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GM decision a product of U.S. market trends

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The Wall Street Journal published this editorial Nov. 27 on a U.S. auto maker saying it plans to eliminate 15 percent of its salaried workforce in North America and stop production at five plants that employ 6,700 workers.

President Trump believes he can command markets like King Canute thought he could the tides. But General Motors has again exposed the inability of any politician to arrest the changes in technology and consumer tastes roiling the auto industry.

GM said it plans to eliminate 15 percent of its salaried workforce in North America and stop production at five plants that employ 6,700 workers, including one in storied Lordstown, Ohio. “We are taking these actions now while the company and the economy are strong to stay in front of a fast-changing market,” CEO Mary Barra said.

The U.S. auto maker plans to redeploy some $4.5 billion in annual savings to more profitable truck, electric-car and autonomous-vehicle manufacturing. Investors cheered by bidding up GM’s stock, but the President reacted like a spurned suitor. “You know, the United States saved General Motors and for her to take that company out of Ohio is not good,” he said Monday, adding Tuesday that he might end GM’s subsidies. GM shares promptly fell 2.6 percent.

As a candidate Mr. Trump lambasted Ford for shifting production to Mexico, then took credit when the company announced it would keep its Lincoln MKC in Louisville, Kentucky. But both decisions were motivated by market changes, and so is GM’s.

GM is halting production at plants that make sedans including the Chevy Cruze, Impala and Volt hybrid. Americans are buying more trucks and SUVs amid lower gas prices and better fuel efficiency. Small cars make up a third of U.S. vehicle sales compared to half in 2012. About 75 percent of GM sales last year were trucks and crossovers, up from 60 percent in 2012. Its share of the small-car market has also fallen by a third in a decade amid Japanese and Korean competition.

The main driver of GM’s failure a decade ago was its uncompetitive labor contracts. Rather than reduce costs or idle unproductive plants, GM offered bigger discounts to goose sales. But the market tides still rolled in, and GM executives have learned that staying competitive is necessary to avoid another collapse.

GM is essentially following Ford and Fiat Chrysler by phasing out small-car production. Last year GM cut production by a third at Lordstown and nearly half at a plant in Oshawa, Ontario. Keeping these factories open at lower levels of output would waste human and physical capital that could be deployed to more productive and profitable units.

The Trump Administration deserves credit for giving auto makers flexibility to make more of the cars consumers want by relaxing corporate average fuel-economy standards. GM’s third-quarter profit in North America surged 37 percent even as U.S. sales fell due to strong demand for pricier pick-ups and SUVs.

Boosting production of higher-margin vehicles is imperative as auto sales flatten after eight years of robust growth and rising interest rates curb demand. Material costs have also increased due to Mr. Trump’s steel and aluminum tariffs.