Management scholar comments on GM’s job cuts and the future of American auto industry

Professor Dave Ketchen, Auburn University’s Harbert Eminent Scholar and Professor of Management, examines GM’s decision to cut jobs and the outlook for the American auto industry.

What factors seem to be driving GM’s decisions?

First, some signs indicate that a recession is likely on the horizon. A floundering stock market, rising interest rates and political uncertainty at home and abroad head the list. GM’s responsibility to stockholders requires them to prepare for negative events rather than being reactive after events happen. The jump in stock price that greeted GM’s announcement shows that investors appreciate GM thinking ahead.

Second, the low fuel prices we currently enjoy bolster sales of trucks and SUVs. Among GM’s product portfolio, these vehicles offer the highest margins. Shifting production patterns to favor trucks and SUVs makes sense as long as gasoline stays affordable.

Third, we should not ignore the tense history of labor relations in the auto industry. It is reasonable to suspect there is a degree of posturing here on GM’s part and that the ultimate outcome will be less damaging to labor.

What is the outlook for American automakers?

Looking to the future, the outlook for American automakers is cloudy. Their European and Asian competitors assemble many vehicles in business-friendly states like Alabama, Georgia, South Carolina and Tennessee. Doing so creates advantages for those firms in terms of cost and flexibility. Meanwhile, the generation of Americans who insisted on buying American cars is aging out of the market and they are being replaced by young people who gravitate to the hipper images offered by companies like Kia. Ford’s strategy of abandoning cars except for the Mustang struck many pundits as crazy, but it might turn out to be brilliant given that Ford’s most appealing—and best margin—offerings are the Mustang and its pick-up trucks. I would not be surprised if GM also narrowed its focus.

About Dave Ketchen:

Dr. Dave Ketchen serves as the Harbert Eminent Scholar and Professor of Management in Auburn University’s Harbert College of Business. Driven by the desire to understand why some companies succeed and others fail, his research on strategic management and entrepreneurship has attracted more than 30,000 citations according to Google Scholar. He has published more than 160 articles in scholarly journals and his research has been published in The Wall Street Journal and Forbes Magazine. He recently received Auburn’s Creative Research and Scholarship Award, and, earlier this year, he was named Auburn’s recipient of the Southeastern Conference's 2018 Faculty Achievement Award. More information about Dr. Ketchen is available at http://harbert.auburn.edu/directory/dave-ketchen/.