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The past couple of weeks saw announcements from Ford Motor Company and from General Motors which signaled major changes for the American automobile manufacturing industry.

The Announcements

Ford's announcement was sharply critical of the Trump Administration, blaming it for over $1BB in losses and added costs due to the president's trade war with China.¹

Ford had previously announced that it was planning to cease production of all sedans except the Ford Mustang, and would concentrate on the SUV and truck markets. ² Personally, I was stunned at this reporting; I didn't believe it.

This week GM followed suit, with the announcement that it was closing several production plants in the Great Lakes region. These plants are all responsible for manufacturing sedans from its Buick, Cadillac, and Chevrolet lines.

The Blame Game

Ironically, even though Ford, not GM, was quick to blame Trump's trade war for a share of it's problems, it's the GM plant closings that are causing a furor. Congressmen who represent the areas that will be affected by GM's decision are separately angry with GM and accusing the president of lying to their constituents:

Congressman Tim Ryan, who represents Lordstown as part of Ohio’s 13th District, also blamed President Trump for the job losses, pointing out that Trump had promised workers in the region that jobs were “all coming back” when he visited last year.

"The Valley has been yearning for the Trump Administration to come here, roll up their sleeves and help us fight for this recovery," Ryan said in a statement Monday. "What we've gotten instead are broken promises and petty tweets. Corporations like General Motors and the President himself are the only ones benefiting from this economy." ³

 

Democratic Sen. Sherrod Brown said the move will be disastrous for the region around Youngstown, Ohio, east of Cleveland, where GM is one of the area's few remaining industrial anchors.

"GM received record tax breaks as a result of the GOP's tax bill last year, and has eliminated jobs instead of using that tax windfall to invest in American workers," he said in a statement. ⁴

According to New York Times reporting, "the corporate tax cuts enacted last year.... championed by Mr. Trump and his party, saved G.M. $157 million in federal taxes in the first nine months of the year, according to the company’s most recent quarterly earnings report. ^{5  6}

The GM Bailout

The Trump Administration is being especially tough on GM because it had filed for one of the largest Chapter 11 bankruptcy filings in U.S. history ten years ago. A Wikipedia article pins the final cost to the U.S. Treasury at between $11BB- $12BB, after an initial investment of $51BB. ⁷. According to Reuters reporting, President Trump this morning retweeted this remark: "If GM doesn’t want to keep their jobs in the United States, they should pay back the $11.2 billion bailout that was funded by the American taxpayer." The tweet was originated by the account of a Trump supporter. ⁸. GM's move prompted direct communication to GM CEO Mary Barra from both President Trump and Canadian Prime Minister Justin Trudeau.

Consumer Preference

The shift away from sedans is a response to consumer tastes. The Washington Post, in a previously cited report, stated that "almost 65 percent of new vehicles sold in the U.S. [in October] were trucks or SUVs. That figure was about 50 percent cars just five years ago." Citi analyst Itay Michaeli was quoted as saying "We estimate sedans operate at a significant loss, hence the need for classic restructuring."

Could This Just Be About Bargaining With the Union?

Finally, this from The New York Times report (previously cited):

G.M., Ford and Fiat Chrysler are all poised to negotiate new labor contracts next year. Some of the affected G.M. plants could resume production, depending on the outcome of the bargaining. Carmakers often agree to keep plants open in exchange for other concessions from the union.

My Conclusion

I'm dismissing President Trump's behavior as posturing. He tells the people what they want to hear while on the campaign trail, gets into a pissing contest with China over trade and points the finger at GM once things go bad because he won't take responsibility for the administration's part in the mess. I'm sure he sees GM's strategy as a betrayal of his "America First" platform, TARP bailout and giant GOP tax break aside.

Perhaps this is exactly why GM did not call the president out on his trade war — Barra had over 11 billion reasons to bite her tongue. Well, that, and because they have a presence in China — it's where the Buick Envision is built.

I believe the president is only involved because Barra is making him look bad. He's on record as having told American manufacturing that jobs were being created. Barra is now taking away over 11,000 of them.

When you look at the entire industry, it's hard to deny that sales of mid-size passenger cars — sedans — are all heading south. Despite the bailout and the tax breaks, when one considers the energy poured into making sedans for so many years, it makes sense it's going to take some time to get those plants turning out products people are willing to pay for. Businesses have to react to supply and demand. And that has nothing at all to do with bailouts and tax breaks. Speaking of demand, America's appetites for SUVs and trucks has returned because gas prices have been low. If you set your wayback machine to 1979, Chrysler made the "K car" (a nice Reliant automobile!) in response to record high gas prices.

Still, I'm somewhat encouraged by the comment from The New York Times. If true, this could simply mean that GM and Ford are positioning themselves for negotiations and that the final result could be very different from what we're seeing in the news now.

Idling plants isn't quite the same as closing them, but the impact on the people and the areas seems about the same; call it what you want, unemployment is unemployment. And it sucks. It also sucks for consumers who own those cars. I own one of the models on the GM hit list. It's the most comfortable car I've ever owned. It's a few years old, but I wasn't even thinking about selling it for something new — now I have to consider the availability of parts in addition to general maintenance expectations. I likely also have to factor the same into what sort of trade-in value it may command on the lot. IF it comes to pass.

Reminds me of when GM killed off the Oldsmobile line. My city was home to a GM plant that built some Oldsmobile models. I remember seeing them on the road and wondering how the owners felt about the brand going away.

Well, now I know.

My bottom line here is that if people aren't buying sedans, there's no point in building them. I view this as the manufacturers reacting to demand, nothing more. President Trump can make as much hay of it and the bailout and the tax breaks all he likes; about the only thing he could do that actually would make a difference is drive gas prices up to retard the American appetite for trucks and SUVs, creating a renewed demand for smaller, sippish sedans. But even that drastic measure would only go so far — the quality and performance of modern electric engines is supposedly a factor in GM's decision to idle the plants in their plan. (Among the models being killed off is the Chevrolet Volt, because electric engine technology has improved to the point where producing the Volt doesn't make sense any longer.) If GM is betting big on electric, it still does those plants no good in the short term — they'd have to be retooled anyway regardless if they're going to make electric cars or giant SUV's, assuming sufficient demand is there to retool them at all.

I think new opportunities are coming our way, but unfortunately we're caught up in the news of the moment, which is focused on what must be lost before we gain. I'm hurt too -- my car is going away. And, sadly, for 11,000 Americans, their jobs are going away.