General Motors is a technology company that makes cars, and the skills its employees had yesterday are continuously becoming outdated.
Experts say that is the underlying message of GM CEO Mary Barra's move on Oct. 31 to offer voluntary buyouts to GM's nearly 18,000 North American salaried workers with 12 or more years of experience with the company.
On the surface, it's typical cost-cutting ahead of a potential dip in new-car sales and rising raw material costs. But look closer.
"GM is signaling a change in vehicle technology. If they go into electric more rapidly, then they do not need the same engineers they have now," said Maryann Keller, principal of Maryann Keller & Associates in the New York area. "The advent of electric vehicles has profound implications for employment in the auto industry's competition and the skill sets needed to compete."
Consider that Barra hails from a human resources background, so targeting employees with long seniority and high pay grades is strategic when a company is moving toward the development of more electric cars, fuel cells and autonomous vehicles, experts say. It means redeploying the workforce and freeing up significant capital, said Marick Masters, professor of business at Wayne State University.
"Technology has changed so fast and is changing so fast that if you’ve been out of school 10 or 20 years, you’re not at the leading edge anymore," Masters said. "This will give GM an opportunity to create a greenfield of sorts, to create a new company within a company."
The new worker
Besides wanting to be futuristic, GM's cost cutting is also a necessity.
Its current cost structure and product mix make it more vulnerable to a sales downturn than Ford and Fiat Chrysler, said market economist Jon Gabrielsen, an adviser to the auto industry. He said GM can afford to lose only a quarter of its current car sales in North America before going in the red.
GM won't say which jobs or which areas of the business it looks to trim beyond saying the offers are voluntary – for now – and will go to employees with 12-plus years experience.
But GM has been adding a younger workforce with technology-heavy skills in recent years. In fact, only about 17,700 of GM's 50,000 salaried workers in North America have the 12-plus years seniority to qualify for a buyout offer. Experts say that indicates the bulk of GM's workers are new to the company, possibly with a focus beyond traditional vehicle design and engineering.
A GM spokesman confirmed that "about 40 percent" of its U.S. workforce has been with the company five years or less.
The company's changing focus opens up opportunities to millennials, those ages 22 to 37 who might change their perception of GM from that of a stodgy carmaker bankrupt a few years ago to a technology company that offers some advantages over that of a startup, Wayne State's Masters said.
But for older workers already in the auto industry, it means they must up their game, and continuous training is a requisite.
“I don’t know if they’re extinct or need a new degree, but they need to be engaged in continued learning and advancement," Masters said. "They need to be agile. Organizations do not guarantee lifetime employment anymore. This is a statement that the world is changing.”
A new company
The "new" GM will want workers who are highly creative and capable of working autonomously as well as collaboratively, Masters said. The future employee will take initiative and have a strong technology background, good communication skills and project-management capability. GM might do more contract hiring to keep fixed costs low and GM's agility high, he said.
"China is taking the lead in electric vehicles. Ford has an aggressive plan to redeploy its investments along those lines, too," Masters said. "So GM has to have the flexibility to free up staff and have the capital available to invest in this technology."
GM has been on an aggressive hiring spree in part because it wants to be first to deploy a fleet of self-driving electric cars in a city next year. In fact, the same day GM said it would trim its workforce, a GM spokesman told the USA TODAY Network's Detroit Free Press that GM will continue to hire in certain areas it is expanding – namely engineering and technology for its work on self-driving and electric cars.
Two years ago, GM bought its self-driving vehicle arm, GM Cruise. GM Cruise employed 40 people at that time. Today it employs about 800, GM President Dan Ammann said.
GM's hiring reflects a statewide trend. The skills needed for future automotive jobs in Michigan are shifting as the auto industry here transitions to a future of mobility beyond tradition personal car ownership, said Glenn Stevens, executive director of MICHauto and vice president of Automotive and Mobility Initiatives for the Detroit Regional Chamber.
“You have the convergence of the auto and the tech industry going on,” Stevens said. “The different modes of transportation and the development of electrification are increasing, so we have to make sure we’re leading for the next generation of mobility. The companies here have to make sure they do the same thing."
GM said it does not have a target for how many salaried workers it wants to take the offers. But if it doesn't remove enough costs from that and other efforts, such as halting renovation work at two Michigan facilities, it will consider involuntary job cuts after Jan. 1.
For that reason, Keller said she expects the voluntary buyouts will get a higher than usual take rate.
"Knowing that there will be cuts no matter, and the labor market is strong should increase the take rate," Keller said. "I don’t recall what it was in the past, but it was low when jobs were scarce."
Gabrielsen believes 10 to 20 percent will take the offers and GM will be forced to cut jobs to support earnings amid plateauing new-car sales and rising commodities costs. In total, he estimated about 7,000 salaried GM employees in metro Detroit will face voluntary or involuntary termination.
"Typically, in downturns, they start off hoping they won’t have to cut too bad," Gabrielsen said. "But as things cycle down in the industry, you have to do another tranche and another tranche and another."
Recently at CityLab 2018 in Detroit, Mary Barra was asked if GM is a technology company, not just a car company. Her unwavering reply was: "That is my goal."
So as Barra has worked to pour resources into developing AV/EV technology including forming investment partnerships with Japan's SoftBank and Honda earlier this year, it has also been cutting costs for several years in other areas. GM said it would make $6.5 billion in reductions for 2018, but the voluntary job cuts will not benefit GM until 2019.
Since emerging from bankruptcy in 2010, GM has added about 28,000 employees in North America, about half of whom are hourly, Gabrielsen said. But GM has not gained North American market share.
Gabrielsen, who pulls his data from GM's SEC filings, said in 2009 the automaker had a 20 percent market share in North America selling 2.5 million vehicles. Each year since, GM's market share has slid. Last year, GM sold 3.6 million vehicles, but its market share was 16.6 percent, he said.
"They can’t support as much fixed cost with the smaller market share," Gabrielsen said. "This is an economy-of-scale business. When you get above a certain sales volume you can print money. When it drops, you bleed money.”
He said GM is precariously vulnerable to a sales downturn.
"GM can afford to lose 25 percent of its unit sales in North America before it goes into the red. That's if they slash heads on the way down," Gabrielsen said. "Chrysler and Ford can afford to lose 50 percent of their sales in North America before they're in the red."
But GM is not alone in wanting a leaner company. Ford also is working to reduce its salaried workforce. Ford has not provided specifics on how many jobs will be cut or over what time frame in its $11 billion "fitness" plan.
Wall Street woes
While economists agree that a storm of economic headwinds is swirling around the auto industry, threatening profitability, GM faces one more challenge: Wall Street.
Since taking the helm in January 2014, Barra has yet to satisfy investors. Right before reporting third-quarter results on Oct. 31, GM shares traded about 6 percent below the $33 per share price at which they launched in 2010 in a post-bankruptcy initial public offering, according to Reuters. GM's stock price hit an all-time high of $46.48 on Oct. 24, 2017, but closed Tuesday at $36.46.
Last month, Reuters reported it contacted several shareholders who said GM could face a third major action by activist shareholders in less than four years if the share price does not improve.
GM's voluntary buyout program and halts to renovations will appease Wall Street for some time, analysts said.
"I wouldn’t want to be any of the auto company CEOs right now," Gabrielsen said. "None of them want to slash anybody, so if they’re doing it at all it’s because of Wall Street pressure."