GM slashes truck output
The fading popularity of the mighty trucks and SUVs long responsible for driving Detroit automakers' profits became more apparent on Wednesday, when General Motors Corp. announced plans to trim production at a half-dozen truck plants.
Volatile fuel prices and a crashing housing market have driven down demand for large trucks in the United States, a decline that started in 2005 and shows no signs of letting up.
GM on Wednesday said it will respond by canceling planned overtime for the rest of the year at six North American plants, including one in Flint, that build vehicles such as the GMC Sierra pickup and Chevrolet Tahoe SUV. The automaker said it will announce specific production plans on Sept. 4.
"We're in a position now where we need to manage the inventory as tightly as possible," GM spokesman Tim Wickham said.
GM is depending on robust sales of big trucks, especially the lineup of made-over full-size pickups with their healthy profit margins, to fuel its North American turnaround. A large SUV can boast a profit margin more than twice that of a midsize car.
But the automaker is balancing that push with a need to clear dealer lots and avoid a surplus that would force deep discounts. GM no doubt wants to avoid a situation like the one Ford Motor Co. faced late last year when it made the steepest production cuts in two decades.
While neither Ford nor Chrysler LLC have announced plans to cut back year-end production, analysts said Wednesday that each of the Detroit Three will likely have to scale back by the end of the year as demand for vehicles slips.
"There is no doubt that everyone now is facing a tougher fourth quarter now than what was expected in January," said analyst Catherine Madden of Global Insight Inc.
Production cuts hurt automakers because they book the revenue when vehicles leave the factory, not when they are sold to consumers.
U.S. sales of large SUVs were down nearly 6 percent through July compared with the same time a year ago, according to Autodata. Full-size pickup truck sales were down 5 percent.
Without further production cuts, the U.S. auto industry risks producing 50,000 to 100,000 more trucks than the market can absorb in the fourth quarter, said Jeff Schuster, executive director of global forecasting for J.D. Power and Associates. "A year ago, I might have said this is temporary," he said. "But this seems to be the pattern.."
GM's SUV and truck sales were down 9 percent through June as fewer new housing starts dampened demand for vehicles used by contractors and as competitors ramped up incentives.
While GM has tried to resist heavy incentives to move vehicles, it has been forced to ramp up discounts amid bruising incentive competition from other automakers, including Toyota Motor Corp.
Besides the Flint factory, the plants affected by the production cuts announced Wednesday are in Arlington, Texas; Janesville, Wis.; Fort Wayne, Ind.; Oshawa, Ontario; and Silao, Mexico.
The automaker said in June that it would increase North American output in the third quarter by 2 percent. Any change to those plans won't be announced until Sept. 4, when the company releases August sales, Wickham said.
The production cuts were expected, but not so early in the year, Schuster said. Automakers typically build up their inventories before contract talks with the UAW, under way now, so they will have supply in the case of a strike. "It's a sign that they're reacting much faster and making the right production cuts at the right time,." he said.
Ford, meanwhile, is making plans to revisit its truck production within the next couple of weeks. CEO Alan Mulally said earlier this month that the automaker will announce any changes to vehicle production on Sept. 4, when the company releases August sales figures.
"We've been managing production with a mind toward a slower economy," said Ford sales analyst George Pipas.
Ford's inventory levels are lower than GM's, which helps offset the effect of weak truck sales. While Ford's days' supply of inventory is down about 10 percent from than the same time last year, GM's is up about 25 percent, Global Insight data show.
Still, Madden said, neither automaker's inventory troubles are as bad as they were last year.
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Well, I think we saw it coming for the big three when it came to trucks. With gas prices this high... it can only get worse for the truck market.
I really expected that way before now.
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