What a difference a Donald Trump press conference can make! Last week, when the former reality TV star and incoming U.S. President called out General Motors Co. (NYSE:GM) by name, this appeared to be more of the same. Donald Trump has now a storied history of shining inglorious spotlights on companies which he views are being detrimental to the American labor market. But there’s a certain point when the shock value wanes, and for a while, it seemed as if GM would call Donald Trump’s bluff.
But in a few days, GM suddenly capitulated. In a public disclosure of their own, General Motors — the country’s biggest auto maker — stated that they will create 5,000 more positions for the U.S. labor market over the next few years. And in a direct ode to Donald Trump, GM also announced that they will take back some work from Mexico, thereby adding 450 more so-called “Trump jobs.” While the soon-to-be President’s threats are great for headlines, will they substantively help the labor market?
As in the discipline of physics, it all depends upon your frame of reference. As a worker whose livelihood was saved from the chopping block, or those new employees who suddenly found a long-awaited opportunity, you’re naturally going to be a big fan of Trump jobs. Even official labor market statistics are going to move up thanks to (at least) the perceived surge in economic sentiment.
But whether that’s good for General Motors or Ford Motor Co. (NYSE:F) — which have also jumped aboard the Trump jobs enthusiasm — remains to be seen. Both GM and Ford have to deal with rapidly shifting consumer trends. The changes can be affected by the pain (or lack thereof) at the pump, demographic composition, or even an en masse preference for a particular style. Adjusting to these changes — both positively in terms of making desirable cars and “negatively” in terms of dumping out-of-favor cars quickly — can be very expensive.
Thus, GM and Ford are in margin-sensitive businesses. That margin is especially squeezed when your primary operations are in the U.S. Comparatively, labor market costs here are exorbitant to our global trading partners such as Mexico. If the politics of Trump jobs weren’t involved at all, there is no way in high heaven that GM or Ford would play ball with Donald Trump.
But because companies are being called out in a remarkably blunt manner, General Motors and other targets of the President-elect have to respond. I believe in their estimation, it’s far easier to massage the books and do something — if only symbolic in nature. For example, when Trump tweeted his approval of GM, he didn’t mention the fact that they were also getting rid of labor market opportunities, particularly in divisions that were not performing well with the public.
There’s also the broader point that signing onto Trump jobs is bad business. If you can get cheaper labor, why not go for it if the quality control mechanisms falls within acceptable deviations? Small businesses everywhere do the same thing. But because General Motors is in the public spotlight, they have to respond to Donald Trump’s labor market accusations.
Just don’t fall into the trap thinking that these capitulators are taking one for the American people: it really is just a public relations charade.