GM to close four plants, may unload Hummer
By Soyoung Kim
Tuesday, June 3, 2008; 4:11 PM
WILMINGTON, Del (Reuters) - General Motors Corp (GM.N) said on Tuesday it is closing four truck plants employing 10,000 workers and could sell its Hummer brand in a rushed response to higher gasoline prices that the largest U.S. automaker now sees as a permanent threat to its business.
Chief Executive Rick Wagoner, in a news conference before the annual meeting, said GM would close the four North American truck plants and add shifts at two U.S. plants making more popular and better-mileage cars to realign output with a U.S. auto market reeling from an oil shock being compared with those of the 1970s.
Wagoner said GM is reviewing its Hummer brand and could sell the military-derived SUV line, which has become synonymous with gas-guzzling excess and has hurt GM's image at a time when consumers are demanding more fuel efficiency.
"High gasoline prices are changing consumer behavior rapidly," Wagoner said. "We at GM don't think this is a spike or temporary shift. We believe that it is by and large permanent."
In a bid to lessen its reliance on the higher-margin trucks and SUVs that represent some 60 percent of its U.S. sales, GM's board approved funding for a compact car to replace the Cobalt and a new subcompact to replace the Aveo. Both Chevy-branded small cars are set to go on sale in 2010.
GM's board also gave final approval to the Volt, a heavily touted, all-electric vehicle that GM expects to have in showrooms by 2010 in a bid to beat rival Toyota Motor Corp (7203.T) to market with the kind of rechargeable car embraced by environmentalists.
GM said the latest steps would cut $1 billion from its costs by 2010, but some questioned whether they would improve the automaker's prospects in the face of a U.S. market now seen slumping well into 2009.
Wagoner said GM, which has lost a combined $51 billion over the past three years, is not ready to detail a timeline for returning to profitability.
GM shares, which have lost almost 60 percent since peaking in October last year, initially rose on the restructuring steps, but gave up most of those gains when the automaker reported May sales results underscoring the pressure it faces.
GM's May sales dropped 30 percent after adjusting for the number of selling days. Sales for the first five months of the year were down 16 percent.
GM said it would stop making light trucks at plants in Oshawa, Ontario, and Toluca, Mexico, as well as at U.S. plants in Moraine, Ohio, and Janesville, Wisconsin. The Wisconsin plant, GM's oldest, opened in 1919.
Union leaders vowed to fight GM's closures, which would compound recent auto job losses and could loom as a presidential election issue in states such as Ohio and Michigan.
The White House said GM's action showed it is responding to a changing market to stay competitive. Democratic candidate Barack Obama, who had visited the Janesville plant on the campaign trail, blamed the Bush administration.
"Today's news is a painful reminder not only of the challenges America faces in our global economy, but of George Bush's failed economic policies," Obama said in a statement.
Canadian Auto Workers President Buzz Hargrove called GM's decision to close its Oshawa plant making the Silverado pickup truck a "betrayal." He said the union would press for a reversal of the decision and could strike.
"I want to state as clearly as I can: We are not going to allow this to happen," Hargrove said.
Some analysts questioned whether the embattled automaker had moved too slowly, particularly on Hummer.
"Unfortunately, it's just a sign that once again they're behind the curve," said Peter Jankovskis, a chief investment officer with OakBrook Investments, which owns GM shares in some of its portfolios.
"If they were looking to sell the Hummer brand, the more sensible thing would have been to do it three years ago," he said. "They're not going to get anything for it. Just in terms of timing, it's a very poor example."
Tim Ghriskey, chief investment officer with Solaris Asset Management in New York, said GM would eventually see cost savings from its decision to close the truck plants.
"This is total capitulation by GM management to the price of oil," said Ghriskey, who does not currently own GM shares, but has in the past and follows the stock closely. "GM believes that the high price of oil is permanent and therefore they are making dramatic cuts in their low-mileage vehicles."
GM did not eliminate its dividend, which could save just under $600 million a year, a step some analysts have suggested is possible. Wagoner said dividend policy would be reviewed by the GM board each quarter.
Chief Operating Officer Fritz Henderson said GM has adequate cash to fund operations in 2008 and could raise more liquidity if the downturn in the auto market persisted.
GM ended the first quarter with $31 billion in cash and undrawn credit. Analysts handicapping GM's turnaround efforts have focused on the cash drain from its operations and support for two troubled former subsidiaries, GMAC and bankrupt parts supplier Delphi Corp (DPHIQ.PK).
In a sign of the deepening trouble for GMAC's mortgage unit, ResCap, GMAC and Cerberus Capital Management (CBS.UL) agreed on Tuesday to inject more than $1.4 billion to help the mortgage lender avoid running short of cash.
Cerberus bought 51 percent of Detroit-based GMAC from GM, which retains the rest of the equity in the financing company.
GM shares closed up 14 cents, or less than 1 percent, at $17.58 on Tuesday on the New York Stock Exchange.
(Additional reporting by Ben Klayman in Chicago and Poornima Gupta in Detroit; Writing by Kevin Krolicki; Editing by Gerald E. McCormick and Andre Grenon)