Howes: Barra’s tough call positions GM for future
The continuing transformation of General Motors Co. is reaching the most pitiless stage this town has seen since the industry's epic bankruptcies nearly a decade ago.
On the first day back to work from the Thanksgiving holiday, the Detroit automaker confirmed plans to cut its salaried workforce by 15 percent, to dump most of its car models and to idle five plants in three states, two countries and its hometown.
The moves come amid a buoyant national economy, a low jobless rate and strong financial performance for the automaker — hardly the makings of a downward spiral. They're an unambiguous expression of CEO Mary Barra’s belief that good leadership reacts to problems when they surface lest they get worse with time.
Change is here. The market's rotation out of traditional cars, combined with the enormous capital requirements for developing and testing next-generation mobility technology, is overturning a status quo re-established after GM's bankruptcy. The result is likely to be fewer union plants building more high-margin vehicles.
GM's latest restructuring details will ratchet higher pressure on rival Ford Motor Co. to detail its own workout plans. They'll dramatically raise the stakes in next year’s national contract talks with the United Auto Workers, as bargainers haggle over the future of at least four U.S. plants. And the planned plant actions in Michigan and Ohio predictably are drawing rhetorical fire from President Donald Trump.
“They better damn well open a new plant there very quickly,” Trump told The Wall Street Journal in an interview Monday, confirming he'd discussed the planned cuts with Barra on Sunday night. “I love Ohio. I told them, ‘You’re playing around with the wrong person.’”
Whether the "wrong person" turns out to be Trump or Barra remains to be seen. With each new action in GM's years-long transformation, the automaker's CEO demonstrates a steel spine and business acumen that looks determined to make tough calls her predecessors generally avoided until external conditions left them no choice.
Not Barra. Despite accurate criticism that GM benefited from taxpayer-funded bailouts and a federally induced bankruptcy, her leadership team is moving ahead with a restructuring intended to leave the automaker leaner, younger, more profitable and more intensely focused on driving profits higher to invest in the Auto 2.0 spaces of mobility, autonomy and electrification.
In a statement, Ohio Sen. Sherrod Brown thundered about "corporate greed at its worst." U.S. Rep. Debbie Dingell, the Dearborn Democrat and former GM executive, called GM's latest restructuring "a warning and we all must be concerned about protecting jobs and keeping them in this country." UAW President Gary Jones said, "we must understand that these companies, including GM, are no longer in trouble. They are recording annual profits in the tens of billions.”
Where have they been? Fat profits coming from one country are not enough to support a rapidly changing business model steeped in advanced technology. GM makes and sells more vehicles in China than it does in the United States, a trend now several years old and unlikely to change. And the automaker's doubling-down on what it calls its "growth" plants for trucks and SUVs inevitably would come at the expense of traditional car plants and their hourly workers.
"This is not a surprise," David Kudla, chief investment strategist of Grand Blanc-based Mainstay Capital Management LLC, wrote in a note. "Mary Barra is moving quickly to restructure the company for both a cyclical downturn in the industry and a secular change in the industry."
Six car models will cease production by the end of next year, belated recognition by GM that U.S. consumers' affection for profit-rich trucks and SUVs is here to stay, thanks in part to higher fuel efficiency and comparatively lower oil prices. Among the condemned is the Chevrolet Volt, the gas-electric hybrid midwifed when the Obama auto task force was calling the shots inside GM's Renaissance Center headquarters.
The actions detailed Monday position Barra for confrontation on at least two fronts: the Trump White House and the UAW's Solidarity House. By deeming four U.S. plants "unallocated" for production, GM effectively is looking to exert maximum leverage over national bargainers in next fall's talks: each of the targeted plants is scheduled to end production before the union contract expires next September, putting their futures in real doubt.
The plants in Michigan, Ohio and Maryland are not closing — at least not yet. Until their fates are decided under terms of the national GM-UAW contract, most likely in next fall's bargaining, they will complete scheduled production before moving into "idled" status, a sort of limbo between operation and closure.
This promises to be an enormous public relations battle. GM is taking this action amid good times, as Barra told analysts and the news media Monday, not in yet another nausea-inducing collapse in sales and profitability. And that makes explaining the rationale for these actions more difficult to square.
Detroit's corner of the auto industry is accustomed to greeting difficult times with difficult actions. Barra and her team are flipping the historic script, a move that is arguably positive for the company's future even though it feels like it is anything but.
Equally problematic is the president of the United States. His elevation to the Oval Office nearly two years ago was powered by voters in the industrial heartland states of Michigan and Ohio, in part because of his campaign promises that auto jobs would be returned to their rightful home.
Not exactly. And his trade wars with China and the European Union, as well as tariffs on foreign-made steel and aluminum, are driving commodity costs higher, intensifying the headwinds buffeting GM and its industry rivals. Increasing the pressure, as Trump did Monday with a vow to increase existing 10 percent tariffs on Chinese goods to 25 percent, doesn't help.
This is the beginning of what's likely to be a multi-part, months-long dance to chart the future of the industry: between auto CEOs pushing for competitive advantage and union leaders eager to preserve what their members have; between automakers and a president who thinks he understands their business and issues the kind of demands that should come from shareholders, not politicians.
There'll be pressure for GM to repatriate production of its Buick Envision SUV from China and its Chevrolet Blazer from Mexico. There will be pointed reminders that GM "took the money" from American taxpayers to stay afloat, meaning it has a unique obligation to the country that most of its industry rivals don't.
If Barra's latest moves demonstrate anything, it's that she and her team know who they work for — and it's not the president of the United States.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.