President Trump is beating up on General Motors CEO Mary Barra as well as the United Auto Workers for the company’s decision to close its Lordstown, Ohio plant, which makes the Chevrolet Cruze. But does he understand the reasoning behind the decision?
Unlike the vagaries of the real estate game, Mary Barra has to make tough decisions to defend GM’s profitability. Having written the 2009 book, Why GM Matters, which featured several interviews with previous CEO Rick Wagoner, I think one reason the company got into trouble is that Wagoner did not want to make tough decisions about abandoning failing brands or leaving geographies where the company did not make money. He wanted to protect his beloved GM as it stood. I respected his integrity.
But the Lordstown plant has to go, even if 1,200 jobs will be eliminated, because Americans are not buying the car it produces. They are flocking to larger vehicles such as sports utility vehicles and pickup trucks. By some accounts, 70 percent of all new vehicle purchases qualify as truck purchases. Judging by the highways and parking lots in the New York metropolitan area, everyone is driving SUVs that resemble our Subaru. Even Jaguar and Rolls Royce have come out with small crossover SUVS. The fracking boom means Americans are no longer as interested in fuel-efficient vehicles. Gasoline prices have been largely stable and largely affordable. It’s a different world.
If market demand shifts away from a product, a company has to stop making as many of those products. That’s just a basic rule of capitalism. Yet Trump is appealing to Barra and the UAW to do something quickly to reopen the plant–even sell it to a competitor. He doesn’t seem to understand that CEOs of auto companies make long-term decisions based on market realities. They try to make vehicles near where they are sold, so his idea of closing plants in Mexico or China rather than Ohio doesn’t make sense. And why would GM want to sell the plant to a competitor to give it a cheap way to ramp up production of vehicles that compete against GM?
Barra has made other painful decisions, such as selling Opel, which was GM’s long-standing but money-losing operation in Western Europe. The results of her tough decisions are showing in terms of GM’s solid profitability.
I think I understand what motivates Barra and others in her management team such as Mark Reuss who are children of former GM employees or executives. They got tired of seeing the old GM lose money and be a national laughing-stock. They want to make decisions that will put GM on solid footing to survive another generation. Call it tough love. Reflecting their balanced hand, they are finding jobs for many of the Lordstown employees in other plants and they are also cutting white collar jobs, not just factory jobs.
Trump likes to brag about his business acumen. But in this case, he is simply out of his depth. It seems clear that he is once again seeking short-term political gains in a key electoral state rather than trying to understand the fundamentals of how American capitalism works. He is trying to politicize rational corporate thinking.
