AUTO GM Slims Down in a Big Way

There's spinning bad news you don't want to share...and then there's what General Motors (+4.76%) did in a major announcement yesterday. Let's compare the creative jargon from GM's PR team vs. what's actually happening. "Staffing transformation": The automaker plans to cut its salaried workforce by as much as 15% (and its executive ranks by 25%). The cuts could total about 14,000 jobs. But remember, this "transformation" was set into motion last month, when GM offered buyout packages to about 18,000 salaried workers in North America. "Increasing capacity utilization": GM said it will stop production at five plants across the U.S. and Canada, and two more internationally, in 2019. (It's possible some could resume operations, pending the outcome of union negotiations.) Politicians from President Trump to Canadian Prime Minister Justin Trudeau were extremely disappointed/angry with GM. Here's Rep. Tim Ryan (D-Ohio): "Today our generation is facing a new Black Monday in the Mahoning Valley." "Optimizing product portfolio" and "Transforming product development": There are two auto industry trends GM wants to stay on top of...1) growing consumer preference for SUVs and crossovers and 2) disruption from technological innovation. So...it's 1) cutting a few slumping car models, including the Buick LaCrosse and the Chevy Impala, while 2) doubling resources allocated to electric and autonomous vehicle programs. How much is this all going to cost/save? These moves are expected to increase automotive free cash flow by $6 billion by year-end 2020...and hit GM with a one-time charge of between $3 billion and $3.8 billion in Q4 2018 and Q1 2019. Here's what GM CEO Mary Barra had to say: "We are taking this action now while the company and the economy are strong to keep ahead of changing market conditions." "This is about making sure GM is lean and agile to get in front and lead in autonomous and electric vehicles." Zoom out: Viewed in the context of GM's bankruptcy last decade and President Trump's promise to keep manufacturing jobs in the U.S., the political fallout for Barra's decision will be especially intense...even if the move was given the thumbs up by analysts.