GM faces fiscal, political minefields
With too many factories making slow-selling cars, General Motors can’t afford to keep them all operating without making some tough decisions. But the political atmosphere might be limiting its options.
A possible scenario, analysts say, is to close its sprawling Lordstown plant in northeastern Ohio because the compact car it makes also is built in Mexico. The once-bustling factory already has lost two of its three shifts and 3,000 union jobs since the beginning of last year.
But moving that car, the Chevrolet Cruze, south of the border brings the risk of provoking a backlash and tweetstorm from President Donald Trump. And GM also isn’t sure whether he’ll make good on threats to impose 25 percent tariffs on vehicles imported from Canada and Mexico.
Also at issue is that the Cruze plant just outside Youngtown is in a Democratic and labor stronghold, where Trump won over a surprising number of voters two years ago by reaching out to what he called America’s “forgotten men and women.”
At a rally near the plant last summer, Trump talked about passing by big factories whose jobs “have left Ohio,” then told people not to sell their homes because the jobs are “coming back. They’re all coming back.”
Altogether, GM has five car factories with plenty of unused capacity in Kansas City, Kansas; Lordstown; and DetroitHamtramck, Lansing, and Orion Township, Michigan.
Three are running on one shift per day, which is inefficient and costs GM money. Automakers like to run plants on at least two daily shifts.
To deal with the overcapacity, GM either will have to eat the added costs, close one or more plants, or retool them to build trucks and SUVs that now are favored by U.S. buyers.
GM’s closest competitors, Fiat Chrysler and Ford, plan to scrap most car models and convert plants to trucks and SUVs. GM, however, recently revamped much of its car lineup and banked on sales stabilizing. But last month, trucks and SUVs reached a record 68 percent of U.S. newvehicle sales.
In the U.S., automakers have enough factory capacity to build about 14 million vehicles per year, but last year they manufactured only 11 million. More than one-third of that idle capacity — 1.3 million vehicles — is in the five GM car plants operating at 37 percent capacity, said Kristin Dziczek, a vice president at the Center for Automotive Research, an industry think tank.
GM car plants are operating at 37 percent of their capacity, she said. Many truck and SUV plants, however, several of which run three shifts a day, are at 105 percent capacity.
So that leaves the automaker with the three choices: Run plants under capacity and risk reduced profits, close at least one plant and move its product to another, or move products to the U.S. from other countries, mainly Mexico, to fill the underused factories.
Dziczek thinks GM will take the final choice, converting car plants to trucks and SUVs, especially if the Trump administration slaps 25 percent tariffs on imported vehicles.
GM, which imports some of its profit-rich pickup trucks from Silao, Mexico, and SUVs from China, would be hardpressed to absorb the tariff cost. So in order to stay competitive, it would move, Dziczek said.