GM cuts: U-M experts can comment
University of Michigan experts are available to talk about the General Motors announcement today that the company would trim its salaried workforce by 15 percent, close three plants, and discontinue producing vehicles such as the Chevy Cruze next year.
Marina Whitman is a professor emerita of business administration and public policy. She examines questions of international trade and investment. She was chief economist and the first female group vice president at General Motors.
“Mary Barra has always been more concerned with profitability than size. This is clearly in line with her view,” Whitman said. “She’s seeing how the world is changing and knows she needs a slimmer operation to stay profitable in the future. I think Mary’s been brilliant. GM isn’t headed for trouble. These moves are leading the company away from trouble.”
Wally Hopp is a professor of technology and operations and associate dean for the part-time MBA at the Ross School of Business. His research focuses on the design, control and management of operations systems, with emphasis on manufacturing and supply chain systems, innovation processes and health care systems.
“As much as I hate to see the demise of passenger cars, and hate even more to see the loss of manufacturing jobs in Michigan, I have to concede that GM’s move makes sense,” Hopp said. “Passenger cars are low-margin products to begin with. When demand slows so that plants are running below capacity, they quickly become money losers. Ford has already announced the eventual elimination of most of its cars. So it’s no surprise to see GM follow suit. The tastes of American car buyers have shifted and there just isn’t enough demand left to enable all of the major manufacturers to sell in the U.S. market profitably.
“But I am pleased to see GM double down on production of electric vehicles. Despite still low demand for EVs, these vehicles, with increasing autonomous capabilities, are unquestionably the future of the passenger vehicle market. GM has strong technological capabilities in these areas, but it needs to continue to invest in order to maintain a leadership position. If it forsaked these future investments in an effort to fight the decline of the ICE (internal combustion engine) sedan market, it would bode even worse for the American workforce and the Michigan economy.”
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Gabriel Ehrlich is the director of U-M’s Research Seminar in Quantitative Economics. Previously, Ehrlich worked in the financial analysis division at the Congressional Budget Office, where he forecast interest rates and conducted analysis on monetary policy and the mortgage finance system. His academic research focuses on several areas of housing and land economics as well as the effects of wage rigidity on labor market outcomes.
“This news does not come out of the blue,” Ehrlich said. “We have been forecasting employment in manufacturing to slow down substantially over the next couple of years here in Michigan. The culprits in our view are a slight decline in Detroit Three vehicle sales, higher costs from steel and aluminum tariffs along with the threat of more, and consumers’ shift away from sedans toward light trucks. Today’s announcement might accelerate the slowdown in manufacturing a bit, but it doesn’t change the big picture.
“The silver lining of this announcement is that it is coming at a time when the economy overall is doing well. There is never a good time to lose your job, but it is much harder on workers to lose their jobs during a recession. We are hoping today’s news means fewer layoffs at General Motors the next time things turn down.”
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Erik Gordon is a clinical assistant business professor. His areas of interest include entrepreneurship, venture capital, private equity, mergers and acquisitions, and the biomedical, IT and digital marketing industries.
“GM follows Ford in cutting unpopular sedans in order to focus on vehicles customers like,” Gordon said. “On top of that, the slowdown in China car sales and the growing preference of young people to use transportation as a service instead of owning their own cars is leading to overcapacity in the industry. Expect more production cuts in the next 18 months.”
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Daniil Manaenkov, is a U.S. forecast specialist in the Research Seminar in Quantitative Economics. He participates in the U.S. modeling effort and the preparation of national economic forecasts. He previously worked for the Federal Reserve Bank of Minneapolis, where he was involved in forecasting the U.S. economy.
“Where today’s announcement surprised us a bit was in the details such as the likely breakdown of the job cuts. They will probably be cutting jobs in engineering while at the same time they are doubling spending on electric and autonomous vehicles.”
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Don Grimes is a regional forecast specialist with the Research Seminar in Quantitative Economics. His primary research interests are in labor economics and economic forecasting. For more than 30 years, he has been engaged in economic forecasting for state and local governments and is frequently called upon for policy advice. He has worked for many years with the Michigan departments of Transportation and Treasury and the Michigan Economic Development Corporation on policy analysis and evaluating economic strategies.
“What worries me is not the layoffs that were announced today, but the chance that this could be the beginning of another downsizing in the domestic auto industry,” Grimes said. “Next year is also a contract year for the Detroit Three automakers and the UAW. This downsizing will likely put pressure on the companies and the unions to come up with a less costly contract. Adjusting for quality—bigger, fancier cars and trucks—the average price of new cars has not gone up in almost 20 years. It looks like price pressures on the auto companies will make it hard for them to pay their employees much more.”