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GM’s plans for Janesville reflect long-term expectations of soft market

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JAMES P. LEUTE
December 19, 2007
— Shut the assembly line down for a period of time or keep it running but at a slower speed?

While both are strategies automakers employ in tough times, it’s the latter that’s a little more daunting than the former.


“They’re both serious,” said John Dohner Jr., United Auto Workers Local 95 shop chairman at the General Motors assembly plant in Janesville, where workers learned Tuesday that their production line would slow from 52 jobs an hour to 44 in March.


GM’s decision to cut production in Janesville by 15 percent is in response to current and forecasted market demand, according to a memo to employees. Coupled with an expected buyout program, the move will affect employment levels.


The operative words in the memo might be “forecasted market demand.”


U.S. auto sales are down 2.4 percent from a year ago to the lowest levels since 1998. The outlook is for further declines at least through the first half of 2008, and GM has said it will cut first-quarter 2008 North American production by 11 percent.


“There are so many uncertainties out there,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., “The market is expected to be pretty tough for the first half of next year, and there are uncertainties for the rest of the year.


“But the days of overproducing and incentivizing sales are gone. The automakers have to balance productivity with profitable sales.”


While GM decided to slow production in Janesville, its production plans for its Arlington, Texas, plant are unchanged, said GM spokesman Tom Wickham.


The Janesville and Arlington plants both build the Chevrolet Suburban and Tahoe and GMC Yukon XL and Yukon. Arlington also produces the Cadillac Escalade and Escalade ESV.


Arlington is not affected because it is ramping up production of hybrid models of the SUVs, which Wickham said are expected to be in high demand.


“Janesville doesn’t have the hybrids, so it’s really a matter of the product mix at the two plants,” he said. “You don’t do a re-rate lightly. It impacts employment and, in the long term, it impacts output.”


Wickham said other automakers are struggling with the same issues.


Toyota Motor Corp., which annually ranks at or near the top of capacity utilization studies, is facing challenges at its San Antonio truck plant, where the Tundra full-size pickup is built. Toyota is struggling to keep the Tundra on pace for its sales target of 200,000 units this year and faces a challenging forecast for next year.


Earlier this month, GM announced plans for a two-week suspension of production of full-size pickups at plants in Fort Wayne, Ind., Pontiac, Mich. and Oshawa, Ont. Workers there will be laid off for two weeks in January.


“The big difference is that with a shutdown, it’s more of a short-term thing to adjust inventories,” Dohner said. “This time around in Janesville, they’re going with a re-rate to adjust for expected demand.”


Cole said a re-rate is a more structural strategy than a couple of weeks of downtime. It indicates GM’s longer-term expectation for reduced demands for the full-size SUVs.


“SUVS and pickups are different beasts,” he said. “The pickup is still a ‘gotta have’ work vehicle, while the big SUVs are facing huge competition from the (smaller) crossovers.”


Both Wickham and Dohner said the re-rate likely will result in an employment drop in Janesville. With fewer units coming off a slower line, there just won’t be the need for as many people.


But neither man has any idea how many of the plant’s 2,500 hourly employees will be affected when the re-rate starts March 10. The local plant won’t build SUVs the week before the re-rate, but other activities, including training, are on tap.


“Further details regarding preparations for the re-rate and how employees will be impacted will be negotiated with the local UAW/GM leadership and shared once agreed upon,” the employee memo said.


Uncertainty about possible layoffs stems in large part from the likelihood that GM will announce a special attrition program for hourly employees after the first of the year.


The automaker said Tuesday it will offer such a plan to UAW-represented hourly employees working at its Service Parts and Operations facilities, as well as at plants in Pittsburgh, Massena, N.Y., and those in the Jobs Bank in Oklahoma City, Okla., Linden, N.J., and Rancho Cucamonga, Calif.


If GM offers a similar plan to workers in Janesville early next year, as expected, layoffs might not be necessary. If a large number of employees accept a buyout, GM is not likely to hire new employees until market conditions mandate it. Thus, the re-rate.


But staffing still can be an issue, particularly if consumer demand rebounds, Dohner said.


“The company can turn the line speed down and then increase it again as demand increases,” he said. “The trouble is that they don’t always add back the people they took away.


“We’ll deal with it the same way we always deal with it. They’ll set up the jobs the way they think they should set up. They’ll act, and we’ll react.”



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