DETROIT (Reuters) – General Motors Co announced today that it will cut the production of slow-selling models and cut its North American workforce due to a declining market for traditional gas-powered sedans, shifting more investment into electric and autonomous vehicles.
GM's shares add to the biggest restructuring for US auto maker number one from its bankruptcy a decade ago and mark a turning point for the North American auto industry. US automakers have enjoyed nearly a decade of prosperity since the 2008-2009 financial crisis and the government bailouts of GM and former Chrysler Corp.
The announcement of GM immediately attracted criticism from US President Donald Trump, emphasizing the political risks faced by GM.
He asked the automaker to find a new vehicle to build in Ohio and added that he told GM's Managing Director Mary Barra that he was not satisfied with his decision to cut production at an Ohio factory. . Ohio will be a key state in the 2020 presidential campaign.
"I have no doubt that in the not too distant future, they will put something else in. They will do better to put something else," said Trump, who pushed for other production jobs during his nearly two years in office .
GM did not immediately comment on Trump's remarks, but the company noted that it has other facilities in Ohio including a transmission facility in Toledo and the metal center in Parma.
GM and its competitors are facing increasing invoices for technological transformation, greater risks from US trade policy and investors reluctant to fund their traditional product strategies.
On Monday, Barra described the decision to connect five North American factories to a potential closure and cut off around 15,000 jobs needed to keep the company strong while starving new technologies and new activities such as robo-taxi services.
"This sector is changing very quickly," Barra said during a press conference. "These are the things we are doing to strengthen our core business".
The GM shares rose 7.8% following the announcement, and rose by around 6% to $ 37.97 in the middle of the afternoon. Also the shares of Detroit rivals Ford Motor Co and Fiat Chrysler Automobiles NV have increased, surpassing the wider market.
GM plans to halt production next year in three assembly plants: the Lordstown small-car factory near Youngstown, Ohio; the Detroit-Hamtramck complex in Detroit; and Oshawa, Ontario, assembly complex near Toronto. It will also stop building different models now assembled in those plants, including the Chevrolet Cruze, the Chevrolet Volt hybrid, the Cadillac CT6 and the Buick LaCrosse. The compact Cruze car will be discontinued on the US market in 2019, although GM can continue to build it in Mexico for other markets, said Barra.
The factories in Baltimore, Maryland, and the suburban Detroit community of Warren, Michigan, which both produce powertrain components, have no products assigned to them after 2019 and are at risk of closure, GM said. The company said it will also close two unidentified factories outside North America.
"We have the right dimensions of capacity for the realities of the market," said Barra.
GM is also moving to reduce capital expenditures, although it says it will double the resources dedicated to electric and self-driving vehicles in the next two years.
Last year, GM promised to launch a fleet of 20 new electric battery vehicles in North America by 2023, along with at least 10 new electric vehicles in China by 2020. Expenses to bring those vehicles to production will start to hit with new batteries and bodywork architectures designed to generate profits.
GM is also increasing recruitment at its GM Cruise self-driving unit, pushing to overcome technical challenges and make a good plan to launch a robo-taxi service next year.
Despite increased spending on electric and autonomous vehicles, GM plans to reduce total annual capital expenditure to $ 7 billion by 2020 from an average of $ 8.5 billion a year over the 2017-2019 period. The automaker has been pressured by investors to return more money in the form of repurchase of shares and dividends.
The cost pressures of GM and other car manufacturers and suppliers have increased with the decline in demand for traditional sedans. The company said that the tariffs on imported steel, imposed at the beginning of the year by the Trump administration, cost $ 1 billion.
Barra has not linked Monday's cuts to tariff pressures, but he said commercial costs are among the "opposite" GMs faced as it deals with wider technology change and market shifts.
The actions of GM have provoked the anger of political figures from both sides of the US-Canada border and its major North American unions.
United Auto Workers, representing US workers, has promised to fight cuts. "The decision of General Motors today … will not be unopposed by the UAW," said Terry Dittes, vice president of the union responsible for negotiations with GM. Some UAW workers may find jobs at other GM plants, but many will have to face an uncertain future, unless GM changes course.
Canadian Prime Minister Justin Trudeau said he had spoken with Barra and expressed "profound disappointment".
In the United States, Trump's economic advisor, Larry Kudlow, should have met Barra on Monday.
GM said it would take the $ 3 billion tax burden to $ 3.8 billion to pay off the cuts, but expects the actions to improve the annual cash flow of $ 6 billion by the end of 2020.
SMALLEST WORKING FORCE
GM's North American paid workforce, including engineers and managers, will be reduced by 15%, or around 8,000 jobs. The company said it will cut the executive ranks by 25% to "simplify the decision-making process".
Even if GM is moving to dismiss staff, the company is hiring. On Monday, at the GM headquarters in Detroit, there were signs pointing people to a "new rental orientation" meeting.
Barra said GM can reduce annual capital expenditure by $ 1.5 billion and increase investment in electric and autonomous vehicles and related vehicle technology because it has largely completed investment in new generations of trucks and sport vehicles . Approximately 75% of global sales will come from just five vehicle architectures by early 2020, which means GM can reduce the people and capital needed to keep their product portfolio up-to-date.
Unlike the Japanese automakers Nissan Motor Co Ltd, Honda Motor Co Ltd and Toyota Motor Corp, which rely on a more flexible system in which they build more vehicles in a single factory, GM has too many factories that make a single model.
The collapse of compact and mid-size sedan sales hit some of the more difficult GM models of rival Japanese brands. Sales of the Honda Civic decreased by 11 percent in the first 10 months of 2018. But Chevrolet Cruze sales are down 22 percent.
The Hamtramck and Lordstown assembly plants are currently operational in one shift. An empirical rule for the automotive industry is that if a plant runs below 80% of its production capacity, it is losing money. GM has several plants that work well below this, and Barra said that North American operations as a whole were operating at 70% capacity. The consulting firm LMC estimates that Lordstown has a production capacity of 31 percent in 2018.
Through the UAW, Lordstown workers worked to improve quality, reduce the number of local trade unionists to facilitate negotiation and the acceptance of outsourcing of some jobs, in an attempt to persuade the carmaker to add other models to its line factory.
In 2016 Trump won Ohio by campaigning to bring production back to America.
"So far, President Trump has been asleep at the door and owes an explanation to this community," US representative Tim Ryan, a Democrat whose district includes Lordstown, wrote on Twitter.
At the same time, many of the GM plants that produce trucks and SUVs with higher margins operate on three shifts, with some running six and sometimes seven days a week to keep up with demand. Some displaced by GM machine workers could find work in truck factories, GM officials said.
The rivals Ford and Fiat Chrysler have both reduced car production in the United States. Ford said in April that it planned to stop building almost all cars in North America. The Fiat Chrysler has moved earlier to break off most of its sedans.
Reporting by Joseph White, Nick Carey and Paul Lienert in Detroit, David Shepardson in Washington, Allison Martell in Toronto and Allison Lampert in Montreal; Written by Nick Zieminski; Editing by Bill Rigby, Matthew Lewis and Susan Thomas