General Motors is to shut five U.S auto assembly plants in January, mainly to cut oversupply of passenger cars. Sedans have fallen out of favor among U.S. consumers and GM announced plans to do this in January in an attempt to cut sedan and coupes’ inventory to 70 days.
The production will come to a halt for three weeks for Detroit-Hamtramck Assembly (Cadillac CT6, Chevy Volt, Impala and Buick LaCrosse) and Fairfax Assembly (Chevrolet Malibu) in Kansas. GM’s Lansing Grand River Assembly (Cadillac CTS and ATS and Chevrolet Camaro) is going out of business for two weeks whereas Bowling Green, KY (Chevy Corvette), and Lordstown, OH (Chevrolet Cruze) each will be away only for a week.
The shutdown exposes bigger problem concerning the supply of the company. At 847,000 vehicles, the supply of the company increased erratically from a low of 629,000 units in January 2016. That is almost 26 percent increase in the past year. At the end of November, General Motors had an 110-day supply of CT6, 119 days for ATS, 121 days for Cruze,132 days for CTS, 168-day supply of LaCrosses,170 days of Corvette and 177 backlogs of Camaros.
The inventory of the most popular vehicles in this company is below the professionally accepted 60 to 70-dats supply. The GM’s full-size SUVs, as well as the Colorado pickup, are sitting below 50 days and face sales increases. Jim Cain, the GM spokesperson, stated that they will be responsible for the management of the inventory levels. It is also believed that company’s day-to-day supplies would alter before moderating at year-end.
Brian Johnson, an analyst with Barclays, said that residuals are declining, incentives are elevated, and rates are rising. Therefore, while GM may have some benefits in the following months from the new product launches, it is crucial to admit that the inventory of GM is increased now, and it would be no surprise if they announce another production reduction that would pressure the stock.