Seldom has the future of an industry turned sour so quickly. US automakers have enjoyed several years of record profits, but the wild ride is coming to a screeching halt as global trends point to a future of reduced demand, curtailed product lines and the need to invest large sums in new technologies.
As part of a major restructuring, GM has announced that it will cut 15 percent of its salaried workforce – almost 15,000 employees – and close down five factories in North America by the end of 2019. Following the leads of Ford and Chrysler, GM will discontinue most of its sedans, including the Chevrolet Cruze and the Chevrolet Volt PHEV, which will cease production by March 2019.
The coming transition to EVs is surely one part of the reason for the sweeping changes. “GM now intends to prioritize future vehicle investments in its next-generation battery-electric architectures,” the company said. CEO Mary Barra says GM plans to double its investment in EVs and self-driving technology.
However, other factors are probably having more impact. The growth of the overall auto market has stalled – US auto sales fell about one percent in 2017, according to Kelley Blue Book. Most of today’s auto buyers want trucks, SUVs and crossovers, so that’s where the Big Three plan to focus their resources (those who do want sedans are turning to Tesla, a trend that bodes ill for the German brands). President Trump’s trade war has delivered another major blow – GM said in June that new tariffs risked “undermining GM’s competitiveness against foreign auto producers by erecting broad brush trade barriers that increase our global costs.”
Mary Barra put a positive spin on the news: “The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future.” Wall Street seems to agree that the restructuring, which is expected to save the company some $6 billion, is necessary medicine – GM’s stock saw a substantial rise following the announcement.
“GM is making a big bet on a future that is autonomous, connected and electric,” said AutoTrader Analyst Michelle Krebs. “It has to be extremely profitable now to finance [that future] because no one knows when those vehicles will be commonplace.”
GM’s increased investment in EVs is welcome, but as Electrek’s Fred Lambert points out, “what they are announcing today on that front is very vague while the layoffs are very concrete.”