Trump to Cut GM’s Subsidies — Can the Business Survive Without Them?

GM hasn’t had a good year. In November, GM announced that it would be idling five of its automotive plants, leading to the loss of 14,000 jobs. Just days later, President Donald Trump threatened to cut GM subsidies, ultimately leading to the stock tumbling. What’s in the future of GM — and why is it such a contentious situation?

If you had invested $1,000 in GM in 2012, you’d have $2,200 today. GM’s stock has been increasing in value in a relatively stable way, especially considering the issues that it’s recently faced — bankruptcy, falling sales, and idled plants. Yet its performance has been suffering and the manufacturer’s future is uncertain.

Following the idling of multiple plants, Trump remarked that he would be cutting GM’s government subsidies. These are subsidies that are related to electric vehicle purchasing, something that could be harmful to GM’s electric-focused strategies.

However, whether or not stripping these subsidies would have direct impact on the manufacturer is questionable, as it’s not known whether GM actually receives these subsidies. GM may make too much in sales for these subsidies to impact it, and ultimately a lack of subsidies — in theory — would make it harder for GM to maintain its operations, forcing it to idle even more plants.

GM had previously commented that the trade war could cause issues for the U.S. manufacturing plants, as the trade war does put tariffs on essential materials such as steel. But those aren’t the only problems that GM currently faces — nor why its plant closures have been questioned.

When an economy slows down, one of the first things that is impacted is new car sales. People start purchasing their cars used or hold off on a car purchase for a few extra years. With increased production costs and fewer vehicles being sold, it makes sense that auto manufacturers such as GM would have to pare down their operations.

However, the choice of closing down American plants specifically has proven to be a controversial one. GM has plants in other countries, such as Mexico, and none of these plants faced closures. For Americans who have lost jobs, this indicates that GM is being disloyal to the country that built it. For GM’s part, it’s likely that the closures hit America first due to the tariffs in America.

GM also isn’t the only manufacturer that is currently suffering. In general, the demand for smaller cars has decreased. More Americans are now purchasing larger vehicles such as trucks and SUVs. In order to compete, smaller car manufacturers are having to develop new technologies, creating electric vehicles and inserting more advanced features into their cars. All of this costs money and strips profits.

In addition to the five U.S. plants, GM has mentioned that two non-U.S. plants will also be idled before the end of the year. Whether this is a response to the controversy or not, it does indicate that GM in general is looking at strongly decreased production moving forward. For the automotive industry as a whole, this bodes negatively.

On a whole, the U.S. auto industry has been adding tens of thousands of jobs to the economy and has remained relatively stable. However, in economic crisis, the automotive industry is often one of the first industries to suffer. As purse strings are pulled back in 2019, it’s likely that additional plants — including non-GM plants — will need to be idled. Further, it’s unknown what the complete impact of tariffs will eventually be.

As for now, GM stock has fallen but is likely to rebound, following the initial attack on GM subsidies and GM’s announcements that it will be closing non-U.S. plants. Nevertheless, it’s not likely that GM’s stock will be a good bet for some time. While it has performed moderately well historically, the future of GM is still up in the air — and there are a number of external factors that could impact how successful the company will be in the new automotive market.

Regards,

Ethan Warrick
Editor
Wealth Authority

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