5 reasons why Elon Musk should rescue a GM factory in Ohio (TSLA, GM)

Chevrolet Cruze Lordstown

Last week, General Motors ripped a Band-Aid off one of its biggest problems: it has too many factories in the US and Canada building unpopular passenger cars when consumers want SUVs — so the automaking giant announced that it would idle four plants in the Ohio and Michigan and one north of the border.

The fate of these factories is up in the air. GM has, in its corporate parlance, „deallocated“ them. It can’t say whether it will close them for good because it has to negotiate moves that big with the United Auto Workers as part of a new contract, set to be voted on next year.

The situation has drawn the ire of President Trump, who told residents of Ohio that the Lordstown factory — set to be idled next March as production of the Chevy Cruze sedan winds down — that manufacturing jobs would remain in the state. Ohio, of course, was a critical swing state in the 2016 election and will be again in 2020. So Trump took some shots at GM, and GM made a peace offering by the end of last week.

But the writing is on the wall, and it doesn’t read well for Lordstown, which has been a challenge for GM, given that the plant has been running just a single shift. Roughly 1,600 workers could be laid off, and although GM has said that they could be offered the option to relocate to other factories — and the UAW has said it will fight a closing — they might want some other options.

Enter Tesla and CEO Elon Musk. Sure, the carmaker has endured an insane 2018. But it does appear to have gotten its troubled Model 3 sedan on track and could easily close out the year having delivered 200,000-300,000 vehicles, more than double its 2017 total.

Tesla has a single factory, located in Fremont, CA. It’s off the grid of the automaking heartland in the US Midwest, and far from „Detroit South,“ the southern states where numerous foreign „transplant“ carmakers have been doing business for decades.

That factory is pretty well maxed out, at this juncture. Tesla has another plant in Nevada, where it makes battery packs. But it’s even farther off the auto-supply-chain grid. The company has plans to build another factory, in China, but that will takes years. 

Meanwhile, some idle manufacturing capacity could be opening up in Ohio. Musk might want to take a look at it. here’s why:

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Musk has already rescued a former GM plant in California.

Tesla Fremont factory was once a joint-venture between GM and Toyota. GM wanted to learn so-called „lean“ manufacturing systems, and Toyota wanted a better understanding of the US market. 

Known as NUMMI, the factory — which had a long history with GM — wound up being the only remaining car plant in California and was shut down during the financial crisis. Tesla picked it up after GM’s bankruptcy for the staggeringly low price of $42 million (modern auto factories cost billions to build from scratch).

So why not repeat history? Musk could find that in 2019 another GM plant is available, in the Buckeye State. Would he get it for less than a billion dollars? Quite possibly. Quite possible A LOT less.

Musk urgently needs another factory.

NUMMI could assemble 450,000 vehicles annually. Tesla hasn’t threatened that pace, but if everything continues to go according to plan, it will by the end of 2019 or 2020. Effectively, Tesla has already outgrown its plant. The company has even set up an assembly line under a tent in the parking lot.

The timing is ideal for Tesla to add capacity, especially if it expects to successfully launch a new SUV, the Model Y, in the coming year, as well as build a semi truck, a new Roadster sports cars, and perhaps even a pickup truck.

 

GM’s Lordstown factory has a trained and experienced workforce, as well as decades of production history

The biggest problem with Tesla Fremont plant is that the East Bay isn’t exactly a hotbed of auto-manufacturing. Tesla is very, very far from the main supply chains of the Midwest and the South. 

Lordstown, meanwhile, has been around since 1966. It has what industry experts call excellent „backfill“ — if you want to employ people who know how to build cars and are acquainted with the lifestyle, you’ll find them in this part of northern Ohio. Multiple generations have punched in at the plant.

What about the unionization aspect? Fremont was a UAW plant before Tesla took over, but it isn’t now, although there’s been an on-off organizing effort underway for years. Musk and Tesla seem sort of ambivalently anti-union, and if the UAW can’t defend the workforce at Lordstown, a backlash could ensue.

Then again, Lordstown is solidly UAW, and much closer to the union’s strongholds than Fremont. And anyway, would Tesla suffer if it wound up with a skilled union workforce in Ohio? Probably not.

See the rest of the story at Business Insider
Source: Business insider

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