Could GM be on the Wrong Path?

The recent announcement of the closure of five of the GM production plants in the US and Canada was met with an uproar of disapproval.

The five plants that are being closed are responsible for the production of many of the sedans offered by GM which will be discontinued in the future. While this action follows a similar path to Ford, which announced a lineup reduction that removes sedans and small cars as well, this could be the wrong path for the largest automaker in the world.

Job Losses will Result in Improved Cash Flow

While it’s extremely disconcerting that more than 14,000 people will lose their jobs when these five plants are closed, the fact is, there will be an improved cash flow of $6 billion by the end of 2020 to allow GM to invest in innovation. Some of those who will lose their jobs are being offered jobs at other plants, and several of these employees are also eligible for retirement, but the fact is, the direct impact will have a lasting effect in other places. Some experts have suggested, other job cuts will be needed at plants around the country that make engines or engine components for the models that are being deleted.

Which Models are Being Deleted?

When GM made the announcement that some models would need to be deleted for the future, the targeted names were the Chevrolet Cruze, Chevrolet Impala, Chevrolet Volt, Cadillac XTS, Cadillac CT6, and Buick LaCrosse.These models account for close to eight percent of the total vehicle sales by GM in 2019 which means a loss of revenue between $7 billion and $9 billion. Unfortunately, the positive impact of creating the cash flow needed will come at the cost of these models and several jobs.

Where Will More Sales Come from for GM?

The GM brands plan to see a boost in sales, which has already begun, with the trucks and SUVs that have become more popular than the sedans and cars that are on the chopping block. The team is putting their bets on the new Chevrolet Silverado and GMC Sierra pickup trucks, the new Chevrolet Blazer, and a series of new Cadillac SUVs that will be part of the collection of models that could easily be what’s offered for sale going forward.

Some Don’t Think this will Work

The numbers we see tell us that it might be difficult for GM to capture the sales with these new models, but it could also be the right choice. Over the past decade, GM has lost four points of market share in the crossover and SUV market, but with new models and improved vehicles, that could change. Some experts suggest that adding more models will dilute the market and cause the sales volume to struggle and lose traction rather than improving. Only time will tell if this is the right move for GM, but it could spell trouble for the largest automaker in the world.