Lessons from GM

Good Morning,

Life is a cruel teacher that gives the exam first then teaches the lesson. Unfortunately for GM, it has never truly recovered from bankruptcy and on Monday they announced that they would be laying about 15,000 people and closing a couple of manufacturing plants. The lessons from the decline of this American Stallworth should not be overlooked as it provides more in-depth insight to trends that are impacting our daily lives/future opportunities.Various news outlets have been reporting on their recent anoncement, but the insight provided by Reuters, Marketwatch, and Washington Post provide some good but overlapping points. What stands out about from these articles are:

1. Within the next decade, around 75% of GM sales will come from five vehicle lines. The consolidation that GM is going through is a result of sales collapsing for some of their product lines (mainly sedans) but highlights how they failed to be efficient with their plants. Unlike their Japanese competitors, each GM plant only produced one car or components for a particular vehicle, while their competitors have plants that have the flexibility to produce multiple vehicles which allows them to be more efficient and responsive to the client demands. GM's failure to redesign their structure should serve as a message to that for us to survive we must be flexible while being cognizant of our level of efficiency.

2. Narrowing the focus of the business to automation and electric vehicles. GM is sending a message that it sees automated cars and electric vehicles as the future, which is one of the underpinnings of the changing demographics within the country. This focus is based upon companies desire to decrease transportation cost along with the continuing the downward trend of our dependence on oil, along with more people being conscious of climate concerns (i.e. global warming).

3. Cost Matter. Within the articles GM cites that the layoff will save about $6 Billion, the tariffs on aluminum have increased their cost of production (about $1 Billion), and they will be lowering their capital spending budget (from $8.5 Billion to $7 Billion). Ironically these changes fly in the face of the current administration because the campaign promise was built upon the premise of more jobs, the tariffs have impacted consumers/businesses, and the tax cut was supposed to increase investment.

From a person who grew up among people who worked in the car manufacturing industry, this is sad to see. Whether we like it or not, we have been witnessing a demographic change over the past decade and technology has only increased the pace. Manufacturing has been on a steady decline as the US economy has shifted to a more service-based economy unfortunately, this has gone unrecognized by most. The lesson we can take away from GM is that if we are not flexible to adapt to our current environments (while paying attention to the longer-term demographic trends), then our fates will be similar to the rust belt.

If you want more information about the shifting job landscape, this Marketwatch link will take you to another article highlighting possible areas.

#financialliteracy #GM #reuters #washingtonpost #marketwatch #demographictrends #tariffs #tradewar #climatechange #alternativeenergy #stocks #bonds #economy #globalization #NAMCUS #trade #financialfloyd #phillyfinance

https://www.reuters.com/article/us-gm-restructuring/gm-to-slash-jobs-and-production-drawing-trumps-ire-idUSKCN1NV1NB

https://www.washingtonpost.com/business/economy/gm-layoffs-and-plant-shutdowns-suggest-us-economy-may-be-starting-to-slow--and-dent-trumps-claim-of-an-industrial-renaissance/2018/11/26/39533566-f1ba-11e8-80d0-f7e1948d55f4_story.html?noredirect=on&utm_term=.e7f0a8c8ecfe

https://www.marketwatch.com/story/gm-stock-skyrockets-after-car-maker-unveils-plan-to-slash-jobs-close-plants-2018-11-26

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