A trade war that has sent steel prices soaring, a slowdown in new car sales and a miscalculated bet on smaller vehicles have pushed General Motors to the frontline of America’s trade war, forcing a decision to cut 15 percent of its salaried workforce and close five North American factories.
Following other threats against GM, Trump on Tuesday threatened to destroy GM’s electric vehicle business, too, tweeting this:
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Trump’s tirade follows an announcement by GM Monday that it would cut 14,000 jobs and close down five facilities, contradicting Trump’s promise that his trade war and other measures would bring jobs back to the American auto industry.
And the tweet threatening to remove GM’s EV subsidies (though, we note, these are federal, nation-wide subsidies that are not specific to GM), is in response to the auto giant’s statement to the effect that its layoffs and plant shutdowns are part of its strategy to prepare for the driverless, EV future.
This is where the market is headed, with or without the president’s approval. From this perspective, GM will likely be wondering if we exist in a free market anymore, or if we are going the way of China.
GM’s decision was also about the growing demand for SUVs rather than smaller vehicles. In October, almost 65 percent of new vehicles sold in the U.S. were trucks or SUVs, up from 50 percent five years ago, according to the Associated Press. Related: What Warren Buffett Does With His Billions
Unfortunately for GM, Trump’s tweet have shaken its stock, which closed down 2.6 percent Tuesday after having made gains on its new strategy on Monday.
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After a strong second quarter, in July, GM had to cut its outlook over steel and aluminum tariffs, which led to “significant increases in commodity costs” coupled with unfavorable currency exchange rates. The auto giant cut is 2018 per-share profit outlook from $6 to $5.14.
That was a month after GM warned that tariffs could “lead to less investment, fewer jobs, and lower wages for our employees,” and risked “undermining GM’s competitiveness against foreign auto producers.”
The backlash continued on Wednesday, when Trump retweeted an earlier rant suggesting that GM should pay back earlier government bailout money if it can’t keep jobs in the U.S., Reuters reported.
“If GM doesn’t want to keep their jobs in the United States, they should pay back the $11.2 billion bailout that was funded by the American taxpayer,” read the tweet, which was originally floated by The Trump Train, and then retweeted by Trump himself.
At the end of the day, Trump feels betrayed by GM, so this will get personal.
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"Look, we made this deal, we've worked with you along the way, we've done other things with mileage standards, for example, and other related regulations," National Economic Council Director Larry Kudlow said, speaking of the new U.S.-Mexico-Canada trade agreement. "We've done this to help you and I think his disappointment is it seems like they kind of turned their back on him."
But some view GM’s announcement of plant closures as a negotiating tactic—not unlike Trump’s--ahead of contract talks with the United Auto Workers union next year, AP reported.
Whatever GM’s situation, Trump says it’s “playing around with the wrong person” and it “better damn well” open a new Ohio plant. And if it doesn’t, it will lose EV subsidies.
From Bloomberg’s view, though, there is no way Congress is going to cancel EV tax credits or take any major action against GM—not in the current lame-duck session, and definitely now with Democrats in the House.
By Fred Dunkley for Safehaven.com
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