General Motors: Uncertainty in a changing world
One of the biggest US companies ordered closure of 4 factories in the US in order to save money to change the production focus of the company. What are the reasons behind this decision? And how will it affect the communities and the company?
GM’s battle of survival
The last ten years were a time of highs and lows for General Motors (GM). The global financial crisis of 2008 led to the company losing 30.9 billion dollars and declaring bankruptcy. Under the threat of GM closing factories and laying off workers, the government was pressured to bail out the company (along with another car manufacturer, Chrysler) by loaning in summary 49.5 billion dollars.
As the US economy was recovering from the financial crisis, so was GM and over the past few years was the biggest manufacturer on US market. Multiple governmental contracts,from Suburbans for Secret Service and the Presidential limousine to the hydrogen-powered truck for the military, provided a huge influx to the company’s budget.
However, the industry is no longer the same as when Detroit was the global industrial powerhouse. The demand for limousines and hatchbacks is dropping while SUV’s and trucks are on the rise. At the same time, customers are more and more interested in environmentally friendly cars, with high-tech features like self-driving.
Models that used to be flag-ships of the company are now less popular than ever. Limousines like Chevrolet Impala or Cadillac CTS are bringing losses to the company, with GMC losing 15% of their sales per month. On the other hand, the electric car GM offers, the Chevrolet Volt, has not been selling well either.
General Motors has always been the more down to earth, traditional company when it comes to innovation, letting others lead the way. However, at a time when new technologies are invented every day, and start-ups (like Tesla) begin to undermine the hegemony of the industrial superpowers (GM, Ford, and Toyota) the company realised that they need to modernize. And for such a huge company, it is very costly to do so.
Changing expectations of customers combined with the huge costs of restructuring and innovation led the board to make the decision to close 5 factories in North America, including 4 in the US. The factories closing are, two in Michigan (Detroit and Warren), one in Ohio (Lordstown), Maryland (White Marsh), and one in Canadian Ontario (Oshawa). According to an analysis by GM this will provide them with savings of around 6 billion dollars a year.
The savings have been accomplished by stopping production of the models which have not been profitable over the past few years. Most of them are sedans which production GM considers to be unsustainable in the long-run. As these models will no longer be produced, the factories which were producing them until now will be closed and the workers laid off.
Possibly as much as 7 000-14 000 people who were working for GM will lose jobs, in states hit by the financial crisis (Ohio and Michigan), and where factories were a crucial part of the local economy. It is not only the people who worked for GM that are hurt by this but also the local suppliers, like the companies providing parts for the factory. At the same time with less money from salaries in the community, the consumption has dropped leading to a lower demand for goods in the area. Local businesses are, in turn, hurt by this so the unemployment continues to rise.
Loss and Hope
The loss of jobs is a concern both in the communities and among politicians. Both sides of the aisle in Congress agree that the proposed loss is too high. The President, Donald Trump, vowed to cut all subsidies to General Motors if the plan goes through, (although GM is not currently being subsidised by the federal government). There are also concerns about whether GM is not going to move their production to Mexico. Even though the spokesperson denied such allegations it has not been met with a lot of trust.
However, despite many disadvantages arising from the closure, there are many potential benefits that can occur in the long-run, both for the local community and US economy in general. The change the automotive industry is going through is inevitable, and even though the methods are highly radical, the move will lead to increased efficiency in the future. When the innovations are implemented, and restructuring finalises there is a high possibility of more jobs than before.
At the same time, General Motors has addressed the concerns connected with the job-loss in a few ways. They proposed workers to relocate to other facilities that are not closing, or even expanding. They have also talked about how they have invested 22 billion dollars since 2009 on domestic projects. Additionally, Baruah and Weaver say that most of the workers who were laid off will be able to use their skills in other jobs, and quickly find a new one, especially that currently there is a big surplus of vacant positions in most of the jobs lost.
In the end, it does not really seem like something is going to change any side’s position. The communities and politicians will continue opposing the decision, afraid of people losing their financial stability by becoming unemployed, earning less, or being too old to be desirable, while GM will nonetheless go forward and close the factories.
Whether it was a good decision both from business and PR side, we will see in the upcoming years.