General Motors’ stock has experienced an unprecedented rally over the past six weeks as wall street has increasingly bought into the thesis that a one-time, short-lived, pull forward of demand from folks needing to purchase replacement cars following Hurricane Harvey in Texas and Hurricane Irma in Florida suddenly means that the company is worth about 30% more than it was the day before Hurricane Harvey struck.
If that thesis holds water, of course, then someone will need to explain to us why GM, amid a ‘surge in demand’, is suddenly having to idle their Detroit-Hamtramck assembly plant and layoff 1,500 workers just ahead of the holiday season. These two things would seem to be mutually exclusive but perhaps we’re missing something? Per the Wall Street Journal:
General Motors Co. plans to close a Detroit factory through the end of the year and deepen production cuts to slow-selling cars the plant manufactures, idling some workers and letting go others around the holiday season in response to weak sales.
GM will temporarily close its Detroit-Hamtramck assembly plant for about six weeks starting in mid-November, said people familiar with the plan. The move will lay off roughly 1,500 workers who help build four low-demand models at the plant.
The nation’s largest auto maker also plans to scale back the factory’s assembly line to produce roughly 20% fewer vehicles once the plant resumes operations, costing about 200 workers their jobs, the people said.
The expected move comes after GM already laid off several hundred employees at the Detroit-Hamtramck factory earlier this year by eliminating the evening work shift.
The problem, as we’ve noted all along, is that while a one-time pull forward in demand could marginally help GM with its inventory crisis it will by no means solve it. As GM seems to be finally admitting, only a protracted, deep production cut well below current sales run rates, particularly in small cars, will be sufficient to solve GM’s inventory glut which includes nearly 1 million unsold cars sitting on dealer lots.
The upshot is dealer lots are packed with compact and midsize sedans that were staples of the U.S. auto market a few years back. GM, saddled with more factories that make only passenger cars than competitors, has moved aggressively to realign production amid the shift in consumer tastes.
The 32-year-old Detroit-Hamtramck factory has been hit especially hard. Workers there build four nameplates, including the small Chevrolet Volt plug-in hybrid and the Cadillac CT6, a large sedan introduced last year as the luxury brand’s flagship car. Sales of each have generally fallen sharply in recent months, leading to inventory piling up at dealerships.
Dealers are sitting on a roughly 10-month supply of the Buick LaCrosse, for instance, another car built at the plant, according to WardsAuto.com. A two-month supply is considered healthy.
The cars are struggling to attract buyers despite GM recently redesigning most of them. Fresh sheet metal typically translates into stronger sales. Critics lauded the CT6 as on a par with German luxury cars, but sales are nonetheless falling short of GM’s goals.
So are GM shareholders finally catching on this morning or is this just another great opportunity to BTFD?
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