GM, Ford Closing Plants Despite Rise in Demand and Profits

Despite their impressive earning reports, Ford Motor Company and General Motors Company may seek to close as many as six auto assembly plants in order to further boost their profits. The closures would be a blow to the United Auto Workers union which has seen its membership fall dramatically in recent years.

Ford intends to close an assembly plant in Minnesota by year’s end and is also considering idling plants in Michigan and Ohio where less popular models are made.

General Motors is considering transplanting workers from plants that have been idled or slated for closure in Louisiana, Tennessee and Wisconsin to factories in other states.

Since the last round of UAW negotiations four years ago, Detroit’s Big Three automakers have lowered costs by reducing their workforces by a combined 65,000 union jobs and shutting 10 assembly plants. The last round of negotiations resulted in the tow-tier pay system, and domestic automakers are looking to hire more lower-tier workers.

The UAW is reportedly looking for an early settlement to their contracts which are scheduled to expire on September 14.

According to a recent survey of 16 analysts conducted by Bloomberg, domestic auto sales could reach 13 million cars and light trucks this year, up from 11.6 million units in 2010.

GM spokeswoman Kim Carpenter said the company has not made a final decision on plant closings, but the savings are expected to be substantial. In 2008, the automaker said it expected to save $1 billion annually by closing four of its light-truck plants. Savings from the current closings will likely be much lower since two of the plants being considered for closure are not producing vehicles.

Prior to its U.S. government-backed restructuring, GM says the U.S. market needed to reach 15 million annual sales with GM controlling a 25 percent market share in order to be profitable.  The company says the high thresholds were largely due to over-production and excessive labor costs.  Since restructuring, the break-even point has fallen to 10.5 million in annual sales and about an 18 percent market share.

UAW vice president for GM negotiations Joe Ashton said the union is willing to consider expanding the ranks of lower-wage workers but wants to see an increase in the starting pay rate which he characterized as “not a middle-class wage.”

With union membership currently at about one fourth its all-time high of 1.5 million, Center for Automotive Research chief economist Sean McAlinden said, “The leadership wants the count to grow. They don’t mind if it’s second-tier workers.”

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