By on March 19, 2019

Image: General Motors

The president of a UAW local that represented General Motors workers at the now shuttered Lordstown Assembly plant isn’t happy knowing there was a chance that the mothballed facility could still be cranking out Chevrolet Cruzes.

Dave Green, president of UAW Local 1112, responded to reports in the Detroit Free Press and Youngstown Vindicator that a dealership mogul floated a plan to GM brass to purchase a massive order of Cruzes, thus allowing the plant to continue operating.

“If that deal was true, it could have kept 3,000 people working in Lordstown, plus all the parts suppliers on the side,” Green told Freep.

Word of the attempted purchase first appeared in the Vindicator, which reported that a Cleveland businessman, Bernie Moreno, offered to purchase thousands of Cruzes from GM for a period of five years — enough vehicles that Lordstown could have added a second shift. (The plant started Cruze production with three shifts, but declining volume meant it ended life with just one.)

Lordstown was one of five North American plants on the chopping block under GM’s streamlining plan. It built its last Cruze earlier this month, turning out the lights two days later.

When contacted by the Vindicator, Green said he was made aware of Moreno’s plan to create an international ride-hailing service, with all of the vehicles owned by the company. All drivers would be on staff. Moreno currently owns a dozen dealerships selling high-end import brands, plus Buick and GMC.

[Image GM]

“Green was told about the financials, including arrangements with banks and the participation of a major automotive company,” the newspaper stated. When contacted, Moreno said a nondisclosure agreement prevented him from saying anything.

The Free Press dug into its own sources, with its contacts claiming the proposed deal, floated in December (after GM’s announcement of the plant idling), encompassed 150,000 to 180,000 Cruzes.

GM spokesman Dan Flores responded to both papers, telling Freep, “We would consider any [inquiries] that are truly viable business opportunities. To be clear, under the terms of the UAW-GM National Agreement, the ultimate future of the unallocated plants will be resolved between GM and the UAW.”

Is that a hint that Moreno’s alleged plan was built on shaky financial footings, or just noncommittal language? Speaking to the Vindicator, Flores said, “GM leadership took into consideration a variety of market factors when we made the product and manufacturing-related decisions announced last November 26th. The decision to discontinue the Cruze was made in response to market-related declines in customer demand for passenger cars. We don’t believe this segment is viable for us.”

Even with Mexican-built hatchbacks joining the Cruze family, U.S. sales volume shrunk from 258,185 vehicles in 2012 to 142,618 in 2018. While the alleged plan, if executed properly, might have staved off Lordstown’s unallocated status, ride-hailing operations are a risky business — even with driver-owned vehicles. Both Uber and Lyft are gearing up for IPOs in 2019, eager to reap a windfall from their public offerings.

[Image: General Motors]

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29 Comments on “Reports Claim GM Snipped Potential Lordstown/Chevrolet Cruze Lifeline...”


  • avatar
    EGSE

    Ride hailing…..heh heh. Profit-wise the zero billion dollar Next Big Thing.

  • avatar
    PrincipalDan

    Is the tooling for the 1st gen car still somewhere?

    Let’s build that instead, add a 2.0T SS version.

  • avatar
    Steve203

    “We don’t believe this segment is viable for us.”

    Translation: Cruze transaction prices and profit margins bring our average down, so it’s out.

    • 0 avatar
      28-Cars-Later

      I think this warrants some investigation, hopefully that will be forthcoming.

      • 0 avatar
        JimZ

        go to any Chevy dealer’s website and look at the price after incentives. by me, there’s $3500-4500 cash on the hood of almost every Cruze sedan. Just like the Focus last year.

        no more investigation necessary.

        • 0 avatar
          Lorenzo

          But they sold 142,000 of them last year. If you need to exit the segment at that volume, you need to look at your cost structure, and if you need to put that much on the hood, take a long look at your pricing strategy.

          Steve203 has it right: GM’s brass doesn’t want a high volume, low margin vehicle to sell. Unfortunately, that’s what Chevrolet has always been, and if they can’t compete with Honda and Toyota, they’re lousy managers.

          • 0 avatar
            danio3834

            The more units sold at a loss = greater loss. Make no mistake, GM was selling these at a loss. And so is nearly everyone in this segment.

    • 0 avatar

      One of the ancient bits of Detroit wisdom….”We have plenty of entry level cars…we call them USED CARS”.

      Dealer would make more money selling a used buggy to the prospective buyer, and the used car would probably be nicer. Also, Dealer is likely to make a lot more in paid repairs to the used car than they’d make in warranty reimbursement to the new car.

      If they don’t need these to offset guzzlers in CAFE, then sure, the perverse mentality of capitalism means toss it.

      The only person to suffer is the guy who scraped to buy this inexpensive NEW car so that for a little while, he’s free of used car purgatory (payments AND repair bills) and can get to work reliably.

  • avatar
    ScarecrowRepair

    What a meaningless worry! Those would not have been additional sales. If they had sold more Cruzes, they would have sold correspondingly fewer of some other product.

    Plant-wise, those specific employees would have been better off, but other employees would have been worse off. GM was going to cut something, somewhere.

    • 0 avatar
      Steve203

      “What a meaningless worry! Those would not have been additional sales. If they had sold more Cruzes, they would have sold correspondingly fewer of some other product.”

      Or, people who could not buy a compact sedan or hatchback from Chevy, went to a company that does offer a compact sedan or hatchback. In the back of my mind is the thought that GM and Ford switched to quarterly sales reporting because they know they are up against unmatchable numbers because they have dropped popular models, and the switch reduces the number of times per year they have to make excuses.

      Of course, they could switch to reporting “pro-forma” numbers that back out last year’s sales of discontinued models.

  • avatar
    ToolGuy

    I have often wondered what it would be like to be an automotive company spokesperson.

  • avatar
    Dman

    So, some dealer nobody outside of the Cleveland metro wants to start an international ride hailing service. Something many of tried and very few have accomplished. And, he was going to do it with a big order of a crap wagon no one wants to buy.
    I cannot imagine why GM though this was a dumb idea.

    This seems appropriate
    https://youtu.be/pUdhaDCvPWY

  • avatar
    redgolf

    Back in 2009 when GM Spring Hill ( former Saturn plant) quit building the Chevy Traverse ( it went to Michigan) many workers went to Lordstown to keep there paychecks and senority, now Lordstown workers come on down to Springhill Tn. ;-)

  • avatar
    Oberkanone

    Holy hole in a doughnut!

    GM closed Lordstown while selling over 140,000 Cruze. It is stupefying to me that GM is better off not selling over 100K of a recently redesigned vehicle. The engineering and tooling is already paid for. Cruze is popular in the Midwest.

    I imagine Mazda would be happy as a tick on a fat dog to sell 140000 3 per year. Mazda sold about 64K in 2018.

    GM would gripe with a ham under each arm.

    • 0 avatar
      Steve203

      “GM would gripe with a ham under each arm.”

      There is an oddity in Wall St thinking. If you continue running a plant at a low run rate, making low priced, low profit, cars, Wall St thinks you are a terrible manager. If you stop producing the car, shut the plant, write off all the tooling, write off the plant, so the write off expense is in the hundreds of millions, if not billions, Wall St sees the write off, as an “extraordinary charge” and ignores it, even if it’s much larger than the cost of keeping the plant open and the model in production and contributing something to overhead.

      The Cruze hatchback was built in Mexico, so production costs should have been much lower than in Lordstown, but they stopped Mexican production too. They simply don’t want a cheap car, and unlike FCA with the Dart and 200, GM doesn’t have anything that *is* in demand to assign to Lordstown. The new Blazer is replacing the Cruze at the Mexican plant.

      • 0 avatar
        KevinB

        Wall Street will also think GM management is terrible when they didn’t foresee the returned demand for small sedans and the shooting war between Saudi Arabia and Iran that shut down Persian Gulf oil traffic.

    • 0 avatar
      danio3834

      The fact that GM, Ford and FCA have all backed out of the segment is a good indicator these cars are money losers. With margin compression hitting hard with regulatory and competitive pressures, there’s no tolerance for loss leaders.

    • 0 avatar
      JimZ

      “GM closed Lordstown while selling over 140,000 Cruze.”

      well, if those 140,000 sales are at no/negative margin, what do you expect?

      and before you say “but, but, Toyota!” the Corolla sells over 2x the volume, and we don’t know what margins they’re getting. I’d put money on them being fairly slim.

      • 0 avatar
        Steve203

        “well, if those 140,000 sales are at no/negative margin, what do you expect?”

        There are lots of ways to calculate margin. You could look at margin over variable cost. You could look at margin after assigning overhead burden. You could look at margin after tooling amortization. This issue came up a lot in B-school. General corporate overhead doesn’t go away. Tooling is a sunk cost. There is a school of thought that, if you have surplus capacity, cover variable cost and pay something, anything, toward overhead, continue production.

        iirc, when Marchionne talked about dropping the Dart and 200, he didn’t say the company was losing it’s shirt on them, he said they were the “least rewarding” programs he had ever seen. Presumably, the Cherokee and Ram 1500 that took over the plants where the Dart and 200 were built, are more “rewarding”.

        • 0 avatar
          geozinger

          “he said they were the “least rewarding” programs …”

          Euphemisms…

        • 0 avatar
          danio3834

          Variable + program fixed costs amortized over program life. These cars can’t cover them at the transaction prices demanded.

          • 0 avatar
            Steve203

            “Variable + program fixed costs amortized over program life. These cars can’t cover them at the transaction prices demanded.”

            The R&D and tooling expenses are sunk costs. That wouldn’t change if they killed the Cruze now, or 10 years from now. That money is gone, so should not enter into the decision whether to continue or end production. The only difference is, if production continued, the amortization charge per car might make the cars look like money losers, vs ending production now, and the sunk costs are written off as an “extraordinary charge”. It’s a loss either way.

            Consider the Journey and Caravan. Old crocks that the R&D and tooling were probably fully amortized years ago. They sell them cheap, spend nothing on advertising, and make enough at it to keep building them and contributing to paying the overhead of the plants where they are built. The biggest threat to the Journey is if FCA needs more capacity to build Compasses. The Caravan has no such threat, because they can’t sell enough Pacificas to keep Windsor running at a healthy pace.

  • avatar
    dukeisduke

    “Dave Green, president of UAW Local 1112, responded to reports in the Detroit Free Press and Youngstown Vindicator that a dealership mogul floated a plan to GM brass to purchase a massive order of Cruzes, thus allowing the plant to continue operating.”

    If the government was involved, the word “boondoggle” would apply here.

  • avatar
    boozysmurf

    Am I missing something here?

    ” create an international ride-hailing service, with all of the vehicles owned by the company. All drivers would be on staff.”

    So, a service, with company owned vehicles, that picks people up when they call (or wave from the side of the road, or use an app), and salaried employees. Isn’t that a TAXI service? I mean, we do have those already. Not an international one, I don’t think, but, yeah.

  • avatar
    geozinger

    I posted about this a few days ago. As I said then, if it were true, this is a missed opportunity. But it seems a bit sketchy, especially with the timing (right after the unallocation announcement). GM was right to pass on this.

    I have to imagine that it’s critical to be the first mover in this new “taxi” service. Because, that’s exactly what the guy was describing. But, if this is truly a viable operation, why not approach another manufacturer? I’m sure FCA or Ford or Nissan or somebody would not pass up a chance to sell potentially hundreds of thousands of sedans for the next several years, correct?


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