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General Motors Co.’s decision to close five North American factories, including one in Oshawa, Ont., marks a painful acknowledgment of the auto industry’s challenging future.

Consumers in the United States are buying cars at a slower rate and driving less than they used to. Meanwhile, automakers are facing enormous development costs for the electric vehicles that some analysts expect will come to dominate sales in the near future.

GM chief executive officer Mary Barra said the decision to close plants, which comes with nearly 15,000 job losses, was motivated by a need to free up money to invest in new technology and services.

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The Oshawa's General Motors car assembly plant in Oshawa, Ont., on Nov. 26, 2018.

Eduardo Lima/Canadian Press

“This industry is changing very rapidly,” she said during a press briefing on Monday. “These are things we are doing to strengthen our core business.” The company said that over the next two years, it will double the resources allocated to programs that develop electric and self-driving vehicles.

The auto industry is still profitable and is coming off a number of years of robust new-vehicle sales. But as U.S. economic growth begins to slow, the business is starting to fade: U.S. consumers are expected to buy about 17 million cars and light trucks this year, down from 17.5 million two years ago, according to Bank of Nova Scotia’s economics department. Sales growth is also slowing in China, the world’s largest auto market.

Major manufacturers, especially in North America, must confront an environment where consistent sales and earnings growth will be hard to achieve.

Read more: GM to close 5 North American factories, including Oshawa, in a bid to cut $6-billion globally

Opinion: After GM’s Oshawa plant closure, the Liberals' industrial strategy is losing its credibility

Opinion: What just happened with the Oshawa plant closing? Trump happened, it appears

GM’s announcement demonstrates the industry’s new commitment to cutting costs – but also underlines doubts about whether the industry can return to robust health. Even in good times, margins are relatively thin. In 2017, GM earned about 8 cents of profit, before taxes, for every dollar of revenue.

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Many of the sector’s problems are long-standing. Back in 2015, Sergio Marchionne, then chief executive of Fiat Chrysler Automobiles, delivered a 25-page treatise titled Confessions of a Capital Junkie. Mr. Marchionne, who died this summer, told industry analysts that global automakers were earning meager profits because of the massive cost of developing new vehicles. He argued the only solution for what he described as “structurally low and volatile returns” was for the industry to consolidate around a few big players.

Three years later, the industry still looks as precarious as ever. Strong economic growth in the United States and Canada may have kept auto sales at healthy levels in North America, but the underlying trends are not encouraging.

Rising interest rates may deter buyers over the next year. So could an expected slowdown in the United States as the impact of the Trump administration’s tax cuts begins to fade.

On top of that, there is the impact of the metals tariffs imposed by the White House. Ford Motor Co. chief executive James Hackett said in September the levies on foreign-made steel and aluminum will cost the company about US$1-billion in profit. GM indicated it is suffering similar damage.

Both companies trimmed their profit forecasts this summer and saw their share prices shrivel. Even after strong gains after the plant-closing announcement, GM shares are still down 8.2 per cent since the start of the year. Over the same period, Ford shares have lost 23.9 per cent.

Many of the most persistent trends are bad news for automakers. In the United States, the pace of car buying has been in decline for a generation, according to Jill Mislinski of Advisor Perspectives. She estimates the number of vehicles sold each year per 1,000 people has slid by 29 per cent from its peak in 1986.

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The slowing sales rate reflects, in part, the increased quality and dependability of new vehicles. It may also reflect changing generational attitudes about cars: Millennials seem considerably less excited about vehicles than their parents were. But whatever the exact reasons, the turn away from cars is not a welcome development for companies or their shareholders.

Neither is the drop in driving. The annual number of vehicle miles travelled a person in the United States has dropped 5.7 per cent since 2005, according to Ms. Mislinski. She points to an aging population and growing numbers of telecommuters as key factors in that decline.

Looming ahead is the transition to electric vehicles. Automakers are rushing to develop the necessary technology, but “it will require substantial investment that will pressure the already thin margins in the highly competitive industry for years,” Moody’s Investors Service warned this year.

Self-driving vehicles and ride-sharing services such as Uber and Lyft pose an even longer-term threat to car sales. McKinsey & Co. predicts one in 10 new cars will be shared vehicles by 2030 and one in three by 2050.

It all adds up to a daunting outlook for automakers. Ford announced in August that it was phasing out most of its sedans in North America to concentrate on more profitable trucks and SUVs. GM’s big wager appears to be on electric and self-driving vehicles. Maybe those bets will pay off, but the safest bet of all is to expect even more disruption ahead.

For 100 years General Motors has been manufacturing cars in Oshawa, at one point being home to one of the largest assembly plants in the world. But now GM says they plan to shutter their Oshawa operation as part of a global restructuring.

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