No single cause brought about GM's retrenchment. And presidential threats won't help.
Former President Barack Obama saved General Motors. Under President Donald Trump, GM announced cuts of 14,000 workers and the possible closing of up to five factories in North America.
But that’s a cheap shot. Different times, different situations.
Still, the move puts the president who vowed to bring auto jobs home in an uncomfortable situation. Trump said he told GM CEO Mary Barra that she should halt manufacturing cars in China and open a new Ohio plant to replace the Lordstown factory that is slated to close.
“They better damn well open a new plant there very quickly,” Trump said in an interview with The Wall Street Journal on Monday. “I love Ohio. I told them, ‘you’re playing around with the wrong person.’”
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Playing to his base, his ego or having watched too many gangster movies, he continued: “I said, ‘I heard you’re closing your plant. It’s not going to be closed for long, I hope, Mary, because if it is you have a problem.’”
Barra already has problems.
As the president with an undergraduate degree from Wharton no doubt understands, the chief executive of a public company is highly accountable to shareholders. This is even more true in the “shareholder value” era, where other stakeholders get crumbs, if that.
GM shares had been losing value this year, even though the company committed to stock buybacks (using its corporate tax cuts for this purpose, like most of its peers). To be sure, many hold the General’s shares only for their dividend, but it’s still a troubling trend.
Next is an obscure number that investors fix on: The “adjusted EBIT” or earnings before interest and tax minus one-time items. After a strong 2017, this metric went down this year.
Beyond the financials, GM is also at an inflection point where sales of many models are slow and automakers are trying to prepare for the next big thing of electric and self-driving vehicles. Ford has committed $18 billion to electric cars over the next five years. GM is making big bets on technological leaps, too. But it comes at a cost (to workers and communities, at least).
“This is what we’re doing to transform the company,” Barra said Monday, discussing the cuts. “The industry is changing very rapidly. We think it’s appropriate to get in front of it while the business and the economy are strong.”
GM, like other automakers, is facing changing tastes. While SUVs still do well, many passenger car models have experienced sliding sales.
The nation hit peak car ownership in 2006. Since then, ownership and vehicle miles have declined. The trend is especially prevalent among millennials. As of September, domestic auto production had fallen to 231,500 units compared with more than 350,000 in 2014 and nearly 589,000 in 1994. This is a historic low for this point in an expansion.
Ride-share services are making car ownership less appealing. So is widespread traffic congestion, at odds with every car commercial you see on television, where the showcased vehicle is the only thing on an open road. More people are taking transit as modern light-rail systems have spread, especially in Seattle.
Unsaid, of course, is that Barra is under pressure to deliver ever higher returns to shareholders. GM shares rose nearly 5 percent Monday on the layoff and closure news. Also unspoken is that stagnant wages for most Americans make them less likely to purchase a new car.
As for China, it’s been a mainstay of GM sales for years. No wonder the company pleaded with the Commerce Department to avoid a tariff war, stating it “risks undermining GM’s competitiveness against foreign auto producers” and “will be detrimental to the future industrial strength and readiness of manufacturing operations in the United States.”
GM estimates the tariffs, including on steel, would cost it $1 billion in the first year.
The elephant in the driveway, of course, is climate change, with automobiles being a major driver of greenhouse-gas emissions. The dire situation was underscored by the Trump administration’s own report, snuck in on the day after Thanksgiving. Talk about Black Friday. Automakers are only beginning a massive retrenchment in an attempt to be greener, even if the president doesn’t believe his administration’s report.
• Per-capita personal income in King County reached $83,383 in 2017. That compares with $61,140 a decade ago, according to the federal Bureau of Economic Analysis. The numbers for Pierce County are $49,214 last year vs. $37,799 in 2007. Snohomish County was $52,405 vs. $40,268. The numbers are not adjusted for inflation; we have to wait until May for that data set.
• Earlier this month, Josh Lehner, an economist at Oregon’s Office of Economic Analysis, produced an interesting look at the Portland housing market. While the market has flattened along with the nation’s, he sees continued demand in the Rose City. You can read the forecast here.