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GM to reduce truck-making capacity by 1,100 jobs

The Baltimore Sun

DETROIT -- General Motors Corp. reduced its truck production plans for the third time in six weeks this week, and union leaders and analysts say they believe even more painful cuts are ahead because fears of a weakening U.S. economy may continue to depress demand for trucks through 2008.

GM confirmed this week that it plans to eliminate more than 1,100 jobs at its Oshawa, Ontario, pickup assembly plant when it ends the third shift there in January.

The news comes just a week after the automaker said it would not run overtime for the rest of the year at six of its pickup and SUV assembly plants.

The automaker announced late last month that it also plans to slow production at its Pontiac, Mich., truck assembly plant to build 45 trucks per hour, down from the current rate of 54.5 vehicles per hour, in a move that could eliminate 300 temporary jobs.

Canadian Auto Workers President Buzz Hargrove said he expects more such news in the coming months. He spoke after a meeting this week with GM executives, including chief executive G. Richard Wagoner Jr. and Troy Clarke, president of the North American division.

"They see the market continuing to slow in the next couple of years," Hargrove said. "There's going to be more production taken out of the system."

Hargrove said his meeting with the GM leaders causes him to believe that slack demand is not forecast to stop before 2009. Compounding the problem, the Detroit automaker's share of the market is falling as well.

GM and its fellow Detroit automakers, Ford Motor Co. and Chrysler LLC, are trying to align vehicle production with consumer demand that is squeezed by declining home values, higher gas prices, tightening credit markets and a subprime mortgage crisis.

Analysts expect the pressures of increasing competition in a slow market to force production cuts for all three Detroit automakers.

John Casesa, principal at Casesa Strategic Advisors in New York, said it is clear that automotive inventories are high and the market is slowing, but said it is hard to know how long it will go on.

"It's really a function of the macro economy finding its footing," Casesa said. "The weakest sector in the economy is the housing sector, and pickups are very sensitive to housing activity. ... The irony is GM has a fabulous product in its GMT900 pickups, probably the best on the market."

Erich Merkle, chief of forecasting at IRN Inc. in Grand Rapids, Mich., says the production cuts should continue to mount into next year.

"I don't think production cuts are going to be that significant for the third quarter because I don't think the automakers are going to react quickly enough to the softness in sales," Merkle said. "But come October, November, I think we're headed for an ugly fourth quarter. ... If you think I'm talking recession, you're right."

By the fourth quarter and continuing into the first half of next year, Merkle said he expects the Detroit automakers to make significant production cuts, by eliminating shifts, slowing production line speeds and stopping production at plants for "two, three or four weeks at a time" to reduce production to a level more in line with demand.

"In the fourth quarter and into 2008, that's going to be commonplace," Merkle said.

And that means it's going to be very hard for the Detroit's Big Three to stay out of the red, Merkle said.

Aaron Bragman, an auto analyst at Global Insight, agreed, saying: "I think this is just the start of it, really."

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