The downsizing strategy of General Motors

The General Motors Company is an American multinational automotive manufacturing company headquartered in Detroit, Michigan, United States. It is the largest automaker in the United States and was the largest in the world for 77 years before losing the top spot to Toyota in 2008.

General Motors operates manufacturing plants in eight countries. Its four core automobile brands are Chevrolet, Buick, GMC, and Cadillac. It also holds interests in Chinese brands Wuling Motors and Baojun as well as DMAX via joint ventures. Additionally, GM also owns the BrightDrop delivery vehicle manufacturer, a namesake Defense vehicles division which produces military vehicles for the United States government and military; the vehicle safety, security, and information services provider OnStar; the auto parts company ACDelco, a namesake financial lending service; and majority ownership in the self-driving cars enterprise Cruise LLC.

At the end of 2018, General Motors (GM) announced the layoffs of 14,000 employees in North America. Staff cuts are sometimes misunderstood that the firm fail into poor financial results. However, in recent years, GM’s business has been very good, by reaching a revenue of 20.7 billion USD in 2017; more than 10.6 billion USD in 2016; and 7.9 billion USD in 2015. Its cash flow in 2017 reached 17 billion USD. So, why did GM cut staff? Let’s analyze the market context.

In fact, the car market has been volatile in term of rivalry and advanced technologies during recent decade. Concerning customer taste, electric cars firstly were launched by Tesla Company in 2012 created a trend of new car consumption. Sales of electric cars are forecasted to increase from a record 1.1 million USD worldwide in 2017 to 11 million USD in 2025 and 30 million USD in 2030. Over time, electric cars become more popular with cheaper prices compared with those of internal combustion engine cars. It is estimated that in 2040, electric cars will account for 55% of total new car sales in the world. On the other hand, driverless cars, despite of actual technological limits, start to become a real threat to the actual car market.

Concerning competition, not only car manufacturers have competed directly with each other; providers of technology car rental services such as Uber, Lyft and Grab influence also directly car sales revenue. Now, customers do not need to own a car; wherever, they can easterly find a nearby Uber and Grab car for rent, both with driver or driverless.

These two potential risks lead the car market to radically change towards the direction of “software and batteries” that will gradually replace internal combustion engines.

In that context, GM decide to stop producing small cars like sedans by prioritizing models such as electric cars, SUVs and CUVs. PreIn January 2021, GM announced plans to end production and sales of vehicles using internal combustion engines, including hybrid vehicles and plug-in hybrids by 2035, as part of its plan to achieve carbon neutrality by 2040. GM offers more flexible-fuel vehicles, which can operate on either E85 ethanol fuel or gasoline, or any blend of both, than any other automaker.

It means that they had to change technology by closing old technology factories that manufacture outdated cars. On the other hand, in order to increase productivity, GM focuses on factories achieving full manufacturing capacity; the other, including also strategic ones may be closed. GM oriented its human resources not only to high quality, but also to be consistent with its strategic products. And, layoffs are part of GM’s strategic repositioning strategy.

Layoffs sometimes open up opportunities for re-investment: firm’s cash flow moves from non-profitable or less profitable products to potential new ones, for example expected electric cars in the case of GM. In nature, this re-investment is better than keeping the actual investment, by allowing GM to save 6 billion USD at the end of 2020.

To mitigate the negative effects of corporate downsizing, GM implements this strategy in three steps. The first concerns small-scale layoffs. Cutting 14,000 employees is a great quantity, but for a firm like GM with 180,000 employees at the end of 2017, this amount only accounts for 7% of its workforce. Secondly, GM proposes to buy back 17,770 labor contracts. Although only 2,250 accepted this proposal, it is a much more ingenious approach than conducting large-scale layoffs. Thirdly, GM proposes and moves workers from closed factories to new ones having better potential or growth. Fired workers have the opportunity to redirect their careers; while the firm can retain or develop the necessary competencies for the future.