General Motors Announcing More Cuts Tuesday
July 15, 2008 - 7:03 AMGeneral Motors Corp. is expected to cut several thousand salaried jobs and further slash truck production in response to falling U.S. sales.
GM Chairman and CEO Rick Wagoner was scheduled to discuss the changes at a news conference Tuesday morning. GM released no further details, but salaried job cuts and reductions in benefits and executive compensation are likely.
The people briefed on the plan said GM will further reduce its truck production to focus more on small cars. Wagoner will announce that the company will further cut factory capacity at pickup and sport utility vehicle assembly plants, although no specific plant closures are expected to be announced, one of the people briefed on the plan said. GM also intends to make cuts at factories that supply truck plants, such as those that make engines, transmissions and parts, that person said.
GM also will detail plans to raise more cash to fund its restructuring. Along with the expense cuts, the plans likely will include asset sales, but GM is not expected to borrow with assets as collateral, the people said. The people requested anonymity because the plan was not yet public.
The changes come amid pressure from Wall Street for GM to cut some of its eight brands, but it wasn't clear whether GM would make such an announcement Tuesday. The company has said it is exploring the sale of its Hummer brand, known for its hulking SUVs, but GM's vice president of North American sales, Mark LaNeve, told dealers in a letter last week that no other brands are under such a review.
Just six weeks ago, GM said it will close four truck and SUV plants and boost production of the smaller, more fuel-efficient cars that customers are demanding. It also announced production of a new car that could get 45 miles to the gallon and would go on sale in 2010.
But for an impatient Wall Street, those changes weren't enough, and the company's shares have hit a series of 50-year lows since July 2.
GM shares fell 54 cents, or 5.4 percent, to close at $9.38 Monday. They regained 18 cents in after-hours trading after GM's statement that it is taking actions "to align the business to current market conditions."
GM and other auto companies have been hammered by high gas prices, the weak economy and a rapid shift in consumer tastes away from trucks and SUVs. GM's sales were down 16 percent in the first six months of this year, led by a 21 percent decline in truck sales. In May, Toyota Motor Corp. came close to overtaking GM as the top-selling company in the U.S.
GM will announce several thousand salaried job cuts, although the people said a specific number wasn't available. The company is following the lead of its crosstown rival, Ford Motor Co., which announced earlier this summer it would cut 15 percent of its salaried work force costs, or around 2,000 employees, by Aug. 1. Critics have said GM still has too much fat in its middle management, despite shrinking white-collar employment to 32,000 last year from 44,000 in 2000. They also say the engineering, manufacturing and marketing costs are too high.
The salaried cuts will likely be a combination of buyouts and early-retirement offers and involuntary layoffs, one of the people said.
GM executives also have taken pay cuts during past lean times. Wagoner, Vice Chairman Bob Lutz and others voluntarily reduced their salaries in 2006.
Analysts have speculated GM will need to raise more cash to get it to 2010, when it will start seeing the savings from its landmark 2007 contract with the United Auto Workers that cut hourly workers' wages and transferred billions in hourly retiree health care obligations to a union-led trust. GM has $24 billion in cash but could burn through as much as $18 billion this year and next, JPMorgan analyst Himanshu Patel predicted in a recent note to investors.
One way for GM to raise cash would be to delay funding the trust fund that will take over retiree health care in 2010. The UAW has already allowed GM to defer a $4 billion payment from 2008 to 2010.
There has been some speculation on Wall Street that GM could declare bankruptcy, but Wagoner dismissed those rumors last week at a meeting of Dallas business leaders, saying it's "not at all constructive or accurate."
Wagoner said the company believes the trend away from trucks and SUVs in the U.S. market is permanent and that the company is responding, with 18 cars or crossovers in development. But he said GM never could have predicted how quickly the change would come as oil prices doubled in the last year.
"We missed that, but I think us and 99.999 percent of the rest of the people in the world did too," he said.
(Copyright 2008 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)