The Gulf Today - Business - - SPECIAL REPORT -

Gen­eral Motors Co’s mon­u­men­tal an­nounce­ment on Mon­day that it will close three car as­sem­bly plants in North Amer­ica and slash its work­force will only par­tially close the gap be­tween ca­pac­ity and de­mand for the au­tomaker’s sedans, ac­cord­ing to a Reuters Anal­y­sis of in­dus­try pro­duc­tion and ca­pac­ity data.

Sales of tra­di­tional pas­sen­ger cars in North Amer­ica have been de­clin­ing for the past six years and are still with­er­ing. After GM ends pro­duc­tion next year at fac­to­ries in Michigan, Ohio and On­tario, it will still have four US car plants, all op­er­at­ing at less than 50 per cent of rated ca­pac­ity, ac­cord­ing to fig­ures sup­plied by LMC Au­to­mo­tive.

In com­par­i­son, Detroit-based ri­vals Ford Mo­tor Co and Fiat Chrysler Au­to­mo­biles NV will have one car plant each in North Amer­ica after 2019.

The Detroit Three are fac­ing rapidly dwin­dling de­mand for tra­di­tional pas­sen­ger cars from US con­sumers, many of whom have shifted to crossovers and trucks. Pas­sen­ger cars ac­counted for 48 per cent of re­tail light-ve­hi­cle sales in the United States in 2014, ac­cord­ing to mar­ket researchers at JD Power and As­so­ciates. This year, sedans will ac­count for less than a third of light ve­hi­cle sales.

That shift in turn has left most North Amer­i­can car plants op­er­at­ing far be­low their rated ca­pac­i­ties, while many SUV and truck plants are run­ning on over­time.

The col­lapse in pas­sen­ger-car de­mand is a chal­lenge for nearly all au­tomak­ers in the United States, in­clud­ing Ja­pan’s Toy­ota Mo­tor Corp and Honda Mo­tor Co Ltd, which have the top-sell­ing mod­els in the com­pact and mid­size car seg­ments. Toy­ota ex­ec­u­tives said last month they are eval­u­at­ing the company’s US model lineup. But Toy­ota also plans to build com­pact Corolla sedans at a new $1.6 bil­lion fac­tory it is build­ing in Alabama with part­ner Mazda Mo­tor Corp.

The ob­sta­cles fac­ing GM in its plans to close more auto fac­to­ries be­came ap­par­ent on Tues­day as US Pres­i­dent Don­ald Trump threat­ened to block pay­ment of govern­ment elec­tric ve­hi­cle sub­si­dies to GM. While it is not cer­tain that Trump uni­lat­er­ally has the power to do that, he made it clear he in­tends to use his of­fice to pres­sure the company to keep open a small car plant in Ohio that GM says will stop build­ing ve­hi­cles in March.

Asked whether GM’S plans to close fac­to­ries and cut jobs might not solve the de­mand prob­lem for its sedans, GM spokes­woman Kim­berly Car­pen­ter said on Tues­day: “We con­tin­u­ously look at our op­er­a­tions for op­por­tu­ni­ties to im­prove our ef­fi­ciency and ca­pac­ity uti­liza­tion. We be­lieve the ac­tions an­nounced yes­ter­day move us in the right di­rec­tion and we will con­tinue to mon­i­tor the mar­ket and con­sumer trends and ad­just ac­cord­ingly.”

Shares of the No. 1 US au­tomaker closed 2.5 per cent lower at $36.69 on Tues­day, after ris­ing nearly 5 per cent the pre­vi­ous day.


GM ex­ec­u­tives have said they do not in­tend to aban­don cars to the ex­tent that Ford and FCA have. GM car plants that will re­main open in­clude Fair­fax, Kansas, which builds the Chevro­let Mal­ibu and Cadil­lac XT4 com­pact SUV. But that plant is op­er­at­ing at 48 per cent of ca­pac­ity, well be­low the 80 per cent that GM Chief Ex­ec­u­tive Mary Barra is tar­get­ing as the av­er­age for North Amer­ica.

A GM plant in Lans­ing, Michigan, that builds the Cadil­lac ATS and CTS and Chevro­let Ca­maro is run­ning at just 33 per cent ca­pac­ity, while the GM Orion Town­ship, Michigan, fa­cil­ity that builds the Chevro­let Bolt elec­tric car and the Chevro­let Sonic sub­com­pact runs at 34 per cent ca­pac­ity. A Bowl­ing Green, Ken­tucky, plant that builds the Chevro­let Corvette sports car works at just 27 per cent of its po­ten­tial out­put, ac­cord­ing to LMC data.

“Un­til GM gets more flex­i­bil­ity in its plat­forms, it will con­tinue to have to play whack-a-mole with its plants as the mar­ket tran­si­tions - and it will hap­pen again,” said LMC an­a­lyst Bill Rinna.

In all, the four GM car plants that will re­main open have a com­bined ca­pac­ity of more than 800,000 ve­hi­cles a year, but are ex­pected to pro­duce only 360,000 cars this year, ac­cord­ing to LMC.

In­dus­try an­a­lysts have said the gen­eral break-even point for run­ning an as­sem­bly plant prof­itably is around 80 per cent. Barra said on Mon­day GM’S North Amer­i­can plants are run­ning at 70 per cent ca­pac­ity - in­clud­ing truck and SUV plants that are work­ing over­time.

Ford plans to end pro­duc­tion in March of the Taurus at its Chicago plant, which also builds the Ex­plorer and Avi­a­tor SUVS. That will leave the au­tomaker with only one US car plant, in Flat Rock, Michigan, which cur­rently builds the Ford Mus­tang and the Lin­coln Con­ti­nen­tal. The Mus­tang is due for a mild re­design around 2021, but the Con­ti­nen­tal is sched­uled to be phased out then, ac­cord­ing to two sources fa­mil­iar with the company’s plans. Flat Rock is run­ning at just 49 per cent of ca­pac­ity, but Ford has said it plans to add new prod­ucts to the plant, in­clud­ing its first au­to­mated ve­hi­cle, in 2021.

Fiat Chrysler still builds the full­size Chrysler 300 and Dodge Charger and Chal­lenger at its Bramp­ton, On­tario, plant. De­mand for those large cars re­mains ro­bust, and the plant is run­ning at nearly 80 per cent ca­pac­ity.

Gen­eral Motors said on Mon­day it will cut pro­duc­tion of slow-sell­ing mod­els and slash its North Amer­i­can work­force be­cause of a de­clin­ing mar­ket for tra­di­tional gas-pow­ered sedans, shift­ing more in­vest­ment to elec­tric and au­ton­o­mous ve­hi­cles.

GM’S ac­tions add up to the big­gest re­struc­tur­ing for the US No.1 car­maker since its bankruptcy a decade ago, and mark a turn­ing point for the North Amer­i­can auto in­dus­try. US au­tomak­ers have en­joyed nearly a decade of pros­per­ity since the 2008-2009 fi­nan­cial cri­sis and the govern­ment bailouts of GM and the for­mer Chrysler Corp.

GM’S an­nounce­ment im­me­di­ately drew crit­i­cism from US Pres­i­dent Don­ald Trump, high­light­ing the po­lit­i­cal risks fac­ing GM.

He de­manded the au­tomaker find a new ve­hi­cle to build in Ohio and added that he had told GM Chief Ex­ec­u­tive Mary Barra he was un­happy with her de­ci­sion to cut pro­duc­tion at an Ohio fac­tory. Ohio will be a key state in the 2020 pres­i­den­tial cam­paign.

“I have no doubt that in the not too dis­tant fu­ture, they’ll put some­thing else. They bet­ter put some­thing else in,” Trump, who has pushed for more man­u­fac­tur­ing jobs through­out his al­most two years in of­fice, said.

GM did not im­me­di­ately com­ment on Trump’s re­marks, but the company noted it has other fa­cil­i­ties in Ohio in­clud­ing a trans­mis­sion plant in Toledo and metal cen­tre in Parma. GM and its ri­vals are fac­ing ris­ing bills for tech­no­log­i­cal trans­for­ma­tion, in­creased risks from US trade pol­icy and in­vestors re­luc­tant to fund their tra­di­tional product strate­gies.

Barra on Mon­day por­trayed the de­ci­sion to put five North Amer­i­can fac­to­ries on no­tice for po­ten­tial clo­sure and cut nearly 15,000 jobs as nec­es­sary to keep the company strong as it plows money into new tech­nol­ogy and new busi­nesses such as robo-taxi ser­vices.

“This in­dus­try is chang­ing very rapidly,” Barra said dur­ing a press brief­ing. “Th­ese are things we are do­ing to strengthen our core busi­ness.” GM shares rose as much as 7.8 per cent fol­low­ing the an­nounce­ment, and were nearly 6 per cent higher at $37.97 in midafter­noon trad­ing. Shares of Detroit ri­vals Ford Mo­tor Co and Fiat Chrysler Au­to­mo­biles NV also rose, out­pac­ing the broader mar­ket.

Newspapers in English

Newspapers from UAE

© PressReader. All rights reserved.