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GM to cut truck shifts, leading to layoffs

General Motors Corp. said Monday it plans to cut one shift at four North American factories that make pickup trucks and big sport utility vehicles, laying off about 3,500 workers.
/ Source: The Associated Press

Sagging pickup truck and sport utility vehicle sales have forced General Motors Corp. to shut down one shift each at four North American factories and lay off about 3,500 workers.

The world’s largest automaker by sales said Monday that the cuts, to take effect starting this summer, were brought on by weak demand due to high gasoline prices and an economic downturn.

The cuts will affect pickup factories in Pontiac and Flint, Mich., and Oshawa, Ontario, as well as the full-size SUV plant in Janesville, Wis. The layoffs represent just over 4 percent of GM’s hourly manufacturing work force of about 80,000 in North America.

The company said the cuts mean it will make about 88,000 fewer pickups and 50,000 fewer large SUVs this calendar year.

GM said the exact number of layoffs will be worked out with its unions. Workers will get unemployment benefits and supplemental pay that total 80 percent of their normal 40-hour gross pay, said GM spokesman Dan Flores.

“With rising fuel prices, a softening economy and a downward trend on current and future market demand for full-size trucks, a significant adjustment was needed to align our production with market realities,” GM North America President Troy Clarke said in a statement.

For about the past three years, the U.S. auto market has been shifting away from pickup trucks and SUVs to cars and crossover vehicles, but the trend accelerated in recent months due to gas prices that have topped $3.50 per gallon across the nation.

The company expects the layoffs to take place starting July 14 at the Flint, Janesville and Pontiac plants, and Sept. 8 at Oshawa. Most of the factories had already seen layoffs and production cuts due to a parts shortage from a two-month strike at American Axle and Manufacturing Holdings Inc.

GM spokesman Tony Sapienza said the company will eliminate shifts with 750 workers each at Flint and Janesville, 1,150 workers in Pontiac and 900 workers in Oshawa.

“Those are the people that we believe will be impacted based on what the shifts are,” he said. “We’ll be working with our partners to determine how that’s brought to fruition.”

Greg Gardner, an analyst with the Oliver Wyman Group, said the cuts look like “a realistic assessment.”

“The full-size pickup and SUV market is not going to rebound anytime soon,” he said. “It looks like that they don’t plan on making up very much of the production loss due to the American Axle strike.”

Gardner said GM’s announcement reflects the industry’s overall production forecast this year, down to about 15 million light vehicles from an earlier forecast of 15.5 million.

“Obviously, the larger, heavier vehicles are taking the biggest hit,” he said.

The Flint, Pontiac and Oshawa plants make the Chevrolet Silverado and GMC Sierra pickups, while Janesville manufactures the Chevrolet Tahoe and Suburban and GMC Yukon big SUVs.

GM said pickup sales overall are down 15 percent through March, while sales of large SUVs are off 26 percent. Dealers in much of the country say the bigger vehicles aren’t selling because of the economy and gasoline prices.

George Tasker, the top salesman at Martin Chevrolet in Torrance, Calif., said buyers are sitting on the sidelines for most vehicles mainly due to economic uncertainty and declining home values.

“Everybody’s going to drive a little bit longer until we can figure out where this thing is going,” he said.

Los Angeles-area dealers still can get just about any truck or SUV a customer wants by trading with each other, despite curtailed production from the American Axle strike, he said.

Jesse Toprak, chief industry analyst for the auto information site, said GM has a 92-day average supply of large trucks. A 60-day supply is considered optimal in the business.

He said the automaker will lose about $4.4 billion in gross sales because of the production cuts, but it’s nearly impossible to determine the impact on GM’s net profits.

The production cuts should help GM keep its inventory under control, said Catherine Madden, an analyst with the consulting firm Global Insight.

“They’re not going to put themselves in a position where they’re going to overbuild and sell at any costs,” she said.

“They take the hit now instead of being forced with their back up against the wall in September.”

GM said it did not forecast how many of those vehicles it expected to make this year, but it sold about 1.1 million of them in the U.S. last year, according to Autodata Corp.

The announcement was made after the close of regular trading. GM shares gained 56 cents, or 2.6 percent, to close at $21.94, and were unchanged in after-hours trading.

The cuts come as 74,000 U.S. workers represented by the United Auto Workers face a May 22 deadline to decide on GM’s latest round of buyout and early retirement offers.

GM won’t say how many workers it hopes to shed, but under its new contract with the UAW, it will be able to replace up to 16,000 workers doing nonassembly jobs with new employees who will be paid half the old wage of $28 per hour.