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General Motors to slash jobs, stop production in five plants due to slowing Sedan sale

GM looks for massive restructuring.

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 General Motors Co said on Monday it will cut production of slow-selling models and slash its North American workforce in the face of a declining market for traditional gas-powered sedans, shifting more investment to electric and autonomous vehicles.

The announcement is the biggest North America restructuring for the U.S. No. 1 carmaker since its bankruptcy a decade ago. Its shares rose 7.6 percent to $38.66.GM plans to halt production next year at three assembly plants: Lordstown, Ohio; Hamtramck, Michigan; and Oshawa, Ontario. It will also stop building several models now assembled at those plants, including the Chevrolet Cruze, the Cadillac CT6 and the Buick LaCrosse. The Cruze compact car will be discontinued in the U.S. market in 2019.

Plants in Baltimore, Maryland, and Warren, Michigan, assembling powertrain components will have no products assigned to them after 2019 and are at risk of closure, GM said. It will also close two unidentified factories outside North America."We are right-sizing capacity for the realities of the marketplace," Chief Executive Mary Barra said, adding that GM will double resources dedicated to electric and self-driving vehicles over the next two years.

Cost pressures on GM and other automakers and suppliers have increased as demand has waned for traditional sedans. The company has said tariffs on imported steel, imposed earlier this year by the Trump administration, have cost it $1 billion.Barra did not link Monday's cuts to tariff pressures, but said trade costs are among the "headwinds" GM faces as it deals with broader technology change and market shifts.

The biggest U.S. autoworker union vowed to fight GM's plans. "General Motors' decision today... will not go unchallenged by the UAW," said Terry Dittes, the union's vice president in charge of negotiations with GM.
Canadian Prime Minister Justin Trudeau said he spoke with Barra and expressed "deep disappointment."GM said it will take pre-tax charges of $3 billion to $3.8 billion to pay for the cutbacks, but expects the actions to improve annual free cash flow by $6 billion by the end of 2020."In contrast to times past... (GM) is trying to get ahead of a potential crisis by making cuts now," said Michelle Krebs, executive analyst at Autotrader.

SMALLER WORKFORCE

GM's North American salaried workforce, including engineers and executives, will shrink by 15 percent, or about 8,000 jobs. The company said it will cut executive ranks by 25 per cent to "streamline decision making."
Even as GM is moving to lay off salaried staff, the company is hiring. At GM's Detroit headquarters on Monday, there were signs directing people to a "new hire orientation" meeting.Barra said GM can reduce annual capital spending by $1.5 billion and increase investment in electric and autonomous vehicles and connected vehicle technology because it has largely completed investing in new generations of trucks and sport utility vehicles. Some 75 percent of its global sales will come from just five vehicle architectures by the early 2020s.

GM plans to reduce annual capital spending to $7 billion by 2020 from an average of $8.5 billion a year during the 2017-2019 period.Unlike Japanese automakers Nissan Motor Co Ltd, Honda Motor Co Ltd and Toyota Motor Corp, which rely on a more flexible system where they make multiple vehicles at a single plant, GM has too many factories that make just a single model.With U.S. car sales lagging, that means several GM car plants have fallen to just one shift, including its Hamtramck and Lordstown assembly plants.

A rule of thumb for the automotive industry is that if a plant is running below 80 percent of production capacity, it is losing money. GM has several plants running well below that. Consultancy LMC estimates that Lordstown operates at just 31 percent of production capacity in 2018.Through the UAW, workers at Lordstown have worked to improve quality, cut the number of union locals to make it easier for GM to negotiate and agreed to the outsourcing of some jobs, in a bid to persuade the automaker to add more models to its factory line.

U.S. President Donald Trump won Ohio in 2016 campaigning on bringing manufacturing jobs back to America."So far, President Trump has been asleep at the switch and owes this community an explanation," Representative Tim Ryan, a Democrat whose district includes Lordstown, wrote on Twitter.Barra said the automaker is running at about 70 percent capacity utilization in North America, and GM will provide an update on how the latest moves will improve utilization in January.

"We need to make sure that we are well positioned to compete, not just over the next few years, but well beyond," she said.Unlike its plants making passenger cars, many of GM's plants producing its higher-margin trucks and SUVs are running on three shifts, with some running six and sometimes seven days a week to keep up with demand.Rivals Ford Motor Co and Fiat Chrysler Automobiles NV have both curtailed U.S. car production. Ford said inApril it planned to stop building nearly all cars in North America.

SEDANS OUT OF FAVOR

The industry-wide slowdown in passenger car sales worsened in 2017.U.S. consumers have swiftly shifted away from passenger cars to larger, more comfortable SUVs and pickup trucks, leaving automakers scrambling to readjust.

As recently as 2012, passenger cars made up more than 50 percent of all U.S. new vehicle sales. Through the first nine months of 2018, that had fallen to a little over 31 percent.While industry-wide passenger car sales were down 13.2 percent through the first nine months of the year, pickup truck and SUV sales rose 8.3 percent. As well as being roomier, the fuel economy on SUVs and crossovers has improved significantly.Sales of Cruze, built at Lordstown, fell 27 percent through September 2018. Impala, which is built at Oshawa and Hamtramck, was down 13 percent. Buick LaCrosse and Cadillac CT6, which are built at Hamtramck, were down 14 percent and 11 percent, respectively. 

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