GM: Halting production at 5 plants in N. America, cutting 14,000 workers
Focusing on EVs and autonomous driving technologies by strengthening of the liquidity position
|2019 Chevrolet Bolt EV
(All photos used in this report are from GM materials)
This report covers trends at GM, focusing on two announcements made by GM in November 2018, concerning its "North America restructuring plan" and the "next step toward commercial deployment of self-driving cars".
According to the major restructuring plan recently announced by GM, the company will halt production at five plants in North America by the end of 2019 and reduce its workforce by 14,000 employees. By 2020, these activities to cut costs will allow GM to generate an annual adjusted automotive free cash flow of USD 6 billion by year-end 2020 to focus more on the development of electrification and autonomous driving technology.
GM plans to introduce the Cruise AV, a Level 4 autonomous vehicle developed based on the Chevrolet Bolt EV, to the ride-sharing market in 2019 in several major U.S. cities. GM announced that Dr. Dan Ammann, president of GM, will be appointed as CEO of Cruise effective January 1, 2019 as commercialization of the Cruise AV approaches. Cruise investment funding includes USD 2.25 billion from SoftBank Vision Fund and USD 2.75 billion from Honda.
Regarding electrified vehicles, GM plans to launch 20 new all-electric and hydrogen fuel cell vehicles globally by 2023. Although GM is currently losing money on EVs, it expects its electrified vehicle operations to be profitable with the launch of its next-generation modular EV platform in 2021, and sell 1 million EVs annually by 2026.
GM’s plans for its existing models include upgrades to its high profit margin full-size and heavy-duty pickup trucks and full-size SUVs of Chevrolet and GMC brand during the 2018 to 2020 timeframe. For the Cadillac brand, GM will introduce a number of new models, primarily crossover vehicles.
According to its financial results for the January to September 2018 period, GM maintained a high level of profitability with an EBIT-adjusted margin of 8.2% (9.2% in North America). However, EBIT-adjusted decreased by 8.2% y/y (14.3% in North America). In July 2018, GM had revised its 2018 year-end financial forecasts slightly downwards.
OEM Operations in the US in 2018 (December 2018)
GM, Google-Waymo to launch driverless cars for ride sharing in 2019 (February 2018)
Announced halting production at five plants in North America and cutting its workforce by 14,000 employees
In November 2018, GM announced that it would halt production at five plants in North America by the end of 2019 and reduce its workforce by 14,000 employees. Through this restructuring, GM aims to realize the following:
Costs and benefits: GM will record pre-tax charges of USD 3 billion to USD 3.8 billion related to restructuring expenses, but its actions related to the realignment of its manufacturing capacity and the reduction of its salaried workforce are expected to generate an annual adjusted automotive free cash flow of USD 6 billion by year-end 2020, which it will invest in electrified and autonomous vehicles.
In addition to the previously announced closure of the assembly plant in Gunsan, Korea, GM will cease the operations of two additional plants outside North America by the end of 2019.
Increasing capacity utilization: In the past four years, GM has refocused capital and resources to support the growth of its crossovers, SUVs and trucks. With changing customer preferences in the U.S. and in response to market-related volume declines in cars, future products will be allocated to fewer plants next year, which will allow GM to significantly improve its plant capacity utilization rate.
Optimizing product portfolio: GM has recently invested in newer, highly efficient vehicle architectures of trucks, crossovers and SUVs. GM now intends to prioritize future vehicle investments in its next-generation battery-electric vehicle architectures. As the current vehicle portfolio is optimized, it is expected that more than 75 percent of GM's global sales volume will come from five vehicle architectures by the 2020s.
Transforming product development: GM is evolving its global product development workforce and processes to drive world-class levels of engineering in advanced technologies, and to improve quality and speed to market. Resources allocated to electric and autonomous vehicle programs will double in the next two years.
Staffing transformation: GM is transforming its global salaried workforce to ensure it has the right skill sets for today and the future, while driving efficiencies through the utilization of best-in-class tools. GM is taking actions to reduce its salaried and salaried contract staff in North America (54,000 employees) by 15% or 8,000 employees, which includes 25% fewer executives to streamline decision making.
GM North American Capacity Actions
|Plant||Products||End of production||Employment|
|Buick LaCrosse||March 1, 2019||Hourly: 1,348
|Cadillac CT6||June 1, 2019|
|Chevrolet Cruze||March 1, 2019||Hourly: 1,435
|Chevrolet Impala||Q4 2019||Hourly: 2,600
|Propulsion Plants||Warren Transmission
|6-speed transmissions||August 1, 2019||Hourly: 265
|Baltimore Operations||Full-size pickup
|April 1, 2019||Hourly: 253
GM slashing costs while it is financially strong and the economy is healthy
News reports on November 5th and 26th of 2018 by sources such as Automotive News describe the background of GM's restructuring plans, as follows.
GM clarified its strategy to concentrate its resources on electrification and autonomous driving technology to advance the company’s vision of a world of “Zero Crashes, Zero Emissions, and Zero Congestion". However, there are two risks associated with its planned transformation.
1) No one knows when the next downturn or recession may occur in the economic cycle, but it seems inevitable. In particular, GM is currently concerned about faltering sales in the U.S. and China, its two major markets with regards to earnings, which from July 2018 are forecasted to fall below the same period of 2017.
2) With the evolution in the industry associated with electrification and autonomous vehicles, car sharing and ride sharing represent a tremendous business opportunity. Although this may be an opportunity for automakers to generate new sources of revenue, it is difficult to forecast when these initiatives will be profitable because the technologies are unprecedented.
GM has announced that it expects its electrified vehicle business to be profitable with the launch of its next-generation modular EV platform in 2021, but the current federal tax credit incentive program (*) for GM’s EVs is scheduled to be phased out in the near future.
Using the bitter lessons learned from its federally backed bankruptcy, the current GM management team is working to avoid having to make similar painful decisions, and is now focused on right-sizing the company and improving efficiency to strengthen its core business while the U.S. economy has momentum and GM is maintaining high profitability.
In early 2018, GM announced that its 2018 financial performance was expected to be in line with that of its strong performance in 2017, but revised its forecasts downwards with the announcement of its 2018 second quarter financial results (described in more detail below). This seems one of the factors responsible for GM’s decision to restructure its North America operations.
(*) Currently, the U.S. federal government gives a one-time tax credit of USD 7,500 dollars for each EV, PHV, and FCV sold to help spur the sales of electrified vehicles, which is valid for a cumulative sales volume of 200,000 units for each automaker. This is gradually reduced after an automaker sells over 200,000 EVs before eventually being phased out. In November 2018, GM's sales of the Chevrolet Volt PHV and Chevrolet Bolt EV exceeded 200,000 units. Going forward,
- Until the end of March 2019: buyers receive the full credit amount of USD 7,500.
- From April to September, 2019: buyers receive half the credit amount, or USD 3,750.
- October 2019 - March 2020: the credit amount will be halved again to USD 1,875.
- From April 2020, the tax credit will be eliminated altogether.
Tesla, which has sold more EVs than any other automaker, is said to have exceeded the 200,000 vehicle milestone in mid-2018. However, since the purchase price of a Tesla EV is higher and the tax credit accounts for a smaller portion of the purchase price, its impact is considered to be less than that of high sales volume EV automakers such as GM.
GM's ratio of light truck at 80%, passenger car sales continue to decline
As a background of GM’s restructuring, there is also a sharp decline in the sales of passenger cars in the United States.
In the U.S. light vehicle market, sales volumes of light truck exceeded that of passenger car for the first time in 2014, with the proportion of light truck increasing yearly to reach 68.8% in the January to November 2018 period. The proportion of light truck at GM was more than 10% the industry average at 79.9%.
Finished vehicle models to be discontinued when production is halted at three plants, include 6 passenger car models with sluggish sales such as the Buick LaCrosse and Chevrolet Impala as well as the predecessor models of the Chevrolet Silverado/GMC Sierra full-size pickup truck. The Detroit-Hamtramck Plant and the Lordstown Plant are operating on one shift. At the same time, many of GM’s plants producing pickup trucks and SUVs to keep up with demand are operating on three shifts and sometimes seven days per week, including holiday work. Overall, GM’s finished vehicle assembly plants in North America are currently operating at a utilization rate of about 70%.
Passenger car and light truck sales in the US light vehicle market
|Total US||Passenger car||7,934,814||7,566,668||6,895,771||6,120,774||5,623,240||4,900,774|
Source: Automotive News
Note: As GM announces only the number of units sold per quarter, the number of vehicles in January to November 2018 timeframe have been estimated.
For existing models, GM will strengthen its pickup truck, SUV, and crossover vehicle lineup
In response to market trends, GM plans to strengthen its portfolio of pickup trucks, SUV and crossover vehicles over the next few years. The per unit profit margins of these models are higher than that of passenger cars, and increasing sales volumes are contributing to support GM's earnings.
For the Chevrolet and GMC brands, from 2018 to 2020, GM will update its profitable models of full-size and heavy-duty pickup trucks (Chevrolet Silverado, GMC Sierra) and full-size SUVs (Suburban, Tahoe, Yukon).
In the crossover segment, GM will launch redesigned models of the Traverse and Equinox as well as a new model Blazer positioned between the Equinox and Traverse. In the passenger car segment, GM will update models such as the Chevrolet Spark and Malibu which GM will continue to sell.
The Cadillac brand began a massive model update starting with the new Cadillac XT4 model that was released in the fall of 2018.
In particular, Cadillac plans to introduce a series of new or redesigned crossover vehicles, in addition to XT5 (medium-sized crossover) released in 2016, the XT4 (compact crossover) released in the fall of 2018, and the XT6 (3-row crossover) to be released in the middle of 2019. Cadillac is also planning a full redesign of the full-size Escalade SUV in 2020.
* For details of GM's model plan, refer to the "MarkLines Information Platform · Model Launch Schedules - GM models for USA market".
|Full-size pickup truck 2019 Chevrolet Silverado||Chevrolet Silverado Heavy-duty truck|
GM: Introducing Level 4 autonomous vehicles to the ride-sharing market in 2019
Under the direction of Mary Barra, who assumed the position of CEO in January 2014, GM has made a break from its traditional "management that emphasizes the scale" and has committed to pursuing the CASE strategy. In January 2016, GM invested USD 500 million dollars in Lyft for ride sharing, and in March 2016 acquired Cruise Automation, a U.S.-based self-driving car startup company. GM plans to introduce the Cruise AV, a Level 4 autonomous vehicle developed based on the Chevrolet Bolt EV, to the ride-sharing market in 2019 in several major U.S. cities.
In June 2018, SoftBank invested USD 2.25 billion in Cruise Automation and in October 2018 Honda announced that it will fund or invest USD 2.75 billion. As a result of these investments by SoftBank and Honda, Cruise's market valuation increased to USD 14.6 billion.
In November 2018, as commercial deployment of the Cruise AV approaches, GM announced that GM President Dan Ammann will be appointed as CEO of Cruise effective January 1, 2019. GM’s global regions and GM Financial will report directly to GM’s CEO Mary Barra. The number of Cruise employees has expanded to more than 1,000 from the initial acquisition with 40 employees, with plans to hire an additional 100 to 200 persons.
|Three Cruise executives and the Cruise AV under development, with the newly appointed CEO of GM Cruise LLC, Dan Ammann, shown on right.||Chevrolet Cruise AV’s interior|
Investments of USD 2.25 billion by SoftBank and USD 2.75 billion by Honda
In May 2018, SoftBank Vision Fund announced that it would invest USD 2.25 billion dollars in GM's self-driving car business unit GM Cruise. The investment will involve two phases: a USD 900 million initial funding followed by USD 1.35 billion dollars when the self-driving Cruise AV’s are ready for commercial deployment, with Softbank owning a 19.6% equity stake in Cruise. GM also invested an additional USD 1.1 billion, creating a combined total investment amount of USD 3.35 billion, with GM Cruise's corporate valuation growing to USD 11.5 billion.
In October 2018, Honda partnered with GM and GM Cruise to collaborate on transforming mobility utilizing autonomous driving technology. The three companies will jointly develop ride-sharing services using dedicated self-driving vehicles. The project will also consider the development of the new Cruise AV for global deployment.
Honda invested USD 750 million in GM Cruise, taking a 5.7% equity stake to become the third largest shareholder in GM Cruise after GM and SoftBank. In addition, Honda plans to contribute a total of USD 2.75 billion, including approximately USD 2 billion in investment funding over the next 12 years. With this investment and partnership by Honda, GM Cruise's market valuation is now estimated at USD 14.6 billion.
In July 2013, Honda and GM agreed to jointly develop hydrogen fuel cell systems. In January 2017, the two companies established the joint venture, Fuel Cell System Manufacturing, LLC, announcing that it plans to start manufacturing fuel cell systems around 2020. In June 2018, Honda and GM also agreed to jointly develop GM’s next-generation lithium-ion battery system for EVs, with the intent for Honda to source the battery modules from GM.
Outline of the Cruise AV to be launched in 2019
GM expects to reduce the average cost-per-mile of its autonomous ride-sharing vehicles from the current USD 2 to 3 dollars per mile to USD 1 per mile by 2025 by keeping production of the LiDAR sensors and the lithium-ion battery system in-house. A summary of the announcement is as follows.
The electric Cruise AV features five LiDAR sensors, 16 cameras and 21 radars. The Cruise AV was developed as a Level 4 fully-autonomous vehicle from the initial design phase. As a result, the vehicle has no manual driving control equipment such as a steering wheel or brake and accelerator pedals. Instead, passengers receive constant updates on the car’s progress and driving status through a series of touchscreen displays.
The Cruise AV self-driving vehicles will drive only within known geo-fenced boundaries for which high-definition 3D map data has been developed. And, it will not be possible to set destinations that are outside of these areas.
An Operations Center has been established for the entire Cruise AV fleet, where passengers can communicate with an operator and access real-time information with the push of a button. The Cruise AV is equipped with a feature to pull the car over at the next safest spot on the road in the event of an emergency, and passengers can request assistance by pushing the OnStar emergency button. In the event of a crash, a notification to the OnStar Advisor is reported automatically.
Information such as road conditions is shared among Cruise AV fleets. In the event a single Cruise AV encounters a hazardous situation, the information is conveyed to the other cars in the fleet, enhancing the entire fleet's performance and safety.
The Cruise AV has two main computer systems operating simultaneously, so if the primary computer has a problem, the secondary system is there to take over.
* For details of GM's announcement, refer to the MarkLines Information Platform "GM, Google-Waymo to launch driverless cars for ride sharing in 2019 (February 2018).
Electrification plan: GM expects its EV business to be profitable from 2021, targeting to sell 1 million EVs annually by 2026
GM has announced that it will launch at least 20 new all-electric and hydrogen fuel cell vehicles globally by 2023, with plans to aggressively introduce EVs for the Chevrolet and Cadillac brand from 2020. GM’s plans also include the introduction of at least 10 new EV models in China. GM’s strategy is aimed at securing a leading share in the U.S. and China markets.
Although GM is currently losing money on EVs, it expects its electrified vehicle business to be profitable with the launch of its next-generation modular EV platform in 2021. That includes offering electric vehicles that exceed 300 miles in range, lowering the cost of battery cells to less than USD 100 per kWh from USD 145 per kWh for the current Bolt EV, while driving down the production cost per EV by 30%. (The current Chevrolet Bolt EV is equipped with a 60 kWh lithium ion battery, and has a range of 238 miles (383 km).)
GM aims to sell 1 million EVs annually by 2026. According to GM, the “CASE (Connected, Autonomous, Shared, and Electric) technologies will converge to create the personal mobility of the future. For example, EVs will become the foundation for autonomous vehicles. The ability to offer superior performance in each of the 4 CASE technological areas is the strength of GM." With the GM announcements on strategies such as CASE and “Zero Crashes, Zero Emissions, and Zero Congestion”, it is being reported that a considerable portion of the EVs sold by GM will likely be autonomous vehicles to be commercially deployed to the ride-sharing market.
|2019 Chevrolet Bolt EV||2019 Chevrolet Bolt EV’s interior|
GM: Downward revision of 2018 forecast (announced in July 2018)
In early 2018, GM announced that its 2018 financial performance was expected to be in line with that of its strong performance in 2017, but revised its forecasts downwards with the announcement of its second quarter financial results as shown in the table below. For example, operating cash flows of its automotive operations were revised downwards to USD 11.5 billion, compared to operating cash flows of USD 14.3 billion in 2016 and USD 13.9 billion in 2017. GM’s profitability in Argentina and Brazil has been affected by the ongoing depreciation of those country’s currencies, in addition to rising commodities and materials prices (mainly cost increases attributed to the trade war), and the company is forecasting that these trends will continue for the remainder of 2018.
Consolidated financial results for the first 9 months of 2018 showed a slight increase in sales (net sales and revenue) of 0.7%, with an EBIT-adjusted decrease of 8.2%. However, the EBIT-adjusted sales ratio remains relatively high at 8.2% for consolidated sales and 9.2% for sales in North America.
GM has revised its 2018 full-year outlook
|Auto Operating Cash Flow||$14.3 billion||$13.9 billion||$11.5 billion|
|Adjusted Auto Free Cash Flow||$6.9 billion||$5.2 billion||$4 billion|
Source: GM's Earnings reports
1) EPS diluted: Diluted EPS is a calculation used to gauge the quality of a company’s earnings per share (EPS) if all convertible securities were exercised. Common types of convertible securities include convertible bonds, which could be converted to common shares in the future if the holder exercises that option. In their earnings reports, companies report both primary and diluted EPS, but unless otherwise noted by an annotation, the focus is generally on the more conservative diluted EPS measure.
2) Operating cash flow: Operating cash flow is a measure of the amount of cash generated by a company’s normal business operations. It is one of the three categories in a company’s cash flow statement (regular business activities, financial activities, investment activities).
3) Free cash flow: Free cash flow (FCF) is the cash the company produces through its regular business operations after subtracting any outlays of cash for investment. In other words, FCF is the cash left over after a company has paid its operating expenses and capital expenditures.
(dollars in millions)
|Incl. Europe||From continuing operations (excluding Europe)|
|Net sales and revenue||166,380||149,184||145,588||107,873||108,650||0.7%|
|EBIT-adjusted margin (GMNA)||10.1%||10.4%||10.7%||10.9%||9.2%||-|
|EBIT-adjusted margin (Global)||7.5%||8.6%||8.8%||9.0%||8.2%||-|
|Net income (loss)||9,427||9,427||(3,864)||1,287||5,970||363.9%|
1) GM sold its European business (Opel/Vauxhall) to PSA in August 2017.
2) Net loss in 2017 is primarily due to the remeasurement of deferred tax assets due to U.S. tax reform and the sale of Opel/Vauxhall.
3) EBIT: Earnings before interest and income taxes
GM global sales volumes: Declined in all regions in January-September 2018
The table below shows GM's worldwide retail sales by region. GM has withdrawn from low-profit markets in Europe, Russia, India, Indonesia, and South Africa, and has closed its manufacturing operations in Australia. Global sales volumes are not increasing. Sales volumes during the January to September 2018 period decreased in all regions by 2.9% y/y (excluding Europe).
From July 2018, sales in the U.S. and China markets have declined y/y, with GM's sales in the July-September quarter (excluding Europe) declining by 11.5% y/y. In particular, GM sales in the China market are down 14.9% in the third quarter to some extent due to the ongoing trade dispute with the U.S.
Retail unit sales by region
|GM North America||3,612,517||3,629,576||3,576,075||2,619,172||2,572,721||-1.8%|
|GM South America||645,419||583,549||668,835||487,466||885,106||-7.1%|
Note: GM sold its European business (Opel / Vauxhall) to PSA in August 2017.
Production Forecast by LMC Automotive: GM Group’s light vehicle production in 2021 will be 6.53 million units
According to LMC Automotive's latest forecast (November, 2018), GM’s global light vehicle production volume is expected to be 6.59 million units in 2018, down by 3.2% from 2017 and gradually decrease to 6.53 million units in 2021, down by 4.1% from 2017.
In November 2018, GM announced that the company will accelerate its transformation for the future to strengthen its core business, capitalize on the future of personal mobility and drive significant cost efficiencies. The actions include closures of three assembly plants (two plants in USA and one in Canada) and two propulsion plants in USA in 2019.
LMC Automotive comments; “GM continues to strive for greater profitability by streamlining its global sales and manufacturing operations, with any underperforming ventures being reviewed and shuttered. Its European market exit (albeit with some remaining presence in Russia through Chevrolet) and the closure of the underutilized Kunsan plant in Korea are two examples of the group’s strategy to rein in its global aspirations and focus instead on its product strengths and most profitable locations.”
Production in USA will decrease between 2017 and 2021 and will be 1.84 million units in 2021, down by 11.9% from 2017. Production in Canada will also decrease to 203k units, down by 48.1% from 2017. Production in Mexico, however, will increase to 955k units in 2021, up by 17.8% from 2017. LMC Automotive explains that North America will remain GM’s largest production base throughout the forecast horizon.
Production in China in 2018 will be 2.0 million units, surpassing USA for the first time, and will be 2.22 million units in 2021. LMC Automotive also comments; “The short-term outlook is for steady but modest growth in the Chinese light vehicle market. Support will come from buoyant demand in the country’s lower-tier cities, as well as the latest NEV incentive policy, which is likely to boost replacement demand for EVs in larger cities.”
GM Group's light vehicle production in 2021 will be 6.53 million units (LMC Automotive)
|SALES GROUP||GLOBAL MAKE||2015||2016||2017||2018||2019||2020||2021|
|General Motors Group||Chevrolet||4,692,466||4,628,163||4,447,111||4,326,151||4,277,483||4,230,043||4,144,301|
|General Motors Group Total||6,725,201||6,951,416||6,802,378||6,586,304||6,583,036||6,547,870||6,525,159|
Source: LMC Automotive "Global Automotive Production Forecast (November, 2018)"
(Note) 1. Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.
2. All rights reserved. Reproduction of any data will require permission of LMC Automotive.
For more detailed information or inquiries about forecast data, please contact LMC Automotive.
GM, restructuring, North America, light truck, passenger car, Cruise AV, Chevrolet Bolt, US, China
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