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GM's Lordstown factory goes dark as automaker idles underused plants

Key Points
  • After 52 years, the General Motors assembly plant in Lordstown, Ohio, shuts down Wednesday.
  • The last Chevy Cruze sedan rolled off the line at about 2 p.m. Wednesday, headed to a dealership in Florida.
  • GM's capacity utilization rate in North America was among the worst in the industry at 73 percent.
An exterior view of the GM Lordstown Plant on November 26, 2018 in Lordstown, Ohio.
Jeff Swensen | Getty Images

After 52 years of cranking out more than 16 million new vehicles, the General Motors assembly plant in Lordstown, Ohio, is shutting down.

The last Chevy Cruze rolled off the line at about 2 p.m. Wednesday — a white sedan headed to a dealership in Florida — leaving thousands of workers to start building new lives as retirees or in new jobs, many in new cities.

This is the latest move by the new GM to avoid the mistakes that helped drive it into bankruptcy a decade ago. Back then, the automaker waited too long to cut production, close plants and adjust to rapid changes in the auto industry. This time is different.

As Americans have gravitated to trucks and SUVs and turned away from cars, GM CEO Mary Barra is adjusting the automaker's footprint by ending production at five plants in the U.S. and Canada and cutting 14,000 jobs. Lordstown is the first plant to close under this new plan. Not a big surprise since the plant only made the slow-selling Cruze sedan and GM is looking to shed some of the company's unused capacity.

Mary Barra, Chairman and CEO of General Motors.
Bill Pugliano | Getty Images

"At the end of the day, Mary Barra is doing what's best for GM," said Jeff Schuster, analyst at LMC Automotive. Schuster tracks the capacity utilization rates of automakers, a factory's potential productivity versus what it's actually producing. The higher the rate, the better. An auto plant running just one eight-hour shift a day, as Lordstown has been doing, has assembly lines sitting idle the other 16 hours of the day. Wasted production time can be costly if the plant stays underutilized for an extended period of time.

On paper, GM's decision to idle the Lordstown plant and four other facilities makes sense and will help GM's bottom line by cutting costs. Schuster said GM will still trail competitors when it comes to plant efficiency, but calls closing these plants "a step in the right direction." CNBC reached out to General Motors for a comment about the automaker still having too much capacity in North America.

Last year, GM's capacity utilization rate in North America was among the worst in the industry at 73 percent. Ford's factories were producing at 82 percent of capacity, Fiat Chrysler's were working 90 percent, Honda at 91 percent and Toyota at 93 percent, according to LMC Automotive.

Over the next seven years, Schuster expects GM's capacity utilization rate in North America to steadily climb higher and reach approximately 86 percent by 2026. That trend, along with GM's focus on boosting profit per vehicle, has Wall Street convinced that Barra and her team are making the right moves.

Of course, it does little to ease the pain for many in Lordstown. The assembly plant — critical to the economy in northeast Ohio — is taking with it more than 1,300 jobs. Approximately 417 of those workers will transfer to jobs at other GM plants around the Midwest, according to the automaker. The remainder will either retire or be laid off.

"We know how devastating that is for the workers, for their families, for local businesses, for the entire community. We also know it doesn't have to be this way," Sen. Sherrod Brown, D-Ohio, said in pushing legislation that pays tax credits to consumers who buy American-made vehicles and penalizes automakers that ship jobs overseas.

As for the actual plant in Lordstown, what happens to the shuttered facility is unclear. It's possible another automaker or a start-up could eventually buy it from GM. The land and buildings could also be sold to another industrial firm or a combination of companies could repurpose the space to fit their needs. "There's no telling what will happen to the Lordstown plant," said Schuster. "It could ultimately be bought by a Chinese automaker or a start-up we haven't even heard much about."

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