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GM Lost $1 Billion, Cut 15% of Workforce Because of Trump's Tariffs but That's Not the Whole Story

Our obsession with giant trucks is taking over again and that's not necessarily a bad thing if GM can keep up.
Image via Vox

Image via Vox

It's starting to become cemented into popular opinion that the layoffs facing GM employees are entirely the fault of Donald Trump and his ill-advised (to put it mildly) tariffs. And while I am loath to give Trump even the tiniest of outs after he's shot himself in the foot with a bazooka, the difficulties facing the American auto industry aren't entirely his fault.

DETROIT/WASHINGTON (Reuters) - General Motors Co said on Monday it will cut production of slow-selling models and slash its North American workforce in the face of a stagnant market for traditional gas-powered sedans, shifting more investment to electric and autonomous vehicles.

But it's more than just a switch from gas to green, it's also a switch from small to big:

The industrywide slowdown in passenger car sales started to pick up steam in 2017.

The shift by U.S. consumer preferences have been away from passenger cars to larger, more comfortable SUVs and pickup trucks has been swift and severe, leaving automakers scrambling to readjust.

Once upon a time, SUVs dominated the road completely. Americans do love themselves some giant, gas-guzzling cars. But after the price of oil skyrocketed to $100 per barrel and stayed in that vicinity for years on end, the price of gas made driving SUVs outrageously expensive. So they had to go.

At around the same, the Obama administration made electric cars a priority as well as mandating increased fuel efficiency standards (which Trump is currently trying to undo). This is what that success looks like in the math helpfully calculated by CNBC:

The average fuel economy for full-size pickup trucks in 2008 was 15.5 miles per gallon, and the cost of regular fuel for a full year for this segment at that time was $2,808. In 2018, full-size pickup fuel economy climbed to 18.2 mpg, but the full year cost of fuel for the segment is only expected to be $1,936 — a nearly $1,000 difference.

And this is not even including the addition of electric and hybrid models of SUVs and other large vehicles. Of course, the smaller cars fare even better in terms of fuel consumption but people really like big cars. SUVs have simply become economically viable again unless the price of gas reaches (or surpasses, really) those ludicrous highs that made the big trucks rolling money pits.

The problems GM and Ford are having are due to their slow move to adapt to this shift in the market. But no matter what, this shift was going to occur and the companies were going to have to reorient themselves to deal with it and that sort of things always costs money and jobs. At least until factories are retooled or production increased in existing ones. 

On the other hand, Trump's pointless tariffs made the whole thing worse by adding stress to an already difficult situation. Larding a billion dollars in unnecessary costs onto a company already struggling to adjust to a rapidly changing market is dangerous. But we can rest assured that if GM were to declare bankruptcy, we would be treated to a massive PR blitz about how Obama's bailout from 2009-10 was a failure but Trump's bailout will be the best bailout ever. Considering Trump's disastrous business record, let's hope it doesn't come to that.

The bottom line here is that while Trump is part of the problem, he is not the, ahem, driving force. But if GM (and Ford) can get it in gear (sorry), they'll be back to raking in, wait for it, truckloads of money because SUVs are more lucrative than passenger cars (one of the reasons they aggressively pushed them before oil prices made them untenable). If the consumer market is ready to move back towards a more profitable line of vehicles and those vehicles are better able to withstand oil price shocks, the American auto industry should be in good shape. 

Assuming, of course, Trump doesn't continue to escalate his trade wars and damage the American auto industry to the point of no return. Keep your fingers crossed.