GM cuts output 21%
Automaker plans to sell gas-electric SUV in 2004
Charles V. Tines / The Detroit News
General Motors announced Monday it would cut production by 21 percent. GM hopes its
Pontiac Vibe, shown with GM Chairman Jack Smith, will help increase sales.
By Joe Miller, and Jeff Plungis / The Detroit News
DETROIT -- General Motors Corp. will reduce first-quarter production by 21 percent
and is expected to announce ambitious plans today to begin selling a hybrid
gas-electric sport-utility vehicle in the United States within three years.
The production cutbacks are nearly 50 percent higher than those announced a month
ago and signal the rapid deterioration in the U.S. auto market. GM plans to build 1.2
million vehicles during the first quarter, or 321,000 cars and trucks below its
first-quarter 2000 production levels.
On Dec. 7, GM said it would pare back first-quarter production by 14.5 percent. The
additional cuts mean it will build about 100,000 fewer vehicles in the year's first
quarter than it projected just a month ago.
GM's cuts follow moves by DaimlerChrysler AG's Chrysler Group to reduce
first-quarter production by 26 percent and Ford Motor Co. to slash first-quarter
output by 17 percent. The latest round of cutbacks are likely to mean more temporary
layoffs and plant closings at the three automakers in February and March.
Ronald Zarrella, president of GM North America, blamed an unexpected downturn in
December new car and truck demand for the cutbacks. GM saw its U.S. sales fall 17.7
percent in December and 1.3 percent for the year.
"We think the first quarter, if not the first half, will be slower than we
planned," Zarrella told The Detroit News on Monday. Zarrella added that sales should
rebound in the second half.
Still, GM's top brass tried to put on a brave face looking forward. GM chief
executive Rick Wagoner pointed to the Federal Reserve's half-point interest rate
reduction last week and President-elect George W. Bush's plans for tax reduction as
reasons for optimism.
"That should help us out. Does that carry the day? We'll have to get through the
year and see," said Wagoner, who noted that new products on display at the North
American International Auto Show would also stimulate consumer interest and demand.
Just last week, GM said it would close 12 plants for a week or more in January,
idling about 26,000 workers. GM will rely on more temporary shutdowns during the next
two months as well as slower production rates and the elimination of work shifts.
Zarrella believes the moves will position GM for the entire year and help it avoid
costly plant shutdowns. "We're trying to get our inventories in line during the first
quarter," he said.
GM will handle the additional production cuts in February and March with more
temporary shutdowns, production line rate reductions and the elimination of work
shifts, Zarrella said. He said GM is still banking on industry sales of 16 million to
16.5 million units this year, including heavy trucks.
Hoping to counter the bad news, GM Vice-Chairman Harry Pearce is expected to
announce plans today for the automaker to market a hybrid gasoline-electric car-based
sport-utility vehicle starting in 2004. The vehicle will be powered by a gasoline
engine and electric motor.
Marketed as a premium vehicle, it will likely carry a Cadillac or Saab badge and
deliver 35 miles to the gallon. GM promises the vehicle will provide benchmark
acceleration and towing capability.
The hybrid will be slightly smaller than the current GMC Jimmy. GM expects to sell
7,000 a year.
It will be built off GM's upcoming Epsilon platform, a basic chassis that will
support next-generation replacements for the Chevrolet Malibu, Pontiac Grand Am and
Saab 9-3 and 9-5 and several other upcoming cars and crossover vehicles. GM plans to
build Epsilon-based vehicles at a new plant being built in Lansing and an existing
plant near Kansas City, Kan.
So far, only Toyota Motor Corp. and Honda Motor Co. sell hybrid passenger vehicles
in the United States -- the Toyota Prius and the Honda Insight. Toyota sold 5,562
Prius models and Honda sold 3,788 Insights last year.
Although neither Toyota nor Honda has broken even on their hybrid vehicles, demand
for the Prius and Insight is outstripping supply. Toyota has said it has customers on
a six-month waiting list for the Prius.
With gasoline prices on the rise and pressure growing to lower emissions and hike
fuel economy, other automakers are set to follow Honda and Toyota into the hybrid
market. Ford plans to market a hybrid version of its new Ford Escape sport-utility
vehicle and DaimlerChrysler plans to launch a hybrid Dodge Durango sport-utility by
2003.
In a related development, GM and Toyota said they had reached several milestones in
their effort to develop fuel cells suitable for automobiles, including a new agreement
to partner with Exxon Mobil Corp. to collaborate on fuel research.
"Both companies believe that our joint activities are contributing to the
development and accelerated introduction of advanced technology vehicles into the
market," said Toyota Executive Vice-President Shinichi Kato.
The two automakers have agreed to focus their efforts on finding a clean
hydrocarbon fuel in the short and medium term, shifting to pure hydrogen in the long
term. In Japan, the companies will study the feasibility of combining natural gas with
a clean hydrocarbon fuel.
The companies believe that the fuels will help them manufacture highly efficient,
environmentally friendly vehicles, and consumers will be able to power them through
existing fueling stations.
"In many ways, ideas are more valuable in the early stages of R&D than racing into
production," said Larry Burns, GM's vice-president for research and development and
planning.
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