CAPACITY WITHOUT CAPITAL EXPENDITURE
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 ...