Embattled General Motors Corp. will attack its looming liquidity crisis with another round of drastic cost cutting and a substantial gamble that the U.S. auto market will recover from its deep slump by 2010.
But the second job-slashing announcement from GM in six weeks - which includes the first suspension of the auto maker's dividend since 1922 - does not involve raising a significant amount of money from external sources. It also failed to deliver a specific plan to develop more fuel efficient cars and crossover utility vehicles to win back the millions of North American consumers who are abandoning trucks and sport utility vehicles.
The company said yesterday it wants to reduce its total salaried costs in the U.S. and Canada by more than 20 per cent.
"What we saw today is the accountants' plan," industry consultant William Pochiluk, president of AutomotiveCompass LLC, said yesterday. "What we haven't seen yet is the product plan. What's missing is a very aggressive product plan."
The latest restructuring will improve GM's cash position by about $15-billion (U.S.) by the end of 2009, chief executive officer Rick Wagoner told reporters during a conference call yesterday. The auto maker has about $24-billion in cash, but forecast a substantial second-quarter loss.
"We can't sit back and wait for U.S. conditions to improve," Mr. Wagoner said.
The $15-billion should provide ample liquidity, he insisted, to weather a slump in U.S. sales to 14 million vehicles this year and again in 2009, which represent levels not seen since the early 1990s.
In addition to dreadful market conditions, GM also faces collapsing investor confidence amid whispers on Wall Street of a potential Chapter 11 bankruptcy filing, which has helped send the company's share price to below $10 for the first time since the 1950s.
The credit markets are "fairly inhospitable," GM president and chief operating officer Fritz Henderson added during the call.
About $10-billion of the $15-billion will be generated by the cost-cutting moves. Another $2-billion to $4-billion will come from asset sales. Tapping credit markets should add another $2-billion to $3-billion of financing.
"I think investors remain concerned because what really matters is not the cuts they're making today, but whether they can raise a significant amount of capital tomorrow," said John Casesa, a veteran industry analyst who is managing partner of Casesa Shapiro Group LLC in New York. What GM needed to do, Mr. Casesa said, was demonstrate that it can raise money.
U.S. sales of pickups and SUVs began plunging in April, GM officials said. The market for the vehicles Detroit has relied on for profits for more than a decade has continued to deteriorate even since a June 2 announcement by GM that it will shut four assembly plants that make those vehicles.
One of the cost-cutting moves announced yesterday was to close those four plants more quickly than the originally scheduled date of next year, although Mr. Henderson would not specify which plants will close when.
Canadian Auto Workers president Buzz Hargrove said GM officials told him that the company's truck plant in Oshawa, Ont., will be closed as scheduled next September, but he said he believes it will close sooner than that.
The auto maker is also delaying development of new V8 engines, which will affect its operations in St. Catharines, Ont. The GM engine plant in that city is scheduled to get a new V8 engine before 2011.
GENERAL MOTORS (GM)
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