Analysts: GM eyes multiple models for plant

The new car to be built in Lordstown won't look like the Cavalier and will have more interior room, a union official says.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
LORDSTOWN -- General Motors is considering building a newly created vehicle, such as a Chevrolet wagon or retro car, at the redesigned Lordstown Assembly Plant along with its new small car, analysts say.
A vehicle targeted at a niche market, perhaps one with a bold new design, is likely because of the upcoming $500 million upgrading of the plant, said Mike Wall, analyst with IRN Inc. in Grand Rapids, Mich.
"With that kind of investment in Lordstown, you want to get more bang for your buck. There will be another vehicle in Lordstown," he said.
Two-year renovation
GM has committed to building a mass-market small car after a two-year renovation of the Lordstown plant.
Wall said it's also looking for manufacturing plants for vehicles such as the Chevrolet HHR, a small but tall wagon being designed; a retro car being developed to fight the Chrysler PT Cruiser; and the Solstice, a concept roadster that GM plans to produce.
GM can put more than one vehicle at a plant because it is building more vehicles from the same platform, or underbody architecture. The new Lordstown small car will use the Delta platform, which is being used to build the Opel in Europe and the Saturn Ion, due to arrive this fall.
Dan Flores, a GM spokesman, said more vehicles will be built on the Delta platform but he couldn't talk about them.
He said no decision has been made on where to build the cars now being designed or if Lordstown will be used.
Wants capability
Analysts say, however, that GM clearly wants its plants capable of producing more than one vehicle. A new Cadillac plant in Lansing, Mich., for example, is making the CTS entry-level luxury car and SRX crossover vehicle, with the Seville to be added.
"While there may be no immediate decision on other models at Lordstown, my guess is the facility will be able to handle it," said David Cole, director of the Center for Automotive Research in Ann Arbor, Mich.
The goal is to run plants as close to capacity as possible. If a model is a hot-seller, then a plant doesn't need more than one vehicle, but GM wants to have the option of adding other models, Cole said.
GM has revamped its truck lineup, and now Bob Lutz, GM vice chairman, is trying to bring more inspired designs to GM cars.
The new HHR
In January, he showed design sketches of the HHR to industry analysts. Industry publications say the designs were inspired by the Chevrolet Suburban wagons of 1949 and 1950.
Motor Trend magazine said the front-wheel-drive, four-cylinder vehicle is expected for the 2005 model year, the same year the new Lordstown small car is due out.
Lutz also has ordered a retro vehicle to fight the popular Chrysler PT Cruiser.
GM showed off the Pontiac Solstice as a concept car in January. Wall said GM is deciding which of its platforms to use when the Solstice is put into production. Even though Delta is a front-wheel-drive platform, GM is considering using it for the Solstice, which is a rear-wheel-drive roadster, he said.
The small car secret
As for the small car that will replace the Chevrolet Cavalier now built at Lordstown, GM isn't releasing details. Although it will have similar underbody architecture to the Opel and Ion, it will be a different car with its own styling, Flores said.
John Mohan, shop chairman for United Auto Workers Local 1112 at Lordstown, said he's seen pictures of the new design and likes it.
"It doesn't look anything like the Cavalier," he said.
It's about the same size but provides more interior room, he said.
The plant now produces the Chevrolet Cavalier and Pontiac Sunfire, but it's unclear whether the plant will be making a model for Pontiac after the redesign.
"It won't be one vanilla vehicle," Flores said. "There will be a variety of models, but I'm not sure how they will be marketed."
There has been speculation in the industry that GM won't replace the Sunfire, especially since Pontiac just introduced another small vehicle, the Vibe. Wall said, however, that he thinks pressure from Pontiac dealers will force GM to roll out a Sunfire replacement because of the car's sales volume.
If the plant does make Chevrolet and Pontiac models, they won't be essentially the same cars as they are now, he said. GM has gotten away from making the same cars for different brands. Pontiac, for example, is marketed as having sportier cars.
A large question surrounding the launch of the Cavalier replacement for the 2005 model year will be whether the car will make money.
Analysts say GM is losing about $1,000 a car on Cavaliers and Sunfires but needs them to attract entry-level buyers into the GM lineup and to meet federal fuel efficiency standards.
Flores said GM thinks it can make money on the new model, but others aren't so sure.
"I'm not confident at all that they can make money," said David Healy, an analyst with Burnham Securities in Arizona.
Remodeling decision
GM delayed its decision to remodel Lordstown because it couldn't find a way to make money on small cars, he said.
Healy thinks company executives finally gave approval for other reasons beside profit.
"They may be willing to settle for breaking even to hold customers and try to lure them into GMC Yukons later on," Healy said.
Domestic automakers can't make money on small cars because they can't charge enough to cover labor costs, he said.
Wall said competition will only grow because DaimlerChrysler is working on a revised Neon and Ford is redesigning the Focus. Japanese automakers continue to produce popular models, and Korean companies are offering low-priced cars with longer warranties.
Such competition makes it hard to charge enough to cover labor costs, he said.
Need design success
For GM to make money on small cars, the new model would have to be a design success so that it would inspire buyers, he said.
"But even breaking even would be huge. That would be a victory for GM," he said.
Flores wouldn't provide specifics on the business case developed for the new small car but said analysts who don't think GM will make money are overestimating the labor costs.
"They are a significant piece, but they are not as big as many people think," he said.
Cole said he thinks GM can make money on the Cavalier replacement, and GM's board of directors wouldn't have approved the Lordstown renovation if it weren't confident of that.
GM has taken several steps in recent years to boost profits, he said. Cutting the number of vehicle platforms reduces expenses, as does making plants capable of producing more than one vehicle, he said.
Tooling and technology
GM also has used new technology to reduce tooling expenses. The cost of dies, used in making hoods, doors and other parts, has been cut by two-thirds in the past five years, he said.
GM's plant investments have been more financially sound than they used to be, Cole said. In Lordstown, plant and union officials developed the $500 million renovation plan that would allow for construction and continuous production instead of seeking more than $1 billion for a new plant.
Cole said GM also has gotten better at designing its vehicles so they are easier to manufacture, which saves money.
GM's efforts to improve productivity raises the question of how many people will work at the Lordstown plant when the renovation is completed.
The plant has 4,500 hourly and salaried workers. To receive state funds, GM committed to keeping at least 2,600 jobs for seven years.
Company and union officials say it's too early to know how many workers will be needed at the plant, but cuts are expected to be made through attrition.
The plant had 7,500 workers before it was last remodeled in 1994.
Flores said fewer workers are needed because improved engineering continues to reduce the number of parts needed to build a car.
Wall said employment also will fall because of increased use of suppliers. GM and other automakers are using outside companies more to supply pre-assembled sections of cars to assembly plants.
Wall said GM is trying to increase the use of these modules, while not angering the UAW. Local unions, however, are becoming more willing to compromise on outside suppliers because they understand GM could close their plants, he said.
Mohan said Local 1112 officials aren't aware of any plans to increase the use of suppliers at the plant.
Flores said not all decisions on suppliers have been made and he didn't know if more outside companies would be used after the plant is renovated. GM has always used outside suppliers, and their use depends on several factors, including the vehicle, the plant and the local union contract, he said.
Studies go on
For now, the assembly plant is being studied to determine where to start construction. The plan calls for a new paint shop and body shop. Nearly every department will be relocated, and the assembly line will be shifted so that no production is lost during construction.
A date for the start of construction hasn't been set.
Mohan said a new paint shop, which is the most expensive part of the plan, won't be done until eight months after the 2005 models start to roll off the line. The old paint shop will be used until the new one is ready, he said.
As for the long-term future, Mohan said the paint shop, which will be added onto the current plant, is being built so it could link up with a new assembly plant if GM builds one.
Flores said that's too far into the future to discuss.
shilling@vindy.com