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General Motors Corp., battered by the soaring price of gasoline and the U.S. housing crisis, is set to announce Tuesday that it will halt production at four factories in North America next year, including its large pickup-truck plant in Oshawa, Ont.
The GM cutback is the latest blow to the auto industry and follows a similar move by Ford Motor Co., which less than two weeks ago said it would slash production of trucks and SUVs as gas prices chase consumers away from larger vehicles.
All four GM plants assemble pickups or traditional sport utility vehicles, which are rapidly becoming dinosaurs in North America as the price of gas races to $4 (U.S.) a gallon in the United States, creating the biggest crisis for Detroit since the oil embargoes of the 1970s gave Japan-based auto makers their first large market gains in Canada and the U.S.
“You have a triple whammy on the downside: high gas prices, the collapse of the housing market and the collapse of the credit market,” said Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.
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“And this triple whammy is causing anybody that sells higher-end products to go through radical downsizing very quickly, and it's going to be the story of the week … because all the sales numbers are out this week,” he said.
Citigroup analyst Itay Michaeli said in a report last month that the “the recent acceleration in consumers downsizing their vehicles is a significant challenge for the industry, as large pickups and large SUVs make up around 20 per cent of North America production.”
In addition to GM's Oshawa move, which will wipe out more than 1,000 jobs at the General Motors of Canada Ltd. facility, GM is closing a plant in Janesville, Wis., that makes its mammoth Suburban and Tahoe SUVs and a plant in Moraine, Ohio, that assembles its mid-sized SUVs, the Chevrolet Trailblazer and GMC Envoy, industry sources said Monday. The fourth plant slated for closing is in Silao, Mexico.
The GMC Envoy's fuel consumption runs at 12.5 litres per 100 kilometres, which is about 41-per-cent higher than the rate on one of the company's top-selling small cars, the Chevrolet Aveo.
It was not clear Monday whether these shutdowns are temporary, on the expectation that the U.S. housing market will recover and thus kick-start pickup truck sales again. Sources were also unsure if GM plans to develop new cars or smaller versions of SUVs called crossover vehicles (CUVs) for the idled SUV plants in the belief that the consumer shift to those vehicles is permanent.
GM chairman Rick Wagoner is expected to make the announcement Tuesday just before GM's annual meeting in Wilmington, Del. Spokespeople for GM Canada did not return phone calls Monday.
GM had originally thought the U.S. market would bounce back in the second half of this year after a poor first half. But several analysts have recently scaled back their forecasts for U.S. sales to less than 15 million vehicles this year, which would represent the lowest sales level since the mid-1990s.
GM agreed during its recent contract negotiations with the Canadian Auto Workers union to keep the Oshawa truck plant operating on rotating shifts until September, 2009. That meant the union avoided layoffs for about 900 of its members.
If GM closes the plant, it would no longer be producing trucks in Canada and would be reduced to one assembly plant here and a share of a joint-venture plant in Ingersoll, Ont.
Meanwhile, Ford, which said as recently as April that it would post a profit in 2009, announced last month that it's instead trimming its overall vehicle output by 15 per cent in the second quarter from year-earlier figures, between 15 per cent and 20 per cent in the third quarter, and as much as 8 per cent in the fourth quarter.
The company is slashing production of its pickup trucks and sport utility vehicles and looking for ways to crank out more smaller vehicles as Americans shift to passenger cars or CUVs, which have higher fuel economy than traditional SUVs, which are built on a truck frame.
At his Ford dealership in Corona, N.Y., Tom Di Blasi has watched about 80 Ford Explorer and Expedition sport utility vehicles sit untouched for the past three to six months. He estimates that the value for a secondhand SUV has dropped up to $3,000 in the past six months because of high gas costs.
“Unless somebody needs to make a decision right now because their previous car died or their lease is up, people don't want to go out and make a decision on a new or used car,” he said.
Mr. Di Blasi has also stopped ordering new SUVs in the past three months. “There's not enough market for what I have,” he said.
Mr. DesRosiers said that because the entire industry is faced with the same problems, it was “impossible” to tell whether Ford's or GM's moves will be more radical to breathe life into their respective companies.
“The story isn't GM versus Ford,” the analyst said. “The story is GM and Ford reacting to a triple whammy that's killing anything that touches larger vehicles.”
