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Where does Janesville GM plant rank?

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JAMES P. LEUTE
June 7, 2009
— Proximity to suppliers, physical layout and the quality of the local workforce are attributes General Motors officials will consider when deciding which of its idled plants will build a small car new to the U.S. market.

But those are just three factors among hundreds GM will consider about Janesville, Orion, Mich., and Spring Hill, Tenn., auto industry analysts say.


GM said last week that its small car production will come from Janesville, Orion or Spring Hill. At the same time, the latter two learned they will cease production of their current models later this year.


Workers in Janesville stopped building full-size sport utility vehicles in December.


Ron Harbour, a partner at the automotive consulting firm Oliver Wyman, said automakers consider a variety of factors when they award new products to specific plants.


In many cases, he said, those factors are difficult for outsiders or even the plants themselves to pin down.


It’s for that reason that Harbour is hesitant to handicap the competition between Janesville, Orion and Spring Hill, the birthplace of Saturn in 1990.


“If I do, people think it’s because I like one union more than another one,” he quipped.


Still, Harbour has long been in the business of assessing plants. He’s the former owner and president of Harbour Consulting, as well as author of the widely respected Harbour Report on quality, cost and productivity improvements at auto factories.


For his annual report, Harbour considered nearly 250 criteria for each plant.


Those criteria included the quality of the workforce, logistics, facility condition, supply chains and proximity to headquarters.


“Every plant is in some different phase of its life,” Harbour said. “What it boils down to is how much you have to put into it to bring a new vehicle online.”


That said, which way does Harbour see the competition?


“It’s not as obvious as people might think,” he said. “I’m really not sure which way GM will lean.”


Harbour said people might be of the opinion that the Janesville plant has no chance against Orion and Spring Hill.


They would be wrong, he said.


“Sure, Janesville is an older facility; Orion is close to the suppliers and headquarters, and Spring Hill has that whole Saturn aura about it,” he said. “But I don’t think much of that holds water anymore.


“I hope they review all of the criteria objectively and make the best business decision.”


Harbour acknowledged that politics undoubtedly will factor into the decision.


“That’s the intangible,” he said, noting that Michigan has been devastated by auto industry layoffs.


And a good portion of the United Auto Workers hierarchy traces its roots to Michigan auto plants, he said.


Political influence also is a concern of David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.


While the U.S. government is the majority owner of GM, President Obama has said his auto task force will not run the automaker.


“My concern is that they will micro meddle,” Cole said of the task force. “They’ve said they won’t, but we all know politics.


“Basically, this is a crowd that has absolutely no clue in the auto industry. They’re virgins in the woods, all financial guys, and that’s the way they’re approaching this.”


When pushed to handicap the three plants, Cole gives the edge to Spring Hill, primarily because it is much newer and has the modern components in place for flexible production.


“I’m not sure Orion has the strongest labor force, and that would certainly be an issue,” Cole said. “GM likes the workforce at Janesville and has a long history with the community, but it is an older operation that’s further from the supply channels.”


The workforce in Janesville has ratified the most competitive local operating agreement of any of the UAW locals in the GM system.


Cole doesn’t doubt that the Janesville contract and its place at the small car production table is a carrot to improve the contracts in Orion and Spring Hill.


He also subscribes to the idea that the small “B-class” car is GM’s effort to comply with the Obama administration’s proposal for stiffer mileage mandates.


“There certainly is pressure from the federal government to build a small car in the U.S., although I’m not sure consumers will buy it unless gas goes to $5 or $6 a gallon.”


While Cole said he understands the efforts of local groups to secure a product for the idled Janesville plant as quickly as possible, he thinks the real bonanza could come as a standby plant with a flexible configuration to handle overflow production.


“You have to shrink to grow, and that’s what GM is doing right now,” he said. “There will be a turnaround, and it will be quicker than people think.


“With the forecasts for the U.S. market what they are, a leaner GM could become a cash machine, and it makes sense for them to take one or two of their existing plants and be ready to solve what I think will be a capacity problem.”


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Whether the Janesville auto plant is successful in its bid to build a new line of small cars for General Motors could come down to whether it has a stamping plant.


That’s the opinion of one person familiar with the work of a local coalition trying to convince GM executives that the automaker’s future should include Janesville.


“I think GM has taken the position that the lack of a stamping plant hurts Janesville,” the source said.


When Janesville was turning out the high-profit Suburbans, Tahoes and Yukons, it received its stamped metal parts from a plant in Grand Rapids, Mich.


The cost to transport the hoods, fenders and body panels from Michigan to Wisconsin was one that GM was happy to absorb, considering the profit margin the automaker realized on each of the big trucks.


But small-car production is a different animal. Profit margins are much tighter, and shipping bulky parts from afar would generate cost the company couldn’t justify.


As part of its presentation to GM officials, the local coalition proposed building a stamping operation for the Janesville plant. The plant could be on the GM grounds, or, as many plant insiders have suggested to the coalition, it could be built within the 4.8-million-square-foot facility.


Stamping plants, however, cost millions of dollars, money that likely would have to be included in the state and local incentive package the coalition has offered GM.


“The value of an auto job is so high that states will be competing for this work, throwing lots of money at GM,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.


While they’re big, incentives aren’t typically what swing auto deals, Cole said, noting that GM will consider hundreds of criteria in determining where it sites the small car plant.


Incentive packages, he said, are generally far down the list.


The overall value of the incentive package offered by Wisconsin officials is unknown, but one component has been determined.


United Auto Workers Local 95 ratified a competitive operating agreement last summer that could save GM as much as $100 million a year, said Gov. Jim Doyle, who put the local task force together.


“The UAW has entered into a local agreement in Janesville that is the most flexible and favorable for GM of any plant in the U.S.,” Doyle said at a Monday press conference.


“On top of that, we have already put on the table for Janesville an offer that is a significant investment by the state of Wisconsin, by Rock County, by the city of Janesville, and we will continue to pursue that.”



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