Mary Barra, CEO of General Motors Co., sent a shock through the auto industry and U.S. and Canadian economies Monday with her announced plans to dramatically reduce car production in the U.S. in 2019.
Here’s some off the fallout and reaction:
Spin-off affect of job loss
More people than than the 15,000 at GM will be losing their jobs. For every auto assembly job, there are up to seven spin-off jobs, so the impact is about 49,000 in North America, industry analysts estimate.
The legal wording
Why the unusual language used to announce the downsizing? Automakers have 2015 contracts with factory workers that do not allow the company to “close” or “idle” plants. Workers agree to wages based on these four-year contracts. Therefore, this plan is about “not allocating product” rather than closure.
GM is building popular products, including the Terrain, Equinox in Mexico, where it also plans to build the new Blazer, and builds the Envision in China to increase the profit margin based on lower wages and benefits. Thus, the U.S. plants are not being fully utilized as vehicle demand levels off after 2016’s peak. Also, GM is focusing resources on robot vehicle technology and electrification.
Are tariffs to blame?
Analysts say tariffs on steel and aluminum in President Donald Trump’s trade war are a headwind for automakers but not the central reason for GM’s move.
“I believe that GM did a full review of the market side of their future products needs and compared that to their manufacturing footprint and strategically concluded that these were all of the plants they no longer needed,” said market analyst Jon Gabrielsen.
“This is a correction,” said Kristin Dziczek, vice president of Industry, Labor & Economics at the Center for Automotive Research in Ann Arbor. “GM plants are building more cars that people just don’t want to buy. This has very little to do with tariffs, though I’m sure that’s a part. But this is about the fundamentals of the business.”
What does this mean for GM stock?
GM’s stock price went up 5 percent.
Analysts said Wall Street is rarely sad when people lose jobs because that means corporate profits grow. Reviews praised the business move:
“In contrast to times past, General Motors, under CEO Mary Barra, is trying to get ahead of a potential crisis by making cuts now. A confluence of factors has triggered GM’s actions: a downturn in the important China market as well as a potential downturn in the North American market _ the two are GM’s biggest markets … GM is actually a tad late to adjusting its product line and production capacity to the dramatic car to utility shift,” said Michelle Krebs, executive analyst, Autotrader.
“(Mary Barra is) moving GM toward advanced technology and away from fading models the market has largely abandoned. Each of these moves will contribute to GM’s long-term financial and competitive health, though they take a heavy toll on much of the current workforce,” said Karl Brauer, executive publisher, Autotrader and Kelley Blue Book.
Factory workers watch and wait
Autoworkers in the U.S. and Canada point to concessions made during the Great Recession and expressed anger about production in Mexico and a focus on Wall Street after workers sacrificed.
Ohio senators react
Both of Ohio’s senators blasted GM’s decision.
“The workers at Lordstown are the best at what they do, and it’s clear once again that GM doesn’t respect them,” Sen. Sherrod Brown said. “Ohio taxpayers rescued GM, and it’s shameful that the company is now abandoning the Mahoning Valley and laying off workers right before the holidays. Even worse, the company reaped a massive tax break from last year’s GOP tax bill and failed to invest that money in American jobs, choosing to build its Blazer in Mexico.”
Sen. Rob Portman said: “I am deeply frustrated with General Motors’ decision to shut down its Lordstown plant and disappointed with how the hardworking employees there have been treated throughout this process. During frank conversations with GM CEO Mary Barra …. I pressed GM again to provide new opportunities to the Lordstown workers and take advantage of the skilled workforce there.”
What’s the time frame?
In Hamtramck, production of the Lacrosse and Volt will end March 1. Cruze production ends March 1. The Cadillac CT6 and Chevrolet Impala end production June 1.