GM will not move production overseas amid drop in small-car sales

Article by Andrew Christian, on July 16, 2015

Even when demand for small cars has been slowing down, there are no plans for General Motors to relocate its production, according to CEO Mary Barra. She said that GM won’t be mirroring Ford’s plan to shift production somewhere else. Barra was the speaker at a ceremonial event to start discussions with the UAW on a new four-year labor deal.

She said that GM was able to increase the profitability of its cars even as demand has fallen with the drop in gasoline prices and the trend towards crossovers. Barra also said that its Orion Assembly plant in suburban Detroit produces “some very important small cars," which include the Chevrolet Sonic.

Last week, Ford announced that the production of the Focus and C-Max at its Michigan plant will be stopped in 2018. Ford didn’t say where its compact vehicles will be built but according to plant workers, they were told that it will be at a foreign country.

Barra was joined at the event by UAW President Dennis Williams who declined to comment on Ford’s move. However, he said that it is always a source of concern for any company to invest outside of the U.S. In 2011, GM became the lone auto company to assemble a subcompact vehicle in the U.S. (the Sonic) under a special pact with the UAW.

This agreement permits GM to have a higher proportion of lower-wage Tier 2 workers at Orion, together with workers from in-house suppliers who earn even less than the Tier 2 employees. Because of higher production costs in the U.S., it is more difficult for automakers to earn a profit on compact vehicles.

In the past few months, GM has reduced its output at Orion several times already. This plant is where the Buick Verano is manufactured. Last month, the company informed workers that there will be a 20% cut in its production and that 100 employees will be laid off.

Barra clarified that GM’s profits are not released by car line. However, it anticipates that it will boost its profitability on cars that will be launched soon. These include the Cruze compact and Malibu midsize sedan that are both produced in the U.S. Barra said that profitability is improved with how the vehicle is engineered and processed.

Barra and Williams refused to share their opinion on issues that are expected to be mentioned during the labor talks. One example is the difference between the salaries of Tier 1 and 2 workers as well as health care costs.

Williams said that a strike is “one of the worst things” they can do since it means that the bargaining has failed. However, he said that he doesn’t fear confrontation. Their labor contract has a September 14 expiration date.

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