GM Schedules Additional Plant Downtime Amid Soft Sales, Inventory Glut -- Update
June 14 2017 - 10:35AM
Dow Jones News
By Mike Colias
General Motors Co. will extend the typical summer shutdown at
certain U.S. factories to deal with slumping sales and bloated
inventory, a sign the industry's hot streak is grinding to a
halt.
The No. 1 U.S. auto maker in terms of sales will idle its
Chevrolet Malibu factory near Kansas City for five weeks starting
in late June, Vicky Hale, president of the United Auto Workers
Local 31, said. Job cuts will be needed if GM is forced to slow
assembly-line speeds when those workers return.
Additional downtime is also slated in Lordstown, Ohio, a
small-car factory already stung by deep layoffs related to a
pullback in demand for passenger cars. A GM spokesman declined to
comment on specific plans.
Auto makers traditionally schedule two-week factory breaks in
mid summer, often to prepare for model changeovers. The pace of car
sales, however, is slipping after seven years of record sales and
most major car companies have responded by curtailing output ahead
of summer months that usually are the busiest for the industry.
Ford Motor Co. has also announced production slowdowns at
certain plants. While Ford's trucks are selling at a brisk pace,
its sedans are growing increasingly unpopular as gasoline prices
remain low.
GM enters the summer with a glut of unsold inventory after
running production lines at relatively high rates to prepare for
factory downtime related to plant upgrades. WardsAuto.com estimates
GM's production increased 2.9% over the first four months of 2017,
even as the broader industry pulled back.
As a result, GM's inventory spiked 43.5% at end of May compared
with the prior year. It has nearly 1 million vehicles sitting on
dealer lots, WardsAuto.com estimates, representing 101 days' worth
of supply or 23.4% of total industry stock.
GM's holds about 17% market share. It is emerging from a tough
May when Ford -- traditionally the No. 2 seller -- took a rare lead
in the overall market due to its strong truck sales.
Workers at GM's car plants, including the 2,850 employees at the
Malibu plant near Kansas City, are feeling the brunt of the pain.
GM earlier this year cut thousands of jobs to counter falling sales
of family sedans and smaller cars.
The Lordstown plant, which already cut a shift of production
earlier this year, will close for three weeks in July to lessen
supply Chevy Cruze, said Robert Morales, president of a United Auto
Workers local that represents some Lordstown factory workers.
A preference for trucks is only part of the industry's
problem.
People are now returning an increasing amount of sedans to
dealerships as leases expire. That has created ample supply of
cheap, late-model used cars, making new cars even tougher to
sell.
Tommy Brasher, a Chevy dealer in Weimar, Texas, said his Malibu
inventory is "a little heavy" and business has slowed
across-the-board in recent months.
"We just haven't been seeing much foot traffic or internet
traffic," he said. "April was slow, May was worse and June started
the same."
Wall Street analysts have said concerns about the market have
weighed on GM's stock price, prompting investors to wait and see
how the auto maker weathers the next downturn. RBC Capital
estimates GM could slash up to $1 billion in annual labor costs if
U.S. sales were to slip 20%.
GM executives expect an uptick in the second half of 2017, and
as recently as April said sales will match the record 17.5 million
light vehicles sold in 2016.
The auto maker, however, has said more flexible union contracts
signed over the last decade give it more wiggle room. Nearly
one-third of GM's hourly U.S. hourly workforce, for instance, can
be let go at relatively little cost.
In the past, "the manufacturing cost was very sticky," GM Chief
Financial Officer Chuck Stevens told analysts in April. "That's not
the case now."
GM built up stocks of pickup trucks and some crossover SUVs in
the first half of the year ahead of some factory closures in the
second half to prepare for new models. Factory downtime will dent
third-quarter results.
Weak sedan sales could add further pressure.
GM had expected to boost profitability by offering improved
versions of the Malibu and Cruze, which have received accolades
from automotive critics since rolling out over the last 18 months.
But an incentive war has forced price reductions in the
segment.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
June 14, 2017 10:20 ET (14:20 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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