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GM cutting 1Q production
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January 8, 2001: 3:02 p.m. ET
Softer sales trims output 8 percent below earlier forecast; cost savings limited
By Staff Writer Chris Isidore
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DETROIT (CNNfn) - General Motors Corp. announced it is further cutting vehicle production plans for the first quarter, even though one of its top executives admits that the company sees only limited cost savings when it temporarily shuts a plant.
The world's leading automaker announced January shutdown plans for a dozen plants last Thursday. Its announcement Monday said it plans to build 1.2 million vehicles in North America, down 8 percent from the estimates of a month ago and down 21 percent from what it built during the first quarter of 2000, when sales were at a record pace.
 "We think the industry is going to be slower in the first quarter, if not the first half, than we originally planned," said Ron Zarrella, president of GM North America, in a briefing with reporters at the North American International Auto Show here, one of the key shows for the industry. "There's clearly downward momentum right now caused by higher interest rates, higher fuel prices. Probably the biggest factor is consumer confidence drop in December. The industry operates on momentum and we think it will take time for that momentum to turn around."
But Zarrella also conceded that with current labor agreements with the United Auto Workers Union and Canadian Auto Workers which pays employees at temporarily shut plants most of their scheduled pay, there is relatively little cost savings from production cuts.
"Frankly, you don't save much at all. You save the variable costs and cut back wherever you can. But when you shut down a plant, you still pay the people," he said. "We need to get our capacity footprint right. We've been working with the UAW to try to get that done within the context of the current contract.
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But Zarrella said it's important not to end up with too much inventory, which could prompted an incentive war in the industry that further cut prices and profitability.
"We don't think there's any advantage to substantial reduction in pricing to keep the volume where it was," he said. Asked about the possibility of an incentive war, Zarrella answered, "That's always a risk. But at least when you look at actions of the first quarter, it looks like people are being pretty careful."
The first-quarter production cuts will hit cars harder than trucks, as Zarrella said some entry-level vehicles have suffered as GM put more resources into pickup and sport/utility development in recent years.
GM now plans to build 562,000 cars in North America in the quarter, down 11.5 percent from the month-ago estimate and nearly a quarter off year-earlier production levels. Light trucks will also see production cut to an estimated 638,000 vehicles, down 4 percent from the most recent estimate and 18 percent from the year-ago production.
Overseas production is little changed from estimates of a month ago and in most regions is a bit higher than year-earlier production levels.
Meanwhile, Goldman Sachs on Monday lowered its 2001 profit forecast for General Motors (GM: Research, Estimates) by 50 percent and for Ford Motor Co (F: Research, Estimates) by 26 perecent, saying carmakers "have a lot further to fall" in a slowing economy that would cause a build-up in carmakers' inventories.
General Motors chairman Jack Smith told CNNfn's Before Hours Monday that he sees uncertainty ahead for the industry, which could prompt analysts' to change their estimates further. (563K WAV) or (563K AIFF).
Goldman sliced its 2001 earnings target for GM in half to $2.50 a share from $5, and lowered its outlook for Ford to $2 from $2.70. Goldman maintained a "market outperformer" rating on both automakers.
Shares of General Motors were down $2.06 to $51.94 in afternoon trading, while Ford was down $1.25 to $25 on the new York Stock Exchange. 
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