GM’s Dangerously Naïve Owners February 3, 2010

Critics of the Obama administration’s takeover of General Motors, and the subsequent stocking of GM with politically-appointed and inexperienced leaders now have more concrete evidence to their opposition of such moves. GM is going to be running a third shift on a permanent basis. In other words, the assembly lines will never stop moving. Ever.

Why?

According to the article,

The Obama administration auto task force that oversaw GM’s reorganization last spring was startled to learn that the industry standard for plants to be considered at 100% capacity was two shifts working about 250 days a year. In recommending that the government invest about $50 billion in GM, the task force urged the company to strive toward operating at 120% capacity by traditional standards.

The article goes on to bolster critics of the plan:

But industry manufacturing experts are skeptical, noting that the federal task force had limited automotive experience. “Do those guys understand the business?” asked Ron Harbour, whose Harbour Report is a widely followed analysis of auto-plant efficiency.

Running continuously means there is no time for cleaning, repairing, restocking, maintenance, and other necessary and helpful tasks conducted during downtime. This is a common error of traditional accounting, writes Kevin Meyer at EvolvingExcellence.  “Traditional accounting creates the desire to fill unused capacity in order to absorb overhead, depreciation, and other indirect costs. Usually regardless of whether demand actually exists for that capacity,” he writes.

And the Obama administration is hard-pressed by critics –and the American taxpayer –to make up for its $50 billion investment in GM. But overproduction of cars, hiring third shifts, and leaving no time for improvement are dangerous, non-lean, and counterproductive moves.

Check out Kevin Meyer’s analysis here.