GM supply numbers still show some trouble spots

October 23, 2017 01:00 AM

GM's Spring Hill, Tenn., plant will go from three shifts to two in November, eliminating 700 jobs.

DETROIT — Even after cutting more than 6,000 jobs this year, General Motors might need to further shrink its manufacturing operations to address bloated inventories of some vehicles amid plateauing U.S. sales and pressure from Wall Street to avoid overproduction.

The majority of GM's U.S. assembly plants, including some where a shift already has been eliminated, produce vehicles that on average have at least an 80-day supply, 33 percent more than what the industry generally considers healthy, according to estimates from the Automotive News Data Center.

"The danger zone is definitely consistently staying in that 80 to 100 days," said Joe Langley, a senior analyst at economic forecasting and data company IHS Markit. "The ultimate red flag is when volume is at that 120 days or more consistently and incentives aren't moving the needle."

GM has at least seven U.S. assembly plants that on average produced vehicles with greater than an 80-day supply entering October, including four that have more than 100 days, according to the estimates. That does not include GM's two U.S. plants for the Chevrolet Silverado and GMC Sierra, because pickups commonly have higher inventories to meet demand for a variety of trim and feature configurations.

Overall, production cuts GM has made since January have helped drive the automaker's U.S. inventory levels to a 76-day supply as of Oct. 1 — down from about 100 days for most of the year and on pace to hit GM's target of 70 days or less by year's end.

But with U.S. sales expected to decline in 2018, analysts say the automaker still may need to do more.

5 shifts cut

GM spokesman Tom Wickham declined to comment on any potential future production cuts, saying only that the company will match supply with demand.

"We've taken a number of steps this year to bring production in line with demand," he wrote in an email to Automotive News. "We'll continue to monitor market demand and make appropriate adjustments."

The Wentzville, Mo., plant is one of four GM assembly plants in the U.S. working around the clock.

GM this year has added downtime, slowed assembly lines and cut shifts at several U.S. plants to reduce production. The actions include ending shifts at car plants in Detroit; Kansas City, Kan.; Lansing, Mich.; and Lordstown, Ohio, as consumer preferences shifted to utility vehicles.

Downshifting

Estimated days supply of the vehicles produced by GM's U.S. assembly plants

1 shift

Bowling Green, Ky.: 207 days

Detroit-Hamtramck: 141 days

Orion Township, Mich.: 111 days

2 shifts

Kansas City, Kan.: 48 days

Delta Township, Mich.: 75 days

Lansing, Mich.: 84 days

Lordstown, Ohio: 65 days

Spring Hill, Tenn.*: 101 days

3 shifts

Arlington, Texas: 81 days

Flint, Mich.: Unknown

Fort Wayne, Ind.: Unknown

Wentzille, Mo.: 84 days

*Third shift ends in November

Source: Automotive News Data Center

The Automotive News Data Center estimates GM's North American production declined 4.4 percent this year through September, vs. an industry average of 3.3 percent. GM's cuts include a 25 percent drop in car production offsetting a 5.2 percent increase in light-truck production.

But GM's production cuts haven't been limited to cars. GM last month said its Spring Hill, Tenn., plant that produces the GMC Acadia and Cadillac XT5 crossovers will drop from three shifts to two in November, eliminating 700 more jobs.

That's despite both vehicles experiencing significant surges in sales this year. Inventories of the vehicles are still above the industry standard of 60 days.

After Spring Hill's third shift ends, GM will have four U.S. assembly plants running around the clock, down from seven a year ago. It's still using three shifts at a plant that makes full-size, body-on-frame SUVs in Arlington, Texas, at its full-size pickup plants in Flint, Mich., and Fort Wayne, Ind., and in Wentzville, Mo., where it builds vans and smaller pickups.

Missouri plant

Inventory numbers point to the potential for a cutback in Wentzville, which has run around the clock since spring 2015. It makes the Chevrolet Express and GMC Savana full-size vans and the Chevy Colorado and GMC Canyon midsize pickups. Slowing sales have left GM with an estimated 84-day supply of those vehicles as of Oct. 1, including 81 days' worth of Colorados and 125 days' worth of Canyons.

"The Colorado and Canyon have sold far better than they thought they would," said Ron Harbour, a consultant with Oliver Wyman. "At this point, they're trying to figure out if this is a long-term trend or not."

Langley, the IHS analyst, said he thinks GM would need to cut a shift in Wentzville by next summer if inventories remain elevated.

"That's the one big plant on the truck side that concerns me for getting a shift reduction," Langley said. "That plant is running at a level it was never designed for either. That's been the story for a lot of these factories."