General Motors Co.’s aggressive cost-cutting plan shows the danger of taking corporate-investment pledges at face value in the Trump era.
The automaker is on track to close five North American plants, four of which are in the US, and cut more than 14,000 salaried staff and factory workers. The company will close another two plants abroad. This belt-tightening is aimed at steering GM away from slower-selling sedans and adding to its firepower for electric and self-driving vehicle development. But it comes less than two years after GM earned praise from US President Donald Trump for promising a $1 billion investment in US manufacturing and 7,000 new or retained jobs.
That pledge was largely a PR stunt, as were most of the lofty corporate promises that followed Trump’s November 2016 election. In GM’s case, the company largely detailed investments it would have made regardless of who sat in the White House and played up hiring decisions that had been made years earlier. But it did the trick. Just a few weeks before that January 2017 announcement, Trump had been blasting GM on Twitter for sending a Mexican-made model of the Chevrolet Cruze to US dealers. He hasn’t brought that up since.
It’s a perfect example of Trump focusing on the wrong things and ignoring the bigger picture. Trump was incorrect about the Chevy Cruze: Models designated for the US market were produced at GM’s Lordstown, Ohio, plant, with only a small number of Mexican-built hatchback versions of the car sold in America. But fast forward to Monday, and the Chevy Cruze is one of the vehicles that GM will cease to produce for the US, and the Lordstown plant is at risk of closing if unions and politicians can’t convince GM to move alternative products there. The Chevy Cruze will be made in Mexico for other markets, according to Bloomberg News.
Trump said he’s “not happy” about the job cuts, adding that the US has done a lot for GM, and he’s pressuring the automaker to create work at some of the factories it’s considering closing. But in hindsight, this kind of dramatic rethink of GM’s US manufacturing footprint was a long time coming. Sedans like the Cruze have been falling out of favor with SUV-loving Americans and GM has been vocal and proactive about pivoting to electric and autonomous vehicles. In the months leading up to that January 2017 statement, GM said shifts in demand would force it to permanently cut 3,300 employees, including at the Lordstown plant and the Detroit-Hamtramck facility that’s also at risk of being shut down.
I’m not sure that Trump could have made sedans great again, or that he would want to, seeing as he’s concurrently advocating for the low oil prices that have helped make SUVs more feasible for consumers. But ramping up investments in job-retraining programs to prepare the workforce for this looming overhaul would seem to be a much better use of time than celebrating substance-light press releases. Rising raw-material costs are expected to make a $1 billion dent in GM’s profit this year, with the company warning in June that increasing tariffs could force it to reduce its US presence.
This has become something of a pattern with Trump and Corporate America: Don’t buy the hype. The actual number of jobs that Trump “saved” at an Indiana plant for United Technologies Corp.’s Carrier heating and air-conditioner unit was far lower than the headline figure of 1,100. CEO Greg Hayes admitted not long after the 2016 agreement that most of the jobs that remained would eventually be overtaken by automation and the factory has since been plagued by absenteeism, according to the New York Times. The fate of that business is now up in the air as United Technologies moves closer to a three-way breakup.
It’s a similar story with Foxconn Technology Group. The billions in government subsidies the company got to build a factory in Wisconsin far exceeded the likely economic benefits for the state from this investment. And now it turns out that factory may not be as grandiose as once thought, and Foxconn is reportedly attempting to convince some of its China-based engineers to transfer to Wisconsin as it grapples with a tight US labor market. And then there’s Harley-Davidson Inc., which initially won Trump’s praise for “building things in America,” before incurring his ire by shifting some production out of the US to help mitigate the impact of European Union retaliatory tariffs targeting its motorcycles.
Unsaid in GM’s press release Monday but implied by corporate-speak about “increasing capacity utilization” is that much more of the work on its future cars will likely be done by robots. The term “retained jobs” from its January 2017 investment announcement is a particularly handy one that masks the changing profile of GM’s employee base as the company pivots away from factory workers toward engineers and software experts. GM touted the Lordstown plant last year as an example of the jobs created by its effort to encourage suppliers to build facilities near its US sites. You have to wonder how long nearby supplier plants will stick around if GM pulls out.
It’s interesting that the $6 billion boost to annual free cash flow GM is targeting by year-end 2020 from these changes isn’t too far off from the $6.6 billion it says it’s invested in US plants over the past four years. And GM will double the resources it’s allocating to electric and autonomous vehicle programs over the next few years. But the beneficiaries of that investment are unlikely to be the same factory workers in Ohio and Michigan who are now finding themselves out of a job.
Brooke Sutherland
Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. -- Ed.
(Bloomberg)
