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The collapse of the automotive market exceeds GM's hopes to keep up



DETROIT (Reuters) – Monday's monumental announcement by General Motors Co. to shut down three auto assembly plants in North America and reduce its workforce will only partially solve the gap between capacity and demand the automaker's sedans, according to an analysis of Reuters production and capacity data.

FILE PHOTO: View of the West Factory Entrance to the General Motors Lordstown Complex in Warren, Ohio, United States, November 26, 2018. REUTERS / Alan Freed / File Photo

Sales of traditional passenger cars in North America have been declining for six years and continue to fade. Following the end of next year's GM production in Michigan, Ohio and Ontario, it will still have four US auto plants, all operating at less than 50% of capacity, according to figures provided by LMC Automotive.

In comparison, rivals Ford Motor Co and Fiat Chrysler Automobiles NV of Detroit will each have a car plant in North America after 2019.

The Detroit Three is facing a rapidly dwindling demand from US consumers of traditional passenger cars, many of which are crossovers and trucks. In the United States, passenger cars accounted for 48% of light-duty retail sales in 2014, according to J.D. Power and associated market researchers. This year, sedans will account for less than a third of light vehicle sales.

This change has in turn left most North American automotive plants operating well below nominal capacity, while many SUV and truck plants are working overtime.

The collapse in demand for passenger cars is a challenge for almost all US automakers, including the Japanese companies Toyota Motor Corp and Honda Motor Co Ltd, which own the top-selling models in the compact and mid-size segment. Toyota executives announced last month that they are evaluating the company's range of US models. But Toyota is also planning to build Corolla compact sedans in a new $ 1.6 billion factory that it is building in Alabama with its partner Mazda Motor Corp.

The hurdles GM faced in plans to shut down new auto factories came on Tuesday when US President Donald Trump threatened to block GM government subsidies for electric vehicles. Although it is not certain that Trump has the power to do so unilaterally, he has made it clear that he intends to use his office to put pressure on the company so that it keeps open a small factory. of cars in Ohio that, according to GM, will stop building vehicles in March.

GM spokeswoman Kimberly Carpenter said on Tuesday: "We are constantly reviewing our opportunities to improve our efficiency and capacity utilization in our operations, and we believe the actions announced yesterday are moving us in the right direction and we will continue to monitor the market and consumer trends and adjust accordingly. "

Shares of US automaker No. 1 closed down 2.5% to $ 36.69 on Tuesday after rising nearly 5% the day before.

PROBLEMS OF ABANDONMENT

GM executives said they did not intend to give up their cars as much as Ford and FCA. The GM car factories that will remain open include Fairfax, Kansas, which manufactures the compact Chevrolet Malibu and Cadillac XT4 SUVs. But the plant is operating at 48 percent capacity, well below the 80 percent that GM chief executive Mary Barra is aiming for as an average for North America.

A GM plant in Lansing, Michigan, which builds the Cadillac ATS and CTS and the Chevrolet Camaro only works at 33% capacity, while the GM Orion Township, Michigan plant, which builds the Chevrolet Bolt electric car capacity percentage. A plant in Bowling Green, Kentucky, which builds the Chevrolet Corvette sports car produces only 27% of its potential output, according to LMC data.

"Until GM gets more flexibility from its platforms, it will continue to play with its factories as the market transitions – and this will happen again," said analyst Bill Rinna. at LMC.

In total, the four GM car factories that will remain open have a combined capacity of more than 800,000 vehicles a year, but are expected to produce only 360,000 cars this year, according to LMC.

FILE PHOTO: The GM logo is visible at the General Motors transmission system operating facility in Warren, Michigan on October 26, 2015. REUTERS / Rebecca Cook / File Photo

Industry analysts have indicated that the overall break-even point for profitable operation of an assembly plant is about 80%. Barra said Monday that GM's North American plants were operating at 70 percent capacity, including truck and SUV factories that worked overtime.

Ford plans to end Taurus production in March at its Chicago plant, which also manufactures the SUV Explorer and Aviator. This will leave the builder with a single US car plant in Flat Rock, Michigan, which is currently building the Ford Mustang and Lincoln Continental. The Mustang is expected to be re-designed around 2021, but the Continental should be phased out, according to two sources close to the company's plans. The capacity of Flat Rock only accounts for 49% of its capacity, but Ford has announced plans to add new products to the factory, including its first automated vehicle, in 2021.

Fiat Chrysler is still building the two large Chrysler 300s and the Dodge Charger and Challenger at its plant in Brampton, Ontario. Demand for these big cars remains robust and the plant has a capacity of nearly 80%.

Report from Paul Lienert to Detroit; Edited by Joseph White and Matthew Lewis

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