Today, GM’s CEO is set to meet with President Donald Trump, as per Reuters. Let’s see what’s transpired in the last few days that has investors looking forward to this meeting.
Trump criticized GM for moving plants to China
On August 30, President Donald Trump slammed General Motors (GM) in a tweet. It read, “General Motors, which was once the Giant of Detroit, is now one of the smallest auto manufacturers there. They moved major plants to China, BEFORE I CAME INTO OFFICE. This was done despite the saving help given them by the USA. Now they should start moving back to America again?”
On August 23, China announced tariffs on $75 billion worth of US products. This levy included the resumption of a 25% tariff on US autos and a 5% tariff on US car components starting on December 15. Trump, in turn, increased tariffs on China and asked US companies to look for an “alternative to China.”
Are Trump’s claims about GM misleading?
CNBC reported on August 30 that according to industry data and officials, “Many of the claims in the tweet against the Detroit automaker were misleading or inaccurate.” GM is still the largest US automaker based on car units produced, surpassing Ford (F) and Fiat Chrysler (FCAU).
Trump’s criticism of GM came after a report from Bloomberg on August 29. The report said GM was in third place in terms of UAW (United American Workers) employment, behind Ford and Fiat Chrysler. Bloomberg suggested that GM’s third-place spot was the result of its shrinking operations domestically and its growth overseas. Read GM Falls Behind Ford, Fiat on Domestic Employment for more info.
UAW contract talks with Detroit automakers
Currently, three Detroit auto companies, including GM, are in talks with UAW ahead of their contract expirations on September 14. UAW has picked GM as its first priority for contract talks. The union is upset with GM after it announced the closing of five North American plants last year. The plant closures and layoffs are, however, not an isolated event for GM or the US. Due to the ongoing slowdown, auto demand is weakening globally, which has led to a wave of layoffs.
GM, however, remains committed to the US and bringing more jobs to the country. CEO Mary Barra said in May 2019, “We also expect to bring more jobs to the U.S. over time in support of the expected provisions of the USMCA.”
General Motors’ presence in China
GM has been trying to expand its presence in China in recent years as US auto demand has waned. China’s vast market and future potential are luring auto investments to the country. The trade war and the current slowdown in China are taking a toll on automakers’ fortunes in the country. GM’s Chinese sales fell 9.8% YoY (year-over-year) in 2018. However, China is still its biggest market. According to Xinhua, GM’s vehicle sales of about 3.65 million in China last year exceeded the 3.0 million vehicles it sold in the US.
But GM hasn’t been expanding in China at the expense of the US. In fact, due to the policies and duties China has in place, it’s hard for an automaker to import vehicles into the country and operate successfully for long.
Tesla is building a factory in China to sustain profitability
Tesla (TSLA) is certainly a case in point. Currently, the company is importing all the cars it sells into China. However, it’s in the process of building a Chinese Gigafactory, which is expected to be operational by the end of 2019. It will produce one of its best-selling models, the Model 3, domestically to avoid costly tariffs. Tesla’s CEO, Elon Musk, said last year that Tesla was “operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China.”
Trump warned GM against signing California deal
Earlier, Trump directed his anger at Ford for striking a deal with the State of California to make cars cleaner and more fuel efficient. This deal is stricter than the one proposed by Trump. GM hasn’t yet signed the deal. The president has warned GM and other automakers that haven’t signed the deal—including Toyota and Fiat Chrysler—against doing so.
Following Trump’s criticism, Barra is set to meet him today at the White House. Citing three people briefed on the matter, Reuters reported today that Trump and Barra would discuss “issues including trade, ongoing contract talks and revising vehicle fuel efficiency standards.”
These talks are essential due to Trump’s discontent with US automakers for not creating enough jobs. The meeting also comes in the wake of Trump’s latest tirade against automakers. Investors will be closely watching this meeting for any clues regarding GM’s future actions regarding contract talks and fuel-efficiency norms. GM stock was up 3.8% at 10:50 ET today.