What GM’s Layoffs Tell Us About Disruption in the Automotive Sector
Disruption is happening to the workforce, to automotive companies, and to the entire sector at large.
Immediately after Thanksgiving, General Motors announced its plans to lay off more than 14,000 employees in North America (about 15% of its workforce), including 25% of its executives, linked to the closing down of five car model lines. This was met with shock and dismay, from the stock markets down to the workers and their families.
US President Donald Trump also got into the war of words with GM:
“To tell me a couple weeks before Christmas that she’s (General Motors CEO Mary Barra) going to close in Ohio and Michigan — not acceptable to me… General Motors is not going to be treated well.”
Moreover, he weighed in on the future of the automotive industry and the strategic direction of GM:
“I think she’s making a big mistake. They’ve changed the whole model of General Motors. … I don’t run a car company but all-electric is not going to work. It’s wonderful to have it as a percentage of your cars but going into this model is not going to work.”
As a president who gathered the majority of his 304 electoral votes from the working-class population, to stand up for the every man against GM, the corporate giant, is to be expected. But are his comments about GM’s strategic direction correct? What do these layoffs say about GM and the future of the automotive industry?
Overall, this announcement was not as surprising or unexpected as many make it out to be. The following are a few lessons I’ve gleaned from the GM story.
- Lesson 1: The Workforce Disruption
- Lesson 2: Transformation of Car Manufacturers
- Lesson 3: Electrics Cars are Taking Off
Lesson 1: The Workforce Disruption
In technology disruption, not only are companies disrupted, so are people. The skill sets developed 10–20 years ago and no longer valid in today’s digital economy.
The company is transforming its global workforce to ensure it has the right skill sets for today and the future, while driving efficiencies through the utilization of best-in-class tools. Actions are being taken to reduce salaried and salaried contract staff by 15 percent, which includes 25 percent fewer executives to streamline decision making.
- General Motors Accelerates Transformation 2018
According to research by the Brookings Institute, nearly 65% of all auto-sector jobs have task-level automation potentials of at least 70% in the next 10 or 15 years, meaning they are potentially susceptible to significant work changes, if not complete termination.
In GM’s announcement, they specifically indicated that the “transformation also includes adding technology and engineering jobs to support the future of mobility, such as new jobs in electrification and autonomous vehicles.” GM is not in a full scale downsizing push; they are realigning their workforce to meet the changing demands of the marketplace. And some employees don’t make the cut.
GM’s announcement is only the beginning; I expect other car manufacturers to take a hard look at their current infrastructure and workforce skill set and making similar hard decisions in 2019. President Trump unhappiness with car companies is only set to continue.
And while there are benefits in short-term savings via the reduction of overhead and workforce numbers, car manufacturers are actually looking to invest more in staying ahead of the disruption curve as seen in GM’s investment in tech-oriented employees and autotech startups. Likewise the modern-day workforce is being disrupted by robots, artificial intelligence and evolving skill sets. Employees need to take a long look at their own skills and invest in themselves in order to stay ahead of the curve.
Lesson 2: Transformation of Car Manufacturers
This announcement is also a signal that GM is finally going all-in on becoming an ambidextrous organization. This is the only way that GM is going to be able to survive the next leap in the product life cycle.
On one hand, GM is shifting product development efforts to focus on full electric vehicles and autonomous driving technology, similar all other major car manufacturers today, the layoffs and reinvesting of resources being the next step in that transition.
GM is evolving its global product development workforce and processes to drive world-class levels of engineering in advanced technologies, and to improve quality and speed to market. Resources allocated to electric and autonomous vehicle programs will double in the next two years.
- General Motors Accelerates Transformation 2018
On the other hand, there is a strategic push to optimize its product portfolio and increase capacity utilization. In GM’s 110-year history, they have developed and manufactured over 190 different car models under 9 different brands. In this next phase, GM and other car manufacturers will be slimming down their product lines and looking to better integrate modularization into their manufacturing process, leading to lower development & production costs as well as easier customization later down the line.
A classic case of costovation.
As the current vehicle portfolio is optimized, it is expected that more than 75 percent of GM’s global sales volume will come from five vehicle architectures by early next decade.
- General Motors Accelerates Transformation 2018
Furthermore, the closure of the five plants in North America is straight hard nose cost cutting, valued at $6 billion in savings from $4.5 billion in lower capital expenditure, e.g., plants, which has a $1.5 billion annual run rate. This cost savings will help fuel their shifting product development efforts mentioned prior.
By increasing the efficiency of its current business, it can continue to generate cash to feed the exploration and development of their new business, i.e. fleet-based mobility via autonomous and electric vehicles. For GM, this is no longer an optional move, rather it is the only way that they will be able to survive.
Its now ambidextrous or bust.
Lesson 3: Electrics Vehicles are Taking Off
The third critical component of GM’s announcement is the model types that are being discontinued. Alongside traditional dying sedans such as the Chevrolet Impala, the Chevrolet Cruze and the Buick LaCrosse, the Chevy Volt is on the chopping block, with production to cease in March 2019.
The Chevy Volt was GM’s flagship plug-in hybrid vehicle, launched with great fanfare in 2010 as the “car of the future”. The Volt was designed to use its electric motor for short commutes, up to 50 miles, then switch over to the combustion engine for longer journeys, thus eliminating one of the primary concerns of the electric vehicle, i.e. limited range. However, GM’s customer data showed that Volt owners simply aren’t turning on their gasoline engines much at all, meaning that the car simply carries around a large, heavy extra engine with no benefits.
Hybrid electric cars were always the bridge technology, easing the transition from internal combustion engines to full electric; the plug-in hybrid like the Volt was another step in that transition. The transition has just happened faster than we expected.
While electric car sales are still minor compared to sales of internal combustion engine-based vehicles, the discontinuation of the Volt demonstrates that perceived limitations of electric vehicles have been overcome. Today, full electric vehicles easily boast ranges of over 200 miles at price points comparable to the average sedan, with reliability ratings on electric motors higher than their internal combustion counterparts.
Electric cars have arrived at the take-off point in the technology adoption cycle.
According to Bloomberg’s Electric Vehicle Outlook 2018, sales of electric vehicles are expected to increase from a record 1.1 million worldwide in 2017, to 11 million in 2025 and then surging to 30 million in 2030 as they become cheaper to make than internal combustion engine (ICE) cars. It is also estimated that in 20 years, by 2040, electric vehicles will make up 55% of all new car sales. The bridge/chasm has been crossed and we are in the new reality of electric transportation.
Thus, while this is an exciting time for the future of mobility, as in all situations of disruption, there are those that leap ahead and those that are left behind. I feel for the GM workers in Oshawa Ontario, Detroit Michigan, Warren Ohio, White Marsh, Maryland, and Warren, Michigan. But I’m also hoping that GM is able to turn it around, to become ambidextrous and make across the next product life cycle leap, in only for the sake of the other hundreds of thousands of GM workers still left.
“Disruptive Innovation can hurt, if you are not the one doing the Disrupting.” -Clay Christensen
Make Innovation Work
Core Strateji is a strategy consulting firm that specializes in supporting leading companies to transform into ambidextrous organizations. Are you ready to move your innovation activities forward?
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