Statistics of the Day: Labor-Related

POSTED BY MARTIN KICH

This news report is from CNN:

General Motors is cutting almost half the jobs at its only plant inside Detroit city limits.

In another sign of slowing auto sales, the Detroit-Hamtramck plant will eliminate its second shift and about 1,300 of its 3,000 jobs. The layoffs will take place in March. GM said it will try to find jobs for the employees at other plants.

The Detroit facility is the third GM plant to eliminate the second shift. Plants in Lansing, Michigan, and Lordstown, Ohio, announced layoffs in November, the first permanent cuts by GM at its U.S. plants since 2010. Those cuts take effect early next year.

In all, GM will cut about 3,300 jobs at the three plants.

GM (GM) has enjoyed a sustained recovery since its 2009 bankruptcy and federal bailout, posting record earnings and steadily increasing sales. But sales are expected to fall this year for the first time since the crisis. Sales through November are down about 3% from the same period last year.

The Detroit plant makes the plug-in Chevrolet Volt, which has enjoyed strong sales this year. A new version that can travel farther on a single charge has driven a 59% jump in sales this year.

But two of the other models built there, the Buick LaCrosse and Chevy Impala, have reported sharply reduced sales this year as buyers increasingly shift from cars to crossover SUVs. The Lordstown and Lansing plants make cars, not SUVs.

Because of weaker sales, GM is stuck with a glut of new cars waiting to be sold. GM’s inventory of new cars in the U.S. soared to 873,000 at the end of November from 691,000 a year ago, according to the sales tracker Autodata. Inventories at rivals Ford (F) and Fiat Chrysler (FCAU) have declined slightly during the same time.

All three GM plants losing a second shift will also shut down for extra weeks in January to work through some of the excess inventory. Two other plants, one in suburban Kansas City and another in Kentucky, will also have extended shutdowns. Workers will get most of their pay during those furloughs.

GM had about 97,000 workers in the United States at the end of last year.

The CNN news report is available at: http://money.cnn.com/2016/12/20/news/companies/gm-plant-layoff/.

Why had inventory exceeded demand? Wolf Richter offers the following connections to sub-prime auto lending in an article titled “What Will Sink the U.S. Auto Boom?” on his blog, Wolf Street. The following paragraphs open the article:

In the subprime auto loan market, things are turning ugly as delinquencies and losses have begun soaring. Specialized lenders – a couple of big ones, and a whole slew of small ones that service the lower end of the subprime market – slice and dice these loans, repackage them into auto-loan backed securities (auto ABS), and sell them to investors, such as yield-hungry pension funds.

 Delinquencies of 60 days and higher among subprime auto ABS increased by 22% year-over-year in August, Fitch Ratings reported on Friday–now amounting to 4.9% of the outstanding balances that Fitch tracks and rates. And subprime annualized losses increased by 27% year-over-year, reaching 8.9% of the outstanding balances of auto ABS.

 Even delinquencies among prime borrowers are rising, with delinquencies of 60 days or more increasing by 17% from a year ago, and annualized losses by 11%, though they’re still relatively tame at 0.4% and 0.6% respectively of the balances outstanding.

 And according to Fitch, the toxicity level in the subprime auto ABS space is going to rise, with “subprime auto losses to pierce 10% by year-end.”

 Total auto loan balances, both subprime and prime–given the soaring prices of cars, the stretched terms of the loans, and the ballooning loan-to-value ratios–have been skyrocketing, up 46% from the first quarter in 2011 through the second quarter in 2016, when they hit $1.07 trillion. . . .

auto-loans-charted

Later in the article, Richter notes:

Fitch tracks a whole slew of subprime lenders. The two giants, GM Financial’s AMCAR platform and Santander Consumer USA’s SDART platform, combined account for 54% of the index. The remaining 20 or so are second and third-tier subprime lenders, many of which have sprung up during the auto loan boom since 2012, as Fitch put it, “coinciding with the expansion of auto lending, particularly in lower subprime credit buckets that these lenders focus on.”

Richter’s complete article is available at: http://wolfstreet.com/2016/10/03/subprime-auto-loan-backed-securities-turn-toxic-delinquencies-losses-soar/.

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