General Motors announced Monday plans to cut almost 15,000 jobs from its North American workforce, in its biggest restructuring since declaring bankruptcy in the 2008 financial crisis and receiving its government bailout. They attributed the decision to a decline in demand for traditional gas-powered sedans, saying the company plans to invest more heavily in electric and autonomous vehicles.
This may be the most public-relations friendly explanation the company could think up, but it ignores several other factors as to why the automaker is cutting production amid record profits. Especially since glaring problems with Trump administration trade policy likely contributed to the decision.
Former General Motors Chief Financial Officer estimated that higher steel prices had already cost the company as much as $700 million. Steel parts are now more expensive than they were before Trump took office.
“GM buys most of its steel from US producers, who have raised prices in reaction to tariffs on imported steel imposed by the Donald Trump administration,” according to Reuters.
More expensive steel has had a similar effect on smaller companies without making headlines, leading to layoffs at the nation’s largest manufacturer of nails, and trouble for companies including Boeing, Coca-Cola, and General Electric.
For Trump, many of the swing voters and former Democratic voters that supported him in 2016 did so after his promises to keep manufacturing jobs alive and at home. In Ohio, where one plant that employs 1,600 is now set to close, Trump told locals not to sell their houses, promising to “fill up” factories in the area.
Victories in places like Michigan and Ohio were crucial to Trump’s electoral victory.
Even beyond steel tariffs, the administration’s policies may have contributed to the plant closures in another way. The shift in production will leave GM with an increasingly SUV-focused line of models, mirroring similar offerings from Ford and Fiat Chrysler. These less fuel efficient vehicles are simply more profitable for the company, with analysts estimating as much as $10,000 in profits from each vehicle.
The closures will halt production of the Chevy Volt, among the best-selling plug-in hybrids on the market.
Earlier this year, the company said the profits from trucks and SUVs would help offset higher commodity costs.
But that opportunity arose in part from the administration’s decision to scrap Obama’s plans to raise fuel efficiency standards. Even Obama’s rules, which GM agreed to in negotiations, would have allowed the company to continue offering its more profitable SUVs, while tax credits would have continued to boost demand for cleaner electric cars.
But instead of speaking up in support of regulations and continuing to focus on more efficient offerings, GM leaned in to take advantage of the Trump administration’s deregulation, taking a shortcut to boost the value of its shares, which have lagged behind despite impressive profits.
And their move to cut costs by limiting production of lower-profit models did, at first, lead the company’s shares to pick up. But most of that increase was soon reversed following Trump venting his anger on Twitter.
It’s certainly possible that GM is shoring up profits on traditional vehicles in order to fund a longer-term push of investment in cleaner vehicles. But they had the chance to speak up for regulations that would have helped increase demand, and instead took full advantage of the regression that Trump’s deregulation has allowed. Continued aggressive marketing of the more profitable SUVs have in fact helped to create the demand the company now says it must respond to.
In this context, their statement that the layoffs serve to boost plans for cleaner cars seems disingenuous.
General Motors has acknowledged the reality of climate change. But shifting its focus to SUVs shows they have missed the point. While it may take some time for GM to see the error in its ways, Trump’s role in the plant closings may earn him the kind of scrutiny he doesn’t need ahead of the 2020 elections – especially with Democratic successes in the midterms heralding a tight race that will likely revolve around states like Michigan and Ohio.
And so far, Trump seems eager to shift the blame toward the company, tweeting last week:
“Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland. Nothing being closed in Mexico & China. The U.S. saved General Motors, and this is the THANKS we get!”
Trump also threatened to cut subsidies to GM in retaliation, after which the company’s shares fell 3 percent.
While Trump may fail to acknowledge the role of his own policy in the layoffs, he does understand what they mean politically for an unstable American middle class. By underestimating the short-term political backlash, and giving up long-term opportunities as overseas automakers continue to move ahead with electric cars, GM is missing the bigger picture in favor of short-term gain.