GM to lay off
General Motors Corp. will
lay off salaried workers, cut truck production, suspend its dividend and borrow
$2 billion to $3 billion to weather a severe downturn in the U.S. market.
GM said the moves will raise $15 billion to help cover losses and turn around
its North American operations, including $10 billion from internal cost-cutting
and $5 billion from selling some assets and borrowing against others.
"In short, our plan is not a plan to survive. It is a plan to win," GM
Chairman and CEO Rick Wagoner said in a broadcast to employees.
GM's shares fell as much as 6 percent to a new 54-year low of $8.81, then
rebounded to $9.94 in midday trading, up 56 cents from Monday's close.
Chief Operating Officer Fritz Henderson said GM wants to reduce its total
salaried costs in the U.S. and Canada by more
than 20 percent.
A large chunk of the reduction, he said, would come from cutting health care
benefits for salaried retirees. Those people would get a pension increase from
the company's over funded pension fund to help compensate for Medicare and
supplemental insurance, the company said.
Several thousand jobs will be cut through normal attrition and retirements,
and through early retirement and buyout offers, Henderson said. The company
could resort to involuntary layoffs but does not want to, he said.
Wagoner said the company has not made early retirement offers to salaried
workers for three or four years, and he would expect good acceptance of new
offers, helping GM to reach its cost-cutting goal.
"I suspect the vast majority of the reductions will be accomplished through
initiatives which do not require involuntary actions," Wagoner said. "Let's see
how it plays out."
GM has 40,000 salaried employees in North America.
Henderson said the company intends to reduce its truck production capacity by
300,000 units, 150,000 more than it announced at its annual meeting in June.
The company will speed up previously announced closures of some truck and
sport utility vehicle factories. GM said last month it would close plants in
Janesville, Wis.; Oshawa, Ontario;
Silao, Mexico; and
Moraine, Ohio, but Henderson would not say which closures would be
accelerated or when the closures would take place.
The company also will make thousands of job cuts at other truck assembly and
parts factories, Henderson said.
He would not say if further plants will be closed, and said the company still
must negotiate further cuts with the United Auto
Henderson said 19,000 hourly workers have recently left the company through
an attrition program, but even more cuts will be needed.
"These are going to be some pretty tough measures," he said.
GM said it will suspend its $1 per share annual dividend immediately, which
will improve liquidity by $800 million through 2009. It's the first time the
company has suspended its dividend since 1922.
The company plans to raise $2 billion to $4 billion through the sale of
assets, including its Hummer brand. It also plans to borrow $2 billion to $3
billion by pledging assets, including stock of foreign subsidiaries, brands,
stake in its finance arm and real estate. Wagoner said the company likely
wouldn't seek that cash until 2009.
Henderson said the company determined the credit markets are so inhospitable
it would be too risky to raise cash that way, so it focused on internal
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.
GM is forecasting total U.S. sales of 14.7 million this year. That's down
from 17 million as recently as 2005.
The automaker has $24 billion in cash and access to $7 billion in credit, but
has been burning through about $1 billion per month. JPMorgan analyst Himanshu
Patel recently predicted that GM would go through $18 billion in cash this year
Just six weeks ago, GM said it would close the 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 per
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. Executives said they started working on the latest
restructuring plan shortly after the company's annual meeting June 3 after
watching the market deteriorate significantly since April.
Analysts had speculated GM would need to raise more cash to get it to 2010,
when it will start seeing the savings from its landmark 2007 contract with the
UAW that cut hourly workers' wages and transferred billions in hourly retiree
health care obligations to a union-led trust.
As part of its financing plan, GM will defer $1.7 billion in payments to that
trust that had been scheduled for this year and next.
Some analysts have also speculated that GM would declare bankruptcy, but
Wagoner said last week that bankruptcy isn't a consideration.