General Motors’ Aggressive Retrenchment And Reboot Strategy

When it announced its plans to idle five factories in the United States and Canada and to cut roughly 14,000 jobs, General Motors (GM) looked very much like a company in retreat.

Electric Vehicle

But this is very much the opposite, says David A. Kirsch, a management and entrepreneurship professor at the University of Maryland’s Robert H. Smith School of Business.

“GM is trying to stay ahead of a problem that’s just over the horizon,” he says. “And it makes a lot of sense to do that.”

That problem is the accelerating evolution of electric vehicle and autonomous-driving technology. And it’s threatening legacy automakers like General Motors with extinction.

It’s the reason why GM is sacrificing a number of underperforming sedans.

GM plans to halt production of the Cadillac CT6 and XTS, Buick LaCrosse, and the Chevy Cruze, Impala, and Volt hybrid vehicle, in a move that will idle five factories in Maryland, Michigan, Ohio and Ontario, Canada. The automaker hopes to boost its annual cash flow by some $6 billion, beginning in 2020, so it can increase spending on electric vehicles and autonomous-vehicle technology.

GM's announcement this week sent shockwaves across the manufacturing sector and provoked an outcry from union leaders and policymakers, including President Trump. And that’s partly because the moves – manufacturing changes, plant closings, layoffs – were unveiled in a dramatic, one-fell-swoop fashion, says Kirsch. The decisions themselves, he says, were unsurprising.

“This is very consistent with how other automakers have been trying to deal with the coming changes that are affecting the traditional auto industry,” he says. Ford has made similar moves, phasing out small-car production and focusing on growth of electrified vehicle platforms.

Small cars account for just 33 percent of vehicle sales in the U.S., down from half in 2012, and GM has been losing market share in that segment to its Japanese and South Korean rivals. Roughly 75 percent of GM sales last year were trucks, SUVs and crossover vehicles, up from 60 percent in 2012.

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Disclosure: I currently own shares in Berkshire Hathaway's class B stock (NYSE: BRK-B).

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