GM cuts overtime hours on softening demand
A weak housing market and high gas prices have hit demand for pickups and SUVs, prompting the automaker to cut scheduled overtime hours.
NEW YORK (CNNMoney.com) -- General Motors Corp. says it's cutting scheduled overtime hours in six plants to avoid excessive inventories of full-size pickups and SUVs after high fuel prices and a weak housing market have softened demand.
Consumers are less likely to take out home equity loans to fund a car purchase, and in the United States, a market traditionally more heavily weighted toward trucks and SUVs, that segment is taking a direct hit.
In addition, housing contractors, who represent a significant chunk of the market for pickups, are putting off new truck purchases during a slowdown in the housing market.
"Gas prices are still driving people out of the full-size segment and into crossovers" and sedans, said GM spokesman Tom Wickham, noting a trend spurred by soaring fuel prices following hurricanes Katrina and Rita last year.
While GM has actually seen an increase in its share of the pickup and SUV segment, "the fact is we're selling fewer vehicles this than last year," Wickham said.
GM's manufacturing changes, which are expected to last till the end of the year, eliminate scheduled overtime hours and do not affect unexpected overtime that might be required due to an interruption in manufacturing, GM says.
But since revenue is recognized as soon as vehicles leave the plant, GM's cut in scheduled overtime will directly impact revenue.
The automaker had ramped up scheduled overtime to coincide with the launch of its 2007 Chevy Silverado and GMC Sierra trucks.
"If inventory levels get too high, you're compelled to increase incentives which hurts the resale value of product," Wickham said. "We're working hard to improve resale value."
Last month, GM boosted incentives to as much as $3,500 cash back and offered zero percent financing on some of its full-sized pickups after Toyota's unexpected move of offering $4,000 cash back for its new, competing large truck, the Toyota Tundra.
Overall, August U.S. auto sales could be off by 10 percent from a year ago, according preliminary data from industry sales tracker Edmunds.com, with falling home values and credit credit problems having a considerable impact.
July sales that were down 19 percent year-over-year. And even though sales at big three automakers GM (up $0.08 to $31.16, Charts, Fortune 500), Ford (down $0.10 to $7.82, Charts, Fortune 500) and Chrysler have recently been bypassed by Toyota (up $0.97 to $115.46, Charts) in the United States, Toyota and Honda (up $0.07 to $32.17, Charts) sales fell in July as well.