Announces $1-billion US investment plan involving new models and plant updates
General Motors Company (NYSE: GM), one of the automobile majors making up the famous “Detroit 3”, announced a $1 billion US investment plan involving new models and plant updates, becoming the latest automaker to bow down to pressure from Donald Trump to create more domestic jobs, as reported by Bloomberg on January 17th, 2017. The announcement comes after Ford Motor Co. (NYSE: F), and Fiat Chrysler Automobiles N.V. (NYSE: FCAU) detailed out US spending plans, including product updates, manufacturing changes that brings back manufacturing jobs to the US, and a lending expansion.
General Motors’ $1 billion in investments are in addition to the $2.9 billion investment that the automaker had announced in 2016. As part of its recent announcement, General Motors said it will shift axle production for its next generation of full-size pickup trucks, including work previously done in Mexico, to operations in Michigan, thereby creating 450 US jobs. The part was previously built by American Axle & Manufacturing Holdings Inc. (NYSE: AXL). The automaker also said that about other 1,500 workers will be added or retained at factories to be detailed later during 2017. In addition, GM will add about 5,000 employees to develop its engineering capabilities, advanced technology, or join its lending subsidiary, GM Financial.
In all, the automaker plans to add 7,000 new US jobs over the next two to three years. The 7,000 figure includes the 450 jobs on axle production, 1,500 jobs tied to the $1 billion announcement and more than 5,000 new jobs tied to engineering, GM Financial, and advanced technology.
Since emerging from bankruptcy in 2009, when it had 77,000 US employees, General Motors has undergone a major restructuring when it added more than 25,000 jobs as it boosted production, acquired an auto finance company, and brought back information technology-related work in-house. GM said it had added about 6,000 US jobs, consisting of 4,000 hourly and 2,000 salaried positions, since the end of 2015 for a total US workforce of 103,000. According to the United Auto Workers union, GM’s new investments have emerged as a result of the 2015 contract with the union.
While industry experts have questioned the automakers recent spending at a time when most automakers have been conservative in their new investments, General Motors said that it budgets about $9 billion a year toward capital expenditures, including for new models and factory upgrades. GM announced at least $2.9 billion in US investment in 2016, bringing its total since 2009 to $29 billion. However, the Detroit-based Company stated that not all of its investments are geared towards new product launches for the US market. In recent years, China has emerged as the biggest market for General Motors, where the company plans to introduce 18 new or refreshed vehicles in 2017. Cadillac, the luxury automobile and SUV division of General Motors, expects to see Chinese consumers surpass Americans in the next five years.
Trump guns for US manufacturing
President-elect Donald Trump, who is set to assume office on Friday, January 20th, 2017, has promised to create one million US jobs in the next five years, thereby boosting the US economy. Trump, who made bringing back manufacturing to the US a large part of his successful election campaign, has been pushing automakers to ramp up their investments in the US, even while threatening to slap Mexico-built vehicles with a 35% import tax. In turn, carmakers are eager to cooperate with the incoming administration as they prepare to ask for favors including weaker fuel economy rules and lower corporate taxes.
On January 03rd, 2017, Trump threatened to impose a “border tax” on GM for making some of its Chevrolet Cruze compacts in Mexico. In the same vein, he has also warned German automakers like BMW AG and Toyota Motor Corp. over building vehicles abroad. Bending to political pressure, South Korea’s Hyundai Motor Co. and Kia Motors Corp. announced on January 17th, 2017, that they would boost US investment by 50% to $3.1 billion over five years, up from the $2.1 billion spent over last five years. The two automakers may also consider producing Hyundai’s upscale Genesis vehicles and a US-specific SUV in the country and may build a new plant in the US.
After facing criticism from Trump, Ford decided to cancel investments for a $1.6-billion factory in Mexico and expand an existing plant in Michigan. Similarly, Fiat Chrysler committed $1 billion toward making three new Jeeps in the US and enabling a Michigan facility to manufacture a Ram pickup now produced in Mexico.
GM to continue Mexico investments, cut jobs
Even as GM invests in US plants, it has also been making job cuts given the general economic slowdown in the US market and consumers postponing automobile purchases. In recent months, the Company announced plans to lay off about 3,300 employees at three passenger-car plants. In November 2016, the Company said that it would cut about 2,000 jobs when it ends the third shift at its Lordstown, Ohio, and Lansing, Michigan, plants in January 2017. In December 2016, GM said that it planned to cancel the second shift and cut nearly 1,300 jobs from its Detroit-Hamtramck assembly plant by March 2017 due to slackening demand.
Despite Trump crying foul over automakers investing in their Mexico operations, GM in 2014 announced it was investing $5 billion in Mexico and doubling production capacity by 2018, creating 5,600 jobs. GM said last week it had no plans to cancel Mexican investments despite Trump pressure. Facilities making the Chevrolet Equinox and GMC Terrain, showcased recently at the North American International Auto Show in Detroit, account for about $1 billion of those outlays.
While Trump has sent out mixed messages with regard to new taxation policies and trade agreements, early optimism has paved the way for confusion over the new government’s promises to spur job and economic growth. It remains to be seen whether the recent investments announced by automakers would indeed have a positive impact on their bottomline in the coming months or would be unfeasible to maintain in the long-term.
General Motors’ stock stood at $37.30, slipping 0.45%, at the close on Thursday, January 19th, 2017, having vacillated between an intraday high of $37.84 and a low of $37.16 during the session. The stock’s trading volume was at 8,247,315 for the day. The Company’s market cap was at $57.12 billion as of Thursday’s close.