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Why GM’s mistaken bet led to major layoffs

General Motors has announced it is cutting its workforce by 14,000 employees, closing several plants in North America and eliminating at least five passenger car models. The corporate overhaul, which represents the company's biggest shakeup since it faced bankruptcy a decade ago, will result in 25 percent fewer executives. David Shepardson of Reuters News discusses the details with Judy Woodruff.

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  • Judy Woodruff:

    General Motors announced today it is slashing its work force by as many as 14,000 employees, including a quarter of its executives, and shuttering several plants in North America.

    At least five passenger car models will be eliminated, resulting in shutdowns next year at three plants in Detroit, Northeast Ohio and Ontario. Two other U.S. plants are on notice. This would be the company's biggest shakeup since it faced bankruptcy a decade ago.

    Last year, on a trip to Ohio, President Trump assured residents near one GM plant that he was working to keep jobs and even add more.

    Today, he described what he has told GM CEO Mary Barra.

  • President Donald Trump:

    Well, we don't like it. I believe they will be opening up something else. And we — I was very tough. I spoke with her when I heard they were closing, and I said, you know, this country has done a lot for General Motors. You better get back in there soon. That's Ohio. And you better get back in there soon.

    So, we have a lot of pressure on them. You have senators. You have a lot of other people, a lot of pressure.

  • Judy Woodruff:

    David Shepardson of Reuters News is here to help explain what's behind these moves.

    Welcome back to the "NewsHour," David.

    So, what is being cut at GM, what kinds of jobs?

  • David Shepardson:

    Well, there's two parts.

    One are, as you said, the car production factories. You have got five factories that are building cars like the Chevy Volt, the Impala, cars that are not selling well. In fact, across the industry, car sales have dramatically declined as people buy more crossovers, SUVs, and pickup trucks.

    The other big basket are salaried workers. And so, of the 54,000 North American salaried workers, GM is going to cut about 15 percent. That's 8,000 jobs. Of those, roughly 2,000 have taken voluntary buyouts. That leaves about 6,000.

    Then the other 8,000 or so jobs are these production jobs at these five plants, plus the two supporting plants, plus two other plants outside North America that are to be closed and identified some time in the next year.

  • Judy Woodruff:

    So people who work at plants. And when you say salary jobs, white-collar jobs, what do these people do?

  • David Shepardson:

    Engineering, financial, accounting, all sorts of white-collar jobs that are critical to the industry.

  • Judy Woodruff:

    And GM said today that, as you — part of what you just said, that certain kinds of cars are just not selling anymore.

    Is that the whole story here?

  • David Shepardson:

    That's part of it. And that is a big part, certainly, that people are not buying the small cars, and they're buying the bigger cars that are on the same platform, so that people can sit up higher.

    But it's also about GM moving toward the future. They're going to take a big chunk of that money and invest it in electric vehicles, autonomous vehicles. GM could start as early as next year a self-driving cars ride-sharing fleet in San Francisco.

    And so part of it is about addressing this future shift of mobility away from the traditional human-driven car. But it's also a recognition that U.S. car sales are flattening, potentially declining. And we have been in a rising auto market since the Great Recession.

    And so everybody's nervous, all the companies, about this shift, and no one wants to be caught flat-footed. And that's where you see GM and other companies — this is the biggest step — taking early cost savings now, before there's a recession or a big falloff in auto demand.

  • Judy Woodruff:

    Does it represent a miscalculation on GM's part?

    You have politicians — of course, the president was critical. You had Democratic Senator Sherrod Brown in Ohio saying this is the worst kind of corporate greed, and other politicians on both sides of the aisle criticizing it.

  • David Shepardson:

    Look, there's a lot of anger. And GM, obviously, 10 years ago, got a big government bailout, and taxpayers were on the hook for about $11 billion.

    But GM would say today, we have to be profitable, we cannot continue building cars that people aren't buying. And this is a publicly traded, free market economy. And these are cars people don't want to buy.

    But you're right. Given that gas prices have been low for several years, GM and a lot of other companies probably did miss — didn't predict quite fast enough the shift away from cars and toward these larger vehicles.

  • Judy Woodruff:

    And so does this represent what's going on across the industry, that we're going to — we're going to see this kind of thing in other automakers as well?

  • David Shepardson:

    So, we have already seen Ford and Fiat Chrysler announce that they're abandoning nearly all of their sedans in North America.

    Other companies like Toyota have said that they are going to reduce their impact — their focus on cars toward these larger cars. So we have not seen this level of job cuts yet. And it is striking that, given the political ramifications, as you said, and that President Trump and others are really attacking GM, that they would do this, given that this is certainly to be an issue in the 2020 election.

  • Judy Woodruff:

    So when President Trump and others say, well, they need to just make up for this by making other kinds of vehicles, is that realistic?

  • David Shepardson:

    In an answer, no, not given — not without spending a lot of money.

    So, in the case of Lordstown, that plant in Northeast Ohio, you would need a new paint shop, because it's not big enough to build those larger vehicles. That could cost a billion dollars or more. Retrofitting this plant to build bigger vehicles would cost hundreds of millions or even more.

    So, you're talking about a very large investment taking several years. And the problem for auto companies is, what's auto demand going to be in two years, when you're done? Is it going to be more? Is it going to be less? And do you want to invest in more production capacity if the market is going down?

  • Judy Woodruff:

    Well, in the meantime, it represents a lot of pain for these 14,000 people who are going to be losing jobs.

  • David Shepardson:

    And it's remarkable too that GM is taking this very tough step a month before Christmas, in the middle of the political season.

    But it does represent that there's a lot of nervousness, despite the economy and unemployment being low overall, that there are places where the economy may not be as strong as we necessarily believe.

  • Judy Woodruff:

    Well, we're all — we're all soaking — soaking it in right now.

    David Shepardson, thank you very much.

  • David Shepardson:

    Pleasure.

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