GM is hoping to trim dealer new car inventories to keep in balance with plunging sales.
General Motors Corporation has just confirmed as reported earlier today that it is scheduling multiple downtime at 13 assembly operations in North America. The closings will range from one to nine weeks in duration, depending on the plant. An unspecified number of stamping and powertrain plants that supply the final assembly plants will also shut down. All but two of the U.S. and Canadian plants were already scheduled for the traditional summer shutdown during the weeks of June 29th and July 6th.
GM declined to say how many workers will be affected. Outside of those in the he plants, there will be no lay-offs of salaried workers, many of whom work on future products. The Auto Task Force was informed of the decision, which has larger political implications, as it considers both Chrysler and GM bankruptcies, which could come as early as next week.
“We’re taking aggressive steps to accelerate our inventory initiatives that have worked well since the first of the year. While sales have been performing at or close to our plan estimates, and dealer inventories have been reduced accordingly, we want to more closely align inventories with even more conservative market assumptions,” said Troy Clarke, GM North America president. “By reducing our inventories even more aggressively we reduce pressure on GM and our dealers, and set ourselves up well for a clean 2010 model year start-up.”
Under these production shutdowns, approximately 190,000 vehicles will be removed from GM’s North American production schedule in the second and third quarter of this year. More than 40% of GM’s North American capacity will be closed at some time or the other during the next 12 weeks, according to GM. GM has already contracted considerably by its closing of 12 manufacturing facilities in the U.S. between 2000 and 2008. GM will close an additional 14 facilities by 2012. The possibility remains that some, if not all, of the idled plants and related supplier plants will remain closed.
Particularly hard hit are plants in the U.S. and Mexico that make full-size trucks and SUVs, whose sales have all but evaporated. UAW employees will receive supplemental unemployment benefits during the closings, mitigating the effects somewhat. Unknown at this time is the size of the negative effect on GM’s fragile supply base. But one thing is certain, thousands of suppliers will be hurt, and since the industry uses “just in time” delivery of component parts, supplier plants will also shut down in parallel with GM’s.
Delphi’s unresolved bankruptcy case also is involved in the closings, and GM, through its statement today, is attempting to use the closings to force a resolution of an ongoing dispute with Delphi and its bondholders, which prevents Delphi, a critical supplier to GM, from emerging from its bankruptcy. GM is concerend that selective shut-downs of some its plants could be in the offing to force it to grant more concessions.
Delphi, sort of, responded, “Each of the parties have provided proposals for a potential solution that each believed would allow for the successful and rapid resolution of Delphi’s Chapter 11 cases. We remain confident that continuing to aggressively work with all of the stakeholders will result in a satisfactory resolution of these issues. Delphi believes that it is counter-productive to publicly discuss GM’s or Delphi’s restructuring efforts.”
Overall, this is a grim foretaste of what a GM bankruptcy will look like. So the closings will demand the attention of state and national politicians, as media reports and TV coverage describe or show the dire consequences of shutting down so many plants.
At the end of March, about 767,000 GM vehicles were in U.S. dealer stock, down about 108,000 vehicles (-12%) compared with the same period last year; and down 105,000 vehicles from year-end 2008. However, GM dealers still had roughly 120 days of supply, twice what was once considered normal when industry volumes were at much higher levels. GM says these new cutbacks will help reduce U.S. dealer inventory levels to a level of approximately 525,000 vehicles by the end of July. GM says a “strong selection” of vehicles will remain available for shoppers.
During the first quarter of 2009 GM sales declined a stunning 49%, the largest drop experienced by any automaker. Preliminary sales projections for April do not indicate that U.S. market sales, currently running at under 10 million units a year – a 40 year low – will increase any time soon. Still, GM says it is not reducing it forecast for the industry at this time. In GM’s viability plan that the U.S. Auto Task Force rejected in February, GM North America (GMNA) said it could break even at volumes of 11.5-12.0 million units. GM is now making more, as yet unspecified, cuts in its restructuring plan.
GM’s Total Confidence program, announced at the end of March, that provides payment, equity and vehicle protection for owners and their families, appears to have no effect on halting the ongoing sales slide. It offers to cover up to $4,500 in payments should a buyer lose his or her job, and even come up with some cash if a potential customer is “upside-down,” owing more money on their old vehicle than it would bring as a trade-in. The threat of oblivion is without question hurting current sales.
If there is any good news for workers in GM’s latest moves, it’s the maintenance of the build schedules for newly launched or about to launch Chevrolet Camaro and Equinox, Buick LaCrosse, Cadillac SRX and GMC Terrain models. The marketplace acceptance of these remains to be seen.
The drastic cutbacks also “consider the possible production implications” of the contentious negotiations with Delphi and its debtor in possession lenders. Delphi’s bankruptcy case began almost four years ago. Recently, GM has been in negotiations with Delphi and its lenders to ensure GM’s source of supply under what it calls “fair and reasonable terms.” GM has proposed a potential solution that would allow for the rapid resolution of Delphi’s bankruptcy case, but its lenders have rejected this proposal. GM says that without the successful end to this dispute, Delphi or its lenders could force GM into an uncontrolled shutdown. GM, at least in this case, is controlling the shutdowns, giving lenders a preview of what happens if they continue to object to a settlement.