GM restructuring; changing product development, production; 5 NA & 2 international plants shutting next year; staff reduction
General Motors on Monday outlined a series of major restructuring steps that it said would accelerate its transformation for the future, building on the strategy it laid out in 2015 to strengthen its core business, to capitalize on the future of personal mobility and to drive significant cost efficiencies.
These steps include the reorganization of its global product development and product development staffs; the realignment of its manufacturing capacity including the shuttering of 5 North American plants and two international plants in 2019; and a reduction of salaried workforce. GM expects these actions to increase annual adjusted automotive free cash flow by $6 billion by year-end 2020 on a run-rate basis.
Contributing to the cash savings of approximately $6 billion are cost reductions of $4.5 billion and a lower capital expenditure annual run rate of almost $1.5 billion. The actions include:
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. Additional actions include:
Increasing high-quality component sharing across the portfolio, especially those not visible and perceptible to customers.
Expanding the use of virtual tools to lower development time and costs.
Integrating vehicle and propulsion engineering teams.
Compressing global product development campuses.
Optimizing product portfolio. GM has recently invested in newer, highly efficient vehicle architectures, especially in trucks, crossovers and SUVs. GM now intends to prioritize future vehicle investments in its next-generation battery-electric architectures. As the current vehicle portfolio is optimized, GM expects that more than 75% of GM’s global sales volume will come from five vehicle architectures by early next decade.
Increasing capacity utilization. In the past four years, GM has refocused capital and resources to support the growth of its crossovers, SUVs and trucks, adding shifts and investing $6.6 billion in US plants that have created or maintained 17,600 jobs.
With changing customer preferences in the US and in response to market-related volume declines in cars, future products will be allocated to fewer plants next year.
Assembly plants that will have no product allocated (i.e., no operations) in 2019 include:
- Oshawa Assembly in Oshawa, Ontario, Canada.
- Detroit-Hamtramck Assembly in Detroit. (Detroit-Hamtramck is the home of the Chevy Volt, which is being dropped from the 2019 lineup.)
- Lordstown Assembly in Warren, Ohio.
Propulsion plants that will be unallocated in 2019 include:
- Baltimore Operations in White Marsh, Maryland.
- Warren Transmission Operations in Warren, Michigan.
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.
These manufacturing actions are expected to significantly increase capacity utilization. To further enhance business performance, GM will continue working to improve other manufacturing costs, productivity and the competitiveness of wages and benefits.
Staffing. GM is transforming its global 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. Actions are being taken to reduce salaried and salaried contract staff by 15%, which includes 25% fewer executives to streamline decision making.
GM expects to fund the restructuring costs through a new credit facility that will further improve the company’s strong liquidity position and enhance its financial flexibility.
GM expects to record pre-tax charges of $3.0 billion to $3.8 billion related to these actions, including up to $1.8 billion of non-cash accelerated asset write-downs and pension charges, and up to $2.0 billion of employee-related and other cash-based expenses. The majority of these charges will be considered special for EBIT-adjusted, EPS diluted-adjusted and adjusted automotive free cash flow purposes. The majority of these charges will be incurred in the fourth quarter of 2018 and first quarter of 2019, with some additional costs incurred through the remainder of 2019.