Monday, January 01, 2007

GM to cut back at 3 SUV plants

Thursday, December 07, 2006
GM to cut back at 3 SUV plants
Production will slow at factories in Mexico, Texas and Wisconsin due to falling demand.
Bloomberg News

DETROIT -- General Motors Corp. will cut production in January at three plants that build large sport utility vehicles because demand has slowed, the automaker said Wednesday.

The factories in Mexico, Texas and Wisconsin make models including the Chevrolet Tahoe and GMC Yukon, Tom Wickham, a GM spokesman said. The plants will close for the first two weeks of January, then reopen Jan. 15 at lower production, he said.

"The SUVs are still selling reasonably well but the inventories were getting high," said David Healy, a Burnham Securities Inc. analyst who doesn't rate GM and owns some of its shares. "They're taking a realistic look at the future outlook for this segment."

GM is scaling back at the SUV plants as part of its 9.2 percent cut in North American production announced Dec. 1. Chief Executive Officer Rick Wagoner has said the Detroit-based company plans to increase revenue by attracting more buyers through a strategy that emphasizes lower prices and fewer incentives.

Profits from the large SUVS are part of Wagoner's plan to recover from a $10.6 billion loss last year. Tahoe, Yukon and Cadillac Escalade sales in the United States all rose in November from a year earlier. Through the 11th month of the year, sales fell 3.1 percent for the Yukon, rose 6.4 percent for the Tahoe and increased 26 percent for the Escalade.

Healy estimates GM gains about $10,000 in pretax profit from each Tahoe and Yukon sold.

"We are trying to manage inventory as close as possible to avoid having to use incentives," Wickham said. "We're still selling these models like gangbusters."

Hourly rates will fall

Production will fall to 50 vehicles an hour at the Janesville, Wis., and Arlington, Texas, plants. Current hourly output is 56.5 in Janesville and 56.6 in Arlington, Wickham said.

Production in Silao, Mexico, will drop to 50 vehicles an hour from 55, he said.

The number of jobs affected hasn't been determined yet, Wickham said.

"Despite what appears to be normal inventory levels, the cost of carrying inventory for dealers has risen significantly with the rise in interest rates," Merrill Lynch analyst John Murphy said in a report Wednesday about automakers' unsold cars and trucks. He rates GM shares a "sell."

GM had enough vehicles to last for 79 days at a normal sales rate, or 1,063,564 unsold cars and trucks, compared with a five-year average of a 74-day supply, he wrote.

The company's total U.S. sales of cars and light trucks fell 8.3 percent through November, more than triple the 2.5 percent decline for the industry, according to Autodata Corp. figures. Asian rivals led by Toyota Motor Corp. have been gaining sales and market share at the expense of GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler unit.

GM plans to shutter 12 North American locations by 2008, and 34,400 U.S. union workers have agreed to take either early retirement or buyouts and leave by the end of this year.

Those reductions are part of a plan to reduce costs at an annual rate of $9 billion by the end of this year.

© Copyright 2006 The Detroit News. All rights reserved.


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