By Mike Colias
ORION TOWNSHIP, Mich. -- Despite its drastic downsizing a decade
ago under a federally funded bailout and bankruptcy restructuring,
General Motors Co. again finds itself with too many U.S. factories
that can turn out too many vehicles.
But as GM considers how to trim the excess capacity, which
saddles the company with higher fixed costs, it faces a tricky
political factor: President Donald Trump's insistence that auto
makers assemble more of their vehicles in America and not in
lower-cost plants elsewhere.
This year through August, GM built about 7% more vehicles at its
North American plants than rival Ford Motor Co. but used about
one-third more assembly plants to do so, according
WardsAuto.com.
GM's factory-utilization rate in North America averaged 95.1%
over the last two years, below Ford's 111.9% and Toyota's 101.4%,
Wards data shows.
GM's sprawling factory here in Orion Township, a suburb north of
Detroit, is a glaring example of the company's predicament. It
makes the slow-selling Chevrolet Sonic subcompact and the new Bolt
electric model, for which GM has modest though undisclosed sales
goals.
One recent afternoon, workers filed into the parking lot a few
minutes after the day's sole production shift ended -- a rarity in
an industry that often runs its factories dawn-till-dusk or even
around the clock to boost their efficiency.
GM recently lowered production at Orion by 20%, resulting in 100
lost jobs, said people familiar with the matter. GM declined to
quantify the cuts but confirmed it is making fewer Sonics.
"The Bolt is hanging in there, which is good," Henrietta
Holland, an Orion factory worker, said after her shift. "But we are
worried" about job security. "We feel like we should be getting
another product."
Factory-utilization rates typically measure how much production
capacity a plant uses based on a 16-hour workday. GM says its
utilization rate is 100% on average when its round-the-clock truck
and sport-utility vehicle lines are figured in with the relatively
sleepy factories making cars.
While GM boosted its U.S. employment by more than 6,000 factory
jobs since 2010, it also bulked up production in Mexico for export
to the U.S. under the North American Free Trade Agreement. It
recently started making two popular crossover SUV models south of
the border and for years has imported large pickup trucks from
there.
GM has no plans to construct new U.S. factories, and executives
in recent years have weighed closing at least two existing ones,
according to people familiar with the matter.
Some of the low usage of its U.S. plants stems from a decision
GM made a number of years ago to revitalize its lineup of sedans
and coupes, including a new Chevy Malibu that has garnered glowing
reviews from critics. But in the past few years, low gasoline
prices prompted millions of Americans to gravitate from passenger
cars to less-fuel-efficient SUVs and pickup trucks.
To be sure, all auto makers have been grappling with the
dramatic consumer shift. Less than 10 years ago, passenger cars
accounted for roughly half of U.S. vehicle purchases at retail.
Last month, cars accounted for a record low of 35%, according to
J.D. Power.
While leaving some GM plants with unused capacity, this switch
has boosted the company's bottom line. Its plants that build the
highly profitable Chevrolet Silverado pickup, for instance, are
working overtime, which helped GM earn a record $12.5 billion
operating profit in 2016. GM's stock price has hit a multiyear
high.
Chief Executive Mary Barra, a GM lifer of more than three
decades who once roamed the factory floors as a plant manager, must
contend with the capacity glut at the same time the company is
making costly investments in electric cars and self-driving
vehicles.
GM said it is working to "driver further improvements" in its
plant utilization, including adding crossover SUVs to more factory
lines. A plant in the Kansas City area that now makes only the
Malibu is scheduled to begin assembling a small Cadillac SUV by
late 2018. But such a switch-over typically takes car makers
several years of lead time, to order and install new assembly-line
equipment and tooling.
GM operates 17 vehicle-assembly plants in North America, after
closing several during its bankruptcy. Most, save five that operate
around the clock to build trucks and SUVs, have ample unused
capacity.
GM's Detroit-Hamtramck assembly plant, the lone factory in the
auto maker's hometown, in 1999 cranked out more than 200,000
Cadillacs and Buicks. It will likely make around 80,000 vehicles
this year.
Compared with competitors, GM has a larger number of plants that
make only cars. That has forced GM to make more-drastic moves when
adjusting production toward trucks and SUVs. It has cut nearly
3,000 jobs since late last year, leaving many U.S. factories on
reduced schedules.
GM has more leeway to cut factory workers under more-flexible
terms under its recent contracts with unionized workers. It doles
out less in unemployment benefits and uses more temporary workers
who aren't due money when they are let go.
GM can "react to market dynamics and take costs out more
aggressively compared with past [economic] cycles," company finance
chief Chuck Stevens told analysts last year.
Some analysts expect Ms. Barra will make aggressive moves with
underused plants, after showing a willingness to ditch money-losing
operations in Europe and elsewhere that other GM executives had
long tolerated.
"I would expect to see GM make some bold moves on their car
lineup," said Jeff Schuster, an analyst at research firm LMC
Automotive.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
October 09, 2017 14:07 ET (18:07 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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