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Most recently, it was the turn of automotive giants General Motors (GM) to feel the wrath of the POTUS, who waded online to criticise the decision of the firm to close key manufacturing plants in the States as part of a major structural reorganisation.

In this post, we’ll consider the fall-out in a little more detail, while asking whether or not GM are right to consider closing some of its domestic plants.

A Look at the Closures and President Trump’s Reaction

GM dropped the bombshell earlier this week, by announcing that it would end production at a total of five plants in the US and Canada.

This includes three major manufacturing sites in Ohio, Michigan and Maryland, while the firm’s strategic manoeuvre will slash 15% of its domestic workforce and up to 14,000 jobs in total.

Not only this, but the brand is also planning to kill off several of its renowned passenger cars, including the Chevrolet Impala, as it strives to reduce operational costs, boost profits and realign its product range to suit America’s changing tastes in vehicles.

The brand is also planning to kill off several of its renowned passenger cars, including the Chevrolet Impala.

Trump is one of several politicians to have expressed dismay at the move, with the President predictably taking to Twitter to vent his frustration. In one of a number of Tweets, he also claimed that the 25% duty applied to imported trucks and commercial vans play a key role in supporting this facet of the industry, while hinting that a similar tariff may applied to cars.

Trump’s also asserted that applying such duties to car imports would prevent firms like GM from closing their domestic plants, increasing the number of vehicles manufactured in the States and boosting the industry as a whole.

This is typical of the President’s inherently protectionist stance, and with separate tariffs also being considered for Chinese cars that are imported into the US market it’s clear that GM are merely the catalyst for the latest outburst rather than the underlying cause.

Is GM Right to Restructure in this Way?

Under the stewardship of any other administration, this would not be such an emotive issue, but Trump built his election campaign on the notion of restoring America’s car industry and has polarised opinion with his strong views on immigration and foreign trade.

While the aggressive response of the President is understandable (if somewhat misplaced) given his desire to deliver on his manifesto, however, the question that remains is whether GM are right to restructure their business in this way?

The brand are certainly right to consider reviewing their product range, particularly with customer behaviour changing and consumer borrowing across loans and credit growing at a noticeably slower rate in 2018. More specifically, as customers look to spend less on cars and seek out SUV and crossovers as opposed to standard passenger vehicles, GM has sought to be proactive and realign its production to suit demand.

Ultimately, private sector firms are always governed by profit and loss, while they retain the autonomy to structure their venture however they wish in a capitalist economy.

From an economic perspective, America’s GDP growth rate also declined from 4.2% to 3.5% in September 2018, hinting at a slight economic slowdown that has caught the attention of manufacturers across a number of industries.

This, when combined with an uncomfortably high debt-to-GFP ratio of 105% and incrementally rising labour costs, may well have forced the hand of GM executives and encouraged them to restructure their venture as a way of optimising profitability.

The Last Word

Ultimately, private sector firms are always governed by profit and loss, while they retain the autonomy to structure their venture however they wish in a capitalist economy.

So, while the Trump administration can talk in emotive terms about domestic manufacturing and consider the actions of GM in the context of their own protectionist agenda, individual brands should not be concerned with this or have their interests compromised by punitive tariffs.

Silicon Valley's Tesla overtook GM as the most valuable carmaker in the United States last week said Toronto Sumitomo Trading International.

Modern technology is working its way into our lives and infiltrating every aspect of our daily routines, automobile industry is no exception, the increased reliance on software and renewable energy paved the way for Tesla to climb to the top of the industry and claim the title, the biggest carmaker in the United States by market capitalization.

Tesla's stock price hit 312.39 dollars Toronto Sumitomo Trading International analysts upgraded its stock from neutral to overweight and upgraded the price target. Tesla's stock price jumped to all-time highs increasing 3.26% from the previous week's close.

"The company now is valued at 50.887 billion dollars beating GM by one million dollars, something will lead to an interesting discussion when the two Chief Executive Officers meet at the white house with president Trump to discuss the tax reforms and infra structure" said Daniel Holland, Director of Corporate Equities at Toronto Sumitomo Trading International.

Toronto Sumitomo Trading International Research showed that considering the number of cars Tesla sold last year, its market capitalization now will be equivalent to 667,000 dollars for each car sold, or looking forward it will 102,000 dollars for every car Musk plans to sell in 2018. On the other hand, GM's market capitalization is equivalent to 5,000 dollars for each car sold in 2016. This offers a great insight into consumer trust in technology.

Tesla's stock price has increased by 35% over the last month aided by investors' trust in Elon Musk's plans to revolutionize both the energy and the automobile industries. Meanwhile, General Motors' stock price has been declining in the past few years.

Tesla's advocates believe the lose making company's price is justifiable based on long-term outlook, arguing its acquisition of SolarCity and building the new battery cell plant will drive production costs lower.

"Tesla's valuation as a car company is unrealistic, but if we look at it as a battery company which can expand and innovate, the valuation might work" said Michael Hudson, Head of Mergers and Acquisitions at Toronto Sumitomo Trading International.

Many skeptics believe that Tesla is overvalued and its highly inflated stock price has made it a target for short sellers who bagged a valuation loss of 2 billion dollars so far in their portfolios.

(Source: Toronto Sumitomo Trading International)

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