Column: On layoffs and tariffs, GM and Trump both are flagrantly dishonest

All smiles then, but not now: President Trump meets with General Motors CEO Mary Barra and the late Fiat Chrysler CEO Sergio Marchionne, right, in January 2017. Now he's angry that Barra is cutting jobs and closing factories, in part because of his policies.
(Getty Images)

It’s tempting to see last Monday’s blockbuster announcement by General Motors of roughly 14,000 job cuts and closings of four U.S. plants amid a drastic change in its production strategy as a reproach to Donald Trump and his half-baked industrial policy, such as it is.

Trump certainly took it personally, throwing tantrums about the announcement in interviews and on Twitter. “They better damn well open a new plant there very quickly,” Mr. Trump told the Wall Street Journal, referring to a plant in Warren, Ohio, slated for closure. “I told them, ‘You’re playing around with the wrong person.’” In tweets, Trump said he was considering cutting all GM subsidies, including those for its electric cars (which, of course, go to customers, not the company).

What may have irked Trump most deeply is that GM’s announcement exposed his industrial policy as a sham. He’s acted as though threats and bluster were all that were needed to keep manufacturing jobs in or bring them back to the United States, augmented somewhat by a corporate tax cut that turns out to have fattened the pockets of executives and shareholders, leaving crumbs for rank-and-file workers in the form of modest one-time bonuses.

In a market economy, you do what the market demands.

Veteran auto executive Bob Lutz


But both Trump and GM have been less than honest about the company’s announcement, its justification and its aftermath. The reason may be that it’s the result both of immutable market forces and Trump’s own policies. Neither side in this dispute has an incentive to be entirely candid.

Trump can’t acknowledge that GM’s actions genuinely are dictated by economic realities, including increasing market interest in electric-car technologies and self-driving vehicles, as well as a persistent decline in American consumer interest in the midsize sedans turned out by the factories on the chopping block. Trump’s trade wars with China and Europe also are forcing the hand of automakers such as GM.

Ford stated earlier this year that tariffs on steel and aluminum had cost it $1 billion in profit; GM hasn’t given a number, but Chairwoman and Chief Executive Mary Barra said after the announcement that trade issues were among the “headwinds” the company faces, and investment analysts figure its tariff-related costs also approach $1 billion.


Meanwhile, GM can’t admit that it relied on a host of government subsidies, and that asking to operate in a pristine free-market environment won’t help its bottom line.

“In a market economy, you do what the market demands: The decline of cars and the rise of trucks has been too rapid for anyone to forecast,” says Bob Lutz, a former top executive of each of the Big Three U.S. automakers (GM, Ford and Chrysler).

“It’s part of the ‘commoditization’ of vehicle ownership,” Lutz told me by email. (He does worry that GM has both waited too long to cancel most of its sedan models, and placed too strong a bet on EVs and self-driving cars, acceptance of which is still in “a somewhat distant future.”) As for Trump, with whom Lutz says he usually agrees, “He’s playing to his blue-collar voting base. I’ll bet he’s shut down some unprofitable hotels, resorts and casinos in his day.”

If Trump has a strategy to shore up the manufacturing sector of the U.S. economy, it’s not readily visible. His jawboning of corporate executives is an approach without staying power. The fantasy started in December 2016, when Trump — as president-elect — staged a theatrical meeting in Indianapolis at which he claimed to have saved 1,100 jobs that Carrier Corp. had been planning to move to Mexico. Over time, Carrier moved 600 of the jobs to Mexico after all, and its parent company, United Technologies, moved an additional 700 jobs at a nearby plant there as well.


In August, when the iconic Milwaukee-based American motorcycle maker Harley-Davidson said it would shift some production overseas, Trump threw a conniption, calling for a boycott of the company. But its rationale was inescapable — the European Union’s retaliatory tariffs in response to Trump’s tariffs on steel and aluminum imports threatened to stifle European sales, a bright spot compared with declining U.S. demand. The trade war could cost Harley $100 million, the company said.

When bluster doesn’t serve, Trump has filled the gap with fabrication. He continues to claim that his policies have inspired U.S. Steel to open six or seven new domestic steel mills; the company says no such plans exist. On Thursday he claimed that BMW had “just announced a major new plant”: the company says a new engine plant is under consideration, but no decision has been reached on the plant, which has been under consideration for years.

The best indication that Trump’s rhetoric is becoming a spent force is that his corporate targets are shrugging it off. Early in his term, when his approach was novel, companies in his crosshairs at least made a show of coming to terms. More recently, they’re offering him scraps, as when Pfizer responded to his demand for lower drug prices by briefly “deferring” a few price hikes. (Higher prices already are back on the schedule.)

Harley-Davidson and GM have stood firm. That’s unsurprising, because market realities are more meaningful for their bottom line than Trump’s fits. GM, in a bland statement following Trump’s outbursts, reiterated that Monday’s announcement would “support our ability to invest for future growth and position the company for long-term success and maintain and grow American jobs.”


GM, however, doesn’t deserve any encomiums for honesty. Consider the company’s case against tariffs, as set forth in a comment the company filed with the Commerce Department on June 29. The document applied to Trump’s threat to jack up tariffs on automobiles and parts, on top of the steel and aluminum tariffs he already had imposed.

The comment opens with a plug for a “globally competitive auto market” (i.e., one without tariffs). It proceeds to warn that broad tariffs on imported autos and parts “could lead to a smaller GM … and risk less — not more — U.S. jobs,” while “undermining GM’s competitiveness against foreign auto producers.” The higher auto prices that result would reduce demand for new vehicles, GM said, shedding crocodile tears for lower-income buyers who would be “hardest hit by tariff-driven price increases” and “who can least afford to absorb a higher vehicle price.”

The GM filing is being widely taken as a prediction of what has begun to pass — lower sales, higher prices, job cuts. But it skates entirely over the inconvenient truth that GM, and its fellow U.S. carmakers, have profited handsomely from an auto tariff. That’s the so-called chicken tax, a 25% tariff that has blocked the imports of foreign-made pickups, SUVs, and vans for 56 years.

The tariff is known as the chicken tax because it was imposed in 1962 in retaliation for a European tariff on U.S. chickens. That particular trade dispute has long since ebbed, but the truck tariff was never removed. The result is that the pickup market today is entirely dominated by U.S.-made vehicles.


In fact, as GM indicated in its layoff announcement, that market has become its bread and butter. The top-selling vehicles in the U.S. are American-made pickups — the Ford F-Series, Chevrolet Silverado and Ram pickup, followed by a handful of Japanese models made in U.S. plants.

This looks good on its face, but the American automakers’ addiction to the big vehicles on which they have no foreign competition has turned them into nobodies in the sedan market. There the seven bestselling models are all Japanese, led by the Toyota Camry.

The reasons for the emphasis by GM, Ford and Chrysler on larger vehicles are obvious — they’re more popular with the American public, and the profit margins are 40% to 50% higher on the trucks than on sedans. But over the long term it could leave the Big Three with outdated inventories if American tastes shift back to the sedan sector. And it’s not good for public environmental policy.

As pickup and SUV makers, the American companies have a vested interest in low gas prices and policies that encourage more fuel-inefficient vehicles. It’s no accident that the Trump administration has been trying hard to erode fuel-efficiency standards, especially the stringent rules set by California; the tighter the rules, the harder it is to meet them with a manufacturing mix tilted steeply toward big, hulking pickups.


GM’s forgetfulness about the chicken tax wasn’t the only misleading aspect of its comment on the tariffs. The company also mentioned its “disciplined deployment of capital,” implying that it was devoted to spending capital where it was most likely to promote growth. What GM didn’t mention was how much capital it had shoveled out in utterly unproductive share buybacks — $14 billion announced since March 2015, of which all but $3.4 billion already has been spent.

In other words, now that GM has wasted nearly $11 billion on buybacks, it’s scurrying to regain $6 billion annually by cutting $4.5 billion in annual costs through plant closings and layoffs and reducing capital expenditures by $1.5 billion a year.

The shareholders got their money in advance; middle managers and rank-and-file workers are going to pay the freight, along with the communities of Warren, Mich.; White Marsh, Md.; Warren, Ohio; Detroit; and Oshawa, Canada, which will lose plants that were their employment keystones.

But Trump can’t do much about this, even if he genuinely wishes to. His own policies are either irrelevant to what’s happening in the manufacturing sector, or making things worse. He’s proposed nothing to make things better. He ought to listen to the hard truth being offered by GM, Harley-Davidson, Carrier and other companies he thinks he can bend to his will: Reality trumps Trump.


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