GM Cuts back, Again

Posted by: David Welch on July 14, 2008

The U.S. auto industry is deep in the throes of a massive restructuring. General Motors Chairman and CEO Rick Wagoner will tell the next chapter this morning. GM won’t divulge details, but several company sources say that Wagoner will announce several cost-cutting moves as well as a few ways GM can conserve or raise more cash. One big theme: Wagoner will make the case that GM has enough cash to stave off bankruptcy even under pretty dire circumstances. GM needs to stay flush until around 2010, when a recently-inked union contract will save the company billions in cash a year. By then, a deal to set up a union-led healthcare fund would save GM more than $4 billion a year. Lower wages will also save billions.

GM insiders say that, as of Monday evening, the company had not finalized the details of the announcement. But GM’s cash position will be a key component. GM had $24 billion at the end of March, down $6 billion since last fall. Since March, truck and suv sales have cratered, burning even more cash. Management has discussed selling off some assets and perhaps even cutting its dividend, which costs $570 million a year, to conserve cash. GM has already sold off many assets, but the company has been trying to sell its shuttered Oklahoma City and Doraville, Ga., plants. There are a few other assets that could bring some cash. The company could also issue more equity or convertible debt.

White-collar staff cuts are the next shoe to drop. GM already bought out 34,500 union factory workers since 2005 and announced another 19,000 blue-collar buyouts this year. Now, say inside sources, Wagoner will take an ax to the salaried staff. The company may announce targets for salaried staff reductions. There will be buyout packages and perhaps even some layoffs. Cutting benefits and executive pay has also been discussed.

One source said that GM will assure the media and investment community that the cuts will be made in areas like truck engineering where the business is in decline. But advanced-technology development and car engineering still need plenty of people. So the company will try to keep manpower in those offices.

It makes sense. Over the past few years, GM has gone through its global engineering ranks and slashed redundant car-development operations. Instead of having teams in, say, Europe, the U.S. and Asia all developing different small cars, one team develops one globally. GM’s German-based Opel unit develops compact cars, GM-Daewoo heads up engineering for subcompacts, the Australian Holden business takes point on developing rear-wheel drive cars like the future Chevy Camaro and the Warren, Michigan engineering center takes lead on trucks and large suvs. Since expensive gasoline has trucks and big rear-drive sedans on the wane, American and Australian engineers may be nervous. GM may just be realigning its business to pay fewer American engineers to do work on its cars. One bright spot: Advanced technologies like hybrids, electric drive and vehicles like the Chevy Volt will be done in the U.S. So those people will have some job security.

There may also be a hint of future production cuts. GM has already announced plans to close plants or cut shifts at several truck plants. But more may eventually be on the way. The bottom line is that Wagoner is trying to show Wall Street that he has a plan to get through a couple of thorny years until his deals with the union bear fruit. We’ll see what details he has.

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/

Reader Comments

Sally in Chicago

July 15, 2008 09:42 AM

Is ford next to cut dividends? I'm out. For this country to be a nation of innovators and knowledgeable thinkers, what took GM and the other 2 so long to figure this out. A friend & I were talking about honda, how it has a mix of not only car products, but bike & motorcyle, lawn mower products. I guess it's time to buy Honda.

kerry bradshaw

July 15, 2008 12:43 PM

The Chevy Volt will be ASSEMBLED in the U.S. It spart, just like the parts in every Toyota, Volkswagon, etc. will be made primarily in China, which has a free market in labor and isn't required to pay its workers extortionary wages, like the $135 per hour total compensation that Chrysler does. The Volt's most importan tan dexpensive part is its battery pack, which accounts for half its build costs. regardless of whether A123 Systems
or LG wins the contract, those batteries will be built in Asia.

Snoz

July 16, 2008 04:38 AM

If you are planning to buy a Toyota, HOnda, Ford, GM or Chrysler car, please look at the domestic content indicators on the window stickers. Some of Toyota, Honda, and Subaru cars have higher domestic content than the so called "domestic" car manufactures. The Toyota Camry, Corolla, and Sienna each has close to or nearly 90% domestic parts produced in North America(USA and Canada). Those who can't read or unable to make intelligent observation will write about "just like the parts of every Toyota, Volkswagon. etc will be made primarily in China." The right to Blog in this BW page also includes the duty to think before writing. As to "extortionary wages," every American labor unions and domestic auto companies voluntarily signed their collective bargained contracts--contrary to Blogger's allegation. Blogger should take note: Loose cannon and empty wagons make lots of noise.

stevee0506

July 18, 2008 10:05 AM

Why the companies always keep their hands on their employee benefits when it comes to cost cutting....Why is this, i think better companies can find other sources where they can cut their cost....Areas like lavishly spending for ads can be reduced and they should use their brains for cheap and effective advertising. http://www.buyingadvice.com/

BeGreen

July 27, 2008 04:26 PM

America needs to stay FOCUSED, AWARE and EDUCATED.

Focus:
History reminds us that every time oil prices peak and the North American market/consumers start to discuss alternative energy sources, the oil exporting countries start to trim down their prices. History also tells us that the oil exporting nations have been very successful in the past and in fact, we have lost our enthusiasm and dropped many of our alternative energy initiatives after oil prices are reduced.

WE need to stay focused this time.

1) Al Gore and his energy initiative is on course.
2) T. Boone Pickens and his wind power initiative is on course.
3) The BG Automotive Group mass production electric vehicle program is on
course along with renewable solar energy charging option.
4) Richard Branson from the UK is on course w/his environmental programs..
5) The Gas Reduction Act of 2008 might not be the most environmentally sound
solution, but yet it shows that Congress has finally realized that we have an
energy crisis (again), and a real threat to our national security.

The continued dependence on foreign oil is a threat to our long term democratic values. We must become an energy independent nation, and with this, some sacrifices will have to be made by the American consumer.

Be aware!!
We are exporting approximately USD $700 Billion dollars per year of U.S. currency. The majority of this money is being transferred to the Trillion dollar “sovereign wealth funds”. This is USD $700 Billion not being spent on America’s educational system, health care and security.

The “sovereign wealth funds” are directly buying major interests (large blocks of stock) in U.S. companies, including most of the major banks. Also, billions of dollars of “sovereign wealth fund” money is being invested in our hedge funds, private equity firms, and the investment banking industry. A few of these firms are directly and indirectly investing large sums of money into our “gas combustion” automobile industry. Do we want our auto industry in the direct or indirect control of the firms that are supplying us oil? This is an interesting topic for an investigative reporter.

There are automotive consulting companies in Michigan (heart of our auto industry), lobbying States and our Federal Government, NOT to subsidize the Electric Vehicle industry. The latter seems to be contradictory to what the American public would like to see from our automobile industry. After the billions (excess of $20 billion) the automotive companies have lost in the past 6 months producing gas combustion vehicles, you would think they too would change course. Changing course is not adding 2-4 miles per gallon w/Hybrids. Drastic measures in our auto industry must take place and NOW!

Do not let the temporary reduction in oil prices push us off course….AGAIN.

Educated:
Read, Read- Stay on top of the issues. Let’s not be fooled again.

STAY FOCUSED, AWARE and EDUCATED!

herault

July 28, 2008 07:19 AM

The $64 question is for how long can CHRYSLER/Cerebus survive quaterly losses in North America? Another federal bailout....pity VW dont take it for one silver dollar.

Jill Worsley

November 11, 2008 04:26 PM

Is Thomas B Pickens and General Motors working together for wind power energy for the future?

Post a comment

 

About

Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

BW Mall - Sponsored Links

Buy a link now!