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GM could crank up some model lines

February 5, 2010

GM could crank up some model lines

Automaker needs more of its crossovers

BY TIM HIGGINS
FREE PRESS BUSINESS WRITER

Seven months after emerging from bankruptcy reorganization, General Motors has a good problem: Customer demand for some of its new vehicles, such as the Chevrolet Equinox, is outpacing the automaker’s ability to make enough of them.

To build more vehicles faster, GM is considering installing body shops that are largely manual — as opposed to an automated line — in a factory, possibly its idled Spring Hill, Tenn., plant, according to people familiar with the discussions.

That could save the Detroit automaker the 20 months and more than $100 million it would take to install a new automated line, according to one estimate.

The increased labor expense could be offset by higher margins on the additional vehicles being sold.

Michelle Hill, a partner at Oliver Wyman, called GM’s thinking innovative and said it shows that GM is considering all options. She said most North American factories use body shops that are almost entirely automated.

One person familiar with the discussions said the decision has been made and would take about three months to implement. Another insider, however, cautioned that options are still being examined.

GM’s U.S. inventory at the end of January was 390,000 vehicles. Susan Docherty, GM vice president for sales, would like an inventory as large as 450,000. "There are some key places where we think that we’re just too light right now," she told reporters this week.

One of those areas is supply of the new Chevrolet Equinox and GMC Terrain crossovers, sister vehicles made at GM’s factory in Ingersoll, Ontario. Docherty said GM could have sold more of those two if it had the supply in January.

U.S. sales of the Equinox grew 76% to 9,531 in January compared with a year ago, according to Autodata. GM sold 4,302 Terrains in the same period. The new Equinox launched in June, followed in September by the Terrain.

Kim Carpenter, a GM spokeswoman, declined comment about plans to add capacity for the vehicles but noted that the company was "continuing to optimize production" at the Canadian plant.

GM added a third shift at the Ingersoll plant in October and began a retooling that should allow the factory to boost production by 40,000 vehicles annually in August.

Jim Bechtell, co-owner of Somerset Buick GMC in Troy, said customers like the design, gas mileage and price of the Terrain. "We’re selling about 25 a month. … We could probably sell 50."

It took an average of 13 days in January for the Equinox to sell once it reaches a dealership, according to Edmunds.com. That’s faster than most other vehicles. .

Inventories are also low for the Buick LaCrosse, Cadillac SRX and some trucks, Docherty said.

Michael Robinet of CSM Worldwide said GM could face hurdles in having enough parts if it wants to quickly boost production. "The real barrier could be how quickly can you get the suppliers ramped up," he said.

Hill remained skeptical that GM will ultimately go through with plans to add capacity elsewhere because of the cost.

She noted that Chrysler faced similar challenges when it launched the PT Cruiser in 2000. "It was just selling like hotcakes, they couldn’t make enough of them," Hill said. "Then boom … (too much) capacity."

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