Hurricane Rally Stalls: GM Forced To Idle Detroit Plant Amid "Slow Demand"

Tyler Durden's picture

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.

GM

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.

GM

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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knukles's picture

Hah ha ha ha

Look kiddies; Ford idled plants a month or so ago due to waning demand.  If there was such magnificent excess demand, Ford would have reopened the closed lines.
Ya' dig?

covfefe MICdotard's picture

Maybe it's the'former' NFL fans protesting the dindus kneeling

remain calm's picture

TSLA must be taking all the business. NOT! LMFAO. What TSLA up today, Joke of a stock, joke of a market

dot.dot's picture

The wife just bought a new GMC Yukon.  While at the dealership I noticed they STILL have 2016 model Escallades on the lot.  When I quized the sales guy about this he acted as though that was quite normal and I was foolish to think otherwise. Only GM would think that is normal.

FreeShitter's picture

Fuck Garbage Motors

Bill of Rights's picture

My Piece of shit car....

 

The only thing booming is the Stock Market, and no doubt 90% is just the machines moving back and forth...

Endgame Napoleon's picture

Tell that to the MSM. They have trouble processing concepts like the difference between how much money it takes to live when your major bills are not covered by welfare and child tax credits and the pay in part-time / temp / churn jobs. It is not car-buying pay.

So, the slew of hurricanes resulted in a lot of potential demand. The same people who need to buy cars are now even more un or underemployed. Texas has a lot of economic activity because of low wage levels and low taxes.

When a state has a low per-capita income, like my state’s per-capita income of $19k, many people do not have the liberty to just spend, spend, spend, heedless of the fact that rent for a one-room apartment in crappy, miserable, loud and unsafe area takes half of your monthly pay.

Maybe, when April rolls around, and moms start cashing their $6,269 child-tax-credit rewards from Uncle Sam for sex, reproduction and working the welfare reform-required 20 hours per week, the cars sales will start going up.

Single, childless people have to say, ugh, this $10-per-hour job appears to have — at least — a 90% turn-over rate except for the babyvacationing managers and their babyvacationing, back-watching, momma-clique employees. Even though I am coming to work every day, staying the whole day and (unlike the absentee cronies) meeting the quotas, I better not take on a car note. This job might not last 3 months. A car note lasts much longer.

The Duke of New York A No.1's picture

Memo to PPT: Sell more VIX.

 

 

Herdee's picture

Nobody buying, too much inventory, can't even get rid of them below dealer cost, economy isn't good as government propaganda says.

Endgame Napoleon's picture

Who would ever know if not reading this site, a couple of other sites and/or by experiencing it? Even if discussed, it is always put in terms of blaming this or that politician. The economy is bad for most due to long-term trends.

peippe's picture

the typical LaCrosse buyer is 20 months from being 'LaDead", 

so what do you expect?

baldknobber's picture

I have been told that a 2018 Ford  four door F-450 4X4  dsl loaded will push 80k   We are fucked. The last true real farm pickup we had was a 1975 IH 3/4 ton 4x4 345 4 speed.  Everything since have been show ponies

Utopia Planitia's picture

I see more and more people pulling dangerously overloaded trailers behind their mainstream passenger cars.  When I ask them "what's the deal" they say:  "I ain't payin' $55,000+ for a f0ck1ng peekup truck!"  I could use a peekup too, but I also will not pay anyplace close to that for an overpriced piece of sheetmetal that my (now gone) 1975 F250 could pull sideways down the highway. I am surprised there is any market at all for those 2X+ overpriced pieces of crap!

GunnyG's picture

I wouldn't buy anything made by the drones in the UAW. That said, WHY THE FUCK would a company spend time making a "low-demand" product? Why not scale back on that crap and make high demand products? Duh. 

80K for a pickup? HAHAHAHAHAHAHAHAHAHAAHAHAHAHHAHH! I bought a used 68 Apache and am currently fixing it up. 

Endgame Napoleon's picture

Question: Why are they making the low-demand products in this country?

Answer: They use it as an excuse to close more plants in the country where they can’t pay slave wages.

GunnyG's picture

Damn good point but to me, if you're trying to be competitive, you focus on a few rock solid items and shelf the bullshit stuff. But then again, Obama gave GM to the UAW so they're fucked from Jump Street!

exartizo's picture

Gross risk mispricing world wide is rampant as the world wide debt bubble grows ever larger and distorts everything from the value of new cars and used cars, to real estate, stocks and bonds, and of course precious metals.

Nothing is worth what it seems.

This will not end well.

Endgame Napoleon's picture

Interesting, I wish Tyler would write an article on that issue: “gross risk mis-pricing.” In the shop I once had, I know that industry pricing was very distorted by what large retailers who bought foreign-made goods in bulk could charge. I can see how local pricing is impacted by larger trends.

Thethingreenline's picture

We need another round of cash for clunkers.

TTGL

chemcounter's picture

Its a good thing GM put those high demand four door cars up in Detroit and those low demand crew cab silverados in Mexico. 

OCnStiggs's picture

This long-time GM owner will never buy another one after Obama forced me to be an unwilling stockholder in GM. The UAW retirement pension buyout was criminal. And many people I talk to share my view.

How'd that work out for you UAW?

acheron2016's picture

Count me as one too.  After the CRIMINAL (cause that's what we call it when you break the law) making up as he went along bankruptcy "law" I committed to never having another GM.  This weekend we traded our last Chevy. on a brand new Toyota.

 

High crimes and misdemeanors is how the founders put it in the Constitution.  I think stealing $80,000,000,000 from GM secured bond holders should be enough to impeach obama right there all by itself.  Then we would have been spared the next 7 years of his obscene abuse of the office of President. 

Ben A Drill's picture

Just fixed my ‘05 Toyota Tacoma front bumper for $9.00 dollars. Deliberately ran over some large orange traffic cones. Won’t do that again. My fog light bracket broke. Went to the dealership, they said $400.00 dollars for new fog light and housing, comes in one piece. I said no thank you, I’ll figure something out.