What’s Behind the GM Cutbacks, and Why Trump Is Angry

When General Motors announced that it would idle five North American plants and eliminate thousands of jobs, it said the move would ease the burden of spending billions of dollars to develop the battery-powered vehicles of the future.

But the White House put a question mark over those plans on Tuesday when President Donald Trump — irate over the cutbacks — threatened to punish GM by ending federal tax credits that have helped underwrite that automaker’s electric-vehicle fleet.

“Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland,” Trump said in a Twitter post. “Nothing being closed in Mexico & China.”

Apparently referring to GM’s federal rescue from bankruptcy in 2009, the president added: “The U.S. saved General Motors, and this is the THANKS we get! We are now looking at cutting all @GM subsidies, including for electric cars.”

So a day after announcing a plan meant to put it on firmer financial ground by shedding money-losing operations and refocusing its resources, the biggest of Detroit’s automakers found itself on the defensive.

At a White House news briefing, Larry Kudlow, the director of the National Economic Council, said “there’s a lot of disappointment, even anger” in the administration over GM’s decision — a sentiment he said he had shared in a “lengthy conversation” with Barra. He cited the recent renegotiation of a trade agreement with Canada and Mexico on terms that he said were “a great help to the automobile industry, and to autoworkers.”

As the president’s pique became increasingly evident, the automaker put out a statement on its “commitment to U.S. manufacturing” that said in part: “We appreciate the actions this administration has taken on behalf of industry to improve the overall competitiveness of U.S. manufacturing.”

The company said Monday that it would halt operations at four plants in the United States and one in Canada, at the cost of roughly 6,000 factory jobs, while also cutting its salaried workforce in North America by 8,000.

GM’s shares rose almost 5 percent on Monday, but they gave back about half of those gains on Tuesday in the face of the administration’s unhappiness and its threat over the tax credits.

A bright future for electric vehicles is one of GM’s goals. Here are some of the calculations, and the uncertainties, behind the course it has chosen.

The federal government offers a $7,500 tax credit to buyers of battery-powered and plug-in hybrid vehicles, an incentive that many consumers have found attractive. The full credit, however, is available only on the first 200,000 electric vehicles an automaker sells. Once that threshold is reached, the credit falls to $3,750 for six months, then to $1,875 for an additional six months. Beyond that, there is no tax credit.

Tesla is the only carmaker to have sold more than 200,000 electric cars. At the end of this year, the tax credit on Tesla vehicles falls to $3,750.

GM says it has sold about 190,000 — mostly hybrid Volts, a model it said Monday it was discontinuing, and fully electric Bolts — and will pass 200,000 early next year.

There are proposals in Congress that would extend or expand the credit, but the Trump administration’s opposition could dim or kill those prospects.

“We’re going to be looking at certain subsidies regarding electric cars and others and whether they should apply or not,” Kudlow said Tuesday. “Can’t say anything final about that, but we are looking into it.”

Of the five factories that GM is mothballing, three are assembly plants: Lordstown, Ohio; Oshawa, Ontario; and the Detroit-Hamtramck plant in Michigan. All are almost certainly losing money, and make cars whose sales have plunged. As a result, the plants are operating well below capacity.

Production in Lordstown fell by more than half last year from 2016. This year it has operated just a single, eight-hour shift each day. Typically, car plants must operate two shifts to generate profits.

Moreover, the outlook for each plant is grim. With gas prices low, U.S. consumers have flocked to SUVs and all but abandoned small cars, like the Cruze, which is made in Lordstown, and the Impala, the Buick LaCrosse, and the Cadillac CT6, made at Detroit-Hamtramck. The plant in Oshawa also produces the Impala.

Not necessarily. GM specifically announced that the plants were now “unassigned” — that is, they have not yet been assigned new vehicles to make after they stop production in 2019.

Next year the company and the United Auto Workers union will negotiate a new labor contract. In past negotiations, the union has given concessions on wages and other cost-saving measures in exchange for the company’s keeping plants open. Idling the plants now gives GM a powerful bargaining chip in the contract talks.

“Many of the U.S. workers impacted by these actions will have the opportunity to shift to other GM plants where we will need more employees to support growth in trucks, crossovers and SUVs,” the automaker said Tuesday — in other words, not the models it has been making in those plants. Ford Motor Co. has also cut jobs and dropped sedans from its North American lineup this year.

It is not clear. Tesla has proved that tens of thousands of people are willing to buy upscale electric cars. It has not yet proved definitively that it can make money doing so. That’s also a big hurdle for GM, as well as Ford and most other major automakers.

GM and others have produced electric vehicles, but sales for each model have usually amounted to a few thousand cars a month — far too few to turn a profit. GM produces the Chevrolet Bolt, an electric car that is supposed to go up to 238 miles before needing a recharge. But so far this year, it has sold only about 13,000 Bolts.

As for the huge investments in self-driving technologies, their profit potential is even less certain. GM has poured billions of dollars into its autonomous-driving unit, GM Cruise, and has recruited Honda and SoftBank, the Japanese technology giant, as partners.

GM Cruise is working on a self-driving car with no steering wheel and no pedals, and it intends to use the car in driverless and delivery services that the company hopes will become a lucrative line of business.

GM may be one of the first to rush into this field, but it faces an unfamiliar path and plenty of competition. Ford, Uber, Lyft and Waymo, the self-driving company started by Alphabet, the parent of Google, are all working on driverless services. Even if these services generate profits, it could be years before the companies earn back their investments.

Not a lot. The halting of production at these three sites does not mean GM is struggling. On the contrary, the company continues to report billions in profits, thanks to buoyant pickup and SUV sales.

GM took this action because it is being squeezed. It is losing money on the small cars and sedans these plants make, and it needs to keep investing in new technologies. By idling the three assembly plants — the other two make transmissions — it hopes to use the savings to help fund its electric-vehicle and autonomous-driving ambitions. That particular need to shift capital investment is not an issue in other sectors. And while the industry is the largest manufacturing sector, it makes up only about 4 percent of the nation’s gross domestic product.

A broader economic slowdown could certainly cause grief for automakers. While Barra said one factor in GM’s move was to “improve our downturn protection,” she also made a point of saying the automaker was acting “while the company and the economy are strong.” So a few idle auto plants are not necessarily a leading indicator for the broader U.S. economy.