General Motors (NYSE:GM) said on Wednesday that it will eliminate over 2,000 jobs at two factories because of slowing demand for several car models. However, it said, it will also invest $900 million to gear up for future products at three plants.
What GM said about the job cuts
GM said it will eliminate a third shift at two factories:
- Lansing Grand River Assembly in Lansing, Michigan, makes the Cadillac ATS and CTS sedans and the Chevrolet Camaro coupe. It employs about 2,700 workers now; 839 of them will be cut.
- Lordstown Assembly in Lordstown, Ohio, makes the compact Chevrolet Cruze sedan. It employs about 4,500 workers now; 1,245 of those jobs will be eliminated.
The shifts will end in January, GM said.
Why GM is cutting shifts at these two factories
GM's overall U.S. sales are down 3.6% this year, in large part because of a planned reduction in sales to rental-car fleets. (GM's retail sales are up 1% this year through October.)
But sales of GM's car models have been disproportionately affected, both by the rental-fleet cutback and by a broad market trend favoring SUVs over sedans. GM's sales of cars are down 7.5% this year through October.
Sales of the four models affected by these shift cuts are down significantly this year, and inventories have swollen well past the 60 to 70 days' supply automakers typically prefer to hold.
|Model||YTD 2016 Sales||Change vs YTD 2015||Days' Supply As of 11/1|
About that $900 million in investments...
Perhaps as a way of offsetting the unhappy news about shift cuts, GM also announced new investments in three of its U.S. factories.
- $667.6 million for "future product programs" at Toledo Transmission Operations. This is likely to make a new series of automatic transmissions for front-wheel drive vehicles, replacing a six-speed unit currently made at the factory.
- $211 million for a "new product program" at Lansing Grand River Assembly. This is likely a new vehicle model built on GM's rear-wheel-drive "Alpha" architecture, possibly a Cadillac crossover SUV.
- $37 million "to support future product programs" at Bedford Casting Operations, possibly parts for the new transmissions to be made at Toledo.
The upshot: Expect more of these kinds of announcements as the market slows
While GM executives remain upbeat about the potential of the U.S. new-car market, it's looking more and more like the market has passed its cyclical peak. Many of GM's factories in North America have been working around the clock to keep up with demand over the last few years, so as demand eases, expect more announcements of third-shift cuts.
The good news for shareholders is that most auto factories are still quite profitable when working two shifts. The bad news, aside from the lost U.S. jobs (and the political heat that may follow job-cut announcements in the current environment), is that falling demand is nearly always followed by lower profits.
John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.