GM to Trim Production of Trucks, SUVs
Wednesday, June 4, 2008
General Motors officially blew up its old business model yesterday, closing four pickup truck and sport-utility vehicle factories, announcing a new small car that could get 45 miles per gallon, and shedding 8,350 jobs in the process.
As it tries to deal with a consumer shift to smaller vehicles brought on by $4 per gallon gasoline, the automaker said it would idle pickup and SUV factories in Janesville, Wis.; Oshawa, Ontario; Moraine, Ohio; and Toluca, Mexico. GM also took aim at the Hummer, one off the largest vehicles on U.S. highways, saying it would either be sold or get a remake.
The company said the truck plant cuts, which will reduce capacity to produce pickups and large SUVs by about 35 percent, will save the company $1 billion per year, and when combined with earlier measures, by 2011 will save $15 billion vs. 2005 costs.
GM's moves, which follow a series of restructuring measures since 2005, are the result of a huge shift in U.S. consumer preferences for small cars and crossovers during the past two months.
"We at GM don't think this is a spike or temporary shift," chief executive G. Richard Wagoner Jr. said. "We believe that it is, by and large, permanent."
GM said yesterday that its U.S. sales fell 28 percent in May compared with a year earlier. Ford's sales fell 16 percent, Chrysler's sales were down 25 percent, and Toyota's sales slipped 4 percent.
Honda, riding the wave of customers seeking better fuel efficiency, said its sales jumped 18 percent, led by a 36 percent increase in car sales. Nissan said its sales rose 8 percent, with a 19 percent increase in car sales.
The GM plant closures add to a string of similar actions by the Detroit automakers in the past several years. GM, Ford and Chrysler have announced the shutdown of 35 plants since 2005, according to Sean McAlinden, chief economist with the Center for Automotive Research. Along with 35 additional closures at GM and Ford's chief suppliers, Delphi and Automotive Components Holdings, he said the total hourly and salaried jobs eliminated comes to 149,000.
Pete Hastings, senior analyst with Morgan Keegan, said GM's moves are painful yet prudent.
"It's a permanent shift, and they're right to recognize it," he said. "But is it enough? It's a bit early to tell. . . . That's the hard part of gauging where we are in the economy -- and how deep or strong the shift in demand is for more fuel-efficient vehicles."
Just before the company's annual shareholders' meeting in Wilmington, Del., Wagoner also announced that GM will build a new generation small car starting in mid-2010 at a factory in Lordstown, Ohio, that now makes the Chevrolet Cobalt.
In the past, costs generally were too high for Detroit automakers to turn a profit on small U.S.-built cars. But Wagoner said GM has cut costs enough with new labor contracts and other measures to turn a profit.