GM Cuts Entire Shift at Factory for Crossovers, Laments “Moderating” Sales, Layoffs not Temporary

WOLF STREETHottest segment cools. Harvey and Irma Won’t End Carmageddon.

For the first eight months of the year, car sales by GM and Ford plunged 19%. Industry car sales fell 11%, despite record incentives. Sales of trucks – pickups, SUVs, crossovers, and vans – have been the big hope. Total truck sales are up 3% for the year, reducing the overall sales decline to 3%. Particularly crossovers have been red-hot. Every manufacturer has jumped into this booming segment. They’ve been the big hope. But now, even that hope is fading.

“Although crossovers now make up a larger share of the automotive industry, overall volumes are moderating,” General Motors told employees in a layoff notice at its Spring Hill, Tenn., assembly plant that makes the GMC Acadia and Cadillac XT5. These crossover models are among the very vehicles GM is counting on to pull it out of its sales funk.

“We believe the best way to react…is to reduce output,” the statement said.

GM will eliminate an entire overnight shift with about 1,000 workers. Some of the workers might be transferred to the engine or component manufacturing side of the plant, according to the GM spokesman.

The notice was sent on Friday. It was meticulously timed. By the time it was reported by the Wall Street Journal, the markets had already closed and no one was supposed to pay attention any longer.

Already in December 2016, GM announced that it would kick-start 2017 by temporarily closing five assembly plants, temporarily laying off 10,000 workers. But most of those employees were involved in making cars.

What GM told its employees on Friday was different: It would cut an entire shift, it would not be temporary, and the purpose would be to cut production of formerly hot crossovers.

Every automaker is pursuing the hot crossover segment with a vengeance. They’re still selling, but not as well as expected, and demand is “moderating,” as GM put it, and now overcapacity is setting in, the bane in auto manufacturing. It has been hounding plants that make cars. But now the problem is spreading the plants that make crossovers.

In June, GM already announced that it would extend its normal summer shutdown at some plants in the US.

Ford, just days ago, announced that it would idle three plants in the US and two in Mexico that employ tens of thousands of people. The shutdowns will range from one to three weeks. But they build mostly cars, whose sales have crashed as consumer went for crossovers and SUVs, presumably.

“We are continuing to match production with consumer demand, as we always do,” Ford said in a statement, which is the same lingo it always uses during these occasions.

Given that the shutdown of the Ford plants impacts car production, they’re still clinging to the script that car sales have crashed, while SUVs and crossovers are barely hanging on.

Earlier this month, Fiat Chrysler Automobiles announced that it would shut down its plant in Windsor, Ontario, for five weeks starting in October, to “balance production” of two minivans. It has already eliminated two car lines and no longer manufactures cars in the US. It has been the hardest-hit among US brands, with car sales down 22% this year, truck sales down 5%, and total sales down 7.7%. Only Hyundai (-12.7%) and Kia (-8.4%) have booked larger drops.

The plant shutdowns at GM and at Ford were announced after Hurricanes Harvey and Irma had entered the equation. The hurricanes were initially expected to cause an upsurge in new vehicle demand.

Everyone in the industry wants to know how many flood vehicles will be replaced by new cars, how many will be replaced by used cars, and how many will be repaired.

Warren Buffett, whose Berkshire Hathaway owns auto insurer Geico, shed some additional light on this last Tuesday. Geico is the second largest auto insurer in Texas and the largest in Florida. Harvey, with its catastrophic flooding, has likely caused losses for Geico on 50,000 vehicles, Buffett explained. And losses in Texas are likely to exceed “by quite a margin” its losses in Florida.

In other words, the damage to vehicles in Florida was far less than in Texas. And the damage in Texas appear to be less than originally expected as those estimates have come down.

InfoNation estimated a few days ago that about 300,000 vehicles were likely damaged in the greater Houston region as a result of Harvey. It added, “Since not all vehicles will be covered by insurance or recorded as flood damaged, the number of totally damaged vehicles will never be accurately known.”

Given the new layoffs, particularly those at the GM plant that makes crossovers, which are popular in Texas, automakers may not expect a huge surge in demand for new vehicles from hurricane affected areas. They may expect that repairs and used vehicles will be called upon to a larger extent than originally hoped for.

So far this year, new vehicle sales are 321,000 units behind last year. Given the lowered expectations of demand from hurricane affected areas, the rest of the year is unlikely to fill that hole. Since sales have crashed in the hurricane affected areas in early September, and will take a while just to get back to “normal,” total sales this year across the US will likely fall further behind. Even next year, there might not be enough demand from hurricane affected areas to alter the course of the downward spiral.

Auto sales in the Houston area, already battered by the oil bust and then by Hurricane Harvey, plunged to levels not seen since the depth of the Financial Crisis. In other sectors too, the damage is becoming clearer. Read… Answers Emerge from Harvey-Hit Houston


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