General Motors announced drastic cost cutting measures that will result in thousands of workers losing their jobs and plants closing in the United States:
The Detroit-based automaker said it would not be allocating any production to Oshawa Assembly in Ontario, Lordstown Assembly in Ohio and Detroit-Hamtramck Assembly in Michigan after December 2019. It will also stop allocating production at propulsion plants in White Marsh, Md., and Warren, Mich., after December 2019. The company will also be discontinuing production of low-selling models made at those plants throughout 2019, including the Chevrolet Impala, Cruze and Volt, the Cadillac CT6 and the Buick LaCrosse.
The company also said it will cut 15 percent of its salaried workforce, laying off 25 percent of its executives to “streamline decision-making.” GM also said it will close two plants outside North America by the end of 2019, but those locations have yet to be announced.
Donald Trump responded to the news by predictably slamming General Motors:
General Motors is very counter to what other auto, and other, companies are doing. Big Steel is opening and renovating plants all over the country. Auto companies are pouring into the U.S., including BMW, which just announced a major new plant. The U.S.A. is booming!
— Donald J. Trump (@realDonaldTrump) November 29, 2018
Also, predictably, Trump’s response doesn’t actually reflect reality. Auto manufacturers like General Motors need to buy steel and aluminum in order to make cars. Trump’s crowing about “big steel” is ridiculous in this context. “Big steel” is not opening up new plants because of Trump’s tariffs. “Big steel” is selling steel at a higher price because of Trump’s tariffs. This hurts companies like GM, because GM has to spend more money on the steel they need to buy in order to make cars. How much does it hurt them? A lot, a whole lot, a billion dollars lot:
That’s General Motors’ estimate for the increase in its 2018 material costs.
Automakers and suppliers are warily watching material costs climb. Reasons include higher oil costs, inflation and tighter supplies. But the industry also is absorbing the impact of tariffs — 25 percent on certain steel products and 10 percent on aluminum entering the U.S.
GM’s $1 billion estimate is double its earlier forecast. “The challenge has been greater than anticipated,” CFO Chuck Stevens told analysts during GM’s second-quarter earnings call. He described the materials market as “uncertain and volatile.”
GM is not at fault for having to spend an extra $1 billion to purchase steel and aluminum. That is directly attributable to Trump’s tariffs on steel and aluminum. Cars are made out of steel and aluminum. GM can’t just make them out of something else. Higher commodity costs eat into profitability, and when profitability decreases for a company, guess what they do? They try to cut costs. GM can’t cut commodity costs, which they have no control over. So, what costs can they cut? They can shut down operations and layoff workers, which is exactly what they have done. There is no real debate in play here. GM is laying off thousands of workers because Donald Trump’s steel and aluminum tariffs decreased the company’s profitability by a billion dollars.
The other aspect of reality that Trump fudged in his tweet was his claim that other companies aren’t having problems and are “pouring into the U.S.”. This is flat out false, especially his mention of BMW. In fact, BMW is shutting down some auto production in the United States. And guess why? Because of Trump’s trade war:
BMW, the largest exporter of cars from the United States, has already moved some production of its popular X3 sport utility vehicle — once made exclusively in Spartanburg, S.C. — to a factory in Shenyang, China. Analysts expect the German automaker to also move some production of its larger X5.
By shifting production, BMW can avoid China’s punitive tariffs on cars imported from the United States, which have ensnared foreign automakers with large American factories. It could also insulate BMW if Mr. Trump follows through on his threat to tax imported vehicles and parts, a move that would further increase the cost of building cars in the United States and selling them abroad.
GM’s main domestic competitor Ford is also struggling because of Trump’s tariffs, also to the tune of a billion dollars in increased costs:
Steel and aluminum tariffs imposed by the Trump administration have cost Ford Motor Co (F.N) about $1 billion in profits, its chief executive officer said on Wednesday, while Honda Motor Co (7267.T) said higher steel prices have brought “hundreds of millions of dollars” in new costs.
“From Ford’s perspective the metals tariffs took about $1 billion in profit from us,” CEO James Hackett said at a Bloomberg conference in New York, “The irony of which is we source most of that in the U.S. today anyway. If it goes on any longer, it will do more damage.”
And Tesla is also encountering problems because of Trump’s tariffs:
Tesla said on Wednesday in its third-quarter earnings letter that it expects tariffs on parts made in China to cost around $50 million during the fourth quarter of this year.
Trump is almost solely to blame for this entire fiasco. He placed tariffs on steel and aluminum. This increased prices for steel and aluminum. Everyone said this would hurt auto companies, who have to buy steel and aluminum, and guess what, it is hurting auto companies. Of course, the buck never stops on Trump’s desk. His primary leadership philosophy is to always blame somebody else, so that is what he is doing.