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Rising price of gasoline made cuts inevitable: Experts

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JAMES P. LEUTE
April 29, 2008
— Even though it’s been 30 years since 7,100 workers collected weekly paychecks from the local General Motors assembly plant, City Manager Steve Sheiffer still refers to Janesville as an auto town.

But he’s is equally quick to call Janesville a residential, commercial and industrial community that’s better insulated from automotive downturns thanks to entrepreneurs who have diversified the local economy.


GM announced Monday that in July it will eliminate second-shift production in Janesville and make shift cuts at three pickup truck plants. The automaker blamed the cutbacks on sagging sales and high fuel prices.


At a minimum, the cuts will involve 756 jobs in Janesville.


Some local industry observers have said that watching employment levels drop at the plant has been similar to watching the slow death of a loved one. In 30 years, GM’s employment has dropped more than 60 percent, and that’s not including job cuts announced Monday.


In November 2005, GM spared the Janesville plant from its list of plants closed in a sweeping restructuring. The automaker pledged a $175 million investment in Janesville. That financial pledge, coupled with last fall’s national labor agreement, set up the plant to build the next generation of Chevrolet Suburbans and Tahoes and GMC Yukon XLs and Yukons.


But the slumping economy and skyrocketing gas prices have put the survival of the Janesville plant into question, those observers said.


David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., doesn’t necessarily believe the Janesville plant is in danger of closing, but he and others for months have been seeing signs that GM couldn’t keep running two shifts of full-size sport utility vehicle production at three plants—Janesville, Arlington, Texas, and Silao, Mexico.


“It really doesn’t surprise me given the huge increase we’ve seen in fuel prices, which are just killing the large vehicles,” Cole said.


“I would have been more surprised if this didn’t happen.”


GM spokesman Chris Lee said the decision to keep full production at the Arlington plant was simply one of product mix. In addition to Suburbans and Yukons, the Arlington plant builds the Cadillac Escalade, the Escalade ESV and the two-mode hybrid Tahoes and Yukons.


Greg Gardner, an analyst with the Michigan-based Oliver Wyman Group, said GM’s cuts reflect the industry’s overall production forecast this year, which is down to about 15 million light vehicles from an earlier forecast of 15.5 million.


“The full-sized pickup and SUV market is not going to rebound anytime soon,” he told the Associated Press.


Mike Sheridan, president of United Auto Workers Local 95, said he prefers to be optimistic about the latest setback.


“There’s no question it’s disappointing,” he said. “But we’ve got some opportunities to work with, and we live to fight another day.”


Sheridan noted that Local 95 has not settled its local contract with the automaker. That, he said, allows the plant to compete for continued work.


Monday’s announcement was purely economic and in no way a reflection of the local workforce, he said.


“We’ve taken steps to make this a competitive plant,” he said. “If the market shifts, GM knows we’ve got a great workforce here.”


While Cole said he expects the surging fuel market to collapse under its own weight, it’ll likely happen too late for a return to the production heyday Janesville workers enjoyed in the late 1990s and early 2000s.


“I really don’t think you’ll see much of a change in that market right now,” he said. “The crossovers have made tremendous inroads, and people have switched to passenger-based platforms from the truck-based platforms.


“The SUV market won’t go away, but GM just doesn’t need as many plants to build them.”


So where does that leave Janesville?


Citing a cost structure that he said is way out of balance, Cole said he wouldn’t be surprised to see GM completely abandon its plant in Oshawa, Ontario. Workers there build full-size Chevrolet and GMC pickups. They learned Monday that their plant will drop a shift in September.


“It’s up to the people in Janesville, which is certainly an older facility, but I would certainly be lobbying hard for some other product, and I would be lobbying for the Canadian product,” Cole said.


Sheiffer said he, too, hopes the SUV market rebounds and the local workers who will lose their jobs can rejoin the GM payroll. Absent that or a complete loss of SUV production, he said it’s imperative to lobby the automaker for new products.


“These are high-paying jobs with good benefits,” he said. “We want to hold on to everyone of them.”


But if the community can’t, it’s in a better position to move forward than it was years ago, he said.


“We’ve diversified tremendously over the last 20 years,” Sheiffer said. “We’ve been fortunate to have entrepreneurs here such as Javon Bea at Mercy Health System. Look at the business he built. There’s Joe Pregont at Prent, the Hedbergs at Lab Safety Supply and Dave Baum at SSI.


“They’re all entrepreneurs that built new businesses or expanded existing ones that helped diversify this economy, and we’ve been well served because of it.”


Read more in our special section on the GM cutbacks.

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