General Motors Co said on Monday it will cut production of slow-selling models and slash its North American workforce in the face of a stagnant market for traditional gas-powered sedans, shifting more investment to electric and autonomous vehicles.
The announcement is the biggest restructuring in North America for the U.S. No. 1 carmaker since its bankruptcy a decade ago. Its shares rallied 7.6 percent to $38.66.
GM plans to halt production next year at three assembly plants – Lordstown, Ohio, Hamtramck, Michigan, and Oshawa, Ontario. The company also plans to stop building several models now assembled at those plants, including the Chevrolet Cruze, the Cadillac CT6 and the Buick LaCrosse. The Cruze compact car will be discontinued in the U.S. market in 2019.
Plants in Baltimore, Maryland, and Warren, Michigan that assemble powertrain components will have no products assigned to them after 2019 and thus are at risk of closure, the company said. It will also close two factories outside North America, but did not identify them.
“We are right-sizing capacity for the realities of the marketplace,” Chief Executive Mary Barra said, adding that the cuts were prompted by auto industry changes. Barra said the company will double resources dedicated to electric and self-driving vehicles over the next two years.
The UAW union vowed to “confront this decision by GM 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,” Terry Dittes, UAW Vice President in charge of negotiations with GM, said.
In a statement, Detroit Mayor Mike Duggan described the news as “troubling” and said that the city’s economic development team and the UAW union are “working together to come up with a solution that works for GM and the employees.”
Canadian Prime Minister Justin Trudeau said he spoke with Barra and expressed “deep disappointment.”
GM said it will take pre-tax charges of $3 billion to $3.8 billion to pay for the cutbacks, but expects the actions to improve annual free cash flow by $6 billion by the end of 2020.
SMALLER WORKFORCE
Its North American salaried workforce, including engineers and executives, will shrink by 15 percent, or about 8,000 jobs. The company said it will cut executive ranks by 25 per cent to “streamline decision making.”
Even as GM is moving to lay off salaried staff, the company is hiring. At GM’s Detroit headquarters on Monday, there were signs directing people to a “New Hire Orientation” meeting.
Barra said GM can reduce annual capital spending by $1.5 billion and increase investment in electric and autonomous vehicles and connected vehicle technology because it has largely completed investing in new generations of trucks and sport utility vehicles. Some 75 percent of its global sales will come from just five vehicle architectures by the early 2020s.
It plans to reduce annual capital spending to $7 billion by 2020 from an average of $8.5 billion a year during the 2017-2019 period.
Cost pressures on GM and other automakers and suppliers have increased as demand waned for traditional sedans. The company has said tariffs on imported steel, imposed earlier this year by the Trump administration, have cost it $1 billion.
Barra did not link Monday’s cuts to tariff pressures, but said trade costs are among the “headwinds” GM has to face as it deals with broader technology change and market shifts.
With U.S. car sales lagging, several car plants have fallen to just one shift, including its Hamtramck and Lordstown, assembly plant.
A rule of thumb for the automotive industry is that if a plant is running below 80 percent of production capacity, it is losing money. GM has several plants running well below that. Consultancy LMC estimates that Lordstown will operate at just 31 percent of production capacity in 2018.
Barra said the automaker is running at about 70 percent capacity utilization in North America, and the company will provide an update on how the latest moves will improve utilization in January.
“We need to make sure that we are well positioned to compete, not just over the next few years, but well beyond,” she said.
Unlike its plants making passenger cars, many of GM’s plants producing its higher-margin trucks and SUVs are running on three shifts, with some running six and sometimes seven days a week to keep up with demand.
Rivals Ford Motor Co and Fiat Chrysler Automobiles NV have both curtailed U.S. car production. Ford said in April it planned to stop building nearly all cars in North America.
By Joseph White, David Shepardson, Reuters
