INSIGHT-GM to spend $1.4 billion to modernize Arlington SUV factory
By Ben Klayman
ARLINGTON, Texas, July 14 (Reuters) - General Motors Co is raising the stakes on its bet that sales of fuel-thirsty sport utility vehicles will keep driving its global profits as Chinese and other markets sag.
GM said Tuesday it plans to spend $1.4 billion to modernize the factory in Arlington, Texas, that builds the Cadillac Escalade, Chevrolet Suburban and GMC Yukon sport utility vehicles. It's the largest single investment in a $5.4 billion, three-year plant upgrade program announced earlier this year.
GM Chief Executive Mary Barra has promised investors that the automaker will generate an average 20 percent return on its capital investments going forward, but the money spent on Arlington will deliver well in excess of that, people familiar with the company's plans say.
Though GM operates almost 400 factories around the world and sells vehicles in 120 countries under 11 different brands, the vehicles built in Arlington alone generate about $3 billion or more in profits annually, or almost half of GM's $6.5 billion operating profit last year, analysts said. Each of Arlington's 3,800 hourly employees could take credit for earning the company about $800,000 a year in profit, though they get the same profit sharing checks as every other U.S. worker.
In part because its major rivals backed away from the large SUV market when U.S. gasoline prices spiked in 2008-2009 and killed demand, GM now boasts a 64 percent share of the U.S. large SUV market. Now that gas prices have fallen, U.S. consumers are snapping up Escalades and Suburbans again.
GM realizes operating profits of $10,000 per vehicle on the Arlington SUVs, with higher end models at triple that rate or more, analysts estimate.
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