DETROIT – General Motors Corp. is planning to temporarily close most of its U.S. factories for up to nine weeks this summer because of slumping sales and growing inventories of unsold vehicles, three people briefed on the plan said Wednesday. Analysts say the company could be seeing sales decline because of talk about a potential bankruptcy.
The exact dates of the closures are not known, but the people said they will occur around the normal two-week shutdown in July when changes are made from one model year to the next. None of the people wanted to be identified because workers have not yet been told of the shutdowns.
GM spokesman Chris Lee would not comment other than to say the company notifies employees before making any production cuts public.
One of the people briefed on the plan said details are still being worked out. Some of the closings could be staggered between mid-May and the end of July, but the exact number of plants to be idled has not yet been determined.
Another person said a few plants that make more popular models could remain open for part of the shutdown period, but at reduced assembly line speeds.
Thousands of workers could be laid off but would still get most of their pay because their United Auto Workers union contract requires the company to make up much of the difference between state unemployment benefits and their wages. UAW officials at several factories said they have meetings scheduled Thursday and Friday with plant managers and GM human resource officials to discuss production changes.
The shutdown could be catastrophic to many auto parts suppliers that already are near bankruptcy due to previous production cuts. During the shutdown, suppliers couldn't ship parts to GM and would lose critical revenue.
"It's one of those things we've been dreading for a long time," said Jim Gillette, director of financial services at auto-industry consultant CSM Worldwide in Grand Rapids. "It's as bad as its ever been."
He said that many suppliers are making employee cuts or forcing workers to take furloughs to reduce operating expenditures.
GM is living on $13.4 billion in government loans and faces a June 1 deadline to cut its debt, reduce labor costs and take other restructuring steps. If it doesn't meet the deadline, the company's CEO has said it will enter Chapter 11 bankruptcy protection.
The Treasury Department declined to comment on any effect the plant shutdowns might have on GM's restructuring plans.
Separately Wednesday, GM announced that it may miss a $1 billion bond payment also due June 1 if its debt-for-equity exchange is still in progress by then. GM also could go into bankruptcy protection, which could make the company miss the payment as well.
The company plans to make the exchange offer soon to bondholders, perhaps as early as next week. GM has $28 billion in unsecured bond debt and is under government pressure to reduce that to solidify its balance sheet.
GM's sales were down 49 percent in the first quarter compared with the same period last year, and GM had a 123-day supply of cars and trucks at the end of March, according to Ward's AutoInfoBank. That's down from 162 days worth in January.
But as of March 31, the automaker had a more than six-month supply of several models including the Pontiac G5 compact and Chevrolet Silverado hybrid pickup truck. The lengthy shutdown likely means that GM doesn't see its sales rebounding anytime soon, said Tom Libby, an independent Detroit-area auto industry analyst.
"They must be forecasting a sales level that is low enough between now and the summer that they see their inventories building," he said. "It's sort of an ominous comment on what they see for the industry."
Libby also suggested that the company's sales may be declining because customers are concerned about the automaker possibly filing for bankruptcy protection.
GM CEO Fritz Henderson has said the company would prefer to restructure outside of court, but it is preparing for a prearranged bankruptcy as well as one in which good assets would be separated from underperforming ones.
"Just using the word bankruptcy, their (market) share is down a lot just because of this talk," Libby said. "They may be counting on a further decline."
The plant closures add to the onslaught of bad news coming out of GM, said John Clark, president of Avenue Chevrolet, a dealership in Batavia, Ill., near Chicago.
"Henderson making statements about bankruptcy sure doesn't help his cause, and all of the sudden we have this," he said. "I've been getting calls from customers about warranties. I can't see this as a positive move."
The government has said it would guarantee GM and Chrysler warranties as the companies restructure.
Libby did say GM should be applauded for not building too many vehicles and then having to spend big on rebates and other incentives to move them, something the Detroit Three have been guilty of in the past.
Other GM dealers said a shutdown of up to nine weeks is jarring, but not unexpected given the sales slump.
"Nine weeks seems like an awful long time, but the way business is, not an awful lot of cars are being sold anyway," said George Tasker, fleet manager at Martin Chevrolet in Torrance, Calif.
Tasker said the move wouldn't affect business, as dealers would "get together and trade more easily" to find the exact car a customer wanted.
Nearly all automakers with U.S. factories have closed plants or cut production to deal with the auto sales slump. Earlier this year, GM temporarily closed 20 factories across North America due to weak sales, some for the entire month of January. Chrysler LLC, also subsisting on government loans, closed all 30 of its manufacturing plants for a month in January to counter the auto sales downturn.
Ford Motor Co. also shut down 10 North American assembly plants for an extra week in January, and both Toyota Motor Corp. and Honda Motor Co. have cut production.