Trump’s Threat to Kill GM’s Subsidies Prompts Skeptical Response
GM, Tesla Inc. and Nissan Motor Co. formed a coalition earlier this month to lobby to have the purchase subsidy extended.
(Bloomberg) -- President Donald Trump’s threat to cut subsidies to General Motors Co. in retaliation for the automaker’s plan to close U.S. factories was met with immediate skepticism.
While it’s true that GM, like other U.S. automakers, has received substantial federal assistance over the years -- including a nearly $50 billion bailout in 2009 -- experts cast doubt on the idea that Trump could unwind federal aid for the company by executive fiat.
“It’s very unusual for federal policy to single out one company for different treatment than another company,” said Kristin Dziczek, vice president of industry, labor and economics for the Center for Automotive Research in Ann Arbor, Michigan. “So I don’t know exactly how they would do that.”
GM shares closed down 2.6 percent at $36.69 in New York trading on Tuesday. Shares fell as much as 3.8 percent, wiping out much of its gain a day earlier. The earlier rally was linked to Chief Executive Officer Mary Barra’s plan to bolster cash flow by canceling production at five plants in the U.S. and Canada and jettisoning slow-selling sedans from the lineup.
Trump wasn’t specific Tuesday when he tweeted: “We are now looking at cutting all @GM subsidies, including for electric cars.” Aides said the idea was still being explored, but attention focused on the $7,500 federal tax credit extended to buyers of electric vehicles including the Chevrolet Bolt.
“We are going to be looking at certain subsidies regarding electric cars and others and whether they should apply or not,” Larry Kudlow, director of the White House National Economic Council, told reporters Tuesday, just before Trump’s Twitter postings. “Can’t say anything final about that, but we’re looking into it.”
White House Press Secretary Sarah Huckabee Sanders told reporters at a briefing, “I don’t know that there’s a specific timeline” for taking action against GM. “He’s looking into what those options might look like,” she said.
GM is nearing a sales limit for the number of EVs that are eligible for that incentive and efforts to extend it appear to have stalled in Congress. Moreover, altering the credit would require action by lawmakers.
Senate Reaction
“I don’t know that’s going to be a response that actually gets much traction around here,” Senator John Thune, a South Dakota Republican, told reporters. “I’m not sure I know how they would go about doing that.”
If Trump were able to push through a legislative repeal of the credit, it could actually end up giving GM a better competitive position, according to Jeremy Acevedo, an analyst with auto market researcher Edmunds.
“GM was the first in the market alongside Tesla, and eliminating the EV tax incentive all together would level the playing field as the competition has only started to heat up the segment,” he said.
GM, Tesla Inc. and Nissan Motor Co. formed a coalition earlier this month to lobby to have the purchase subsidy extended. Tesla surpassed 200,000 cumulative EV sales in the U.S. earlier this year, and Bloomberg NEF analysts project that GM will probably exceed that mark this quarter.
Trump’s tweets follow repeated expressions of anger earlier from the White House over GM’s plan to cease production at five North American factories and cut about 14,000 jobs.
GM said many of the U.S. employees affected by the plan announced Monday would have the opportunity to shift to other plants where the company would need more workers to support growth in trucks, crossovers and SUVs. The company has also promised to add technical and engineering personnel to support the development of electric and autonomous vehicles.
“GM is committed to maintaining a strong manufacturing presence in the U.S., as evidenced by our more than $22 billion investments in U.S. operations since 2009,” the company said in a statement, referring to the year of its government-backed bankruptcy. The company’s announcements Monday “support our ability to invest for future growth and position the company for long-term success and maintain and grow American jobs.”
Some members of Congress have proposed raising the cap on EVs eligible for federal tax credits or to otherwise extend the credit, including Senator Dean Heller of Nevada, where Tesla operates a large battery factory. Heller, a Republican, lost his re-election bid this month to Representative Jacky Rosen, a Democrat.
Tax legislation unveiled by House Republicans Monday didn’t include an extension of the electric-vehicle tax credit sought by the coalition that includes GM and Tesla.
The Senate has yet to make its version of the legislation, though Senator Orrin Hatch, the Utah Republican who chairs the Finance Committee, said earlier this month it’s possible an extension will be included in the bill.
Beyond the subsidies given to customers, GM has received about $333.5 million in federal spending in the past 12 months, according to a U.S. government website that tracks federal expenditures. More than 93 percent of that came through federal vehicle purchases for use by government departments.
It’s also a frequent recipient of major research and defense contracts. Among the largest are a Department of Defense project that began in 2000 and earned the company $167.9 million as well as two Department of Energy grants of more than $100 million related to electric vehicles and batteries awarded during the Obama administration. And U.S. taxpayers lost more than $10 billion in the rescue of the company during the financial crisis a decade ago.
The Detroit-based automaker is on track to generate an estimated $144.2 billion in revenue this year.
--With assistance from Dana Hull and Justin Sink.
To contact the reporters on this story: Ryan Beene in Washington at rbeene@bloomberg.net;Ari Natter in Washington at anatter5@bloomberg.net
To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, ;Craig Trudell at ctrudell1@bloomberg.net, ;Alex Wayne at awayne3@bloomberg.net, John Harney
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