There are two sides to every coin. In this case, you find General Motors and Wall Street in general on one side, and President Trump and the unions on the other. Strange partnerships perhaps, but each will do what is in their best interests.
Let’s begin by looking at what happened. General Motors said Monday it will cut up to 14,000 workers in North America and put five plants up for possible closure as it abandons many of its car models and restructures to focus more on autonomous and electric vehicles. The reductions could amount to as much as 8 percent of GM’s global workforce of 180,000 employees. The shift in demand has moved from sedans to SUV’s, which accounted for 65 percent of all auto sales in October.
GM is attempting to reinvent itself by changing its business model. GM’s new motto is “Zero Crashes, Zero Emissions, Zero Congestion,” signaling a shift to self-driving, electric vehicles. This is the future of the auto industry, and CEO Mary Barra is taking a proactive stance.
The economics behind the move are properly hailed by Wall Street. “In contrast to times past, General Motors, under CEO Mary Barra, is trying to get ahead of a potential crisis by making cuts now,” said Michelle Krebs, executive analyst at Autotrader. GM shares rose as much as 7.8 percent following the announcement and closed at $37.65, up 4.76 percent. Cost pressures on GM and other automakers and suppliers have increased as demand has waned for traditional sedans.
The company has said tariffs on imported steel, imposed earlier this year by the Trump administration, have cost it $1 billion. President Trump immediately weighed in on the situation, with no real surprise the announcement drew criticism from Trump, highlighting the political risks facing GM. Trump has stepped into this situation before, where he attempts to politicize business moves by a company that haven’t coincided with his rhetoric.
The Trump 2016 campaign rally was jobs, jobs, and jobs. Sticking to this, he demanded the automaker find a new vehicle to build in Ohio and added that he had told GM Chief Executive Mary Barra he was unhappy with her decision to cut production at an Ohio factory. Ohio will be a key state in the 2020 presidential campaign. What isn’t playing well for GM is the potential closing of five North American plants while keeping a truck manufacturing plant open in Mexico. This will surely not be the last we hear of this. Lastly, let us not forget about the unions and the human element involved.
We as a society have become somewhat recalcitrant regarding the shift in labor from blue collar to technology. The United Autoworkers union said it would fight the decision. “This callous decision by GM to reduce or cease operations in American plants, while opening or increasing production in Mexico and China plants for sales to American consumers, is, in its implementation, profoundly damaging to our American workforce,” said Terry Dittes, UAW vice president.
We will no doubt find out shortly whether politics or economics will prevail. GM would be remiss in maintaining the current corporate mission. It is always painful to make decisions where people’s livelihoods are at stake. However, tomorrow waits for no man, and technology will not stop in order for a family in Ohio to feed itself. That sucks. However, if this move is put in place, one would hope that there would be a benefit in the long term survival of GM for its workforce, as opposed to another potential bankruptcy.