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As GM demand continues to grow, analysts won't rule out Janesville facility

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JAMES P. LEUTE
August 11, 2010
— Was it an off-the-cuff comment ahead of a stock sale or an indication that General Motors is seriously considering future production at one of its two idled assembly plants?

While inquiring minds want to know—particularly in Janesville and Spring Hill, Tenn., the home communities for GM's two "standby" plants—at least one industry observer thinks both will rejoin GM's roster.


GM CEO Ed Whitacre reignited speculation in both communities Aug. 5 when he said the automaker might open one of its idled plants. Neither Whitacre nor other GM officials, however, have since added any details.


Whitacre was speaking at the annual Center for Automotive Research Management Briefing Seminar in Michigan.


David Cole, a respected industry consultant and the man who introduced Whitacre at the seminar, said the CEO's comment is indicative of GM's focus on its upcoming public stock sale.


But it's also a sign that GM thinks it will need more production capacity.


"It tells you that they are seriously thinking about things," said Cole, chairman of CAR, a nonprofit organization that studies trends and changes in the auto industry. "They're focused entirely on the IPO (Initial Public Offering) right now, and they have an earnings announcement later this week that they've indicated will be surprising.


"But the fact is that they are becoming capacity constricted."


GM sales were up 25 percent in July, and the automaker is selling more vehicles today with four brands than it did a year ago with eight. Four of the automaker's 11 U.S. assembly plants are now running three shifts, and nine of the 11 worked through their traditional summer shutdown in July.


"The key in manufacturing is to run the plant all the time," Cole said. "The goal is three shifts at all plants. They're not there yet, but they are seeing solid market growth, and they don't want to give that up.


"They're not going to open up a plant on the come. My guess would be that Spring Hill would be the one that would open first. If they continue on the path they are, one plant probably won't do it."


Cole said that could be good news for Janesville, which is the only other shuttered plant in line for future production.


"I would bet that within five years both Janesville and Spring Hill will be back online," Cole said.


While local officials contacted last week weren't that bullish, they told the Gazette that Spring Hill likely would reopen before Janesville. They also said that GM's indication that it is at least thinking about more capacity keeps the Janesville plant on a short list.


The Janesville and Spring Hill plants landed on GM's "standby" list last year after the automaker awarded production of the Chevrolet Aveo to a plant in Michigan.


At the time, speculation was that Spring Hill would be tapped to handle needed capacity for unibody vehicles while Janesville would build body-on-frame vehicles such as trucks and large SUVS.


But Ron Harbour, an industry analyst with Oliver Wyman, said any plant can be retooled for any need. That's especially true, he said, given GM's apparent transfer of equipment out of Janesville.


Left uncertain is what product GM has in mind for either Spring Hill or Janesville. From Whitacre's comments, it's unclear whether the automaker thinks it might need capacity to build existing vehicles or whether the added capacity would be devoted to a new product.


GM is reportedly looking at several possible additions to its lineup, including a new midsize pickup and a stretched version of its European minivan.


GM dropped its last minivan, the Chevrolet Uplander, in 2008. The automaker also is looking at a new midsize pickup entry to replace the Chevrolet Colorado and GMC Canyon that will be phased out in 2012.


Jesse Toprak, vice president of industry trends for the car pricing website TrueCar, doesn't look for production any time soon in Janesville.


"There's a long way to go before GM is capacity constricted," said Toprak, who in the 1990s ran the Hembrough Auto Group in Janesville before joining Edmunds.com. "The industry would have to sell 12.5 million to 13 million vehicles before GM needs to worry about capacity."


Based on July's sales, the U.S. market is expected to reach annualized sales of 11.98 million. That's higher than last year's total sales of 10.4 million, but still far from the peak sales of 16.9 million in 2005.


Toprak suspects Whitacre's comment was more of a buildup to the pending stock sale.


In a competition between Janesville and Spring Hill, Toprak gives the edge to the Tennessee plant because it still has about 1,000 employees and a flexible powertrain and stamping operation.


"But until the plant in Janesville is demolished, there's still some hope," he said. "I really think the best hope for Janesville would be trucks and SUVs based on the Chevy Volt technology, but that's three to five years away, if it takes off."



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