Excess plant capacity helps hasten GM cuts
General Motors Co. and Ford Motor Co. both are cutting slow-selling sedans from their U.S. lineups, but only GM is threatening to close at least five plants here and in Canada to make it happen.
The difference lies, in part, in a wonkish industry term that means the difference between profit and loss, jobs or the road to unemployment in modern auto plants: "capacity utilization." That's the percentage of a plant's maximum capacity being used to build vehicles. Break-even is considered 80 percent, and GM has a lot more U.S. plants running below that threshold than rivals Ford and Fiat Chrysler Automobiles.
Eight of 12 GM assembly plants in the U.S. were operating at 80 percent capacity or less this year, according to data from LMC Automotive. That's a stark contrast with crosstown rivals Ford and Fiat Chrysler Automobiles. Only three of Ford's nine U.S. assembly plants were running below 80 percent of capacity in 2018; two of Fiat Chrysler's six plants were below that same threshold.
"There's no question that when you look across the region, GM's (plant utilization) is behind both" Ford and Fiat Chrysler, said Jeff Schuster, an analyst with LMC Automotive. "We've been flagging that as a warning sign...They got caught with more of a car-capacity. Their scale led to this, and they also had too much on the car side."
As a result, GM is forced to make painful moves to brace for an uncertain future. The automaker last week announced it would idle four U.S. facilities in 2019 as it gears up to spend billions preparing for the electric and autonomous vehicles of the future.
Ford and Fiat Chrysler also assemble more of their top-selling vehicles trucks and SUVs exclusively in the United States than GM, according to LMC data. GM's San Luis Potosi plant in Mexico that produces GM's second-best selling vehicle, the Equinox, has run at 91 percent capacity utilization this year; its Silao, Mexico, plant is running at 145 percent building the four-door Silverado and Sierra. Automakers can run above 100 percent capacity utilization by running extra shifts.
"Some of it is due to what the types of products in those plants are," said Kristin Dziczek, vice president of the Ann Arbor-based Center for Automotive Research. "GM has a dedicated plant for Corvette..."
Ahead of the curve
Ford and Fiat Chrysler closed plants and cut UAW workers a decade ago, ahead of the recession. GM closed plants then, too.
But now, as U.S. vehicle sales flatten after an extended period of growth — and as U.S. consumers increasingly turn away from sedans — under-utilization of plants became a problem for GM. Some of the Detroit automaker's under-producing plants have been operating below 80 percent capacity since 2016.
Of the eight GM U.S. plants running at 80 percent or lower, six build sedans or compact cars. That wouldn't be a problem if GM was gearing up to build new SUVs or trucks in those facilities, experts said. But the automaker has yet to announce plans for such vehicles, leaving the plants "unallocated," an industry term that essentially means a plant has no product to build — the first step toward closure.
"GM is spread out with more facilities," said Dziczek. "Ford builds more of what it sells in the U.S. in the U.S." That includes its best-selling F-Series pickups, all of which are built in the United States.
For now, that's keeping Ford and Fiat Chrysler safe from President Donald Trump's scrutiny. "They haven't been tweeted at, have they?" Dziczek asked.
GM CEO Mary Barra's austerity measures drew the ire of the president and other politicians, and left the United Auto Workers and hourly employees boiling. GM expects to cut 8,000 salaried positions by January — some 3,300 hourly employees are at risk due to the plant idlings tied to sedan cuts announced last week.
Preparing for future
GM says its restructuring actions are proactive steps to prepare for the future. It plans to idle four U.S. plants at the height of national contract negotiations next year with the UAW. And that would cut some of its money-losing sedans after the plants building the Buick Lacrosse, Cadillac CT6 and Chevrolet Impala and Volt stop production.
"We continuously look at our operations for opportunities to improve our efficiency and capacity utilization," Kimberly Carpenter, head of GM labor communications, said in a statement. "We believe the recent actions move us in the right direction based on changing market conditions and customer preferences."
Former Fiat Chrysler CEO Sergio Marchionne saw the sedan's decline coming more than three years ago. Fiat Chrysler in 2016 began expanding capacity for Jeeps and trucks after it decided to cut most of its sedans. Its plants are running so near capacity that the automaker has trouble shutting down facilities to retool for profitable new products.
Ford said in April it plans to drop five sedans by the beginning of the next decade. It already had plans to build SUVs and trucks in their place in the U.S.
Ford hasn't said officially how large its headcount reduction will be. Ford says the cuts it made a decade ago to its plants went deep enough. GM has argued it is trying to avoid those deep cuts this time with proactive measures like those announced a week ago.
Products, products, products
Product allocation is likely to take center stage in GM's negotiations with the UAW next year, as the union fights to keep plants open. Ford negotiated most of that during the last round of UAW negotiations in 2015, Ford officials said.
"Forecasting and planning made that happen," Ford President of Global Operations Joe Hinrichs said. "It was really important that these manufacturing sites have the kind of utilization that we're talking about, because that's what protects the jobs. We do that by filling up the plants with products that people want."
Ford's Michigan Assembly plant had a 25 percent utilization rate through November this year. In October, the Wayne plant began making the the 2019 Ranger — a product Ford says will sell better than the Focus and C-Max they'd been building there.
UAW Vice President Rory Gamble said in a statement Wednesday that a big part of the collective bargaining process is understanding plant utilization. The automakers and the UAW will begin to negotiate a new four-year contract in late 2019.
"A major part of collective bargaining is to pay attention to plant utilization and product footprint," Gamble said. "This is a long-term process that involves strategic investment decisions by the company..."
Experts and officials told The News that no automaker plans for a plant to go down to one shift for any extended period of time. It demonstrates a flaw in product planning, though several factors could have held up GM's ability to better allocate products in the U.S., or close unnecessary plants sooner.
"There's skill and luck here," LMC analyst Jeff Schuster said. "FCA made some of the tough decisions sooner, which at the time cost them volume. They made those decisions, and had the market not done what it has done since then, they might have been caught from a competitive standpoint. Call it foresight or luck or a combination of both, but from a management standpoint, they got there sooner."
Detroit News staff writer Nora Naughton contributed