Struggling auto giant General Motors announced a number of sweeping measures today designed to raise cash and trim expenses through 2009, including cutting an unspecified number of white-collar jobs, eliminating health-care benefits for retirees 65 and older, the possible sale of some model lines and the immediate suspension of dividend payments for investors. The steps include borrowing as much as $3 billion to ensure the company has enough cash. They were announced today by GM chief executive G. Richard Wagoner Jr., who called them "difficult decisions, but necessary to respond to the current auto market condition."
The broad economic downturn is affecting all auto manufacturers, not just those in Detroit. Earlier this month, Japanese giant Toyota said it will halt production of its full-size Tundra pickup truck through the rest of the year and will begin making its hybrid Prius in the United States to be closer to surging demand.
GM stock fell about 0.7 percent in initial trading but bounced up into positive territory by early afternoon.
Last month, GM said it would take a number of steps to reduce costs, including putting its gas-guzzling Hummer line up for sale and closing four truck and SUV plants.
"But in the past six weeks," Wagoner said this morning, "the markets have continued to decline and the slowdown in sales had required us to take additional actions." He said GM is going through "an almost unprecedentedly difficult time," with overall sales dropping about 16 percent in the first half of the year, and truck sales down even more sharply.
GM Chief Financial Officer Ray G. Young said the company expects to report a "significant" second quarter loss this year.
GM has received "quite a lot of interest" from potential buyers of its Hummer brand, Young said. He also tried to dampen speculation that the company might unload any of other vehicle lines.
"What we want to do with the rest of our brands is focus on profitability," he said. "We can't afford to have brands that drive volume but don't drive profitability at the same time."
Wagoner said the steps taken today are designed to save $15 billion through the end of 2009.
They include:
-- Reducing the number of trucks manufactured, cutting marketing and sales budgets and freezing engineering budgets.
-- Continuing workforce reduction, killing raises for this year and next and suspending executive bonuses this year. Wagoner would not specify how many workers could lose their jobs through attrition, voluntary buyouts or layoffs, but said, "We suspect the vast majority of reductions will be from initiatives that do not require involuntary actions." GM also did not specify which manufacturing plants would be affected.
-- Selling unspecified vehicle lines, likely starting with Hummer.
-- Cutting heath-care benefits to retirees 65 and older, when they are eligible for Medicare, and increasing pension payments to partially cover the increased expenses.
The increased pension payments will only partly make up the cost for retirees, said Frederick A. "Fritz" Henderson, GM's chief operating officer and president. Post-retirement health care is "the largest liability we have in our capital structure," he said, adding that the company needs to retool those benefits for the company's long-term health.
-- Delaying development of its next-generation truck and sport-utility vehicle lines.
Wagoner said the cutbacks are designed "not just to change the bottom line from red to black but to change GM for the long-haul."
Original Source : http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071500819.html?hpid=artslot
