U.S. sales of new cars and light trucks in 2016 is estimated to be very close to the record-setting total of 17.5 million units sold in 2015. But the pace of sales growth has been kept at those levels primarily through record-level manufacturers’ incentives.
But incentives alone won’t sell cars, sport utility vehicles and pickups, and that means that carmakers are going to have to take steps to reduce inventories, and the traditional method for doing that is to cut jobs, either permanently or temporarily. This year we get both.
General Motors Co. (NYSE: GM) announced in early November that it would lay off 2,000 employees at its Lordstown, Ohio, and Lansing, Michigan, plants. On Monday the company said another 1,300 workers would lose their jobs at the Detroit-Hamtramck plant that builds Chevy Volt and Impala, the Cadillac CT6 and the Buick LaCrosse, as the company eliminates the second shift. Ahead of the layoffs, GM will stop work altogether for three weeks at the Detroit-Hamtramck plant.
GM’s production slowdown will also stop work for three weeks at the Kansas City Fairfax plant, for two weeks at the Lansing plant and for one week in Lordstown and at another plant in Bowling Green, Kentucky. GM’s inventory level at the beginning of the month was reported at 84 days, compared with an industry target of 60 days. Some models carried inventory levels approaching six months.
Ford Motor Co. (NYSE: F) will shut down its truck plant in Kansas City for the first week of January as it tries to slim down its inventory of pickups and vans. The plant builds the company’s fleet pickups and vans.
On Wednesday, Fiat Chrysler Automobiles N.V. (NYSE: FCAU) announced production cuts at two of its Canadian plants and a four-day stoppage following New Year’s Day at the plants in Windsor and Brampton, Ontario.
Except for the shutdown at Ford’s light truck plant, the production cuts are aimed at passenger cars. Consumers have taken advantage of low gasoline prices and low interest rates to purchase SUVs and pickups that are typically more expensive and get lower gas mileage than cars.
Fiat Chrysler has stopped producing the Dodge Dart and the Chrysler 200 at all and will soon build its final copies of the Jeep Compass and Patriot models. The Illinois plant where these Jeeps were built will be retooled to build Jeep’s popular Cherokee.
We’ll soon find out where gas prices have to be in order for U.S. consumers to reverse course (again) and stop buying low-mileage trucks and SUVs and begin buying more fuel-efficient cars. Gas prices, while higher than a year ago, are still low, and interest rates, though recently bumped higher, also remain low. Is the magic gas price $2.50 a gallon, or $3.00 or $3.50?
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