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GM cuts production
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December 7, 2000: 5:00 p.m. ET
GM trimming output while DaimlerChrysler seeks cost reductions
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NEW YORK (CNNfn) - In the latest sign that the U.S. economy is slowing down, General Motors Corp. Thursday slashed its North American production schedules and DaimlerChrysler said it plans to ask its suppliers to reduce prices by 5 percent to cut costs.
In a statement, GM said it expects to build 1,373,000 cars and trucks in North America in the fourth quarter, down from a previous estimate of 1,378,000.
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The auto industry is in a slowdown, and our inventory going into winter months is higher than we would like.
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GM's Tom Wickham |
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For the first quarter of 2001, the automaker expects to build 1,301,000 vehicles, a 14 percent decrease from year-ago levels. GM's (GM: Research, Estimates) move follows similar cuts by other U.S. automakers in recent weeks as auto sales have slowed.
"The auto industry is in a slowdown, and our inventory going into winter months is higher than we would like," GM spokesman Tom Wickham said. "Additionally, there is some economic uncertainty that's had a negative effect on consumer confidence." "What we are doing is reducing production by about 14 percent from Q1 year ago, and basically this is going to bring production in line with demand and reduce inventory," he added.
In a separate announcement, DaimlerChrysler AG said come January it will ask its suppliers to reduce prices by 5 percent to cut costs.
The move is part of a program to reduce supply material costs by 15 percent in two phases over the next two years. In the second phase, the German-American automaker says it will work closely with suppliers to find an additional 10 percent savings.
DaimlerChrysler has been struggling against heavy losses in its Michigan-based Chrysler division, replacing American executives with Germans and taking other cost-cutting steps.
In the past week, three investment companies have downgraded DaimlerChrysler. In past years, Chrysler has asked suppliers for price reductions of 3 percent a year.
"We are in a difficult business situation and we know the only way to initiate change effectively is by working together," said Dieter Zetsche, president and chief executive of Chrysler. "The true test of a strong relationship is measured during times such as these."
Chrysler said the price cut goals will be accomplished by working with suppliers for all its vehicles. Chrysler's engineers will work with suppliers to find the cost cuts.
Painful cuts ahead
GM Chief Executive Richard Wagoner told reporters after a speech at Boston College's CEO luncheon in Boston that the industry needs to make painful cuts now to avoid a glut of cars on dealer lots later this year.
"What we're all going to have to do is ratchet back production capacity, and that's painful," Wagoner said. "Once you swallow that, then you hopefully reach a steady state and lower level of production across the board."
Since DaimlerChrysler and Ford announced production cuts, including plans to temporarily idle vehicle assembly plants, Wall Street analysts have wondered whether GM would follow suit.
Some speculated that GM would halfheartedly cut production, while adding consumer incentives to try to increase its U.S. market share, which slipped to 25.6 percent in November, its lowest level since August 1998 when the automaker was recovering from two costly strikes.
Wagoner said he did not expect to see any sustained increase in incentives.
Last week, GM cut the finance rates on its minivans to match the low rates offered by market leader DaimlerChrysler (DCX: Research, Estimates) after minivan sales fell in November.
Wickham declined to say how many GM workers could be affected by the production cuts.
However he said GM is likely to employ a number of production-cutting methods, including reducing overtime in some facilities, slowing down the assembly line in other locations and idling a factory or assembly line temporarily in order to reduce inventory levels.
GM closed Thursday at $51.38, down 69 cents. 
-- Reuters and AP contributed to this report.
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GM
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