What the GM Closings Really Mean for—and About—the Auto Industry

By: Bridget Clerkin December 10, 2018
In a move that shocked the US economy, GM announced huge layoffs and plant closures. What this move means for the auto industry and the consumer, however, are two different things.
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The announcement last week that General Motors is planning to idle four North American factories next year—and let go of more than 10% of its entire workforce on the continent—has been one of the most troubling stories to hit the auto industry in a year that’s been particularly tumultuous for carmakers.

Everyone from Donald Trump to Justin Trudeau has publicly expressed their disappointment with the move, and GM CEO Mary Barra is now at the mercy of a clutch of Ohio senators who have promised to “press” her for more details and answers about why the company pulled the trigger—and what it intends to do now.

Despite even the best damage control Barra could offer the politicians, her move has sent, and will continue to send, shockwaves across the entire industry and beyond.

Businesses ranging from commercial trucking companies to credit unions have fretted over how the fallout of more than 14,000 anticipated layoffs will impact their own situations.

Still, in its official announcement about the plan, GM claimed the move was part of a grand “corporate transformation” intended to breathe more life, and bring more cash flow, into a struggling business model.

But how beneficial will the bold move really be for GM—and for the rest of the automotive industry?

Method to the Madness

Technically, GM isn’t closing the factories. Rather, the company is “idling” the sites by putting nothing on their production schedules after their current runs are completed at varying points in 2019.

But the tactic will still likely result in a workforce reduction of nearly 6,000 line workers and up to 8,000 salaried staff across the U.S. and Canada. This is just one step of a three-pronged plan for the corporate transformation outlined by the company.

Also part of GM’s makeover is a long-term focus on fully electric and autonomous cars and a shorter-term return to larger vehicles like trucks, crossovers, and SUVs. Some of the savings generated by the mass attrition of employees will go toward funding those causes. In its announcement, GM noted that the projects will see resources double in the next 2 years.

The developing interest in self-driving cars and renewed interest in larger vehicles are big reasons why the five North American plants were chosen for shuttering.

Indeed, that developing interest in self-driving cars and renewed interest in larger vehicles are big reasons why the five North American plants were chosen for shuttering.

The changing tastes hit especially hard in Lordstown, Ohio, home to one of the four U.S. factories GM will no longer be using. The assembly plant there was responsible for building the company’s Chevy Cruze, a compact car that has seen its popularity tank recently.

Just five years ago, the factory was whipping up 248,000 of the vehicles annually, and it was blessed by GM with an investment of three shifts of staff to keep up production levels. But by last year, that production rate was down to just 180,000 thanks in part to consistently lower gas prices, which have brought on a resurgence in truck and SUV sales.

Similar stories have led to the scheduled end of production for a handful of other GM offerings, including the Buick LaCrosse, Cadillac CT6 and XTS, and Chevrolet Impala and Volt, all of which are made at the remaining targeted assembly plants located in Detroit and Ontario, Canada.

And the two propulsion plants in line for idling—at sites in Baltimore, Maryland and Warren, Michigan—focus on manufacturing 5- and 6-speed transmissions, which are options that increasingly fewer human drivers can handle, let alone the robo-chauffeurs of the future.

Still, GM isn’t the only company betting big on the shifting automotive zeitgeist.

Three’s a Trend

In fact, General Motors is the last of the Big Three automakers to take such a big step away from money-losing midsize models.

Earlier this year, Ford announced it would stop making the Focus, the former best-selling car in the world, along with the Fiesta and the Fusion, due to similar concerns over sales. The move left only two cars on Ford’s entire North American roster for the foreseeable future: the Mustang and a Focus crossover variation, made with the body of an SUV.

And Fiat Chrysler beat them both to the punch, announcing back in 2016 that it was shifting focus away from small cars and zeroing in on the production of more trucks and sport-utility vehicles.

The nearly simultaneous moves also come at a time when the country is battling over vehicle efficiency standards, which could result in giving the gas-guzzling models now preferred by automakers even longer legs should the current EPA administration get its way.

When it comes to the shift toward autonomous cars, however, manufacturers are still fighting for public acceptance. Poll after poll shows that people are apprehensive of the new-age transportation, or uninterested, at best.

Still, the Big Three’s big efforts to pour time, money, and resources into self-driving cars, regardless of the current lack of demand, may not prove to be as much of a business strategy as it is an increasingly self-fulfilled prophecy.

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