GM halts renovation projects as Barra makes case for cost cuts
DETROIT -- General Motors is postponing renovations to its famed design studios in Michigan and halting a project to update its global propulsion headquarters in an effort to save money.
Plans for the Detroit-area projects, which were expected to cost hundreds of millions of dollars, were detailed in a letter sent Wednesday to employees by GM CEO Mary Barra, making the case that the company needs to curtail costs to protect itself against an unpredictable future. A copy of the letter was obtained by Automotive News.
The letter also details plans to offer voluntary buyouts to roughly 18,000 salaried employees in North America and "most" global executives who have 12 years or more experience, which the automaker confirmed on Wednesday.
In the letter, Barra details internal and external factors such as trade and global economic conditions that the company cannot control but must be prepared to address.
"Today, our structural costs are not aligned with the market realities nor the transformational priorities ahead," she said. "We must take significant actions now to address this while our company and the economy are strong."
Scrapping investment in the two projects are examples of ways the company aims to reduce structural costs and increase free cash flow. Barra said free cash flow will be pivotal to the company in the event of a downturn, so that it can continue investments in emerging, yet costly, technologies such as autonomous and electrified vehicles.
Without a strong cash position, she said, the company “cannot be the agile, innovative industry leader” it needs to be to achieve its longer-term objectives. GM expects to have roughly $4 billion in adjusted automotive free cash flow to end the year, up from negative free cash flow of $310 million at the end of the third quarter, which Barra cited in her letter.
"To achieve what this company is truly capable of -- and to win -- we need to be even more agile and faster to market," she said. "We need to get ahead of headwinds, rather than let them happen to us."
The letter went out to employees soon after GM reported third-quarter earnings that significantly beat Wall Street expectations, including $2.5 billion in net income.
In the context of those results, Barra wrote, it may be hard for some to understand the need for cuts, but "profitability is only part of what is required for our transformation."
She said that despite solid profits, skepticism of the company remains, noting that GM shares were recently trading below their 2010 initial public offering price of $33 a share.
She encouraged all eligible employees to "seriously consider" the severance program, while asking everyone to "stay focused on improving the financial performance of the company."
The two projects Barra cited were expected to cost hundreds of millions of dollars, including a 360,000-square-foot expansion of GM's design studios and a new parking structure. Both were supposed to be the "final stage" of a $1 billion transformation of the company's tech center campus in Warren, Mich. A GM spokeswoman confirmed the parking structure was completed, however construction of the new design studio building has been postponed.
Renovations at the propulsion center in Pontiac, Mich., were part of a wider initiative by the automaker to update and transform older facilities into open office spaces.
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