More Production Cuts at GM Will Idle Thousands : Autos: As consumer confidence continues to droop, so does demand for new cars. Retrenchment is necessary to avoid a glut of unsold vehicles, the auto maker says.
The top executive at General Motors Corp. announced further sweeping cuts Thursday in December’s car and truck production and painted a bleak short-term outlook for the auto industry.
Plummeting consumer confidence has undercut demand for cars and trucks, GM Chairman and Chief Executive Robert C. Stempel said. The cutbacks were needed, he said, to avoid being saddled with a glut of cars heading into an uncertain new year.
The accelerated retrenchment will shut down a big part of GM’s U.S. and Canadian operations for the rest of the year, although company officials said they didn’t yet know how many thousands of workers would be laid off.
“You can assume there’s going to be a lot of downtime,” a GM spokesman said.
GM will carve another 111,000 vehicles out of its fourth-quarter schedule, on top of previously announced cuts of 181,000 vehicles. Those cutbacks have already idled up to 43,000 hourly workers at 17 assembly plants for periods of as long as a month, starting in late October.
Stempel’s latest actions appeared to confirm the underlying weakness of vehicle sales, despite recent results that showed sales improved over a year ago. This week, the industry reported a 13% spurt in mid-November sales to better-than-expected levels. GM enjoyed a climb of nearly 17%.
This seeming strength in vehicle sales was cited Wednesday by Federal Reserve Board Chairman Alan Greenspan in testimony before the House Banking Committee as evidence that any looming recession would be relatively mild.
But analysts, new-car dealers and the auto makers themselves have been describing the sales figures as misleading, because last year’s results were especially weak and this year’s were inflated by unusually high sales to fleet owners. Those factors, they said, have tended to mask a flagging consumer interest in new vehicles.
In fact, dealers say, customer traffic has fallen off, sales are harder to close and buyers are demanding better deals or bigger incentives. Dealers have thus cut back on their orders from factories, leading directly to the cutbacks in production.
“Many people have been taking a ‘wait and see’ attitude toward major purchase decisions,” Stempel said in remarks for delivery to a Ft. Wayne, Ind., audience. “This has translated into weaker automotive demand.”
Stempel also said GM’s fourth-quarter earnings will “decline significantly” from the previous quarter, because of the lower production, the cost of rebates needed to sell cars, costs of GM’s new labor agreement and the fact that people are buying smaller vehicles on which GM makes a smaller profit.
Excluding a $2-billion write-off, GM earned just $109 million in the third quarter--itself a 79% drop from the year before. Normally, auto makers enjoy much stronger performance in the fourth quarter than the third.
The fourth-quarter production cutback, to 1.07 million vehicles, will leave GM about 19% below the level it first hoped to reach in the October-December period at its U.S. and Canadian plants, Stempel said.
GM officials couldn’t say late Thursday which plants will be closed, or for how long. However, because GM--like the rest of the auto industry--is already scheduled to close entirely from Dec. 21 to Jan. 2 for the holidays, the shutdowns and layoffs would have to be extensive to cut production so much in such a short time.
Temporarily idled blue-collar workers normally collect more than 90% of their usual take-home pay through a combination of public jobless benefits and company-funded layoff protection plans negotiated by the United Auto Workers.
Though Ford Motor Co. and Chrysler Corp. have also imposed temporary closings and layoffs in recent weeks, GM’s actions have been far more extensive. That, analysts say, is partly because GM has been operating its plants less efficiently and has more factories than it needs.
Analysts have described Stempel, who replaced Roger B. Smith this year as GM chairman, as more aggressive about slashing production and more determined to attack GM’s overcapacity.
Times researcher Amy Harmon in Detroit also contributed to this story.
