American automotive giant General Motors (GM) announced on Monday that the company plans to execute a drastic reorganization which includes cutting the number of salaried employees by 15 percent, closing manufacturing plants in three US states, and discontinuing several poor-selling models. According to a report from Reuters, factories in “Ohio, Michigan, and Maryland,” will cease operations in 2019 along with one other location in Ontario, Canada. At least two additional parts facilities are also vulnerable to closure after 2019.
“We are right-sizing capacity for the realities of the marketplace,” said GM Chairman and Chief Executive Officer Mary Barra, according to Reuters. The CEO also claims that the company will shift its focus to “electric and self-driving vehicles.”
In the wake of this announcement, GM’s stock price shot up by more than five percent. At the time of this writing, shares of GM are trading for $38.01. While investors rejoiced at the news, several people directly affected by the closure announcements are voicing their concerns over the impending restructure. Some of those hurt by the restructuring, including the United Automotive Workers (UAW) labor union, are vowing to fight the decision in court.
“General Motors decision today to stop production at the Lordstown, Ohio, and Hamtramck, Michigan, assembly plants will idle thousands of workers, and will not go unchallenged by the UAW,” said UAW Vice President responsible for GM negotiations, Terry Dittes while speaking to reporters. Dittes also said that UAW would “confront this decision by GM through every legal, contractual and collective bargaining avenue open to our membership.” Joining the UAW is the current Mayor of Detroit, Mike Duggan, and Canadian Prime Minister Justin Trudeau who described the news as “troubling” and “deeply disappointing,” respectively.
Besides the closure of several plants, the company will also be trimming its leadership team. According to CNBC, GM will eliminate 25 percent of its executives in an attempt to “streamline decision making.” The entire restructuring is estimated to cost GM close to four billion dollars initially, but in the long-term should end up saving the firm more than six billion a year starting in 2020.
Although many speculate that the current tariffs squeezing the auto industry are to blame, Barra told reporters that the restructure is more of a response to the general US automotive climate than a reaction to economic disputes. In the US, fewer car buyers are opting for four-door sedans, and as such GM is cutting production of the “Chevrolet Cruze, the Cadillac CT6 and the Buick LaCrosse.” The ceasing of production on these cars and a push toward alternative fueled vehicles played a more significant role in GM’s decision than steel taxes.