GM to Cut Jobs, Sell Assets, Raise Cash to SurviveBy Reuters - | Posted 2008-07-15 Print
GM hurries its restructuring for the second time in 6 weeks amid a difficult economic climate for the automaker.
DETROIT (Reuters) - General Motors Corp on Tuesday announced a plan to cut costs by $10 billion, suspend its common stock dividend and sell up to $4 billion in assets in a bid to shore up cash and survive a deep industry slump.
The hurried restructuring, GM's second in just six weeks, was forced by high fuel prices, a consumer shift away from low-mileage trucks, the weakest U.S. auto sales in a decade, and growing investor doubts about the automaker's ability to ride out the downturn.
GM, which has lost $51 billion over the past three years as it has cut jobs and closed plants, said the steps were aimed at addressing deepening concerns that have driven its stock price to 54-year lows and raised the cost of insuring its debt against default.
"What we saw was an even decidedly more hostile environment in the capital markets," GM President and Chief Operating Officer Fritz Henderson told reporters. "You saw financial markets almost seize up."
The automaker said it would cut white-collar costs by 20 percent, a step expected to mean the loss of thousands of jobs among the 40,000 salaried workers GM employs in North America.
GM shares rose nearly 7 percent on the restructuring news but remain down about 60 percent this year. Since Chief Executive Rick Wagoner took over in 2000, the shares have fallen in value about 80 percent.
Analysts said GM's plan, intended to raise $15 billion in liquidity through 2009, addressed the most urgent Wall Street concerns about pressure on its $24 billion in remaining cash.
But they cautioned that the company's turnaround still hinged on a recovery in the U.S. economy and on GM's ability to sell more fuel-efficient passenger cars, a market now dominated by foreign makers led by Toyota Motor Corp.
GM has also faced criticism for restructuring steps since 2005 that have consistently fallen short of what was required given the downward spiral in its results.
"We have to see better demand for automobiles, for cars and trucks, in order for the liquidity crisis to be put to bed," said Tim Ghriskey, chief investment officer at Solaris Asset Management in New York. "They're burning through about $3 billion in cash a quarter. The cash drain has to stop at some point or GM has larger problems."
GM said it would save $10 billion in cash through 2009 through a series of steps including cuts to white-collar jobs and retiree health-care and an elimination of executive bonuses for 2008.
Capital spending would be cut by $1.5 billion, and GM would accelerate plant closures announced last month, as it aims to move its vehicle line-up away from a reliance on SUVs and light trucks.
Lehman Brothers analyst Brian Johnson called the cost-cutting targets "relatively credible" but said the overall plan fell short of a vision for renewal.
"The announcements offered little sense of a 'new' GM strategy or shift in the organizational culture that might set the stage for a more dramatic reinvention," he said in a note to clients.
GM, which has not given a timeline for returning to profitability, warned it would post a "substantial" second-quarter loss, including charges related to supplier American Axle & Manufacturing Holdings Inc and 49 percent owned finance company GMAC.
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