General Motors' Recent Moves to Bring Back Jobs Aren't a New Trend
If you haven't heard about President Donald Trump's flurry of sensationalist tweets, then congratulations on having found a quiet spot off the grid. The automotive industry has often found itself standing in front of the Trump tweet train, which has prompted some pushback from automakers. Some such pushback came from General Motors (NYSE: GM) when it announced Tuesday that it will be investing an additional $1 billion in U.S. manufacturing operations.
Image source: General Motors.
But should these pro-U.S. developments Trump is now touting be taken at face value or with a grain of salt? One recent situation involving American Axle & Manufacturing Holdings (NYSE: AXL) could give us a clue.
First things first
Let's rewind to General Motors' recent announcements. The additional $1 billion investment in U.S. manufacturing operations is separate from the $2.9 billion it announced in 2016. The new investment will cover multiple vehicle and technology components, with 1,500 new and retained jobs tied to it.
"With all of the jobs I am bringing back into the U.S. (even before taking office), with all of the new auto plants coming back into our country and with the massive cost reductions I have negotiated on military purchases and more," Trump tweeted, less than an hour after GM's announcement, "I believe the people are seeing 'big stuff.'"
Big win for Trump, right? Perhaps, but likely not as large as it might seem. GM also announced it will begin work on insourcing axle production for its next-generation full-size pickup trucks. For American Axle, which is the principal supplier of driveline components to General Motors for rear-wheel-drive light trucks and SUVs and supplies all of GM's rear axle and 4-wheel-drive/all-wheel-drive axle requirements, this is a big deal.While American Axle supplies other products to GM, its total sales to the automakergenerated 68% of American Axle's consolidated net sales through the first three quarters of 2016. Now, American Axle spokesman Chris Son told Automotive News, instead of supplying 100% of the axles for GM's program,the company will only supply 65%.
A curious nonevent?
You would think losing a chunk of important business from your No. 1 customer would put pressure on American Axle's stock price, but that wasn't the case this week when GM's multi-topic press release was issued.
"We've known the direction of the program for about a year and a half," Son told Automotive News. "We've been aggressive in securing new business to backfill the existing capacity that would be idled [by GM's insourcing]."
General Motors echoed the honesty. "All of the decisions behind today's announcement are good business decisions, and they have been in the works for some time," GM spokesman Pat Morrissey said.
At the end of the day, it all comes down to this: Major automakers have been making decisions to massively improve their operations and make them more efficient. Some of these moves began during the recession, and some more recently. Some involve operations in Mexico, which Trump has focused on, and some don't. GM stated in the release that over the past four years,it has created 25,000 jobs in the U.S. by streamlining processes and bringing some outsourced jobs back to the United States.Ultimately, if prior moves and the more recent American Axle announcement are any indication, the moves haven't changed as much since Trump began tweeting as it might seem.
What's changed is that automakers are matching the emphasis of their words to the tune Trump is singing,and that's just good business.
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Daniel Miller owns shares of General Motors. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.