GM: Pressure, Stakes RiseBy Reuters - | Posted 2008-07-15 Email Print
GM hurries its restructuring for the second time in 6 weeks amid a difficult economic climate for the automaker.
PRESSURE, STAKES ON THE RISE
GM has been under intensifying pressure to cut costs and raise capital because of the slump in U.S. auto sales that drove its first-half sales down 16 percent.
In early June, GM Chief Executive Rick Wagoner announced the company would close four North American truck plants and try to sell its Hummer SUV brand in response to higher gasoline prices.
But market sentiment has darkened on GM in the weeks since that announcement, with most analysts no longer expecting a recovery in U.S. auto sales in 2009.
By identifying $10 billion in cost-cutting as the central element in its restructuring, GM believes it can rely mostly on "self-help" rather than the capital markets to shore up liquidity, executives said.
At the same time, GM set an initial target of raising just $2 billion to $3 billion in new financing -- far more limited than some analysts had expected. Wagoner said the automaker could borrow more if debt markets recovered.
But Goldman Sachs analyst Patrick Archambault said the structure of GM's plan puts pressure squarely on Wagoner and his leadership team to deliver.
"GM's current plan puts a lot of emphasis on delivering cash savings from operating measures, and in the current environment investors remain skeptical on GM's ability to execute," he said.
Wagoner said GM's steps would provide it with ample liquidity through 2009, even assuming a continued weak U.S. market crimped by high oil prices.
GM said it had retained advisers to look at asset sales expected to raise $2 billion to $4 billion. Executives said potential buyers had already expressed interest in the military-derived Hummer brand, but they gave no details.
GM will begin capturing savings from a cost-cutting deal with the United Auto Workers union in 2010. In a significant concession, union leadership quietly approved a deferral of $1.7 billion that had been scheduled for payment to a health care trust aligned with the UAW in 2008 and 2009, GM said.
That deferred payment means GM's major union will be effectively loaning it money at 9 percent interest until the deferred payments to the health care account are made.
(Reporting by Kevin Krolicki; editing by John Wallace and Gerald E. McCormick)
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