG variants of those cars allowed Fiat to take another 5% share of Chrysler under the industry bailout plan).
Earlier this year, Ford followed suit by leaving the Fiesta, Focus, and Fusion to twist in the wind for awhile before their production is ended. Now GM’s casualties have been announced (although the Volt’s technology will live on in crossover form).
Although the Asian OEMs may also selectively reduce their passenger-car offerings, you can bet that they will not fully abandon the compact- and mid-size segments. Our former “Big Three” have again ceded market share which they will not easily recover when consumer sentiment shifts again (or gasoline prices rise).
Product segments are cyclical and subject to the whims of consumer demands. Shifting demand away from unprofitable segments and completely ignoring them are two completely different things. GM and Ford are engaging in the latter which is a dangerous strategy when gas prices, consumer tastes, any number of different variables change to favor cars again. You cant just re-enter these segments after you’ve made the decision to abandon them, which is why the Asian and European auto makers have wisely chosen not to. Beyond the political theater, I believe these headlines are the signal for the sharks to start circling.