Inventory Levels Of These GM Plants Still In "Danger Zone" Even After 2 Hurricanes And 6,000 Job Cuts

Over the past two months, General Motors" stock has rallied nearly 30% on the notion that hurricanes in Texas and Florida solved the company"s nagging inventory problem.  But, even after two of the most devastating hurricanes in U.S. history wiped out hundreds of thousands of vehicles and GM"s preemptive elimination of some 6,000 jobs, Automotive News says the company still has a ways to go at certain plants if they want to bring system-wide inventories down to healthy levels. 

Even after cutting more than 6,000 jobs this year, General Motors might need to further shrink its manufacturing operations to address bloated inventories of some vehicles amid plateauing U.S. sales and pressure from Wall Street to avoid overproduction.

 

The majority of GM"s U.S. assembly plants, including some where a shift already has been eliminated, produce vehicles that on average have at least an 80-day supply, 33 percent more than what the industry generally considers healthy, according to estimates from the Automotive News Data Center.

 

"The danger zone is definitely consistently staying in that 80 to 100 days," said Joe Langley, a senior analyst at economic forecasting and data company IHS Markit. "The ultimate red flag is when volume is at that 120 days or more consistently and incentives aren"t moving the needle."

 

GM has at least seven U.S. assembly plants that on average produced vehicles with greater than an 80-day supply entering October, including four that have more than 100 days, according to the estimates. That does not include GM"s two U.S. plants for the Chevrolet Silverado and GMC Sierra, because pickups commonly have higher inventories to meet demand for a variety of trim and feature configurations.

Making matter worse, it"s not just small passenger cars where GM is currently oversupplied as the company is sitting on 125 days worth of GMC Canyons and roughly 80 days worth of other "popular" pickup truck models.

Inventory numbers point to the potential for a cutback in Wentzville, which has run around the clock since spring 2015. It makes the Chevrolet Express and GMC Savana full-size vans and the Chevy Colorado and GMC Canyon midsize pickups. Slowing sales have left GM with an estimated 84-day supply of those vehicles as of Oct. 1, including 81 days" worth of Colorados and 125 days" worth of Canyons.

 

"The Colorado and Canyon have sold far better than they thought they would," said Ron Harbour, a consultant with Oliver Wyman. "At this point, they"re trying to figure out if this is a long-term trend or not."

 

Langley, the IHS analyst, said he thinks GM would need to cut a shift in Wentzville by next summer if inventories remain elevated.

 

"That"s the one big plant on the truck side that concerns me for getting a shift reduction," Langley said. "That plant is running at a level it was never designed for either. That"s been the story for a lot of these factories."

Of course, no matter how bad the company"s persistent inventory problem looks on paper, there is one group that simply couldn"t care less: GM shareholders.