General Motors Co. (GM) - Get Report shares surged after being temporarily halted on Monday, Nov. 26, following the Detroit-based automaker's restructuring announcement, which includes shuttering assembly plants and cutting jobs.
GM said no future products would be allocated to the Oshawa Assembly in Ontario, Canada, which makes the Chevrolet Impala; the Detroit-Hamtramck Assembly, where the Chevrolet Volt, Buick LaCrosse and Cadillac CT6 are produced; the Lordstown Assembly in Warren, Ohio, which makes the Chevrolet Cruze compact; the Baltimore Operations in White Marsh, Md., and the Warren Transmission Operations in Warren, Mich.
Jefferies analyst Philippe Houchois said the closure of the two powertrain facilities in Maryland and Michigan represents "the most aggressive downsizing of traditional powertrain capability."
The company also said that in addition to the previously announced closure of the assembly plant in Gunsan, Korea, it would cease the operations of two other plants outside North America by the end of 2019.
GM said the manufacturing actions are "expected to significantly increase capacity utilization," as it responds to changing customer preferences and market-related volume decline in cars.
The company will reduce salaried and salaried contract staff by 15%, "which includes 25% fewer executives to streamline decision making."
"These actions will increase the long-term profit and cash generation potential of the company and improve resilience through the cycle," GM Chair and CEO Mary Barra said in a statement.
The closure of the Oshawa plant will affect approximately 2,800 workers, including 2,500 union positions and about 300 salaried employees, according to Canada's CTV News, citing numerous unnamed sources.
Unifor, which represents 315,000 unionized workers in Canada, posted a video on Twitter, showing workers who decided to walk off the job in protest. In a statement prior to the announcement, Unifor said it did "not accept this announcement."
Unifor National President Jerry Dias told Oshawa GM workers that the plant would not close "without one hell of a fight," noting that he'll be meeting with the government soon.
"This is a shame, and it is a crime, and it is a betrayal, and we're not going to accept their decision one iota," Dias said.
Canadian Prime Minister Justin Trudeau spoke with GM Chair and CEO Mary Barra on Sunday and expressed "deep disappointment," Reuters reported. Trudeau said the government would do everything it can to help families affected by GM, according to Reuters.
The United Automobile Workers union, or UAW, said GM's decision would not go unchallenged.
"This callous decision by GM to reduce or cease operations in American plants, while opening or increasing production in Mexico and China plants for sales to American consumers, is, in its implementation, profoundly damaging to our American workforce," said Terry Dittes, UAW Vice President, Director GM Department.
The UAW said it would confront this decision "through every legal, contractual and collective bargaining avenue open to our membership."
Larry Kudlow, Director of the National Economic Council, plans to meet with Barra following the announcement, according to CNBC.
President Donald Trump told White House reporters that he spoke with GM's chief, saying that he was unhappy with the company's restructuring decision, and expects GM to put "something else" in Ohio, although it is unclear what he expects to go there.
Shares of GM rose 4.8% to $37.66. The stock had been up by 2.2% to $36.72 a share at 10:19 a.m. New York time before they were halted.
GM expects to record pre-tax charges of $3 billion to $3.8 billion related to these actions, and the majority of these charges will be incurred in the fourth quarter of 2018 and the first quarter of 2019. The restructuring is also expected to contribute to cash savings of approximately $6 billion by year-end 2020.
The decision comes as GM has been ramping up cost-cutting initiatives amid signs of a slowing auto market. The company also has been offering buyouts to salaried workers to curb costs, according to a Wall Street Journal report at the end of October. About 18,000 workers were eligible for a buyout, the Journal reported.
"For a company supposedly operating at peak EPS power (as GM stock implies), today's announcement shows that GM possesses unique turnaround levers that can drive meaningful savings over a relatively short period of time," Citi Research analyst Itay Michaeli wrote in a research note. "Today's actions are actually more aggressive than what we would've expected, demonstrating a sense of urgency."
Jefferies' Houchois said GM's announcement is "certainly piling pressure onto Ford (F) - Get Report to announce plans." Ford announced in late April that it would no longer invest in next generations of traditional Ford sedans, save for the Mustang and the Focus Active crossover.