GM To Cease Production In Ohio, Wisconsin, Canada, Mexico

[Dragunov]

Maurna Desmond, 06.03.08, 10:25 AM ET

General Motors is fighting a two-front battle. The hundred-year-old car company is battling rising fuel costs by shrinking the vehicles on its production lines and is trying to weather the damage wrought by the subprime mortgage mess in its troubled finance unit, GMAC.

On Tuesday, General Motors (nyse: GM - news - people ) Chief Executive Officer Rick Wagoner announced that four truck and SUV plants in North America are being shut down as the carmaker reacts to rising fuel costs and increased demand for compact cars and crossover vehicles.

Investors liked Wagoner's tough call. The Detroit-based company added 34 cents, or 2.0%, to $17.44, in premarket trading. The bump up ran counter to the general trajectory of the stock; GM has fallen 42.8%, or $13.06, in the past year.

"We are making a number of important announcements today, covering everything from product and technology investments to capacity adjustments to a strategic review of our Hummer brand," said Wagoner in a televised news conference. "These moves are all in response to the rapid rise in oil prices and the resulting changes in the U.S., changes that we believe are more structural than cyclical."

Wagoner said the doomed plants are located in Oshawa, Canada; Moraine, Ohio; Janesville, Wisc.; and Toluca, Mexico. GM expects the closures to amount to cost savings of more than $1.0 billion by 2010. The automaker currently has $24.0 billion in cash and another $7.0 billion in undrawn credit lines to make it through 2008, but some analysts are saying that that amount just won't cut it. (See: "GM May Need A Loan, And Soon")

While GM faces difficulties relating to gas prices on one front, it is being haunted by subprime woes on another.

GMAC's Residential Capital subsidiary said in a regulatory filing Tuesday that it may need up to $1.4 billion more in cash to keep current on its debts. The troubled mortgage unit had originally said last June 30 that $600 million would be sufficient "to meet its near-term liquidity needs."

Minneapolis-based ResCap is feeling a tighter squeeze than expected because it hasn't been able to sell roughly $1.3 billion in assets as desired, citing "adverse conditions." ResCap posted its sixth consecutive quarterly loss in the first quarter, losing $859.0 million. Standard & Poor's downgraded its parent, GMAC, in February, citing mounting mortgage losses that might require new capital injections from General Motors. (See: "GMAC Barrels Downhill")

The mortgage misery at GMAC (nyse: GJM - news - people ) is shared by not only GM, which owns 49.0%, but by a group led by private equity firm Cerberus Capital Management, which bought 51.0% of GMAC from the automaker in 2006.

http://www.forbes.com/markets/2008/06/03/gm-factory-closure-markets-equity-cx_md_0603markets09.html?feed=rss_markets

[vinny_121_ND]

It's a good move to cut the hummer line. Nobody can afford to buy them.

[nullterm]

When a company is closing it's factory in Mexico, you know somethings up. Looks like its at a point where the market is changing so much that the manufacturers are having to rethink their whole approach.

[2Sheds_Jackson]

It's a good move to cut the hummer line. Nobody can afford to buy them.

Oh I think lots of folks can afford them - but SUVs were a fashion trend for 90% of the people who bought them. People bought them because they were interested in what others would presumably think of them when they saw them behind the wheel. Now the fashion has changed, that's all. Good thing too - if we're going to engage in wretched excess - let's at least push technology and frugality, not just excess for the sake of excess.

I saw last week that Ford is building new factories in Mexico to produce the new Focus for North America. Way to help out the home team guys. I honestly think that unions will be the undoing of Ford and GM as we now know them. They'll have to be completely torn down and rebuilt without the baggage of union commitments.

[Fade]

People are abandoning gas guzzlers in record numbers now, often only getting half the listed blue book value when selling. It won't be long before people simply abandon vehicles altogether, as a means of saving a substantial amount of money in the face of rising inflation and food costs...others like the working poor just simply wont be able to afford a personal vehicle, period. We ourselves are looking at getting rid of our vehicle and switching to cycling or public transport.

[Merfeller]

People are abandoning gas guzzlers in record numbers now, often only getting half the listed blue book value when selling. It won't be long before people simply abandon vehicles altogether, as a means of saving a substantial amount of money in the face of rising inflation and food costs...others like the working poor just simply wont be able to afford a personal vehicle, period. We ourselves are looking at getting rid of our vehicle and switching to cycling or public transport.

With respect, I think you might be overstating things a little. What do you mean they will "abandon vehicles altogether?" Fuel costs just a tad over $4 per gallon where I live and the last time I checked my family in Germany was paying the equivalent of $9 per gallon, yet they still maintain several vehicles. People will simply become more frugal in the cars they pick, that's all. A car company is idling plants and shutting production lines due to market forces. Nothing new.

[2Sheds_Jackson]

Right, it's not like this hasn't happened before. I think a lot of Americans suffer from a lack of perspective - especially young folks. Lots of them have never lived through anything but prosperity and excess. I grew up with the sh*tty little cars of the late 70's and early 80's. Corvettes with 165 hp, 4cyl 90hp Dodge Chargers, Toyota pickups so small that your shoulders would squish into your passenger, GM X-cars, Chrysler K-kars, Renault LeCars for chrissakes. I've watched the latest explosion of leather-lined, 5000lb 300/400hp excess with full knowledge that it was nothing more than a buildup to the next bottleneck. And here we are - things will change, and then they'll change again. Nobody is going to stop driving, we'll just drive something more reasonable...until gas gets exceptionally cheap again, and then we'll do it all over again. :|

[Fade]

With respect, I think you might be overstating things a little. What do you mean they will "abandon vehicles altogether?"

They, as in people like me and my GF who have decided we can no longer afford a vehicle due to the permanently rising cost of fuel eating up more and more of our disposable income. Other, more cheaper forms of transportation are suddenly looking very attractive.



People will simply become more frugal in the cars they pick, that's all.

This is already happening, as I mentioned - and in record numbers.



A car company is idling plants and shutting production lines due to market forces. Nothing new.
GM's CEO himself has stated that this isnt a cyclical situation as you decribe, he states it as more of a structural shift in their opinion. Those 4 plants are being closed, too - not idled. The company does not plan to allocate any new products to the four plants slated for closure.

To quote Wagoner: ""We at GM don't think this is a spike or a temporary shift. We believe that it is, by and large, permanent,"

[vinny_121_ND]

Right, it's not like this hasn't happened before. I think a lot of Americans suffer from a lack of perspective - especially young folks. Lots of them have never lived through anything but prosperity and excess. I grew up with the sh*tty little cars of the late 70's and early 80's. Corvettes with 165 hp, 4cyl 90hp Dodge Chargers, Toyota pickups so small that your shoulders would squish into your passenger, GM X-cars, Chrysler K-kars, Renault LeCars for chrissakes. I've watched the latest explosion of leather-lined, 5000lb 300/400hp excess with full knowledge that it was nothing more than a buildup to the next bottleneck. And here we are - things will change, and then they'll change again. Nobody is going to stop driving, we'll just drive something more reasonable...until gas gets exceptionally cheap again, and then we'll do it all over again. :|

I think it's well said coming from somebody who has seen it all.

[I can't think of a name]

Even when gas was cheap my parents would scoff at gas guzzelers, not for environmental reasons but rather for economic ones. Instilled in me the money you can save without a big v8 SUV.

I am happy now to see people who bought cars they could not afford to begin with only to look cool now get burned by gas prices and cars they cannot sell. Dumb people deserve to lose money.

[2Sheds_Jackson]

I think it's well said coming from somebody who has seen it all.

Well Jeez I'm only 44...I don't think I've seen it all just yet. My grandparents (the last of whom died last year) had seen it all. They grew up when major US cities still had dirt roads and horses with carriages running around. They lived through 2 world wars, various booms/busts/depressions/recessions, the invention of the airplane, landing a guy on the moon, space stations, robots on Mars, horse-drawn artillery and GPS guided bombs, ladies at the beach clad in baggy clothes from head to toe, and Anna Nichole Smith. I'm just saying that lots of times the crisis du jour really isn't all that much of a crisis unless they're making you dig your own grave at gunpoint.



GM's CEO himself has stated that this isnt a cyclical situation as you decribe, he states it as more of a structural shift in their opinion. Those 4 plants are being closed, too - not idled. The company does not plan to allocate any new products to the four plants slated for closure.

To quote Wagoner: ""We at GM don't think this is a spike or a temporary shift. We believe that it is, by and large, permanent,"

Those are good points - I'd comment that GM is a business - and they're duty is to that business, not the truth. They've signed union contracts, and are bound to do things a certain way under certain circumstances. In other words - they may very well be doing things with an ulterior motive in mind.

Also remember that the margin on SUV's was huge - GM made lots of money from each one, vs far less from say a Cobalt. GM maintained it's profitability by riding on those SUV profits. If GM has a few billion dollars to invest, it may think it's smarter to take that money to other parts of the world to do other things, rather than try to make a living building Cobalts here in the US. (OMG I just looked up the Cobalt on Wiki...it's built in Mexico :cantbeli:).

[Fade]

Those are good points - I'd comment that GM is a business - and they're duty is to that business, not the truth. They've signed union contracts, and are bound to do things a certain way under certain circumstances. In other words - they may very well be doing things with an ulterior motive in mind.


Absolutely, and it wouldn't be unreasonable to think that the weight of their union obligations figured prominently in their decision making process in relation to the various plant closures. It seems the Union feels something fishy is afoot too.

[tbk107]

I think this knocks GM down to one manufacturing facility in Canada(Ontario) plus one joint venture. Only one fu*king plant left; just brutal. Our manufacturing base in Ontario is just getting hammered.

Only good news out of this for Ontario is that it's one more nail in the coffin of the equalization program thats been looting Ontario taxpayers money for decades and sending it to other provinces so they can gold plate their public services.

[Clayton Gold]

I honestly think that unions will be the undoing of Ford and GM as we now know them. They'll have to be completely torn down and rebuilt without the baggage of union commitments.

X2 - I've been saying this for years, but many people scoffed at me.

Fact is - when I went to high school in Oshawa in the 90s, there were lads I knew who would drop out and go work at GM for $25-40/hour. I always thought that this was outrageous. Where else can you find $40/hour unskilled labour ?

It seems to me they allowed the unions to demand whatever they wished, because the Ontario govt was subsidizing so much money into these plants.

Now that it's time for them to come good on their commitments, they suddenly are realizing that it is impossible. :cantbeli:

I read somewhere recently that GM has avg. labour costs of $78/hr; while most "foreign" companies avg around $45/hour. I cannot recall the source at the moment, but I will try and find it tonight.

Seems to me that unless they're willing to play hardball with the CAW, they don't stand a chance at making money anymore.

[vinny_121_ND]

2sheds, I wasn't being sarcastic. I meant what I said. You're older than I am, also have more overall knowledge than I do. But, you're not that old.

[Igor01]

...until gas gets exceptionally cheap again, and then we'll do it all over again. :|

With 2.5 billion Chinese and Indians quickly increasing their energy and resources consumption, we may never see "exceptionally cheap" gas ever again.

[Kilgor]

Most of the makers are experiencing sales drops in the US, but particularly the "big three". Its the 70's oil crisis all over again with Japanese and European models that are far better built and economical getting the sales while stagnant US domestic production can only offer second best. Decades of refusing to improve fuel standards and surviving on SUV sales have come back to bite them in the arse.

[annihilation]

I saw last week that Ford is building new factories in Mexico to produce the new Focus for North America. Way to help out the home team guys. I honestly think that unions will be the undoing of Ford and GM as we now know them. They'll have to be completely torn down and rebuilt without the baggage of union commitments.


You think they will be? They have been already. Unions with such unfair demands and a management that can't dig themselves out of a sandbox have destroyed the big 3. They are behind the times by 5 years and slow as molasses. I felt sorry in the past but now I just want it get over with. Its a slow death.

[annihilation]

With 2.5 billion Chinese and Indians quickly increasing their energy and resources consumption, we may never see "exceptionally cheap" gas ever again.

Gas will be cheaper again starting 2009. There is plenty of oil in the world, the question is how to get it out. Like the Dakotas oil fields are a good point.

[Luno]

Gas will be cheaper again starting 2009. There is plenty of oil in the world, the question is how to get it out. Like the Dakotas oil fields are a good point.

i dont know if gas gone get cheaper again but i really hope so ,
4.15 $ a gallon is killing me :(
but the good thing is we starting to see some nice small european cars in Usa like the Opel astra :)

[Violet Fashion by Mindy]

I saw last week that Ford is building new factories in Mexico to produce the new Focus for North America. Way to help out the home team guys. I honestly think that unions will be the undoing of Ford and GM as we now know them. They'll have to be completely torn down and rebuilt without the baggage of union commitments.

How can you blame unions for this?

I got a lot of time for you 2Sheds but this is something I'm very passionate it about and it wants to be a bloody good answer because I will argue tooth and nail on this issue.

[Thor]

i dont know if gas gone get cheaper again but i really hope so ,
4.15 $ a gallon is killing me :(
but the good thing is we starting to see some nice small european cars in Usa like the Opel astra :)
I thought you would say it's a major relief? :) That's 6,50 kr/liter...

[Clayton Gold]

Here is a site (http://nospeedbumps.com/?p=606) with some figures I was speculating on before.

Obviously it`s a biased site, but the facts are sourced and correct.


http://www.nospeedbumps.com/wp-images/gmToyotawagecompare.jpg

[jetsetter]

How can you blame unions for this?The UAW has been destroying GM for years. They get paid more than everyone else and do a worse job then everyone else. I've heard that there is a company in Japan that imports Buicks. Before they sell them they take them apart and put them together according to the manufactures specifications. Apparently those improved vehicles ran smoother and quieter than the Buicks put together by the UAW. GM is my favorite of the Big Three but I am tired of these constant UAW strikes. They don't deserve to strike.

[annihilation]

The UAW has been destroying GM for years. They get paid more than everyone else and do a worse job then everyone else. I've heard that there is a company in Japan that imports Buicks. Before they sell them they taken them apart and put them together according to the manufactures specifications. Apparently those improved vehicles ran smoother and quieter than the Buicks put together by the UAW. GM is my favorite of the Big Three but I am tired of these constant UAW strikes. They don't deserve to strike.

I had a friend who worked for GM. He needed a part tested at a lab so he ordered the parts and assembled the pieces himself. The next day he gets a letter from the union (he is not union) saying some violation of laws of taking a job from the union. So had to order new parts and have a union guy assemble it. How god damn stupid.

[deagle]

Gas will be cheaper again starting 2009. There is plenty of oil in the world, the question is how to get it out. Like the Dakotas oil fields are a good point.

hopeful, but certainly doubtful.

[Power_serj]

Who knows, these high gas prices might to turn out for the better. If companies start to see that fuel efficiency is important, they will start to seriously look into highly fuel efficient vehicles, plus they might start to take alternative fuel seriously (as opposed to looking for government subsidies for using ethanol). If competition really takes off between the major car companies, high fuel efficiency and alternative fuels for cars may come to us quicker than we thought.

problem+capitalism+competition= solution

[Mr Gently Benevolent]

I've heard that there is a company in Japan that imports Buicks. Before they sell them they take them apart and put them together according to the manufactures specifications. Apparently those improved vehicles ran smoother and quieter than the Buicks put together by the UAW.I very much doubt that the unions are the sole cause of the Buicks poor finish it's usually down to poor QM