The Great American Recession Tour has shown proof, everywhere, of a deepening recession in the industrial heartland of America – Ohio, Indiana, Michigan, Wisconsin – but inside this gloom are some great factories making great and profitable products. So I did a tour within a tour, the Made in America Tour. The most interesting tour – for investors – was my long and totally fascinating visit to the General Motors Flint Michigan Assembly plant.
Let me get ahead of myself – General Motors (GM) is on the mend, the factory is doing very well making GM’s most profitable products (or so I am told) and GM is a long-term stock to buy. Keep reading and you will see why. (See my first story from the Great American Recession Tour, “Trade that Mercedes for a tractor.”)
I came to Flint to see the facility making a very famous product. Chevy trucks (they also make the GMC brand pickups in Flint) are an iconic American product. At Flint, ½ ton, ¾ ton and full ton trucks are produced, mostly the latter two sizes, and some of the pickups I saw in the finished product area sold for more than $50,000.
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When I drove up to the facility I had two first impressions. I was struck by the enormity of the GM complex, which includes several plants, in Flint, I would not be surprised if the total square footage of all their facilities, not just the Assembly plant, was larger than my home town. Second, GM is still, in part, the old GM – I was told to park in an executive parking lot but only if I had a GM vehicle. I did. I do – I drive a Chevy Traverse, a great car/crossover by the way – but the arrogance of saying I would have to park 500 feet away if I had a non-GM vehicle struck me as very old school. Not to mention I find executive parking spaces almost un-American and not good policy in a company trying to mend fences with the rank and file after serious cost cuts and layoffs.
My most lasting impression was while GM has made wrenching changes, the culture is only halfway there – my UAW host, who has been there 37 years, was very old school and given the age of many of the workers in the plant. His comments, many unprintable, probably reflect their attitude as well about management. That being said, he was not angry – he had clearly accepted all that has happened and was proud of the work done at the plant, something he said was not possible when the company was turning out shoddy products. He was dead on – the trucks made there are very, very high quality, leaders in their market segment. The flagship product turned out at Flint is the Silverado truck, what we city folks call a pickup truck, the 2011 Motor Trend Truck of the Year.
What investors should also take note of is how busy the plant is right now. A third shift was added just a few weeks ago and, more importantly, overflow production from a plant in Mexico making smaller, half ton pickups was sent to Flint. This means the Mexican plant is maxed out in its current configuration, a great sign for sales. And with a third shift, Flint is probably close to being maxed out as well.
This sales strength comes from several factors. First, the average credit score required to buy a car or pickup truck is a lot lower, perhaps as much as 100 points lower or more, than it was 18 months ago. Second, while construction is still in a depression, it is in a stable depression and people are buying. Third, these are products for customers willing to pay dollar for what they want – a customer wanting a ¾ ton Chevy Silverado is not shopping it against a Toyota pickup.
Back to the issue of quality – while I was taking my tour, something happened, temporarily, in production in the painting area and the line stopped. Of course, the facility is 3.4 million square feet (according to my host) and not everything stopped – but the tight focus on quality problems in one area can slow or shut the entire line, nothing is rushed through. This was not the case not too long ago. Every place we stopped to look at a production area there was an in depth discussion not only of what the workers did but how vastly different the work was from ten or fifteen years ago and how quality control occurs at each segment of the production process.
I focus on quality because this factory, compared to other companies I visited on my Great Recession Tour and now the Made In America Tour was by far the most automated — workers have to show come craft skills but their real task is to manage the interaction of machine and metal. There are some aspects of production still requiring hands on manipulation of components, such as the installation of the braking system or seat installation, and of course the guys driving the finished trucks to a test area and often running back to get the next car, but much of what I saw was the interaction of workers and machines. These workers have a great deal of responsibility insuring automated processes work as planned – and from what I learned during the tour, this too is a far cry from the old GM.
These workers got a new contract last month – a vote is still necessary but a formality. The new workers are getting a boost of $2-$3 an hour according to press reports, up from $14 an hour. Longer standing UAW members make roughly $29 an hour (plus very good benefits that push the average wage to $56 an hour according to the Associated Press.) When the new contract is ratified, all workers will get $5,000 apiece, a signing bonus, very serious change for someone making $14 or even $29 an hour. And there will be a profit sharing bonus on top of the $5,000, one that is probably bigger than last year’s bonus of $4,000. The great news for investors in all of this is the structure – no more return to contractual promises that cannot be kept and increasing acceptance by the UAW of a bonus and profit sharing structure. And those bonuses and modest raises will do little to hurt GM’s current, profitable cost structure.
Bottom line: GM’s new, post-bankruptcy structure has changed everything from their balance sheet to the quality of their products, although their trucks were always considered top of the line. I believe GM is a long term stock to buy.
For purposes of disclosure, I have owned two Tahoes, a Suburban, two Blazers and now own a Traverse (not really on a truck chassis, it is a crossover) and have never had a serious issue with any of them