Will GM’s Big Layoffs Save Them?

The UAW and President Trump were not alone in expressing their outrage over GM’s announcement to proceed with a restructuring plan that requires the reduction of their workforce. They plan on downsizing their electric and sedan operations and moving many of its vehicles to Mexico.

GM’s plan includes offering to buy out almost 20,000 employees who were eligible to receive voluntary severances. These moves, along with several other money-saving maneuvers, are projected to save the company $6 Billion a year by 2021.

"Nowadays GM looks at the hard reality, says we've got a demand problem on cars, what are we going to do about it,” said Bob Lutz, GM’s former Vice Chairman, while on CNBC's "Halftime Report." “We have to shut some facilities and move production to truck plants…so I think what we are seeing is a fast-acting and reality-oriented GM management."

Mary Barra, the CEO of GM also contributed this to the restructuring discussion on Tuesday, "The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future," she said.

In the meantime, President Trump is not going to sit quietly and let this happen. He tanked the stock price at 2PM on Tuesday by threatening to cut GM’s government funding if they proceeded with their plans to close so many American plants. The price bounced back around 4PM that day, after GM released a statement essentially calling the president’s bluff.

GM Eliminates American Jobs and the Market…Rewards Them for It?

Ever since the stock dipped to its lowest low in late October, GM’s redistribution of assets has benefitted investors who have stuck with the company. Stock prices rose dramatically on two instances: when news of buyouts was announced, and the news of cuts to the workforce.

Our market analysts believe that the bullish swings seen above are indicative of public approval for GM’s layoffs and buyouts.

Obviously, shareholders are giving GM a break in light of the efforts being made to streamline the business. Had they waited till an economic downturn to make those changes, the results would have been disastrous.

Why GM Understands Unions Better Than Politicians

Trump may be putting up an outraged front but even he has to know that the streamlining of an organization does not come without its costs. GM’s efforts to strip excess fat from the company will guarantee that the majority of their jobs remain intact.

As a previous GM executive, I know firsthand that mass layoffs are never fun, but I believe investors understand and respect the motives behind the move. By driving productivity away from losers like sedans and electric cars to focus on winners like the ever-popular crossover, the company is investing in its future and tightening its belt for the long haul.

ABOUT THE AUTHOR:

Bill Poulos is a retired automotive executive from General Motors. While employed with GM Bill began to study the stock market as a hobby. After retiring from GM in 2001, Bill and his son, Gregory Poulos, founded Profits Run, Inc. Profits Run offers publications on investing in the stock market while minimizing risk. Bill Poulos reviews his finance experience through programs offered by Profits Run. Poulos has an engineering degree from General Motors Institute (GMI) and an MBA in finance from the University of Michigan. Bill is married to his high school sweetheart, Karen. They have three grown sons.