DETROIT – In what appears to be a record voluntary shutdown, General Motors plans to essentially quit making cars and trucks in the U.S. for nine weeks from mid-May through July.
According to two sources with direct knowledge, who did not want to be identified because no official announcement had been made, the plan is to shut 15 of GM’s 21 North American car and truck assembly plants, most of them in the USA.
GM will meet with United Auto Workers leaders today and Friday to spell out details.
The shutdown is aimed at cutting costs and shrinking a glut of unsold vehicles at dealers.
The dramatic furlough also could whipsaw through the larger economy as GM quits buying parts from suppliers, and its workers, now even more worried about their jobs, quit spending.
“There could be failures in lots of different industries as a result of this,” says Mark Zandi, chief economist at Moody’s Economy.com. “One lost job at GM can result in up to 10 lost jobs elsewhere.”
If the GM halt puts some struggling component makers out of business, other automakers who rely on the same network of parts suppliers also could be hurt.
Union workers laid off will get about 72 percent of pay from state unemployment, plus “supplemental unemployment benefits,” a GM-paid union benefit.
There will be a significant blow to GM’s finances, which have already been battered by the downturn in car sales. Automakers book revenue when they produce and ship vehicles to dealers, not when the cars are sold to customers. That means GM’s revenue will shrivel for the nine-week period.
GM is surviving on $13.4 billion in federal loans. The government says it will decide by June 1 whether GM is restructuring fast enough to qualify for more loans.
Such an extended production halt could be “a sign that (GM) bankruptcy is more likely, rather than less likely,” says Stephen Spivey, senior auto analyst at research company Frost & Sullivan.
At the least, it’s end of the 2009 model year for GM. “They just plan to shut down and come back up with the next model-year (2010) vehicles,” Spivey says. “Production has to be slashed to match the sales trend.”
While U.S. new-vehicle sales the first quarter were off 38.4 percent compared with a year ago, according to Autodata, GM was off 48.8 percent.
Even with the shutdown, GM vehicles will be readily available, says Rebecca Lindland, director of auto analysis at IHS Global Insight. “It hurts the consumer who says, “I want this very specific vehicle,’ but dealers have plenty to sell. It shouldn’t really be a problem.”