GM temporarily closes 13 plants
DETROIT (AP) — General Motors Corp. said yesterday it will temporarily close 13 assembly plants in the US and Mexico — some for more than two months — as it tries to pare back its bloated inventory due to slumping sales.
The company said in a statement that the closures will begin in May. Shutdown weeks vary by factory, but some will be closed for nine or ten weeks.
GM said the shutdowns will help control high dealer inventories and bring production in line with sales. The company plans to cut production by 190,000 vehicles.
The troubled automaker has 22 assembly plants in North America. Dozens of other factories stamp metal parts and build engines and transmissions, and they also will see temporary closures.
GM normally shuts down its assembly plants for two weeks each summer to prepare for the new model year, but assembly plants will see additional down weeks. The longest shutdown is ten weeks at Fort Wayne, Indiana, which makes the Chevrolet Silverado and GMC Sierra pickup trucks.
The Associated Press first reported on Wednesday that GM planned to close most of its factories for up to nine weeks.
GM North America president Troy Clarke said in the statement that the company has been controlling inventories since the first of the year, but it needs to do more.
"While sales have been performing at or close to our plan estimates, and dealer inventories have been reduced accordingly, we want to more closely align inventories with even more conservative market assumptions," he said.
The move is a result of slumping sales, but some analysts and dealers fear the plant closings could further scare car buyers already made nervous by talk of a GM bankruptcy.
GM also said yesterday that it has been negotiating with its former parts arm, Delphi Corp., to make sure the supply of parts continues during Delphi's bankruptcy case. GM said it has proposed "fair and reasonable" terms that have been rejected by Delphi and its lenders.
"Without successful resolution of this dispute, it is General Motors' view that Delphi or its lenders could force GM into an uncontrolled shutdown with severe negative consequences for the US automotive industry," GM's statement said.
GM workers whose plants are temporarily closed 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.
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 Wednesday, 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 late on Wednesday. "It's sort of an ominous comment on what they see for the industry."