Amid criticism from President-elect Donald Trump in January 2017, General Motors announced plans to invest an additional $1 billion in manufacturing in the United States and said it would add or keep 7,000 jobs in the US — a decision it admitted was “years in the making.” Trump thanked the company at the time.
Less than two years later, the automaker said on Monday it would make overhauls that would lead to $6 billion in cost reductions by 2020, including shuttering up to five plants in the US and Canada and slashing 15 percent of its salaried workforce, a total of some 14,700 jobs.
There are a confluence of factors behind GM’s decision — changing consumer demands, production costs, trade — some of which are tied to Trump, and some of which aren’t.
But the broader takeaway, at least for the president, might be that he just can’t always get what he wants: Corporations are going to do what they need to do to make money, even if he tries to strong-arm and shame them into doing otherwise. And when his policies aren’t particularly helpful, that’s even more the case.
Trump can’t force people to buy cars they don’t want. In GM’s case, demand is declining for smaller, traditional passenger cars like the ones the plants it’s closing produce. Instead, consumers are buying crossover vehicles, SUVs, and light trucks. And as much as the Republican tax cuts might have benefited the company, steel and aluminum tariffs have put a damper on the positive effects.
“You’re sort of giving them six and taking away a half a dozen,” Clayton Allen, an analyst at research firm Height Capital Markets, told me. “You end up back at zero.”
Trump weighed in Monday afternoon, saying he told GM’s CEO Mary Barra: “You better get back in there soon.”
TRUMP on GM plant closures: “We don’t like it. I believe they’ll be opening up something else. And I was very tough. I spoke with her when I heard they were closing and I said, you know, this country has done a lot for general motors. You better get back in there soon.” pic.twitter.com/ggV5YgEwyz
— Aaron Rupar (@atrupar) November 26, 2018
What’s going on with GM, briefly explained
GM on Monday announced plans to “accelerate its transformation” toward electric and autonomous vehicles — corporate speak for measures to make its business more profitable and cut costs.
The company said that it would undertake a restructuring plan that will cost up to $3.8 billion initially but by the end of 2020 lead to annual cash savings of $6 billion. Key components of the plan: idling five assembly plants, including one in Canada, two in Ohio, one in Michigan, and one in Maryland, and reducing its salaried and salaried contract staff by 15 percent, including 25 percent fewer executives. That translates to an estimated 14,700 jobs.
The announcement wasn’t necessarily a surprise, because the company this fall offered voluntary buyout packages to about 18,000 salaried workers in North America and said it was taking multiple “proactive steps” to cut costs. Over the summer, it also warned that tariffs under the Trump administration could lead to a “smaller GM.”
Garrett Nelson, a senior equity analyst at research investment firm CFRA Research, told me a number of factors contributed to GM’s announcement, some Trump-related, and some not. Principally, he said, the automaker is responding to the changing landscape for its business.
“If you look at the five facilities they’re shutting down, the plants have kind of been limping along for years now, and they mainly produce smaller sedans and vehicles where demand has been declining in recent years, mainly due to consumer preferences,” Nelson said.
The Lordstown assembly plant in Warren, Ohio, that GM plans to shutter, for example, laid off hundreds of workers in January 2017 when the third shift was eliminated there, and in April 2018, the plant went down to one shift.
But beyond consumer demand, there are other factors in play.
The tariffs on aluminum and steel imports the Trump administration imposed earlier this year may have also been a factor, as GM and other automakers have been clear they’re bad for business. Ford CEO James Hackett said in September that tariffs cost the company about $1 billion in profit. GM warned in June that they could lead to a “reduced presence” in the US and abroad and risk less US jobs.
“Certainly this looks like a big company that’s getting ready for a future that’s not as bright as it is today,” Allen said.
It’s not only Trump’s trade battles but his supposed trade successes that could be in play — namely, the United States-Mexico-Canada-Agreement (USMCA), or the renegotiated NAFTA the White House celebrated last month. The deal was supposed to be a positive for US and Canadian jobs, but if the GM maneuver signals anything, that might not be the case. It’s shuttering plants in the US and Canada, but it’s not touching any in Mexico. It will end operations in two additional plants outside of North America in 2019, but it’s not yet saying which.
“For all the bluff and bluster [around USMCA], it really is not a sea change,” Allen said. “It’s really like someone spit-polished NAFTA.”
“Despite the new trade deal, despite the new economics, it still favors plants outside of the US and Canada,” Nelson said.
The news isn’t going over particularly well
Wall Street celebrated GM’s announcement, with its stock price jumping by more than 7 percent during trading on Monday. Others, however, weren’t so excited.
Democratic Sen. Sherrod Brown represents Ohio, where GM plans to shutter one facility. He slammed the decision as “shameful” and pointed out that in June GM said it would go ahead with its plan to build its Blazer SUV in Mexico despite a “massive tax break” from the 2017 tax bill. (As the Washington Post points out, GM initially took a hit on the tax bill because of so-called “deferred tax assets” but will eventually benefit.)
“This decision is corporate greed at its worst,” he said in a tweet.
GM owes the community answers on how the rest of the supply chain will be impacted & what consequences its disastrous decision will have on the Valley & Ohio. My office stands ready to do everything we can to help these workers. This decision is corporate greed at its worst. -SB
— Sherrod Brown (@SenSherrodBrown) November 26, 2018
Ohio Republican Sen. Rob Portman said he was “deeply frustrated” with GM’s decision and pressed it consider production of other vehicles at the endangered Ohio plant.
The United Auto Workers union said it would challenge GM’s decision and confront the company “through every legal, contractual, and collective bargaining avenue open to our membership.”
General Motors’ decision today to stop production at the Lordstown, Ohio, and Hamtramck, Michigan, assembly plants will idle thousands of workers, and will not go unchallenged by the UAW. https://t.co/uRnXARGCP7
— UAW (@UAW) November 26, 2018
Trump took a strongman approach again when making public comments on the plant closures Monday afternoon, saying he told GM’s CEO to open new plants.
Trump Says He Told GM’s CEO to Open New Ohio Plant
Trump said GM should stop making cars in China and open a new plant in Ohio to replace the ones where the company is planning to shutter.
“They better damn well open a new plant there very quickly,” Mr. Trump said.
— John Bussey (@johncbussey) November 26, 2018
Trump probably won’t be happy
While much of GM’s decision making has little to do with Trump or government policy in general, it’s still not great for the White House. Trump has banked much of his presidency on bringing manufacturing jobs, specifically, back to the US, and he’s tried to strong-arm companies into bending to his will even when economics say they shouldn’t. Moreover, two of the states where plants are closing are those that helped propel him to victory in 2016 — Michigan and Ohio.
Trump has bragged that his steel tariffs are helping to save the US steel industry, but he seems to have ignored other sectors the tariffs might harm, including auto manufacturers. The short-term strategy might please steel interests, but it hurts workers in plants in states such as Ohio, Michigan, and Wisconsin. He won Michigan in 2016 by about 11,000 votes. That’s fewer people that will lose their jobs with GM’s restructuring.
There was a mini-recession in parts of the economy leading up to the 2016 election that resulted in reduced investment in manufacturing in the upper-Midwest and localized economic pain that could have bolstered support for Trump there, Allen said. If under his watch things get worse and not better, that could harm his reelection prospects.
“If this is the first signal that this cycle is resuming, what does that do to Trump’s political fortunes heading into 2020?” Allen asked.
As the Toronto Star’s Daniel Dale pointed out on Twitter, the president has actually been claiming as of late that car plants will be opening in multiple states, including Michigan and Ohio.
Trump has been lying this month that car plants are opening in “Michigan and Ohio and Pennsylvania and South Carolina and North Carolina and Florida.” https://t.co/GmEX5ynZz2
— Daniel Dale (@ddale8) November 26, 2018
GM CEO Mary Barra is expected to meet with National Economic Council Director Larry Kudlow on Monday after the jobs cut announcement, according to a report from Reuters. It’s quite possible that Kudlow and the Trump administration will encourage her to reverse course.
But Barra and other GM executives probably knew before making the announcement it would face pushback from the White House, and they went ahead with it anyway.