News From the Auto Industry

The United Auto Workers union is firm about preserving health care benefits in this year’s contract negotiations with the Big Three, but there’s still another issue to confront: overcapacity.

It could be that GM will pull the trigger on the Lansing plants when a new nearby plant in Delta, MI, opens in 2005, so it can transfer workers there. Some workers could be transferred to Orion, because GM is considering making that a 3-shift operation.

General Motors Corp., which is giving Ford Motor Co. and DaimlerChrysler Corp. fits by forcing them to follow its lead in the money-losing game of market incentives in order to keep capacity utilization up, has the most to worry about.

Wilmington reportedly is being considered as an alternative site for the Pontiac Solstice. However, if plans to produce the Solstice are approved, the most likely production site still is expected to be GM’s plant in Ramos Arizpe, Mexico. Expected annual volume for Solstice would be 100,000 units, or enough to keep one shift operating.

About 98% of GM’s sales in North America are locally produced vehicles. At the same time, 99% of its North American production stays on the continent. In other words, the health of its North American manufacturing operations depends entirely on the health of its North American sales. Yet GM needs to increase its share of domestically made vehicles by five percentage points from today’s 26.6% in order to fully utilize the 1 million units of excess capacity it has currently.

Wilmington builds the slow-selling Saturn L Series and has installed annual capacity for two shifts, but has been on one shift for three years. The car is to be redesigned in 2005 on the Epsilon platform with the new Malibu. A logical fit might be to move it to Fairfax, KS, where Malibu is built and where GM plans to add a third shift next year.

The Linden plant still builds the long-in-the-tooth Chevrolet Blazer SUV and Chevy and GMC small pickups, which are redesigned and renamed for ‘04 and sourced solely from another plant. There have been rumors of new products for Linden, but how long it remains running likely will be determined by how long the demand lasts for the aging trucks built there.

GM executives seem confident that new products, better quality and productivity improvements will allow the auto maker to maintain its current production capacity. But GM has four to five assembly plants worth of excess capacity based on its current market share. If its new products don’t sell, there has to be a point at which permanent shutdowns will be necessary.

The biggest chunk of GM’s projected overcapacity is in midsize cars, which come from the remaining three plants.