General Motors said Friday that it will eliminate a shift beginning in late September at its Fairfax Assembly Plant in Kansas City, Kansas due to declining sales of passenger cars.
The facility currently employs more than 3,000, and the announced layoffs are expected to impact about 1,000. The plant builds the Chevrolet Malibu. GM blamed the job cuts on a switch in customer tastes from smaller vehicles to larger trucks and SUVs. However, overall vehicle sales for all the major auto manufacturers have been decreasing in 2017.
The announcement of impending layoffs at the Fairfax plant follows the report by GM that it is extending the summer shutdown at its Fairfax and Lordstown, Ohio Assembly plants from the normal two weeks to five weeks to reduce inventories.
Meanwhile, Bank of America Merrill Lynch issued a warning Friday of a “swift and material downturn” in US auto sales, sending stocks of GM and other US-based carmakers into a tailspin. The bank projected that auto sales would tank to around 13 million per year by 2021 as a “tsunami” of off-lease cars hit the market and raw materials prices increase.
The sales decline is tied to several factors, including increased numbers of used cars on the market, tightened lending standards by banks concerned over increasing numbers of delinquent auto loans, the introduction of new technologies such as driverless vehicles and the spread of ridesharing.
There is concern that the downturn in sales could reflect a broader worsening of consumer sentiment and cause a fall off throughout the economy. Auto manufacturing still represents a considerable section of the US economy, and a downturn in the auto sector could have a much wider impact.
Last week an analyst for Morgan Stanley cut his 2017 sales estimate to 17.3 million from 18.3 million. He expects annual sales to fall to 15 million by 2019, about the 2013 level. Earlier estimates had sales reaching 19.2 million.
The most recent job cut announcement at General Motors follows a series of indications that the seven-year long auto sales boom is unwinding. GM’s sales are down 1 percent for the year, and its market share is near an historical low.
In April GM said it would shutter some US plants for as long as 10 weeks over the summer. At the end of May, it had an inventory of 963,448 vehicles, or a 101-day supply. That compares to a 57-day supply at the end of May 2016.
May sales figures showed the fifth straight month of decreases. The seasonally adjusted annualized sales rate fell to 16.7 million vehicles, down from 17.2 million in May 2016. Total sales for 2016 came in at 17.54 million, a record. Sales for the Malibu were down 30 percent from a year earlier.
Two weeks ago, GM said it would eliminate a full shift, 300 jobs, at its Warren, Michigan transmission plant outside Detroit. The facility builds transmissions for 11 different GM models. The company said that the cuts were in response to slowing sales and reduced demand for passenger cars.
Earlier this year GM eliminated a full shift, impacting some 1,300 workers, at its Detroit-Hamtramck Assembly Plant. It had previously cut shifts at Lordstown and at its Lansing Grand River facility.
In response, the United Auto Workers (UAW) defended the layoffs as dictated by “market conditions.” Vicky Hale, president of UAW Local 31, told the Kansas City Star, “The market is for trucks, crossovers and SUVs, but we build mid-sized Malibus. It’s not a good place for us to be to have just the one product. Most plants have two or three products.”
GM is not the only automaker impacted by the drop off in sales. In May, Ford said it would reduce its salaried and white-collar workforce by 10 percent in North America and the Asia-Pacific.
Ford previously announced 130 layoffs at its Avon Lake, Ohio plant that builds the F-650 and F-750 pickup truck due to lower demand for the previously hot selling cargo vehicle.
The company has already carried out periodic short-term layoffs at plants building the F-150 pickup truck in a move to trim demand.
All the US-based car companies face enormous pressure from Wall Street to drive up profits and cut costs. This will translate into attacks on jobs as the auto sales boon ebbs.
The UAW has played an indispensable role in facilitating layoffs. The 2015 sellout contract agreement sanctioned the increased use of temporary and part-time workers in the auto factories. These workers, who are not eligible for supplemental unemployment benefits (SUB), are in effect a disposable workforce that the company can hire and discharge with minimal cost.
In addition, the 2015 agreement removed the cap on lower-paid, tier-two workers whose SUB benefits are capped at 26 weeks and only provides 74 percent of their pay. The contract also sanctioned additional overtime, allowing management to use existing workers to take up production shortfalls without re-hiring workers.