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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowGeneral Motors Corp. is planning to temporarily close most of its U.S. factories
for up to nine weeks this summer because of slumping sales and growing
inventories of unsold vehicles, three people briefed on the plan said yesterday.
Thousands of GM workers could learn about the decision as early as today.
The exact dates of the closures are not known, but the people said they will
occur around the normal two-week shutdown in July when changes are made from one
model year to the next. None of the people wanted to be identified because
workers have not yet been told of the shutdowns.
GM spokesman Chris Lee would not comment other than to say the company
notifies employees before making any production cuts public.
One of the people briefed on the plan said details are still being worked
out. Some of the closings could be staggered between mid-May and the end of
July, but the exact number of plants to be idled has not yet been
determined.
Another person said a few plants that make more popular models could remain
open for part of the shutdown period, but at reduced assembly-line speeds.
Thousands of workers could be laid off but would still get most of their pay
because their United Auto Workers union contract requires the company to make up
much of the difference between state unemployment benefits and their wages. UAW
officials at several factories said they have meetings scheduled today and tomorrow with plant managers and GM human resource officials to discuss production
changes.
The shutdown could be catastrophic to many auto parts suppliers that already
are near bankruptcy due to previous production cuts. During the shutdown,
suppliers couldn’t ship parts to GM and would lose critical revenue.
“It’s one of those things we’ve been dreading for a long time,” said Jim
Gillette, director of financial services at auto-industry consultant CSM
Worldwide in Grand Rapids. “It’s as bad as its ever been.”
He said that many suppliers are making employee cuts or forcing workers to
take furloughs to reduce operating expenditures.
GM is living on $13.4 billion in government loans and faces a June 1 deadline
to cut its debt, reduce labor costs and take other restructuring steps. If it
doesn’t meet the deadline, the company’s CEO has said it will enter Chapter 11
bankruptcy protection.
The Treasury Department declined to comment on any effect the plant shutdowns
might have on GM’s restructuring plans.
Separately yesterday, GM announced that it may miss a $1 billion bond payment
also due June 1 if its debt-for-equity exchange is still in progress by then. GM
also could go into bankruptcy protection, which could make the company miss the
payment as well.
The company plans to make the exchange offer soon to bondholders, perhaps as
early as next week. GM has $28 billion in unsecured bond debt and is under
government pressure to reduce that to solidify its balance sheet.
GM’s sales were down 49 percent in the first quarter compared with the same
period last year, and GM had a 123-day supply of cars and trucks at the end of
March, according to Ward’s AutoInfoBank. That’s down from 162 days worth in
January.
But, as of March 31, the automaker had a more than six-month supply of several
models including the Pontiac G5 compact and Chevrolet Silverado hybrid pickup
truck. The lengthy shutdown likely means that GM doesn’t see its sales
rebounding anytime soon, said Tom Libby, an independent Detroit-area auto
industry analyst.
“They must be forecasting a sales level that is low enough between now and
the summer that they see their inventories building,” he said. “It’s sort of an
ominous comment on what they see for the industry.”
Libby also suggested that the company’s sales may be declining because
customers are concerned about the automaker possibly filing for bankruptcy
protection.
GM CEO Fritz Henderson has said the company would prefer to restructure
outside of court, but it is preparing for a prearranged bankruptcy as well as
one in which good assets would be separated from underperforming ones.
“Just using the word bankruptcy, their (market) share is down a lot just
because of this talk,” Libby said. “They may be counting on a further
decline.”
The plant closures add to the onslaught of bad news coming out of GM, said
John Clark, president of Avenue Chevrolet, a dealership in Batavia, Ill., near
Chicago.
“Henderson making statements about bankruptcy sure doesn’t help his cause,
and all of the sudden we have this,” he said. “I’ve been getting calls from
customers about warranties. I can’t see this as a positive move.”
The government has said it would guarantee GM and Chrysler warranties as the
companies restructure.
Libby did say GM should be applauded for not building too many vehicles and
then having to spend big on rebates and other incentives to move them, something
the Detroit Three have been guilty of in the past.
Nearly all automakers with U.S. factories have closed plants or cut
production to deal with the auto sales slump. Earlier this year, GM temporarily
closed 20 factories across North America due to weak sales, some for the entire
month of January. Chrysler LLC, also subsisting on government loans, closed all
30 of its manufacturing plants for a month in January to counter the auto sales
downturn.
Ford Motor Co. also shut down 10 North American assembly plants for an extra
week in January, and both Toyota Motor Corp. and Honda Motor Co. have cut
production.
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