Bailout Watch 577: Auto Task Force Redlines GM Production

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.