GM "Lost the Bet" on Lower Fuel Prices

[Ming]

GM bets on lower fuel cost, but loses
Wisconsin auto factory to close as demand falls for sport-utility vehicles
By Thomas Content
Milwaukee Journal Sentinel

Published on Tuesday, Jun 17, 2008

General Motors Corp. executives believed that prices at the gas pump would stay low and were loath to part with the profits they reaped from selling big SUVs.

Sales of sport-utility vehicles were already starting to dip when GM kept its SUV factory in Janesville, Wis., open three years ago. The company spent $175 million on a retooled production line for freshened versions of new, big SUVs that get poor fuel mileage.

''The bet they had taken — that Janesville got the free ride on — was on lower energy prices,'' said Brett Smith, a manufacturing consultant who's been a regular at the Janesville factory for the better part of the last decade. ''And they bet right for a long time.

''They've lost that bet now.''

From unparalleled profits to gas-pump pain, the boom and bust of the big SUV was felt in week upon week of overtime for GM workers years ago — and now a downsizing that is likely to leave Wisconsin without a car-industry assembly plant.

''They rode a great wave, with a lot of profits, and a lot of money,'' Smith said of Janesville's work force. ''And it was a good time for them. We all knew it would end. But nobody thought it would be this brutal.''

Smith, based at the Center for Automotive Research in Ann Arbor, Mich., spent six years teaching classes inside the Janesville GM factory about the transformation of the auto industry.

''It was this very subject,'' he said in an interview after GM's announcement on closing the plant. ''My job was to come in on Tuesdays and discuss the changes in the industry, what was happening and what could happen.'' In some of the classes, the factory-floor workers and managers would debate whether GM should close some SUV plants.


In November 2005, when gas was $2.20 a gallon, GM spared Janesville in a sweeping round of plant closings. SUV sales were already off their peak in 2003, but GM managers were confident that a freshened lineup of Suburbans, Tahoes and Yukons would win back loyal customers.

The new models won praise for their car-like interiors — and a 20 percent gain in fuel economy compared with the prior models.

Today, with gasoline prices doubled at $4 a gallon, it costs more than $103 to fill the 26-gallon tank of a Tahoe or Suburban made in Janesville, and buyers no longer care if the newer SUVs are slightly more fuel efficient than the older ones.

''Full-size SUVs are in a decline that will continue,'' said David Leiker, auto industry analyst at Robert W. Baird & Co.

GM's big SUVs ''are the most fuel-efficient vehicles of that size,'' Leiker said. ''...but they're not fuel efficient, and at $4 a gallon for gas, cars are what consumers are buying, and these big vehicles do not make that list.''

http://www.ohio.com/news/top_stories/20005839.html

[K-1]

What, no special article jabbing the piss-poor planning of Toyota's brand-spankin' new Tundra plant?

[Rocket 88]

Considering GM's large SUV's are very recent designs and the most efficient offerings at least they should be very competetive in a declining market. Getting production in line with demand will obviously be painful.

BUT - How is it that GM made all this money and couldn't invest adequet small vehicles?

[63GrandSport001]

Originally Posted by K-1

What, no special article jabbing the piss-poor planning of Toyota's brand-spankin' new Tundra plant?

I don't see why, Toyota may have spent a good amount of money on the bigger Tundra which has not been selling for them. However they have tons of cars to pick from and are not at risk of going under because of this choice.

GM put all of its eggs in one basket and Toyota didn't.

[Ming]

Originally Posted by K-1

What, no special article jabbing the piss-poor planning of Toyota's brand-spankin' new Tundra plant?

Isn't that plant capable of being converted over to Camry production and plans are underway for that now? Perhaps if GM could've converted its SUV/Truck plants to car plants they wouldn't need to close them.

Besides, when I read this, it looked like a more local article with little concern of what is going on in Texas.

[TheWraith]

Originally Posted by 63GrandSport001

I don't see why, Toyota may have spent a good amount of money on the bigger Tundra which has not been selling for them. However they have tons of cars to pick from and are not at risk of going under because of this choice.

GM put all of its eggs in one basket and Toyota didn't.

exactly. GM heavily invested in the GMT900's, at the expense of a lot of other things, and now they have extremely weak offerings for many segments, and it's left them in a position where they need to play up future offerings that aren't for sale yet and hope that interest in them stays strong until they actually produce them.

[K-1]

Originally Posted by Ming

Isn't that plant capable of being converted over to Camry production and plans are underway for that now? Perhaps if GM could've converted its SUV/Truck plants to car plants they wouldn't need to close them.

Besides, when I read this, it looked like a more local article with little concern of what is going on in Texas.

Any plant is "capable" of being converted with enough $$$. San Antonio is BOF trucks first and foremost. But, seeing as how Toyota is all-knowing, why wasn't this a Camry plant in the first place? Most of GM's plants were built decades ago when there was little to no competition (hence the large number and the downsizing). Toyota can't say the same for the Tundra plant.

[prototype66]

Lets hope for the best and do the best we can.

[MOGI]

So GM just needs to make the next generation even more fuel efficient...

It's over simplifying the situation I know, but these vehicles aren't ever going to completely disappear. Keep making them better and more fuel efficient. It can be done, I'm sure...

[K-1]

Originally Posted by 63GrandSport001

I don't see why, Toyota may have spent a good amount of money on the bigger Tundra which has not been selling for them. However they have tons of cars to pick from and are not at risk of going under because of this choice.

GM put all of its eggs in one basket and Toyota didn't.

That's not what the article was about. GM retooled an existing plant for SUV production, which is now dwindling. Toyota built a BRAND NEW (and over-budget) plant for Tundra production, expecting hit 200,000 sales per year. Why aren't we reading about Toyota's screw up?

[Ming]

Sadly, Toyota's pockets are spilling over with $$$ from Americans who buy their products, so the Tundra plant conversion will still look like a win for them.

[K-1]

Originally Posted by TheWraith

exactly. GM heavily invested in the GMT900's, at the expense of a lot of other things, and now they have extremely weak offerings for many segments, and it's left them in a position where they need to play up future offerings that aren't for sale yet and hope that interest in them stays strong until they actually produce them.

There was no "expense". It's not like the Delta or Gamma team was split up to work solely on the GMT-900s.

The Cobalt, etc. are what they are because the profit is extorted from them by the UAW, not because the Tahoe needed a nicer armrest...

[zete]

GM had to get the GMT900s out or they'd have such old vehicles that they'd lose market share -- even if the market for big trucks is down. Had they delayed it and had it come out now it would have been an utter catastrophe, so they did the right thing.

Now they're fully focused on cars and crossovers, which, for a change, has GM doing the right thing at the right time.

I'm constantly surprised that folks talk about GM's GMT900s as if GM just released the versions yesterday.

Sigh.

[zete]

Originally Posted by K-1

There was no "expense". It's not like the Delta or Gamma team was split up to work solely on the GMT-900s.

The Cobalt, etc. are what they are because the profit is extorted from them by the UAW, not because the Tahoe needed a nicer armrest...

And didn't GM just pull the Cobalt forward so it's due next year, along with a new small car? All GM did was pull the GMT900s up to a point where they were able to reap some benefit from the new platform and retain a competitive product. Now they're working on cars. Had they done something else I'd understand, but they're doing it the right way around for a change.

[PRO_USA1776]

What, no special article jabbing the piss-poor planning of Toyota's brand-spankin' new Tundra plant?

EXCELLENT point!