On Monday, GM announced the potential closure of five plants in North America – four of them in the US and one in Canada – plus two more outside the region, as part of a restructuring plan aimed at strengthening the OEM’s core business. In a press release issued on Monday morning, the company detailed that its assembly plants in Oshawa in Ontario, Canada; Detroit-Hamtramck in Detroit, Michigan and Lordstown in Warren, Ohio, plus its two component and propulsion facilities in White Marsh, Baltimore and Warren, Michigan would not receive any new models starting in 2019.
Workforce changes were also addressed, detailing cuts of 15 percent of the salaried and contracted workforce in North America, including 25 percent of the executive positions to simplify decision-making processes. Overall, the company’s plan would mean cuts of up to 14,000 jobs. “The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future,” said Mary Barra, Chairman and CEO of GM. “(They) will increase the long-term profit and cash generation potential of the company and improve resilience through the cycle.”
The company expects these changes will save up to US$6 billion in cost reductions of US$4.5 billion and lower capital expenditure of US$1.5 billion, which will help GM cope with “changing market conditions and customer preferences,” according to the release. Among these challenges, lower demand of sedans and the rising need to invest in electrification and advanced automotive technologies can be highlighted, along with complicated trade conditions including a trade war with China and lingering tariffs on steel and aluminum.
Although the tariffs are not identified by the company as one of the drivers for this decision in the Monday release, the company had already warned the US government about the potential outcome of maintaining such policies. “The threat of additional tariffs on automobile imports could be detrimental to our company. At some point, this tariff impact will be felt by customers,” read a letter from GM sent to the US federal government regarding the Section 232 National Security Investigation on imports of vehicles and auto parts. “If prices are not increased and we opt to bear the burden of tariffs or plant moves, this could still lead to less investment, fewer jobs, and lower wages for our employees.”
GM’s move was greeted with acceptance from investors leading to a rise in stock prices of 4.8 percent on Monday, in a similar reaction to when Ford announced its decision to move away from sedans altogether and saw its shares rise 3.8 percent. But US President Donald Trump criticized the OEM for its decision in a Twitter post on Nov. 27. “Very disappointed 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 is the THANKS we get! We are now looking at cutting all @GM subsidies, including for electric cars. General Motors made a big China bet years ago when they built plants there (and in Mexico) – don’t think that bet is going to pay off. I am here to protect America’s Workers!” Ohio was an important state for Trump during the 2016 elections because of the presence of manufacturing operations and his vow to bring manufacturing jobs back to the country.
Although GM highlights this as a North American strategy, only the US and Canada were affected with no impact to Mexico’s operations at the moment. But this could be temporary since Chevrolet Cruze, one of the models to be cut at the Lordstown plant, is also manufactured at Ramos Arizpe. However, the company has already scheduled the phasing out of this model and an increase in production of the new Chevrolet Blazer, according to an interview from Automotive News Mexico with Teresa Cid, Communications Director of General Motors de México. “We believe this new SUV will help us maintain our unionized workforce,” she said.
After Trump’s tweets, GM’s stock fell 2.55 percent, with FCA, Ford and Tesla following albeit in a lower measure. The news provoked some unease on Wall Street and according to Larry Kudlow, Director of the National Economic Council, the overall sentiment in the White House is of disenchantment. So far, there is no clear plan as to how or when measures against GM could be taken but according to James Albertine, Senior Analyst of the Consumer Edge Research, there is no reason to fear. “It is hard to see how this could be undertaken legally … This would not be something that happens overnight,” he told to CNBC on Tuesday.
The data used in this article was sourced from GM, Regulations.gov, Bloomberg, Business Insider, CNN, Automotive News Mexico, El Economista, CNBC.