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General Motors Re-Opens 4 Closed Factories

By John Rosevear - May 9, 2016 at 2:06PM

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Four of the automaker's factories -- three in the U.S. and one in Canada -- were shut down for two weeks. GM said there was a shortage of key parts. Here's the full story.

A General Motors plant in Lordstown, Ohio, was one of four GM factories idled for two weeks because of parts shortages in the wake of earthquakes in Japan. All four factories reopened on Monday. Image source: General Motors.

General Motors (GM 1.70%) said on Monday that four North American factories that were idled last month because of parts shortages have now reopened.

The details
Back on April 22, GM announced that four of its assembly plants would have to stop work for two weeks because of shortages of key parts from Japan. Last month's earthquakes in Japan damaged factories belonging to some key auto suppliers. Unsurprisingly, Toyota and Nissan were forced to shut down several of their assembly lines in Japan. 

But the effects were felt across the Pacific Ocean as well, as GM shut down its assembly plants in Spring Hill, Tennessee; Oshawa, Ontario; Lordstown, Ohio; and Fairfax, Kansas, as of April 25. Union sources told the Detroit News that the parts in question were "electrical parts." Apparently, the supply shortage has eased: GM confirmed that the four plants reopened on Monday as planned.

What it means
The factories in question make the Cadillac XTS and XT5, the Buick LaCrosse and Regal, the GMC Acadia, and the Chevrolet Cruze, Equinox, Impala, and Malibu.

There are some important models in that list. The XT5 is Cadillac's new replacement for the hot-selling SRX crossover SUV. While Cadillac's sedan sales have slumped over the last couple of years, the SRX had been a bright spot. The XT5 is a significant upgrade over the discontinued SRX, and it's expected to be a big seller and an important source of profits for the brand, which is in the process of being spun out of GM as a stand-alone subsidiary.

The Malibu is another important product. All-new for 2016, the Malibu is a much more competitive entry than its predecessor. Critics have given the mid-size sedan high marks, and sales have been extremely brisk: Year to date, retail sales of the all-new Malibu are up 53% over those of its predecessor in the same period last year. The suddenly popular Chevy even out-sold its strong-selling crosstown rival, Ford's (F 2.64%) Fusion, in April. 

Supply shortages of either model could have been a big problem for GM. But when it announced the plant shutdowns on April 22, GM said that it didn't expect a "material impact" to either its full-year production plans or its second-quarter financial results. 

That suggests that GM is confident that it can make up the lost production before inventories dip to levels that would make a significant dent in sales.

For GM shareholders, no big deal
For investors in the automakers, it's important to pay close attention to announcements of plant closings, particularly when the sales cycle appears to be at or near a peak, as it does in the United States now. Any hint that demand is falling off needs to be considered carefully: Sooner or later, sales will start to slide, and it's likely that the profits at companies like GM will feel the squeeze when that happens.

But for those who raised concerns about these shutdowns, it looks likely that it was a false alarm. GM was clear that these shutdowns were due to parts shortages, and weren't demand-related. In this case, it doesn't look like there was more to the story than GM let on. As of right now at least, the General appears to be on track for another strong quarter in North America. 

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