By on December 23, 2009

No Fairfax?

The WSJ reports that GM has added a third shift to its Fairfax assembly plant at the request of the US auto task force. The Kansas City plant will now build 6,300 vehicles a week working 21.6 hours a day, up from 4,500 units per week working 14.5 hours per day with two shifts. The move reportedly makes Fairfax the first US auto plant to run three shifts on a routine basis. According to the WSJ,

the auto task force that oversaw GM’s reorganization last spring was startled to learn that the industry standard for plants to be considered at 100% capacity was two shifts working about 250 days a year. In recommending that the government invest about $50 billion in GM, the task force urged the company to strive toward operating at 120% capacity by traditional standards.

Why? That’s not exactly clear. The potential downsides of the move are far easier to identify.

One of the biggest downsides to running a production line almost 24 hours a day is that it reduces time for maintenance and restocking. The WSJ notes that Toyota’s US plants only runs third shifts on a temporary basis, as Mike Goss, a spokesman for Toyota’s U.S. manufacturing operations, explains “two shifts gives us the flexibility to perform any necessary maintenance on equipment between shifts.” Paint shops, for example, take about 4 hours per day of cleaning and maintenance according to plant efficiency analyst Ron Harbour. If production schedules don’t include that time for maintenance, it can leave the rest of the line idling, the bane of any production system. “If running three shifts means you’re moving [the line] at only 60% of capacity, then you haven’t gained anything,” says Harbour.

Such inefficiencies are bad enough on their own, but because GM has to offer third-shift jobs to existing UAW members and pay $30k per worker to move them to Kansas City, the costs add up quickly. And that’s before you factor in the fact that midnight-shift workers unsurprisingly have above-average rates of on-the-job errors, absenteeism and illness. Or the fact that strong sales of the Malibu and LaCrosse assembled at Fairfax are hardly a sure thing (especially if quality declines), opening the possibility of more incentive-driven inventory clearing if the market stays weak (or quality declines). For all these reasons, automakers typically add overtime to the standard two shifts rather than routinely running plants around the clock.

But when the government owns you and it asks you to add a third shift, you do it. “Do those guys understand the business?” wonders Harbour of the auto task force. Apparently not so much. The upsides are nebulous and far from guaranteed, while the downsides couldn’t be more clear. The fact that the decision was made by the government, which has already admitted that it is not interested in maximizing the value of its (our) 61 percent stake in GM, raises (yet again) the specter of moral hazard. And if the gambit doesn’t pay off, the consequences could be huge, since Fairfax is only the start. In the second quarter of next year, GM will add third shifts to its Fort Wayne Silverado plant, and its Delta Township Crossover plant as well.

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27 Comments on “Bailout Watch 577: Auto Task Force Redlines GM Production...”


  • avatar
    John Horner

    Semiconductor wafer fabs, possibly the most complex manufacturing operations on the planet, routinely run 24/7. Preventative maintenance and repairs are done on a constant equipment rotation basis. You almost never shut the whole factory down if at all possible. The billions of dollars worth of rapidly depreciating equipment need to be used to the fullest extent possible.
    Pushing the auto makers to make better use of their factories and equipment is hardly a dumb idea. By the way, 24/7 operation requires four full shifts plus a little. The task force suggestion of going to “120%” utilization by traditional standards means going from running the plant 80 out of 168 hours in the week all the way up to running 96 hours out of 168, still leaving 72 hours per week of down time on top of the 115 days per year of planned shut down. If you can’t field a maintenance crew which can take care of things with that much down time then you aren’t trying.

    And really, the “specter of moral hazard”? I wonder how many people who have fallen in love with that phrase of late really understand what they are saying and why they are saying it.
     

    • 0 avatar

      I’d question the parallels between auto and wafer manufacturing, with the paint shop being a prime example. On the other hand, I won’t claim to be overly familiar with wafer manufacturing, so its not a point that I’d expect to be able to prove conclusively.
      As to the moral hazard issue, I feel more than justified in questioning whether the auto task force’s agency is aligned with the interests of its principles, in this case the American taxpayers who are paying for the new GM experiment. The downsides of this move are clear enough as GM can’t afford even the possibility of slipping quality, while the marginal productivity increases seem likely to be minimal compared to the increased costs. And then there’s the issue of whether GM will be able to sell the extra vehicles. Remember, GM recently passed Chrysler as the most incentive-dependent automaker.

  • avatar
    Trevor

    Wow, John, that was a great and easy to follow explanation.  I was wondering why people thought this was a bad idea, it just seems like a way to amortize expenses better and make use of the countries highest quality ranked factory.

  • avatar
    MrGreenMan

    Apples and Oranges to say that auto manufacturing should approach the factory utilization as silicon chips.  An automobile is hardly testable like a silicon chip.  Quality will suffer by this method.
    By way of comparison, when it’s working well, 70% of the processors on a wafer are acceptable (http://www.tomshardware.com/reviews/intel,751-6.html).  No one would accept a 70% success rate of no major malfunction on cars.
    You simply cannot compare the manufacturing method.  There is no way to plug every finished automobile into a testing harness and run a battery of behavioral tests on it to see if it works.
    There are considerably more moving parts, and there is considerably more human intervention in building an automobile.  You have to bug-proof rather than rely on QA before it is out the door.  Overworking a system that is known to have limitations (whether it’s the automotive robots or stamping machines or people) is going to hurt quality because you do have to slow down to go faster (or, in this case, higher quality) on building something like a car.
    This is an idea put forward by people who don’t understand that manufacturing different products is not all the same.

    • 0 avatar
      Mark MacInnis

      Mr Green….

      couldna sed it better myself…2 fine examples (the government’s and John Horner’s) of people who have NEVER BEEN in an auto plant who think they know better than the experts how to run certain businesses.
      Not to mention that quality will suffer for another, albeit less obvious, reason.  Supplier quality suffers when companies make a sudden, unexpected jump in production levels.  And especially now, when suppliers will be EXTREMELY reluctant to hire back full time employees, so that some, many, most of the components to be built into these cars will be built with partially-, hurriedly-, half-, trained trained workers at supplier plants.  Not good.  

      Government Motors may (the point is arguable) have a quality handle on what goes on within the 4 walls of their plant.  Butevery car made there is made with hundreds of purchased parts made by suppliers who are having, or so far have survived, near-death experiences.  Counting on them to supply quality parts in a suddenly increasing volume, is lunacy.

    • 0 avatar
      John Horner

      They aren’t talking about running 24/7 like a chip factory does. I was giving an extreme counter example from a different industry. Three shifts barely gets utilization to 24/5.
      Adding a third shift, as long as the demand is there, makes infinitely more sense than it would to tool up another factory to build the same product.
       

  • avatar
    MrGreenMan

    We’ll throw in there also that semiconductor manufacturing is not the most complex when measured in terms of the steps that occur outside of an automated process.  The product is complex, but the process is simpler than building a car.
    Most silicon fabs work by feeding a verilog (or similar computer language) model into a machine that will make the layered masks and use light and gaseous acid etching to build the structure in an automated way.  There are academic chip manufacturers, as well as small-scale operations at national labs that I’m familiar with.  It was always at most a small team operation.  It was almost entirely automated, and built around a handful of machines which were programmable and generally, aside from nanometer scale of the operation, always the same technology from manufacturer to manufacturrer.
    In auto manufacturing, you have to orchestrate many different types of materials, orient them in three dimensions, assemble them in an order that allows it to all come together, and often you are dealing with really big things so that the factories are often built around the machinery, rather than having a factory and bringing in the machinery.

  • avatar
    dougfixit

    Is Joe Eberhardt on the government automotive task force?  Why crank up production if the sales aren’t there?  Sounds like Soviet style management.  Building more cars than are being sold is one of the reasons the Detroit 3 are hurting right now. 

    • 0 avatar
      pgcooldad

      The Orion Twp plant in MI will stop or has stopped making the Malibu leaving only one plant, Fairfax, to produce it. Demand doesn’t have to go up much in order for a third shift to be in need. Most likely, they are taking over Orion’s production.

  • avatar
    gslippy

    Looks like a plan doomed to result in lengthy furloughs once the inventory is stacked up like cordwood.
    http://farm4.static.flickr.com/3010/2986384851_87fd17b3ec.jpg

  • avatar
    midelectric

    Damned if you do, damned if you don’t…
    Toyota started running a regular third shift as far back as 2003, in the UK no less
    http://www.independent.co.uk/news/business/news/toyota-creates-1000-jobs-at-midlands-plant-with-third-shift-538774.html
    while the list of benefits offered should make the UAW haters apoplectic.
    Due to recent production cuts third shift has been idled but the point is that three shift operation in an auto plant is not the wet dream of some govt bureaucrat but an achievable goal.
     

  • avatar
    lw

    How ironic…  The few bits that GM gets right, the government hoses….
    Ford stock is over $10…  Ford will end up getting ~$5B in cash for their low volume brands….
    GM gets a few hundred million here and there and sinks deeper into the pits of hell with every government intervention….
    The divergence is clear.

    • 0 avatar
      Mark MacInnis

      lw…I hadn’t thought of that but your reasoning is brilliant.  “here, UAW, here’s a bone”
      article doesn’t say how many workers will be called back, but it is something.
      Also, let’s consider the extension of logic.  What will be the mechanism by which GM has to ask permission to ramp down if inventories rise.  Will the auto czar begin micro-managing inventories at GM?  Will bureaucrats be managing production/employment/sales prices for their own ends….not for the profit motive?
      This stinks to high heaven.  Anyone who can think will realize it….

  • avatar
    Happy_Endings

    The most important question in all this is also the most basic question.  Are the sales of the LaCrosse and Malibu necessitating the extra shift?  If the answer is “yes”, then is a good idea.  If the answer is “no”, then it’s a silly idea.  Even after making more cars during this third shift, GM needs to sell these at a profit.  They cannot sell these at a loss or with huge incentives.

    • 0 avatar
      lw

      Profit is not the goal.. They are a ward of the state..  The goals are political.  The UAW probably requested this.  Might be part of a package to keep them quiet on the health care taxes that they will be hit with.

  • avatar
    Carlson Fan

    That’s basic manufacturing 101 to run 3 shifts if you have the demand. If I had a dollar for everytime I heard someone say “were different” in a manufactuing enviroment as an excuse to not do something different, I’d have retired years ago.

  • avatar
    mikey

     While Oshawa is not located  in the US. The GM assembly palnt is American owned and managed. Oshawa truck ran full size Sierras/Silverados for thirteen  years on a 3 shift basis. The Impala plant ran three shifts for seven years. Both plants won JD power quality awards.

     Do a little research folks.

     
     

  • avatar
    lw

    How many times have we all been told that the government is NOT meddling in the day-to-day activities of GM?
    Could they go any deeper than setting shift/production levels?

  • avatar
    John Horner

    I think some people have their knickers in a bunch simply because the government is involved. Viewed through the Government is Evil lens, everything looks like a bad idea. Oddly enough, people who hold the Government is Evil view of the world often also have a strange way of view everything the Government Military does as honorable and noble.
    If you read the WSJ piece, GM isn’t rolling a three shift strategy out everywhere, but is starting with one plant. The auto task force was made up primarily of business guys, and one of their recommendations was to increase utilization of existing capital equipment. Maybe this Kansas City experiment will work out and will set a new standard in “how things are done”, or maybe it will fail and they will have to fall back to traditional two shift operation. Dismissing the idea out of hand because “everyone knows that won’t work” sounds like the kind of business as usual thinking we have long criticized GM for. Working a factory for three shifts still leaves an entire shift per week open for any required maintenance and repair. There are no fundamental laws of physics which say three shift operation can’t work. Now if they try to build a three shift operation using only two shifts worth of people and massive overtime, then big problems are highly likely.

     

    • 0 avatar
      Mark MacInnis

      John,

      Please tell me how centralized government control of the Soviet Automobile industry worked out for them in the years up to 1989?

      Viewing this as anything other than what it is….the camel’s nose under the tent for centralized management by the government of a key American industry….is naive in the extreme and dangerous.

      What will happen to those vehicles if the gov’t produces way too many, and they languish on dealer lots until ultimately discounted until moved?  Or, sold at firesale prices to fleets to MOVE THE METAL?  What will that do for GM profits and the prospect of taxpayer payback of the BILLIONS sunk into this mess?

      Your analogy of the military is ironically on point, but for the contra argument.  The military is/has been successful when the politicians state the goal and stay the hell out of micro-managing tactics and let professional soldiers determine means, methods, and manning.  Quite the opposite here…..POLITICIANS (these are decidely not business people, and certainly NOT auto business people) are making decisions for GM as to how to run the plant…..

      If they overproduce one of GM’s better cars, they risk deteriorating its brand….

      Also, anyone besides me smell manipulation of unemployment number…..OH WE CREATED NEW JOBS!

      I love my country, I love the auto industry, and I DETEST AND LOATHE what this current administration is doing to both (CAFE, Government Motors, Cap and Trade, et al)

    • 0 avatar
      John Horner

      I’m not for over production. I am for experimenting to find more efficient ways to use factories and for seeing where lessons from other industries can be applied to the auto industry.
      As to the “Soviets tried it argument”, I offer a counter argument: China has both the world’s highest industrial growth rate and a completely government managed industrial sector. The majority of the largest Chinese governments are at least part owned by one or more levels of the government. Even the non-government affiliated companies often rely of government run banks for funding and must get government approval for all manner of things. Government can be a force for good or a force for bad, just as private enterprise certainly doesn’t always get it right.
       

    • 0 avatar
      charly

      Mark,
      Please tell me how MITI worked out for the Japanese Automobile Industry

  • avatar
    faygo

    Ford ran 20 hrs/day at Michigan Truck back in the heyday of Expedition/Navigator production.  each of the three crews worked 4x 10 hr shifts and the plant was down for a 24 hr stretch from Sat PM-Sun PM.  the same number of people are employed and you have a bit more down time.  tho it’s not clear from this situation whether GM is running 7 days/week or just 5 days w/3 8 hr crews.
    If GM maintains their quality, they should be able to improve their business, assuming the demand is there for the cars of course.  given the scrutiny that GM is under at this point, it would be insane for their quality people to not make sure that they maintain or improve when this move is made.  if they do this & screw themselves at the same time, they get what they deserve.  if they do it right, they come out ahead & good on them.  time will tell…

  • avatar
    MikeAR

    Anyone who replied and argued capacity utilization or quality issues, pro or con is just wasting their time. The only issue is sales: can the extra vehicles be sold at or near their list price? With overcapacity an issue for every manufacturer, even those not government controlled, just why do this?
    Increasing production of two cars that aren’t segment leaders makes no sense at all. It just makes it even less likely that GM will become profitable and lessens any chance of a stock offering so that we get some money back. More rebates here we come.

  • avatar
    Corky Boyd

    Chrysler played around with 3 shifts during the ninties.  It didn’t last long.  Generally it’s more effecient to run two shifts/day with overtime, and even running sixth and seventh shifts a week if needed.   If equipment goes down you have 4 hours to get things up again (assuming two ten hour shifts working overtime).   With three shifts a day there is no time for maintenance and repairs have to be done on weekends, and often results in idle time. 

    It sounds like the pressures are coming from Washington.  It doesn’t make economic sense. 

  • avatar
    johngalt

    After giving notice to eliminate the 3rd shift at Chrysler’s Windsor Assembly in March of this year, the decision was reversed in July, presumably by the Auto Task Force.

    There wasn’t then and there isn’t now a business case for the continuation of the over production.  Sales continure to fall and the plant continues to build more vehicles than it sells and believe it or not, has just boosted production again. 

    Successful businesses don’t operate this way, but wards of the state do.

  • avatar
    DweezilSFV

    Seems to me only demand should warrant increasing production. This sounds arbitrary and ill advised.Where is the great increased demand for the production of 3 shifts?

    “The Kaisers never retrench !” Henry J Kaiser’s retort to partner Joe Frazer’s suggestion that K-F pare back the building of cars to meet the lowered demand, increased competition [fresh designs from the Big 3] and the cooling of the post war sellers market. 

    Or in GM’s case: “Ramming speed!!!!!!!”

    Maybe the auto task force is using the increased production to make sure all rural areas are supplied with vehicles……


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