In an effort to get a leg up on the move toward autonomous and electric, and to cut their annual run rate, General Motors (NYSE: GM) is cutting an estimated 15% of its workforce. The move amounts to 14,700 factory and white-collar workers in North America. Five plants are up for possible closure. The company says the move will accelerate its transformation for the future, building on the comprehensive strategy it laid out in 2015 to strengthen its core business, capitalize on the future of personal mobility and drive significant cost efficiencies.
Most of the affected factories build cars that won’t be sold in the U.S. after next year. They could close, or they could get different vehicles to build. Those details will be hashed out in contract talks with the United Auto Workers union next year. Plants without products include assembly plants in Detroit; Lordstown, Ohio; and Oshawa, Ontario. Also affected are transmission factories in Warren, Michigan, as well as Baltimore.
Throughout the second half of the year, Ford (NYSE: F) has made it clear that it will no longer build cars in North America. Consumer sales for sedans and hatchbacks have been on the decline for some time now. Consumers prefer a “command seating position” with lots of passenger and cargo space. However, numerous analysts and employees aren’t sure exactly how Ford plans to replace hundreds of thousands of sales per year by moving only to SUVs and trucks. The move is also not specified as an EV or autonomous move specifically. Neither does the move—at least so far—include layoffs or plant closures. There is talk of layoffs with some attributing it to the impact of tariffs, and others arguing it will have to do with reorganization plans.
Ohio Senator Sherrod Brown Tweeted, “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.” The Senator also observed that “the company reaped a massive tax break from last year’s GOP tax bill and failed to invest that money in American jobs, choosing to build its Blazer in Mexico.”
For its part, GM says it “is continuing to take proactive steps to improve overall business performance including the reorganization of its global product development staffs, the realignment of its manufacturing capacity and a reduction of salaried workforce. These actions are expected to increase annual adjusted automotive free cash flow by $6 billion by year-end 2020 on a run-rate basis.”
“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,” said GM Chairman and CEO Mary Barra. “We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”
Contributing to the cash savings of approximately $6 billion are cost reductions of $4.5 billion and a lower capital expenditure annual run rate of almost $1.5 billion. The actions include:
GM says it’s evolving its global product development workforce and processes to drive world-class levels of engineering in advanced technologies, and to improve quality and speed to market. Resources allocated to electric and autonomous vehicle programs will double in the next two years.
GM has recently invested in newer, highly efficient vehicle architectures, especially in trucks, crossovers and SUVs. GM now intends to prioritize future vehicle investments in its next-generation battery-electric architectures. As the current vehicle portfolio is optimized, it is expected that more than 75% of GM’s global sales volume will come from five vehicle architectures by early next decade.
In the past four years, GM has refocused capital and resources to support the growth of its crossovers, SUVs and trucks, adding shifts and investing $6.6 billion in U.S. plants that have created or maintained 17,600 jobs. With changing customer preferences in the U.S. and in response to market-related volume declines in cars, future products will be allocated to fewer plants next year.
In addition to the previously announced closure of the assembly plant in Gunsan, Korea, GM will cease the operations of two additional plants outside North America by the end of 2019.
These manufacturing actions are expected to significantly increase capacity utilization. To further enhance business performance, GM will continue working to improve other manufacturing costs, productivity and the competitiveness of wages and benefits.
The company is framing the conversation as “transforming its global workforce to ensure it has the right skill sets for today and the future, while driving efficiencies through the utilization of best-in-class tools.”
Barra added, “These actions will increase the long-term profit and cash generation potential of the company and improve resilience through the cycle.”
GM expects to fund the restructuring costs through a new credit facility that will further improve the company’s strong liquidity position and enhance its financial flexibility.