Business Leaders, Economic Experts Unsure Of GM Plant Closings' Impact On Arkansas Jobs
Last updated Tuesday, November 22, 2005 12:06 AM CST in Business
By Wesley Brown & Lana F. Flowers
The Morning News
General Motors Corp.'s wide-ranging restructuring Monday left business leaders, economic forecasters and job recruiters wondering how the woes of the world's largest automaker will affect Arkansas.
GM kicked off trading on Wall Street on Monday by announcing it will close, idle or reduce output at nine manufacturing plants in the U.S. and Canada and cut 30,000 jobs over the next three years to save $7 billion by 2007.
GM has no plants in Arkansas, but a number of companies benefit directly or indirectly from the $46 billion the Detroit auto giant spends annually with suppliers.
Two GM auto assembly plants that will close or cut back on production next year, one in Oklahoma City and one in Spring Hill, Tenn., both trade with trucking firms, auto parts suppliers and other associated businesses in Arkansas.
"Clearly, this is a truly overt signal by GM that they have to cut their production back substantially," said John Henke, president of consulting firm Planning Perspectives Inc. of Birmingham, Mich. "As they lose market share ... this downsizing is going to go right down the supply chain to those suppliers who depend heavily on GM."
One Arkansas company that has a direct relationship with GM is P.A.M. Transportation Services Inc., a small truckload carrier based in Tontitown. Yet, officials there said shutdown of GM's sports utility vehicle manufacturing facility in Oklahoma City won't affect the firm.
"While this plant has been a revenue source for many years, our involvement there has diminished as we have diversified our service," Bob Weaver, P.A.M.'s founder, president and CEO, said Monday in an e-mail response to questions.
Weaver told analysts in a recent third-quarter conference call that the trucking company derives 36 percent of its revenue from shipping auto parts for General Motors, mostly at the Oklahoma City plant.
Weaver said he thinks the company can increase service to other shippers in the Oklahoma City area after the GM plant closes.
"Yes, capacity is tight in today's truck market, but we do not discuss our customer plans other than to say we have multiple opportunities" to replace revenue lost as the GM plants close, he said.
Stephens Inc. trucking analyst Thom Albrecht partly agreed with Weaver's assessment. He said P.A.M. depended on the automotive sector for 68 percent of its business two years ago, but has recently diversified its freight mix.
"That's historically a pretty big facility that they (P.A.M.) serve," Albrecht said of GM's plant in Oklahoma City.
Other GM suppliers -- Superior Industries International Inc. and Mid-South Manufacturing Inc. -- are taking a "wait-and-see" approach to the auto giant's restructuring plans.
Exactly a year ago, Mid-South Manufacturing Inc. announced a $3 million investment and the addition of 110 jobs by the end of this year. The Marked Tree auto parts maker produces water pumps for aftermarket suppliers and several major automakers, including GM and Ford.
John Brooks, human resource director for Mid-South, said the company has no plans to change its expansion plan because of Monday's announcement. The company came to Arkansas last year with about 300 employees and plans to have 450 workers by the end of this year.
"We have not been impacted directly so far," Brooks said of the company's association with the Big Three.
Officials of Superior, which is based in Van Nuys, Calif., said it's too soon to tell how the GM shutdowns will affect its Arkansas operations. Superior has four plants in the state: two in Fayetteville, one in Rogers and one in Heber Springs.
The Fayetteville and Rogers plants employ a combined 2,000 workers, about one-third of Superior's 6,600-person payroll. Those plants "depend on GM pretty heavily," said Superior CFO Jeff Ornstein, adding that GM accounts for nearly 33 percent of the company's business worldwide.
"That would have been probably 40 percent five years ago," he said. "Our orders have been reduced already."
Ornstein said he did not think the Arkansas plants would have to lay off workers or shut down.
But Henke, the Michigan consultant, warns that GM's restructuring plans will eventually filter down to its more than 30,000 suppliers.
"GM is not going to turn around quickly," Henke said. "What this means for suppliers is a drop in sales as it relates to doing business with GM."
Earlier this year, Henke's firm conducted a highly publicized study that noted General Motors' relations with its Tier 1, or top-level, suppliers was at an all-time low.
Henke said the results of his firm's survey show that that suppliers are shifting more resources to Japanese automakers such as Toyota, Nissan, and Honda at the expense of the U.S. Big Three -- GM, Ford Motors and Chrysler.
Jeff Collins, director of the Center for Business and Economic Research at the Sam M. Walton College of Business at the University of Arkansas, also raised questions about the state's growing reliance on the auto parts industry for future jobs.
Gov. Mike Huckabee has dubbed eastern Arkansas as the "auto parts corridor of the South," mainly due to the state's efforts to attract more than $200 million in foreign investment to the Delta region.
Collins said that policy, which has attracted Mid-South and Japan-based Hino Motors, Denso Manufacturing and Sakae Riken Kogyo Co. to eastern Arkansas, may not turn out to be as lucrative in the long term.
"We shouldn't put all our eggs in one basket," he said, warning that problems in Detroit with GM, Ford and Chrysler are symptomatic of a larger U.S. problem.
"Can U.S. manufacturing be competitive in the (international) marketplace?" Collins said. "That is the question we need to be asking."
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