GM is pouring billions into electric cars and autonomous vehicles, and needs maximum flexibility to minimize the risk. Automobile design is headed for big changes, and a preference for shipping production out of the country threatens its ranks. Electric vehicles, which are less complex than gasoline counterparts, are expected to require 30% fewer workers—bad news for a UAW union that now only represents about 150,000 people at Big Three auto plants—a minority of American auto workers. The recent strike cost GM $3 billion and UAW members $8,700 per worker. The industry’s most profitable vehicles, meanwhile, are increasingly coming from Mexico.
Hence the factory-utilization rate. Long an indicator of a company’s underlying health, it measures the percentage of a plant’s capacity to churn out cars used during a 16-hour workday. Auto executives hate it when the lights are off on a plant. Every minute of those 16 hours that the assembly line isn’t running represents piles of wasted cash.
GM is responsible for 1/3 of the auto industry’s unused production capacity, reports The Wall Street Journal (Nov. 2-3, 2019). That’s a disproportionate burden for a company with just 17% market share. It’s also why the company announced a plan last year to close several factories, including a facility in Lordstown, Ohio, and stuck to that plan even as government and union leaders criticized the move.
GM builds the electric Chevy Bolt and small cars, for instance, at a factory in Orion Township, Mich. The sprawling facility employs about 750 people and is capable of building tens of thousands of cars a month. It currently builds 170 a day, or less than 10% of what it is capable of building during a 2-shift workday. The industry average for capacity utilization? 88%. GM is keeping Orion open because it sees the factory as a test bed for electric vehicles, which currently are money losers because of the high cost of batteries.
Classroom discussion questions:
- What issues concern the UAW?
- What OM issues concern auto manufacturers?