General Motors Hedging Bets on the Future with Layoffs

general motors

This morning, Monday, November 26th, General Motors (GM) announced sweeping changes to their operation, sending waves throughout the automotive industry. The proposed realignment includes layoffs of 15 percent of salaried and contract personnel, reducing executive staff by 25 percent, and possibly closing several North American and international plants.

While some are surprised at the wide-ranging cuts and reforms given the company’s robust third quarter, GM’s press release aims to reassure. Titled “General Motors Accelerates Transformation,” the statement’s tone positive, maintaining the changes are not due to any perceived forthcoming economic downturn, and instead made with an eye to the future. Said Mary Barra, the company’s chairman, and CEO, “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. We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”

general motorsThe changing customer preferences Barra references are the trend away from passenger vehicles toward SUVs, trucks, and crossovers. GM factories, which includes those for their brands Chevrolet, Buick, GMC, and Cadillac, will discontinue low performing models. Assembly plants will either be reconfigured for more popular vehicles or closed. On the chopping block are the Oshawa Assembly in Oshawa, Ontario, Canada, the Detroit-Hamtramck Assembly in Detroit, and the Lordstown Assembly in Warren, Ohio. Each of these currently produces cars seen as slow-selling, like the Chevrolet Cruze.

As for the layoffs in executive staff, GM says this move will help consolidate and “streamline decision making.” “These actions will increase the long-term profit and cash generation potential of the company and improve resilience through the cycle,” said Barra in the release.

Overall, it appears that the company is hoping to strike while the economy is in their favor. The operational changes are expected to save General Motors roughly $6 billion while improving the business’ competitiveness. Some additional optimization proposals in Monday’s release include a focus on product development, advanced technologies and increasing quality and speed to market.

general motorsThe news has been met with mixed reactions. The company’s stock jumped to $38.75 this morning, a nice bump in an otherwise low year. However, the suggested layoffs, which could amount to over 10,000 jobs lost, aren’t sitting too well with United Auto Workers (UAW), the company’s largest union. UAW’s homepage currently features a strongly worded notice censuring the move. The union intends to fight the planned factory closures with the full force of the tools available to it. They are especially committed to challenging GM in light of the company’s recent increased operations in foreign plants, specifically in China and Mexico, which they see as being at the expense of American labor.

That said, U.S. factories are not the only ones slated for disruption due to the announcement. Today GM reaffirmed the previously stated closure of their assembly plant in Gunsan, Korea, and said that two other overseas plants–yet unnamed–are due to be shut down as well. Time will tell if GM has made the right bet as they continue their business transformation.