DETROIT -- General Motors today said it will improve its finances through 2009 by laying off salaried workers, making more cuts in truck production, suspending its dividend and borrowing at least $2 billion as it rides out its worst U.S. sales in a decade.
Those moves, combined with several other initiatives, are expected to improve GMs cash position by $15 billion through the end of 2009.
We are responding aggressively to the challenges of todays U.S. auto market, CEO Rick Wagoner said in a statement. We will continue to take the steps necessary to align our business structure with the lower vehicle sales volumes and shifts in sales mix. We remain committed to bringing to market great products that target changing consumer preferences for more fuel-efficient vehicles.
Today's actions, combined with those of the past several years, position us not only to survive this tough period in the U.S., but to come out of it as a lean, strong and successful company, Wagoner said.
GM said at the end of the first quarter 2008 it had liquidity of $23.9 billion, with access to an additional $7 billion in credit. While the automaker believes it has enough liquidity through 2008, GM said the actions announced today will cushion it against a prolonged U.S. downturn.
The No. 1 U.S. automaker was compelled to cut costs and raise capital because of a deepening slump in U.S. auto sales. Through the first half of the year, GMs total U.S. light vehicle sales are off 16.3 percent.
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Work force changes
GM said it will save $1.5 billion, or 20 percent of its cash costs, in 2009 through layoffs and changes in benefits to salaried employees and executives.
In addition to an unspecified number of salaried worker layoffs, GM said it will eliminate health care coverage for retired U.S. salaried retirees over 65, effective Jan. 1. Those workers will receive a pension increase to help offset losses. In addition, no salaried employees will receive compensation increases in the United States or Canada through 2009.
GM said its executives will have a significant reduction in their cash compensation this year and will receive no cash bonuses in 2008. The move will result in a 75 to 84 percent reduction in executives cash compensation opportunity, GM says.
The automaker also said it will defer $1.7 billion in payment to its union-led health care benefit trust for hourly retirees. Those payments had been scheduled for this year and next. Establishing the fund, called a voluntary employee beneficiary association, was a key part of the 2007 contract agreement with the union.
More cuts to trucks
GM said it will reduce truck capacity by 300,000 units through 2009, resulting in cost reductions of about $2.5 billion. Half of the production cuts will be achieved by speeding up announced cuts in truck production, GM said.
Last month, GM said it would cease production at three North American truck plants in 2009 or 2010. Those plants were the Oshawa, Ontario, truck assembly plant to close in 2009; the Moraine, Ohio, truck plant in 2010; and the truck line in its Janesville, Wis., plant by 2010.
The Oshawa truck plant builds the Chevrolet Silverado and GMC Sierra pickups. The Moraine plant makes the Chevrolet TrailBlazer, GMC Envoy and Saab 9-7X SUVs. And the Janesville truck line makes the Chevrolet Tahoe, Chevrolet Suburban and GMC Yukon SUVs.
The actions announced today are difficult decisions, but necessary to respond to the current auto market conditions, Wagoner said in the statement.
GMs U.S. sales fell 18.2 percent in June compared with June 2007 and plummeted 16.3 percent during the first half compared with the same period a year ago.
Truck sales fell 22.2 percent during the first half, while car sales dropped 8.2 percent.
Reacting to the plunge in truck sales, GM said a major part of $1.5 billion in reduced spending is tied to delaying the development of large pickups and SUVs, as well as V-8 engines.
GM said it will focus more of its spending on developing smaller engines and more fuel-efficient powertrains.
The automaker will make several moves to improve its financial position.
GM said it will improve liquidity by $800 million through 2009 by suspending future dividends on common stock.
Another $4 billion to $7 billion in liquidity will be raised through a combination of financing and asset sales, which could include a sale of the Hummer brand. GM thinks the sale of Hummers assets would generate $2 billion to $4 billion in liquidity.
Wagoner said June 3 that GM would review the brand and consider all options, including a possible sale. He has denied reports as to whether other GM brands, including Saturn, would be put up for sale.
The automaker has faced speculation about its liquidity in recent weeks as its stock price tumbled below $10 to the lowest point in more than 50 years. Analysts raised concerns over whether the company would resort to bankruptcy.
Wagoner last week told reporters GM is not considering bankruptcy.
Even under conservative planning scenarios, GM is well positioned to withstand the U.S. market downturn and emerge a stronger company, Wagoner said today. We have a solid position in the rapidly growing emerging markets, a global operating framework that allows us to respond to changes in the U.S. market, a commitment to technology leadership, and an ever stronger and competitive product lineup.
GM Vice Chairman Bob Lutz sought to further dispel talk of bankruptcy.
I am getting to be an old veteran at reading about my company being eminently bankrupt, Lutz said in a conference call with analysts and reporters. Youd think at some point, the analysts would learn that car companies dont die that fast -- especially not car companies with the substance, the drive, the technological capability and the financial resources of General Motors.
GM says it expects its U.S. market share to drop to about 21 percent. The automaker anticipates a significant second-quarter loss, citing strikes by one of its top suppliers, American Axle & Manufacturing Holdings Inc., and dozens of local union strikes that stalled production this year.
GM said it has pegged industrywide U.S. light-vehicle sales of 14 million units in 2008 and 2009. Thats down from a projection of the mid-to-high-15 million range that GM made in April after reporting a $3.25 billion loss in the first quarter.