Breaking News Emails
Two industry giants announced massive job cuts last week — prompting vastly differing reactions.
General Motors said it would close multiple plants and axe almost 15,000 positions — which shocked everyone from workers to the White House. "The U.S. saved General Motors, and this is the THANKS we get!" tweeted President Donald Trump. The United Auto Workers labor union called GM's move a "callous decision" that was "profoundly damaging to our American workforce."
And yet, when pharmaceutical giant Bayer also announced that it would slash 12,000 jobs globally, the response was muted. Why? The difference is a tale of two industries — and workforces.
Bayer's move was part of a long-term transition. "It's been cleaning itself up and going from a chemical conglomerate to a life sciences company," William Mitchell, professor of strategic management at the University of Toronto’s Rotman School of Management, told NBC News.
Bayer has primarily operated in four areas: pharmaceuticals, consumer science, crop science, and animal health. All are profitable and growth industries. But some better fit the evolving strategy than others.
"Good general business strategy is to regularly think about your portfolio of businesses, reinforce some, and move others out and let someone do better with them," Mitchell said.
In 2017, pharmaceuticals represented half of corporate revenue, with 28 percent profits. Crop sciences were about a quarter of revenues, at 17 percent profitability. Both will increasingly use genetic science to develop new products.
Consumer health was about 17 percent of revenue at a profit level of 14 percent. Bayer will keep the core business although shrink it by divesting the Dr. Scholl's and Coppertone brands, which frees up money to reinvest in other areas. Animal health, while extremely profitable at 21 percent, represents only 5 percent of the total revenue and required too much management attention for the return it represented. And given strong performance over the last two years, Bayer is in good shape to negotiate deals.
And the reason no union thundered disapproval of the deal was because workers' organizations frequently sit on corporate boards in Germany.
"The union was part of the discussion," Mitchell said. "It's strategically smart. You're much more likely to maintain strong businesses."
Fighting for future survival
Unlike pharma and crop sciences, the auto industry has a hazier future, particularly in the U.S., where vehicle sales have leveled off and begun to drop. The percentage of 16- through 44-year-olds who have a driver's license has been falling for decades. This is not a domestic growth industry.
GM had a great year in 2017 with record operating profit and sales of more than 10 million cars worldwide. But much of the success was owed to China, says Rodney Parker, an associate professor of operations management at Indiana University’s Kelley School of Business. "Sales in China will necessarily be serviced by plants in China or nearby, rather than plants in the U.S."
In the U.S., in addition to overall auto vehicles sales turning downward is an "ongoing shift of consumers preferences from cars to SUVS and pickups," Parker said. "In 2008, the industry was selling roughly 51 percent of passenger cars and the remaining was trucks, crossovers, and SUVs. By 2017, the industry was selling around 65 percent trucks, crossovers, and SUVs — and passenger cars was the remaining 35 percent." For the first nine months of 2017, passenger cars were 21 percent.
For a long time, GM kept smaller car production up and offered large financial incentives to consumers. "GM for a long time has been losing money in small vehicles but making it up in larger vehicles," Parker said. In other words, it needed to choose between unprofitable lines of business and addressing an uncertain future.
What the company hopes to do is save money with the closings and layoffs and reinvest it into electric and autonomous vehicles. GM also plans a ride-sharing service that will use autonomous vehicles to compete with Uber and Lyft.
Unlike Bayer's major union, the response of United Auto Workers to the GM announcement "seemed to be surprise," Parker said. "Privately they may have been aware things were in the works, but the relationship is probably more distant than Bayer and their unions."
"They're making positive steps to remain profitable and to invest in the future. But that future is very uncertain," Parker said of GM.
"If they move to a new and different business model, who knows if the union will come along with it?"