Push continues to come to shove; tens of thousands more to be unemployed this summer.
General Motors Corp. is planning to temporarily close most of its U.S.factories for up to nine weeks this summer because of slumping salesand growing inventories of unsold vehicles, three people briefed on theplan said Wednesday. Analysts say the company could be seeing salesdecline because of talk about a potential bankruptcy.
The exact dates of the closures are not known, but the people saidthey will occur around the normal two-week shutdown in July whenchanges are made from one model year to the next. None of the peoplewanted to be identified because workers have not yet been told of theshutdowns.
GM spokesman Chris Lee would not comment other than tosay the company notifies employees before making any production cutspublic.
One of the people briefed on the plan said details arestill being worked out. Some of the closings could be staggered betweenmid-May and the end of July, but the exact number of plants to be idledhas not yet been determined.
Another person said a few plants that make more popular models couldremain open for part of the shutdown period, but at reduced assemblyline speeds.
Thousands of workers could be laid off but wouldstill get most of their pay because their United Auto Workers unioncontract requires the company to make up much of the difference betweenstate unemployment benefits and their wages. UAW officials at severalfactories said they have meetings scheduled Thursday and Friday withplant managers and GM human resource officials to discuss productionchanges.
The shutdown could be catastrophic to many auto partssuppliers that already are near bankruptcy due to previous productioncuts. During the shutdown, suppliers couldn’t ship parts to GM andwould lose critical revenue.
“It’s one of those things we’ve beendreading for a long time,” said Jim Gillette, director of financialservices at auto-industry consultant CSM Worldwide in Grand Rapids.”It’s as bad as its ever been.”
He said that many suppliers are making employee cuts or forcing workers to take furloughs to reduce operating expenditures.
GMis living on $13.4 billion in government loans and faces a June 1deadline to cut its debt, reduce labor costs and take otherrestructuring steps. If it doesn’t meet the deadline, the company’s CEOhas said it will enter Chapter 11 bankruptcy protection.
The Treasury Department declined to comment on any effect the plant shutdowns might have on GM’s restructuring plans.
SeparatelyWednesday, GM announced that it may miss a $1 billion bond payment alsodue June 1 if its debt-for-equity exchange is still in progress bythen. GM also could go into bankruptcy protection, which could make thecompany miss the payment as well.
The company plans to make theexchange offer soon to bondholders, perhaps as early as next week. GMhas $28 billion in unsecured bond debt and is under government pressureto reduce that to solidify its balance sheet.
GM’s sales weredown 49 percent in the first quarter compared with the same period lastyear, and GM had a 123-day supply of cars and trucks at the end ofMarch, according to Ward’s AutoInfoBank. That’s down from 162 daysworth in January.
But as of March 31, the automaker had a morethan six-month supply of several models including the Pontiac G5compact and Chevrolet Silverado hybrid pickup truck. The lengthyshutdown likely means that GM doesn’t see its sales rebounding anytimesoon, said Tom Libby, an independent Detroit-area auto industry analyst.
“Theymust be forecasting a sales level that is low enough between now andthe summer that they see their inventories building,” he said. “It’ssort of an ominous comment on what they see for the industry.”
Libbyalso suggested that the company’s sales may be declining becausecustomers are concerned about the automaker possibly filing forbankruptcy protection.
GM CEO Fritz Henderson has said thecompany would prefer to restructure outside of court, but it ispreparing for a prearranged bankruptcy as well as one in which goodassets would be separated from underperforming ones.
“Just usingthe word bankruptcy, their (market) share is down a lot just because ofthis talk,” Libby said. “They may be counting on a further decline.”
Theplant closures add to the onslaught of bad news coming out of GM, saidJohn Clark, president of Avenue Chevrolet, a dealership in Batavia,Ill., near Chicago.
“Henderson making statements about bankruptcysure doesn’t help his cause, and all of the sudden we have this,” hesaid. “I’ve been getting calls from customers about warranties. I can’tsee this as a positive move.”
The government has said it would guarantee GM and Chrysler warranties as the companies restructure.
Libbydid say GM should be applauded for not building too many vehicles andthen having to spend big on rebates and other incentives to move them,something the Detroit Three have been guilty of in the past.
Other GM dealers said a shutdown of up to nine weeks is jarring, but not unexpected given the sales slump.
“Nineweeks seems like an awful long time, but the way business is, not anawful lot of cars are being sold anyway,” said George Tasker, fleetmanager at Martin Chevrolet in Torrance, Calif.
Tasker said themove wouldn’t affect business, as dealers would “get together and trademore easily” to find the exact car a customer wanted.
Nearly allautomakers with U.S. factories have closed plants or cut production todeal with the auto sales slump. Earlier this year, GM temporarilyclosed 20 factories across North America due to weak sales, some forthe entire month of January. Chrysler LLC, also subsisting ongovernment loans, closed all 30 of its manufacturing plants for a monthin January to counter the auto sales downturn.
Ford Motor Co.also shut down 10 North American assembly plants for an extra week inJanuary, and both Toyota Motor Corp. and Honda Motor Co. have cutproduction.