GM doesn’t need Trump’s advice

President Donald Trump is mad at General Motors Co. He’s been mad at the automotive giant since late last month, when GM announced a major overhaul that would likely involve closing four US factories (and three foreign ones) and shedding thousands of jobs. This week, he reiterated his displeasure in an interview with Fox Business, calling GM’s action “nasty.”
This is not particularly surprising. Job losses on that scale are awful anywhere; and, in GM’s case, many of them will occur in Ohio and Michigan, states critical to Trump’s
re-election hopes in 2020.
What was more interesting was Trump’s musing in the same interview on GM’s new strategy. This will see the company largely abandon traditional sedans in the US in favour of more profitable trucks and SUVs at one end and emerging technologies of electrification and autonomy at the other. Focusing on the latter, he said: “They’ve gone to all electric. All-electric is not going to work.”
Besides the most obvious observation — GM hasn’t gone “all electric” — the second-most obvious is this: Trump has no idea if an “all-electric” strategy would work or not.
This isn’t merely because he’s never run an autos company. It’s mainly because no one knows right now exactly what will work or not with regards to changing vehicle technology and business models. That’s the nature of industry transitions.
What is clear is that GM is right to try and get ahead of it. Cheaper gasoline, relative to pre-2015 prices, has reignited Americans’ love of bigger vehicles. And as this summer showed, Trump likes cheaper gasoline. This offers solid ground in an otherwise flat autos market, and GM’s move away from sedans echoes those of rivals Ford Motor Co. and Fiat Chrysler Automobiles NV.
GM would be remiss to abandon investment in electrification. In China, where vehicle sales overall have now fallen for six months in a row, electric vehicles continue to take market share, spurred by government incentives. While electric vehicles remain a small part of the global market, their share of growth in that market is significant already, and they may account for all the growth by the early 2020s. No company trading at 3 times Ebitda can afford to ignore that trend. GM’s decision to ditch the plug-in hybrid Chevy Volt model is itself a recognition that full electrification is where things are headed.
Trump’s earlier threats of removing electric vehicle subsidies are largely toothless, given that GM has almost exhausted its entitlement anyway. Moreover, it’s worth remembering GM’s single biggest shareholder is the UAW Retiree Medical Benefits Trust. A swipe at the company might generate a certain emotional satisfaction for Trump and his allies, but it won’t necessarily win other hearts and minds.
—Bloomberg

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.