If you’re a worker at GM’s assembly plants in Lordstown, Ohio, Detroit-Hamtramck and Oshawa, Ontario, it’s going to be a Christmas to forget.
By the end of 2019, 6200 jobs will disappear at these assembly operations, as well as 645 at component plants in Warren, Michigan and Baltimore. White-collar workers will be affected, too. GM plans to cut management staff by 8000, and just over 2000 of those employees have taken a voluntary buyout. We can expect the balance to be cut in January.
So, why is this happening? GM is profitable, and the mass media seem confused by CEO Mary Barra’s timing, closing plants in the middle of president Trump’s self-proclaimed ‘US manufacturing renaissance’. Well, the answer simple: nobody wants the products those plants are building. It’s not that the Chevy Impala and Volt, the Cadillac CT6 or the Buick LaCrosse are bad vehicles. Quite the opposite: I’ve driven many of them and I’d have one in my driveway in a heartbeat. But they’re sedans, and that body style is dying a slow but sure death at the hands of unibody platform small SUVs and crossovers.
The assembly operations were reported to be operating at approximately 40% capacity on a single shift. No manufacturing operation mass-producing consumer goods can survive with those kinds of numbers. So, why not retool? In the auto industry, that question is harder to answer than it looks. In almost every case, it’s cheaper to increase output in existing plants building a product rather than retooling to duplicate a line. And despite considerable capital expenditure by GM, Hamtramck, Lordstown and Oshawa are old plants. Bricks and mortar don’t wear out like transfer lines or stamping presses, but they do become obsolete. With the lure of significant incentives from Right to Work states in Dixie, it simply makes no economic sense to keep those older, UAW operations running.
Of course, there’s a political dimension to this. Present Trump very publicly told those Ohio workers not to sell their homes, and that manufacturing was back in America in a big way. So, in effect, Mary Barra has made the President look like an idiot, and she’s on her way to Capitol Hill to answer for her decisions.
She’s going to get a rough ride, mainly because of the inherent hypocrisy the politicians and the mass media display when it comes to manufacturing.
It’s actually quite simple: GM was bailed out in 2008 and told in no uncertain terms that the company had to shape up and become a competitive global automaker. They did, and they have returned considerable value to shareholders since that bailout. But ten years later, politicians and commentators have distorted the meaning of the bailout to suggest that GM is some kind of industrial make-work project, and that the General is honor bound to operate like the post office or the civil service.
Those of us that been the automotive industry know that what the late Sergio Marchionne of Fiat/Chrysler said is absolutely true: it’s a lousy business: High volumes, incredibly thin margins, many, complex inputs and government regulation. No one in their right mind would start an auto company today, but if you’re running a Detroit Three major like General Motors, these cuts are not optional. And as Mary Barra knows as an automotive manufacturing engineer is that the best time to pull the trigger is now, not when we are in a full-blown auto sales slump.
Many predict that slump is in the cards for 2019, on the heels of years of record sales and an eye-watering level of consumer indebtedness. I’m glad I’m not in the hot seat like Mary Barra, but the hard fact is, she has few options, and none of them good. I hope someone at the three broadcast networks, CNN and Fox says so too.