Not exactly the sort of news one wants to hear less than a month before Christmas, especially since the impact could ripple throughout portions of the manufacturing sector in Michigan’s Great Southwest for firms with GM contracts.
General Motors announced today what they are calling an acceleration of its “transformation for the future, building on the comprehensive strategy laid out in 2015 to strengthen core business, capitalize on the future of personal mobility and drive significant cost efficiencies.”
It’s also a move that the United Auto Workers says “will not go unchallenged.” After General Motors decision today to stop production at the Lordstown, Ohio, and Hamtramck, Michigan, assembly plants in a move that will idle thousands of workers, the UAW responded very quickly.
The union argues that the decision will also affect employment at other GM locations including Baltimore, Maryland, and Michigan’s Brownstown and Warren Transmission plants, adding, “The UAW and our members will confront this decision by GM through every legal, contractual and collective bargaining avenue open to our membership.”
GM says the plan is a continuation of their plans “to take proactive steps to improve overall business performance including the reorganization of global product development staffs, the realignment of manufacturing capacity and a reduction of salaried workforce. They note, “These actions are expected to increase annual adjusted automotive free cash flow by $6-billion by year-end 2020 on a run-rate basis.”
GM Chair and CEO Mary Barra says, “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.”She adds, “We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”
The company says that 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:
- Transforming product development – GM is 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. Additional actions include:
- Increasing high-quality component sharing across the portfolio, especially those not visible and perceptible to customers.
- Expanding the use of virtual tools to lower development time and costs.
- Integrating its vehicle and propulsion engineering teams.
- Compressing its global product development campuses.
- Optimizing product portfolio – 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-percent of GM’s global sales volume will come from five vehicle architectures by early next decade.
- Increasing capacity utilization – 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.
Assembly plants that will be “unallocated” in 2019 include:
- Oshawa Assembly in Oshawa, Ontario, Canada.
- Detroit-Hamtramck Assembly in Detroit.
- Lordstown Assembly in Warren, Ohio.
Propulsion plants that will be “unallocated” in 2019 include:
- Baltimore Operations in White Marsh, Maryland.
- Warren Transmission Operations in Warren, Michigan.
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.
Terry Dittes is Vice President of the United Auto Workers Union and Director of the union’s GM Department. He voiced immediate disdain for the company’s actions, saying, “This callous decision by GM to reduce or cease operations in American plants, while opening or increasing production in Mexico and China plants for sales to American consumers, is, in its implementation, profoundly damaging to our American workforce.” Dittes adds, “GM’s production decisions, in light of employee concessions during the economic downturn and a taxpayer bailout from bankruptcy, puts profits before the working families of this country whose personal sacrifices stood with GM during those dark days. These decisions are a slap in the face to the memory and recall of that historical American made bailout.”
GM says, “The company is transforming its global workforce to ensure the right skill sets for today and the future, while driving efficiencies through the utilization of best-in-class tools. Actions are being taken to reduce salaried and salaried contract staff by 15-percent, which includes 25-percent fewer executives to streamline decision making.”
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.
The UAW notes, “GM assembles cars, trucks and crossover vehicles outside of the United States for sales to American consumers. GM currently assembles versions of the full-size Chevy and GMC pickups in Mexico. In addition, the Buick Cascada is assembled in Poland and the Buick Envision is assembled in China only to be imported to the U.S. for American sales.”
The union adds, “Recently, GM announced the new Chevy Blazer will also be assembled in Mexico and imported to the United States for American sales.”
Gary Jones is President of the UAW. He contends, “We must step away from the anti-worker thinking of seeking simply the lowest labor cost on the planet,” and adds, “The practice of circumventing American labor in favor of moving production to nations that tolerate wages less than half of what our American brothers and sisters make, must stop. More importantly, we must understand that these companies, including GM, are no longer in trouble. They are recording annual profits in the tens of billions.”
To that end, the UAW has pledged today that they and their membership will do their part “to convince GM and all American employers that the American consumer market should support American-made products by building where we buy products. Simply said, American consumers need to be patriotic consumers by joining the UAW in this effort in saying ‘No’ to American companies that choose foreign workers over American workers and imported products over U.S.-made products.”
As Dittes stresses, “This has, and always will be, a part of the fabric of the UAW.”
GM expects to record pre-tax charges of $3.0-billion to $3.8-billion related to these actions, including up to $1.8-billion of non-cash accelerated asset write-downs and pension charges, and up to $2.0-billion of employee-related and other cash-based expenses. The majority of these charges will be considered special for EBIT-adjusted, EPS diluted-adjusted and adjusted automotive free cash flow purposes. The majority of these charges will be incurred in the fourth quarter of 2018 and first quarter of 2019, with some additional costs incurred through the remainder of 2019.
For their part, the UAW is strong encouraging the customer to be aware, suggesting, “Be informed when making an American company automobile purchase: Examination of the driver-side window near the dashboard displays the Vehicle Identification Number plate (VIN) that identifies where the vehicle was assembled. VIN numbers beginning with “1”, “4” or “5” were assembled in the U.S., “2” were assembled in Canada, “3” were assembled in Mexico. If it begins with the letters J-R, it was assembled in Asia.”
UAW President Jones concludes, “America is only as great as the patriotism practiced within it,” and adds,”The UAW does not believe that eliminating American jobs, hurting the American economy and devastating families and communities for quick profits, are the principles this country was built on.”
