Global Environment Of Business: Gm And NAFTA Or Now USMCA

GM or General Motors is well-known multinational cooperation that has huge economic impact on the world. William C. Durant created GM in 1908 in Detroit the subsidiaries around the time were “ Buick, Oldsmobile, Cadillac, Oakland (later Pontiac), Ewing, Marquette, and other autos as well as Reliance and Rapid trucks. (Encyclopedia Britannica)”. The current CEO of GM is a woman by the name of Mary Barra. GM added more subsidiaries later on and they grew subsidiaries in other nations which made them into the most powerful automaker today. During the 1950s and the 1960s GM had 40-45 % of automobile sales in America. They faced lots of competitors in the 1990s and they had to make changes in their business. During the 80s and 90s GM was having hardships with auto sales and with the unions. GM went down to its knees during the 2008 finical crisis with bearish sales and bearish outlook. The U.S government helped with TRAP or the Troubled Asset Relief Program. TRAP gave GM billions of dollars to rebuild and to not fail. In June 2009 GM filed for chapter 11 bankruptcy and they had to downsize their business. GM got rid of their subsidiaries that were lacking sales and focus on a few major subsidiaries. After the depression GM survived, they had fantastic profits and wonderful outlook as a business.

January 1 of 1994 NAFTA or the North American Free Trade Agreement was enacted. NAFTA made free trade effortlessly between the two nations bordering the US south of the border and North of the border. NAFTA caused great amount of economic prosperity with the United States, Mexico and Canada but left serious effects too. Before NAFTA trilateral trade was difficult because of barriers to trade and investment. In the years 1993 and 2015 the quantity of trade between the three countries was “$1.0 trillion (Investopedia)” which was up “258.8% (Investopedia)” when the trade deal was instituted. As reported by the Wards auto infobank in 1995 GM produced 198,000 smaller sedans and during 2016 the number of smaller sedans manufactured in Mexico rose exponentially to 711,000 cars. In addition, the larger pickup trucks are being built in Mexico too between the years 1995 and 2014 GM and Ram had been making 1,000,000 trucks or more as reported by Wards auto infobank. NAFTA helped lower the barriers to trade which helped the auto industry grow faster and benefits consumers because the prices of autos did ‘not rise up. Its “$58 in the U.S (CBS)” the median wage of a manufacturing worker at GM and in Mexico the “average of $8, including wages and benefits(CBS)”. GM saw an opportunity maximum their profits because of NAFTA there was a no trade barrier between them so they can move more south to Mexico. GM saved more money by moving its production south of the border to Mexico. GM is exporting the cars from Mexico and entering to other markets quicker with the help of NAFTA. According to Bloomberg “GM will send more than half of the new Chevrolet Equinox SUVs built at a plant in Ramos Arizpe, Mexico to markets in South America, the Middle East and Asia, according to a person familiar with the matter (Bloomberg)”. It helps GM get into countries where the America dose ‘not have a trade treaty or where the US can’t export to. GM as of 2018 became on of the larges exporters of cars in Mexico exported a reported amount of “693,782 vehicles (Detroit free press)”. Most of the cars came back up north to be sold in the U.S or Canada. GM is one of the largest foreign direct investors in Mexico they have invested billions in building factories, expanding factories, building automobiles, locating cheaper suppliers for their parts and hiring low wage workers to build their cars. The four key plants that GM has in Mexico are located in “ Ramos, Toluca, San Luis Potosi, and Silao (Tecma Communications)”. There are over “15,000 direct employees( Tecma Communications)” in these factories and over “100,000 indirect employees( Tecma Communications)”. In 2013 according to business insider GM has invested 691 billion dollars in Mexico and Plans to move more work to Mexico. Some of the most popular car models that are built in Mexico include Chevrolet Cruze, Chevrolet Silverado crew cab, GMC Sierra crew cab, Chevrolet Equinox and the revamped Chevrolet Blazer. The average amount of small cars that GM makes in Mexico between the years 2012-2014 only 17.5% settled in Mexico, 63% got exported to the U.S and Canada, 12.6% got exported to a different place, and the rest of 6.9% were to unidentified places as reported by IHS Markit. Canada is another country that is a key player in the NAFTA trade deal. Canada is another major player from the NAFTA trade deal for GM. There are three main factories in Canada which are Oshawa Assembly, St. Catharines Engine and Transmission Operations, and CAMI Assembly. In these GM plants in cars like GMC Sierra, Chevrolet the discontinued Chevrolet Impala, discontinued Cadillac XTS, and Chevrolet Equinox are made. GM uses these factories to build their cars, engines, transmissions and other parts. But recently Gm plans to move out of Canada to invest in other places like Mexico and the US. In 2018 GM planned to permanently cancel the production of six vehicles due to lack of demand and poor profits on the cars. GM intends to move their focus from small cars into build larges like trucks and SUVs and plans to cut their production of smaller cars. Canada assembled two of the cars that GM ended its life cycle which are Chevrolet Impala and Cadillac XTS. It will bring adverse effects on the GM employees in Canada and the supply chains of GM. Towards the end of 2019 GM will close the factory in Oshawa which will impact the workers in Canadian and the economy of Canada. GM plans to move the production of the trucks to other factories. GM plans to get rid of the Oshawa factory because they want to focus on what the market is moving towards which is more electric automobiles and more self-driving technology. The number of workers who will lose their jobs is around 2,500 and it will have effects on other industries too that are not auto-related. GM offer the union workers a buyout to the workers in Canada and the U.S. to help them out. The union workers are not happy about GM closing down the factory and the workers staged protests to try to prevent it from happening. The elected officials in Canada attempted to use all their power to persuade GM not to close the plant but it will close. In 2005 the Canadian Ontario Liberal Party gave GM $235 million and $200 million by the Federal funding to improve the GM’s Oshawa’s factory but it will be closing this year. During the recession of 2009 GM asked the Federal and Ontario administrations for a bail out in which they received $10.5 billion to revive the automaker. The Canadian tax payer took a loss of $2.8 billion in the bailouts. The government bought stock in GM in which they got return on their investment. The United States is another country that is the biggest player of trade deals.

GM is one of the biggest automakers in America and American’s buy a huge amount of there cars. They have history of producing cars in the US and laying off a huge number of workers. In 2018 GM is planning to shut down four factories in the U.S later in 2019 which include Detroit Hamtramck Assembly in Michigan, Lordstown Assembly in Ohio, Warren Transmission in Michigan, and Baltimore Operations in Maryland. These factories hire a great number of Americans which is 3,805 workers as reported by GM. They offered a buyout for salaried employees for those who have more than 12 years under their belt with GM. The reduction of workers and plant reduction in both Canada and the US will give GM six billion dollars. The chief executive officer of GM Marry Bara commented on the closures by saying “The move will make General Motors more agile, resilient and profitable (Reuters)”. There were many people who did ‘not like the moves is doing. One who really did ‘not like this move was the 45th president Donald Trump. During his presidential campaign he promised the people he will bring back jobs like auto manufacturing to America that GM has outsourced to other nations. Trump warns that he might cut all GM subsidies and that his new trade deal will hurt GM if they go outside the U.S. The Trump administration is pro-business and wants to see more economic growth in the US. In December 2018 the administration added a new tax law called “Tax Cuts and Jobs Act( Investopedia)” which lower the tax rate for large corporation like GM from 35% to 21%. The new tax law gives more than “1.5 to 2 trillion dollars( Investopedia)”to the budget deficit of the U.S. In 2009 the U.S government saved GM with $50 billion in stock and lending money. The government wanted to save GM from being destroyed and protect American workers. On the other hand, the government took a big loss of $11.2 billion by saving GM according to Reuters. GM plans to have great profits for 2019 because they have cut cost and focus on the popular models. GM plans to change their famous luxury brand Cadillac for electric car endeavors and to contest with other larger competition in the electric auto space. According to Reuters GM forecasts 2019 earnings per share at $6.50 to $7.00 and GM predicts that the free cash flow will be $4.5 billion and $6 billion for 2019.

The president of the United states of America Donald Trump, Prime minister of Canada Justin Trudeau, and the President of Mexico Enrique Peña Nieto reworked NAFTA in 2018 to a new trade agreement called USMCA or United States Mexico Canada agreement. USMCA has new rules for automakers. The new trade deal makes sure that 75% of car parts are made in North America so the car would not be taxed. NAFTA made only made 62.5% of car parts were made in North America. USMCA made sure that workers got paid made for auto manufacturing which is that 30% of work must be done by workers making sixteen dollars an hour or more. The number of people will rise 10% more next year. The effects of USMCA will be seen later on but experts forecast that the prices of cars will rise and there will be less cars made to save money on production.

Works Cited

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