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GM Mulls New High-Efficiency Car Factories

TIMES STAFF WRITER

In an aggressive effort to staunch small-car losses, General Motors Corp. said Monday that it is planning to build as many as three new U.S. assembly plants that would employ 40% fewer workers than typical auto factories and reduce production costs 20%.

If given the go-ahead by its board of directors within two to three months, GM could spend more than $1 billion to build the new factories by 2001 and retool some existing plants. The new U.S. factories would be GM’s first since it built the Saturn plant in Spring Hill, Tenn., in 1990.

The new factories are likely to replace plants in Lordstown, Ohio, and Lansing, Mich., where GM now builds Chevrolet, Pontiac and Oldsmobile compact cars. The new plants--one in Ohio and possibly two in Michigan--will probably be close to the existing facilities and staffed by some of the same union workers.

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GM currently loses about $1,000 on each small car it sells in the U.S. Even Saturn, its highly regarded small-car import fighter, lost money in 1998 as sales of its aging lineup slumped in the face of intense competition.

“We cannot afford to lose money on small cars anymore,” said Mark Hogan, vice president of GM’s small-car group, speaking at an automotive seminar at GM’s headquarters in Detroit.

The auto maker projects savings of $2,000 per vehicle by using modular manufacturing that relies on outside suppliers to design, build and install large component systems. The agile manufacturing system lowers labor and material costs while increasing the flexibility to produce vehicles profitably, even at relatively low volumes.

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GM also is expected to adapt modular manufacturing methods at a joint-venture plant in Canada where it builds small cars with Suzuki Motor Corp. of Japan. Saturn’s Spring Hill plant will probably also use modular techniques when it begins producing a small sport-utility vehicle.

The major sticking point to implementing GM’s initiative, internally code-named Yellowstone, is getting the cooperation of the United Auto Workers. GM officials are in negotiations with both local and national UAW officials.

Analysts expect an agreement to be worked out. Relations between the union and GM have warmed since the lengthy UAW strikes last summer and the appointment of Gary Cowger, former head of the company’s German subsidiary Opel, to oversee labor relations.

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Staff reductions at the existing plants will be handled through attrition rather than layoffs, Hogan said. With the average age of UAW workers at 47, many are likely to retire if offered sweetened pension benefit packages.

“It makes more sense to spend $1 billion on severance packages than to spend it on a strike,” said David Andrea, analyst for CSM Forecasting in Lansing.

Though skepticism is strong at the UAW, the union may be pliable because GM is subtly threatening to build the small-car plants in Mexico unless it gets concessions on staffing and work rules.

GM is expected to mollify the union by encouraging lower-paying and nonunion suppliers to allow the UAW to organize their workers in exchange for hefty long-term contracts. This would assure labor peace for GM while quelling UAW concerns about declining membership and wage levels.

U.S. auto makers have long struggled to make money on small cars. They justify their commitment to the segment as a way to grab entry-level buyers in hopes of luring them to larger, more profitable vehicles later. Small cars also help auto makers meet federal requirements on corporate average fuel economy.

Small cars are important to GM since it has a larger share of the U.S. and global car market than its rivals. GM’s three global small-car programs will account for half its 8 million units in annual vehicle production in coming years.

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GM’s modular assembly plan borrows from the best practices of auto makers in Europe, South America and Japan, as well as its own efficient new Blue Macaw factory in Brazil.

That factory, which will begin production later this year, relies on 15 outside suppliers to produce and deliver to the assembly line completed large component systems rather than hundreds of parts that are bolted on as the vehicle moves by. Under such a system, the time required to install an instrument panel, for example, would drop from 22.5 minutes to 3.3 minutes.

“It’s an elegant solution to making a profit on small cars,” said J. Ferron, an auto expert with Coopers & Lybrand. “The question is whether a 20% savings in production costs is enough.”

A traditional assembly complex, which costs about $1 billion, requires 3 million square feet of space, employs about 3,600 workers and produces about 230,000 vehicles a year using two work shifts.

The proposed modular plants, in contrast, would cost about $300 million each to build--about the same amount it costs to refurbish an aging plant. They would require 1.2 million square feet of space and employ 2,100 workers operating in three shifts around the clock to produce 215,000 vehicles yearly.

GM shares rose $6 to close at $86.06 on the New York Stock Exchange in reaction to general expectations of strong earnings for the coming year.

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