According to Bloomberg, General Motors Co. will be cutting 14,000 jobs and closing 7 of its factories around the globe by the end of 2019 as a part of its sweeping re-structuring as the more than 100-year-old company prepares to meet a future that will focus on self-driving and electric vehicles.
According to a statement released by GM on Monday, four of its factories in the US and one in Canada could be shut down by the end of 2019 if the unions and the company are unable to reach an agreement to divert more work to these facilities. Another 2 factories outside North America are due to close also.
The company’s restructuring plan also include stopping the manufacture of some of its less profitable sedans. GM said that it was stopping production of the Buick LaCrosse, the Cadillac CT6 and the Chevrolet Impala sedans from 2019 onwards. Other cars that will no longer be manufactures are the hybrid plug-in Chevy Volt and the Chevy Cruze compact. However, the Cruze will be manufactured in Mexico for its international markets.
GM’s shares surged on the back of this news. The company’s shares went as high as 7.9% to trade at $38.75, before closing the day’s trading at $37.65. However, for the year, GM’s stocks are still down by 7%.
These planned job cuts, which will include salaried staff as well as factory workers, triggered political pushback in the US Midwest as well as Canada. Canadian President Justin Trudeau tweeted directly to Barra that he was “deeply disappointed” about the closure of the Oshawa plant. The American plants are located in places that have faced economic devastation and are also the places that helped Trump win the Presidential campaign in 2016.
However, this announcement came immediately after a surprisingly strong quarter three earnings report.
GM’s Chief Executive Officer Mary Barra is focusing on making the automaker leaner, especially after US auto sales have shown a steady decline from their 2016 records. Additionally, the company’s second biggest market – China – has also shown in slump in demand thanks to the ever escalating trade war between the two countries.
Another thing that Barra is doing is refocusing the company’s resources towards building electric cars. The goal is to eventually also invest in autonomous driving, or self-driving cars.
Barra, during a press conference at its headquarters in Detroit, said that the company was taking these steps while the company as well as the economy was still strong. She said the industry was going through rapid changes and they wanted to ensure that they were well-positioned to meet the new challenges of the future.
The plan to cut about 15% of its workforce comes after a round of golden handshakes the company offered about 25% of its longer-tenured employees at the end of last month.
According to GM, these job cuts would push up automotive free cash flow by about $6 billion by the end of 2020. It would also result in one-time charges in Q4 this year and Q1 of 2019, which would amount to $3.8 billion.
The Center for Automotive Research’s vice president of industry, labor and economics, Kristin Dziczek said that there were too many General Motors factories that were currently running only single shifts, building vehicle models that were no longer popular. This led to those plants running at 1 million below their full capacity.
Dziczek said that most of the plants that were running only one shift were those producing sedans. She also said that currently there is a mismatch in the market since about 40% of the vehicles being sold today in the US were crossover utility vehicles.