In 2009, General Motors sold over 6.5 million vehicles worldwide. The bad news is that it had the capacity to manufacture 8.8 million vehicles.

 Manufacturing capacity represents a significant investment in facilities, equipment, support infrastructure, and salaried employees, all of which show up as fixed costs in a company’s financials. Capacity utilization consequently becomes a bellwether for a company’s financial health. Companies such as GM start losing significant money when sales drop below 80 percent of capacity, and when the decline hits 75 percent, as it did in 2009, a company moves into ...

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