General Motors’ decision to shut down 13 assembly plants for up to 11 weeks this summer will disrupt far more than the lives of nearly 24,000 workers, rippling out to damage part suppliers, local businesses and state economies.
The Detroit automaker had little choice. GM, surviving on $13.4 billion in federal loans, must steady itself, slash costs and align production levels with the shrunken demand if it wants to live much longer. The announcement Thursday comes as GM races the government’s June 1 deadline to squeeze deeper concessions from bondholders and the United Auto Workers union.
The decision is expected to lead to thousands more layoffs and temporary factory closures as GM works out its schedules for engine, transmission and parts stamping factories.
That’s bad new for Lordstown, Ohio, where GM operates side-by-side assembly and stamping plants, which account for about 70 percent of the village’s annual $4 million municipal budget, Mayor Michael Chaffee said. Suppliers and spin-off businesses add another 5 percent in the community of 3,800.
The Lordstown assembly plant, which makes Chevrolet Cobalt and Pontiac G5 compacts, is slated to shut down for five weeks starting June 1. GM didn’t disclose shutdown details about stamping and powertrain plants, but it stands to reason their parts won’t be needed if so many assembly plants stop making cars.
“Any shutdown short- and long-term is of concern both from the standpoint of dollars flowing into the community but also the psychological effect that it has both locally and nationally upon folks,” said Walter Good, a vice president at the Youngstown-Warren Regional Chamber.
In Parma, Ohio, Cleveland’s biggest suburb, the GM stamping plant has about 1,200 employees and represents 8 percent of the city’s income tax revenue.
“It’s our largest taxpayer and there are a number of smaller businesses that feed off of or supply parts to or work with General Motors,” Mayor Dean DePiero said. “It’s an important part of our fabric.”
The GM work force helps support convenience stores, service stations, bars and restaurants, the mayor said. “That trickles down into many aspects of our local economy so business owners may take a hit. It’s not just about those employees or that plant.”
GM said the shutdowns will help control high dealer inventories and bring production in line with sales. The company plans to cut production by 190,000 vehicles.
The carmaker’s sales fell 49 percent in the first three months of this year as U.S. auto sales fell to a 27-year low.
Automakers and analysts expect sales to improve in the second half of the year as the economy and consumer confidence recovers, and government stimulus programs take effect. GM North America President Troy Clarke said the company isn’t making the cuts because it sees sales worsening beyond current projections.
“Instead of spending the whole year to get the inventory in line, we really needed to get it in line much quicker,” Clarke said.
Although the company has been under government supervision since it got its first slice of government money Dec. 31, the decision to extend the plant closures for longer than normal was made by GM, Clarke said.
The Treasury Department would not say what if any role the Obama administration played in GM’s decision to shutter the plants.
Members of the government’s automobile task force have set up shop at GM’s Detroit headquarters, working alongside executives to guide the drastic changes that are needed. The Treasury Department insisted that CEO Rick Wagoner step down March 29, a day before the Obama administration deemed GM and Chrysler’s restructuring plans insufficient and gave the companies strict deadlines to qualify for more aid.
The troubled automaker has 22 assembly plants in North America. It normally shuts down its assembly plants for two weeks each summer to prepare for the new model year, but besides Lordstown, there will be more downtime at plants in Arlington, Texas; Bowling Green, Ky.; Detroit-Hamtramck, Mich.; Flint, Mich.; Fort Wayne, Ind.; Lansing, Mich.; Pontiac, Mich.; Shreveport, La.; Spring Hill, Tenn.; Wilmington, Del.; Wentzville, Mo.; and Silao, Mexico.
The longest shutdown is 11 weeks at Fort Wayne, which makes the Chevrolet Silverado and GMC Sierra pickup trucks.
Laid-off hourly workers will get unemployment benefits and supplemental pay from the company that amounts to most of their base wages. Salaried workers also will get some income, GM North America President Troy Clarke said.
In a conference call with reporters, Clarke said the shutdowns are not a sign that GM is headed into bankruptcy protection.
Clarke would not say if any of the factories would be closed for good. GM has told the government it plans to permanently close five more factories as part of its restructuring plan, and its CEO said additional closures are possible.
Clarke said in the statement that the company has been controlling inventories since the first of the year, but it needs to do more.
As of March 31, the automaker had a more than six-month supply of several models including the Pontiac G5 compact and Chevrolet Silverado hybrid pickup truck.
Nearly all automakers with U.S. factories have temporarily closed plants or cut production to deal with the auto sales slump.
The state of Michigan is still in triage from indefinite industry layoffs and the extended plant closures by all three Detroit automakers in December and January, which “already led to declines in employment and a spike in the unemployment rate,” said Liz Boyd, spokeswoman for Michigan Gov. Jennifer Granholm.
Michigan’s March unemployment rate was 12.6 percent, the nation’s highest, with 609,000 residents out of work. The state has lost 230,000 auto-related manufacturing jobs in the past nine years, leaving it with just 125,000.
“The problem on a nine- or 10-week shutdown ... (is that workers) are not likely to be spending as they normally would, because there’s no guarantee that in nine weeks they’ll be back to work,” said Michigan Senate Fiscal Agency director Gary Olson. “That’s certainly going to have an impact on retail sales, on the tourism business in this state.”