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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.''
Underpinning GM's new strategy is top management's view that energy costs will remain high. The global oil industry, GM Chairman Rick Wagoner said, ''has reached a tipping point where global demand is in excess of supply,'' creating unrelenting pressure on oil and gas costs.
GM executives admit they were wrong in their forecasts of where energy prices were headed, but they are now confident that prices will stay high.
Said Wagoner: ''The bias should be for high — and potentially higher — oil prices rather than lower ones.''
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.
Get the full article here.
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