Why Will GM Fire 1,000 People?

24/7 Wall St. Insights

• In an era of pricy labor contracts, slumping electric vehicle sales, and artificial intelligence, do the layoffs of a few white-collar employees at General Motors Co. (NYSE: GM | GM Price Prediction) matter at all?
• Also: Dividend legends to hold forever.

There was a massive amount of press regarding General Motors Co.’s (NYSE: GM) plans to lay off 1,000 people. America’s number one car company made a statement about the plan: “We need to optimize for speed and excellence. This includes operating with efficiency, ensuring we have the right team structure and focusing on our top priorities.” The truth is that the layoffs barely mattered at all.

While car companies’ downsizing is usually a common theme, GM has about 160,000 employees. That means the new firings are half a percent of GM’s workforce.

The layoffs do show that car companies believe they can work with a decreasing number of people. GM and Ford Motor Co. (NYSE: F), for example, continue to cut white-collar employees in small numbers at a time, while United Auto Workers contracts make it harder to cut blue-collar workers. Those union jobs make earnings improvement more difficult. Ford said its new UAW deal will cost over $8 billion between now and 2028.

One reason for even the most modest job cuts is that a lack of consumer interest in electric vehicles (EVs) has left car companies flat-footed. Several major car companies, led by Volkswagen and Stellantis, have posted declines in unit sales and awful earnings. Moreover, Ford said it would put $30 billion into its EV future and now is cutting back.

A more speculative argument about layoffs is that artificial intelligence (AI) has started to do middle management functions. While AI has not “replaced” many middle management jobs, it makes some people more productive. A more productive workforce is one that eventually can be smaller. It is impossible to say whether GM has hit that tipping point.

Does a layoff of 1,000 people change GM’s earnings? Only by a very little. The reasons behind the cuts are more telling.

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