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- GM announced Monday that it would idle three factories in North America.
- The automaker said it would shift resources to investing in electric and autonomous vehicles.
- GM is also rightsizing its manufacturing capacity ahead of a possible economic downturn or recession.
General Motors announced on Monday that it would stop building vehicles at three factories in North America in 2019.
According to the automaker, the Oshawa Assembly in Oshawa, Ontario, Canada; the Detroit-Hamtramck Assembly in Michigan; and the Lordstown Assembly in Warren, Ohio, each will be “deallocated” by the end of 2019 as GM reorganizes its manufacturing capacity to focus on electric and self-driving vehicles and prepares for a downturn in the auto market or a weakening on the US economy.
Each factory is either entirely or mostly devoted to passenger-car production, and those vehicles have seen a collapse in consumer demand amid a shift to crossover SUVs and pickup trucks. Lordstown, in particular, builds a single, slow-selling sedan, the Chevy Cruze, as has been operating on just a single shift. But it’s also located in a state that Donald Trump won in 2016, so GM could draw the ire of a president who needs hiring in the Midwest to bolster his re-election prospects in 2020.
The vehicles being assembled at the three factories will all phase out next year. GM did not announce plans to replace them with new models.
‘Agile, resilient, and profitable’
In a conference call with reporters to announce the moves, CEO Mary Barra said that idling the plants would ensure that GM remains “agile, resilient, and profitable.”
She added that the largest US automaker is “taking these actions now while the company and economy are strong, to stay ahead of fast-changing industry and market conditions.”
The three factories employ thousands of workers whose fate is unclear as the Detroit automaker heads into a contract negotiation with the United Auto Workers. (Workers at the Oshawa plant are represented by a Canadian union.) The plants can’t be officially closed under the current UAW contract, which will be renegotiated in 2019.
In a statement, the US union said, “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.”
Globally, GM is also reducing the size of its total workforce, including white-collar staff.
“Actions are being taken to reduce salaried and salaried contract staff [in North America] by 15 percent, which includes 25 percent fewer executives to streamline decision making,” the company said in a statement.
The reduction in executive ranks will equally involve global employees.
GM shares spiked 5% on the news, to $38.
The automaker said that it would shut down propulsion-component plants in Maryland and Michigan, and idle two additional, unnamed assembly plants outside the US.
‘Picking up the pace’
The news wasn’t entirely surprising. GM curtailed manufacturing operations in South Korea earlier this year, and the idling of the Oshawa plant had been widely reported in the Canadian press as under discussion.
Barra has shown little hesitation about making quick, tough business decisions.
GM exited the European market in 2017 by selling its Opel-Vauxhall division to Peugeot; ending manufacturing of vehicles in Australia; and has been aggressively investing in autonomous vehicles through its Cruise division – and intends to launch 20 new electrified vehicles by 2023.
The cost of the changes will be spread out over the next two quarters.
“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 automaker said.
On the upside, GM expects to see $6 billion in cost savings by 2020.
“We started this transformation in 2015,” Barra said. “Now we’re accelerating and picking up the pace.”
Commenters immediately tried to discern whether GM has a better grasp on the next few years than the rest of the industry.
“For several years everyone has been talking about the impending upheaval facing the auto industry,” Karl Brauer, Kelley Blue Book executive publisher said in an email.
“Today we got our first major preview of how this upheaval will manifest,” he added. And he noted that Barra is staying true to form.
“She’s moving GM toward advanced technology and away from fading models the market has largely abandoned. Each of these moves will contribute to GM’s long-term financial and competitive health, though they take a heavy toll on much of the current workforce.”