Posted by: David Welch on April 23, 2009
General Motors’ decision to idle 13 assembly plants for two to nine weeks is a really bad omen. And, no, I haven’t come down with a case of triscadecaphobia. If GM is planning to idle that many factories for anywhere from two to nine weeks, then sales at dealerships are still wretched. GM-North America President Troy Clarke said the production cuts—which amount to 190,000 vehicles, or as much as 40% of the company’s production capacity—are being done to align production with market demand.
That raises a huge question. With the sales slump dragging on, how much more money will GM need to borrow to withstand this downturn? In or out of bankruptcy GM is going to need cash to keep paying its bills. The company has borrowed $13.4 billion from Treasury so far and another $5 billion may be on the way. If sales stay this poor and GM has to keep production at such low levels, the company will surely need to borrow even more cash. Barclay’s analyst Brian Johnson says the cuts could be worth $1.2 billion in cash.
Right now, analysts say the market appears to have hit bottom. J.D. Power and Associates forecasts that April sales will come it at an annualized rate of 9.7 million vehicles. Slicing out fleet sales, the annualized retail rate will be around 7.8 million for the month. That just about where sales were in February and March. If this is the bottom, then there is some hope. But the question is, when comes the bounce? Judging from GM’s deep cuts, it’s a long way off.