Filed under: Hybrids/Alternative, SUVs, Trucks/Pickups, Hirings/Firings/Layoffs, GM
GM to cut 20% in overall white collar costs, cut truck production by over 300k
by Chris Shunk on Jul 15th 2008 at 9:25AM 
GM CEO Rick Wagoner announced sweeping organizational challenges designed to cut costs by $15 billion by the end of 2009. The Detroit automaker is looking reduce costs in an increasingly difficult market that could drop to 14 million units per year with fewer SUVs and trucks leaving dealer lots. Among the cost cutting measures, GM plans on reducing organizational costs by $10 billion, and another $5 billion by selling assets and working in the capital markets. Here are some of the highlights from the press conference:
- Reduce salaried employee expenses by 20 percent through retirements, voluntary separations, buyouts, and other separation initiatives
- Cut all salaried retiree health care after age 65, and use the over funded retirement fund to increase pension pay
- No raises through 2009
- Executive discretionary bonus elimination
- Reduce sales and marketing expenses through reductions in events, motorsports, and ad spending
- Cut truck production by 300k units by 2009
- Reduce product development budget for 2009 to $7b by delaying launches of next generation trucks and SUVs and cutting V8 development
- Increase spending on alternative powertrains
- Push back blue collar retirement VEBA payment from 2008 to 2010, saving $1.7b
- Eliminate stock dividend payouts effective immediately to save $800m
- Raise $4 billion to $7 billion through asset sales and financing using some $20 billion in assets as collateral
- Continue review of the Hummer brand
GM is under quite a bit of pressure right now, and with stocks sliding to $9.63 per share, the General didn't have the luxury of waiting until its August shareholder meeting to unveil its plans. Now it's up to Wall Street to determine whether $15b in savings is enough to turn things around.
UPDATE: Wagoner addressed GM employees and shed some light on what products are in the pipeline.- The Chevrolet Cruze will begin production in the U.S. in 2010
- The Chevrolet Equinox will go into production in May of 2009, equipped with a direct-injected 2.3-liter four-cylinder engine.
- The Cadillac CTS coupe has been green lit and is coming in the summer of '09.
- The Cadillac CTS Sportswagon will be on the market in next spring.
- The next Cadillac SRX, inspired by the Provoq concept, will go on sale globally in 2009.
- The rear-wheel-drive Buick Invicta will be released in the U.S. next spring.
- The Saab 9-4X is on its way in late 2009.
PRESS RELEASE
GM to Bolster Liquidity by $15 Billion through 2009
* Operating and related actions to generate approximately $10 billion in cash improvements
* More than 20 percent reduction in salaried employment cash costs
* Dividend on common stock suspended
* Asset sales and capital market activities to raise $4-7 billion of additional liquidity
DETROIT - General Motors Corp. (NYSE: GM) today announced it is taking further steps to adapt its business to rapidly changing market conditions, marked by the weak U.S. economy, record high fuel prices, shifts in consumer vehicle preferences, and the lowest U.S. industry sales volumes in a decade.
"We are responding aggressively to the challenges of today's U.S. auto market," said GM Chairman and CEO, Rick Wagoner. "We will continue to take the steps necessary to align our business structure with the lower vehicle sales volumes and shifts in sales mix. We remain committed to bringing to market great products that target changing consumer preferences for more fuel-efficient vehicles." Wagoner noted that 11 of GM's 13 most recent major U.S. product launches, and 18 of its next 19 launches, are cars and crossovers, which are key growth areas.
"Today's actions, combined with those of the past several years, position us not only to survive this tough period in the U.S., but to come out of it as a lean, strong and successful company," Wagoner said.
For liquidity planning purposes, GM is using assumptions of U.S. light vehicle industry volumes of 14.0 million units in 2008-2009 which are significantly below trend. Other planning assumptions include lower U.S. share of approximately 21 percent and continued elevated average oil price estimates ranging from $130 to $150 per barrel by 2009. Based on those assumptions, GM is taking actions to further reduce structural cost, and generate cash, with the goal of maximizing liquidity.
At the end of the first quarter 2008, GM had liquidity of $23.9 billion, with access to U.S. credit facilities of an additional $7 billion. While the company has ample liquidity to meet its 2008 funding requirements, it is taking additional measures to bolster liquidity to protect against a prolonged U.S. downturn. The actions include a combination of operating and related actions, as well as asset sales and capital market activities. The cumulative impact on cash through 2009 is projected to be approximately $15 billion.
Operating and Other Actions
Through a number of internal operating changes and other actions, GM expects to generate approximately $10 billion of cumulative cash improvements by the end of 2009, versus original plans.
* GM plans further salaried headcount reductions in the U.S. and Canada in the 2008 calendar year, which will be achieved through normal attrition, early retirements, mutual separation programs and other separation tools. In addition, health care coverage for U.S. salaried retirees over 65 will be eliminated, effective January 1, 2009. Affected retirees and surviving spouses will receive a pension increase from GM's over funded U.S. salaried plan to help offset costs of Medicare and supplemental coverage. And there will be no new base compensation increases for U.S. and Canadian salaried employees for the remainder of 2008 and 2009.
Beyond these moves, which also impact GM executives, additional actions are being taken. There will be no annual discretionary cash bonuses for the company's executive group in 2008. With the elimination of the annual cash bonus, combined with GM's long-term incentives which are driven by GM stock price performance to assure alignment with its stockholders, GM's executive group will have a significant reduction in their cash compensation opportunity for 2008. For the company's top executive officers, it represents a reduction in their cash compensation opportunity of 75 to 84 percent.
These benefit changes, salaried headcount reductions and other related savings will result in an estimated reduction in cash costs of more than 20 percent, or $1.5 billion in 2009.
* Additional structural cost reductions of approximately $2.5 billion are expected in GM North America (GMNA). The reductions will be partially achieved through further adjustments in truck capacity and related component, stamping and powertrain capacity in response to lower U.S. industry volume. Truck capacity is expected to be reduced by 300,000 units by the end of 2009, half of which is from acceleration of prior announced actions, and half from new capacity actions.
In addition, GM will reduce and consolidate sales and marketing budgets, with a focus on protecting launch products and brand advertising. Engineering spending in 2008 and 2009 will be held at 2006-2007 levels, substantially lower than original plans. These operating actions, combined with the benefits of the 2007 GM-UAW labor agreement, are targeted to reduce North American structural cost from $33.2 billion in 2007 to approximately $26-27 billion in 2010, a reduction of $6-7 billion.
* GM is revising its capital spending plan and reducing approximately $1.5 billion in expenditures versus prior plans. Capital expenditures are now estimated to total $7 billion in 2009 versus prior plans of $8.5 billion (these figures do not include the $1 billion in capital spending planned in both 2008 and 2009 in China, which is self-funded by the GM joint ventures, to support growth in that market). A major part of the reductions is related to the delay of the next generation large pickup and SUV program, as well as V-8 engine development and associated capacity.
Spending for non-product programs will also be significantly reduced, while powertrain spending will be increased to support the development of alternative propulsion and fuel economy technologies and small displacement engines. The revised 2009 capital spending plan is higher than the average capital expenditures in 2005-2007, excluding large pickup and SUV-related spending. Excluding China, GM expects capital expenditures to run in the $7-7.5 billion range beyond 2009.
* Aggressive actions are being taken to improve working capital by approximately
$2 billion in North America and Europe, primarily related to the reduction of raw material, work-in-progress and finished goods inventory levels as well as lean inventory practices at parts warehouses.
* GM will defer approximately $1.7 billion of payments that had been scheduled to be made to a temporary asset account over the balance of 2008 and 2009 for the establishment of the new UAW VEBA.
* The GM Board of Directors has decided to suspend future dividends on common stock, effective immediately, which is expected to improve liquidity by approximately $800 million through 2009.
Asset Sales and Financing Activities
In addition to the operating changes and other actions, GM expects to raise additional liquidity of $4-7 billion through asset sales and financing activities.
* GM is undertaking a broad global assessment of its assets for possible sale or monetization, which is expected to generate approximately $2-4 billion of additional liquidity. The company believes there is significant liquidity potential from asset sales, without impacting the strategic direction of the company. Outside advisors are currently engaged in evaluating alternatives. A strategic analysis of the Hummer brand is underway, and GM is continuing to focus on profit improvement initiatives across all remaining GM brands.
* GM will continue to opportunistically access global markets to raise additional liquidity. The company is initially targeting at least $2-3 billion of financing. The company has gross unencumbered assets of over $20 billion, which could support a significant secured debt offering, or multiple offerings, that would far exceed the initial target. Examples of such assets include stock of foreign subsidiaries, brands, stake in GMAC, and real estate.
Actions outlined today comprehend the anticipated impact of second quarter results, which the company plans to announce in the near future. GM anticipates it will report a significant second quarter loss, driven in part by the previously disclosed negative impact of the American Axle and local union strikes in North America, as well as the continued weakness in the U.S. auto market and adverse vehicle segment mix.
In addition, the company expects to record significant charges or expenses related to its previously announced hourly attrition program in the U.S., the recently announced North American truck capacity actions, valuation of GMAC stock, lease assets, Delphi recoveries, the American Axle settlement, the Canadian labor contract, and others.
GM is highly confident that the initiatives announced today, in conjunction with the current cash position and its $4-5 billion of committed U.S. credit lines, will provide the company with ample liquidity to meet its operational needs through 2009.
"The actions announced today are difficult decisions, but necessary to respond to the current auto market conditions," said Wagoner. "Even under conservative planning scenarios, GM is well-positioned to withstand the U.S. market downturn and emerge a stronger company. We have a solid position in the rapidly growing emerging markets, a global operating framework that allows us to respond to changes in the U.S. market, a commitment to technology leadership, and an ever stronger and competitive product line-up."
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Reader Comments (Page 1 of 6)
Vintage 9:29AM (7/15/2008)
"continue to review Hummer"
Drop. Yesterday.
Reply
MajorGeek 9:45AM (7/15/2008)
Hummer is what it is, and its not the 8 MPG H12 brand that people like yourself like to keep attached to it. Rather its something GM has little of, a unique brand. The H2 gets same mileage as ANY pickup truck out there and the H3 gets an average of 16, comparable to many Jeeps and other crossovers.
I still think Hummer is doable if they get the HX out. Of course Jeep is struggling too, so looked at from that perspective, maybe not. I can also name 3-4 other GM brands worth killing off that have nothing to do with the image, but because of duplicate cars. I would like them to finish the Hummer brand myself. GM needs a plan to make their internal wheels move faster more then anything else. Camaro and Volt should be out this fall not fall 2010.
Vintage 9:51AM (7/15/2008)
No it does not. The H2 weighs over 8,000lbs, on purpose, in an effort to exploit a loophole in Cafe requirements. It does not have an emissions test, it does not affect CAFE averages, it does not even have a crash test. The government assumed any vehicle over 8,000lbs would be a work/utility vehicle like a Freightliner or dumptruck. The H2 gets between 7-12mpg in the city.
Dude 9:57AM (7/15/2008)
Major Geek is right. HUMMER has brand value. SUVs are not hot right now, but history has shown that small Jeep-like vehicles have a niche and over the long run are an asset.
MM 10:05AM (7/15/2008)
To drop Hummer is to give up a ton of sales in Asia and the Middle East. Hummer as a brand is a cash cow in those areas of the world.
GM had record sales in Latin America and Asia. In China GM has 50% of the market share and is growing. Buick is the number 1 selling brand in China, and China and India are the fastest growing markets in the world. Yet we as investors look at what is going on at home? I too believe GM stock is under valued.
Taser 10:06AM (7/15/2008)
H2 has a curb weight of 6400lbs.
MajorGeek 10:34AM (7/15/2008)
Actually, allow me to clarify with facts as all I do is drive in the burbs. I get 12.5 average fuel. I know people who own Tundras who get less. Trooper who pulled me over told be his suburban gets less. This is fact, yours is speculation. Im in Central New York, come on over ANYTIME and I will take you for a ride, reset the fuel computer and prove it.
Of course I still swear your car gets 15 MPG per http://www.fueleconomy.gov/feg/findacar.htm which you also deny. Odd thing is, I tend to believe you.
I would like the same respect because I can, and will, back it up on request.
Vintage 10:35AM (7/15/2008)
Standard GVWR (lb): 8600lbs
Hence, exempt from CAFE averages. And it's a truck, so no gas guzzler tax. Awesome.
jay tee 11:27AM (7/15/2008)
Vintage, if you knew anything about trucks (or vehicles at all), you would know that GVWR is Gross Vehicle Weight Rating (ie, how much the vehicle can safely weigh, including all passengers, cargo, tongue weight, etc). It IS NOT curb weight (the actual weight of the vehicle).
By the way, you're one to talk, being a fan of the SVX and all. Odd that you're a fan of a 3600lb compact car.
(Autoblog, please fix your commenting)
Brent 11:41AM (7/15/2008)
Vintage,
Curb Weight: 6614 lbs.
Learn what GVWR means.
MajorGeek 12:16PM (7/15/2008)
You guys are correct about GVRW but you really can not hate on the H2 properly unless you skew the facts a bit to make it seem worse then it is. Otherwise, you need to make the same argument for just about every full sized truck and SUV. Easier to pick on one brand. Lazy enviromentalists. Ive even argued, on this very website, with someone who was using the H1 and H2 stats for the H3 (Claims like the H3 being built on Tahoe frame and getting 10 mpg). I try and argue the very same points, but those who hate the Hummer want to ignore the H1 demise, the H2 being new large Hummer, the H3 and soon the HX although its going to be hilarious to watch Hummer haters dissing on the Flex Fuel Hx. Really, they should be pleased with the brands direction of making off road capable daily drivers with respectable fuel mileage and options.
Vintage 12:28PM (7/15/2008)
@ Jay Tee & Brent: I do know what GVWR means. Apparently you don't. Cafe relationship to GVWR:
"Corporate Average Fuel Economy (CAFE) is the sales weighted average fuel economy, expressed in miles per gallon (mpg), of a manufacturer’s fleet of passenger cars or light trucks with a gross vehicle weight rating (GVWR) of 8,500 lbs. or less, manufactured for sale in the United States, for any given model year"
http://www.nhtsa.dot.gov/CARS/rules/CAFE/overview.htm
HENCE, the H2 was built with a GVWR rating HIGHER than 8,500lbs to make it EXEMPT from emissions regulations, safety regulations, crash testing, and it does not affect CAFE averages.
But props on trying to sound like you know what you are talking about!
jay tee 12:51PM (7/15/2008)
Please, Vintage, don't try and argue dumb points with an automotive engineer.
You stated:
"No it does not. The H2 weighs over 8,000lbs, on purpose, in an effort to exploit a loophole in Cafe requirements. "
Weight != Gross Vehicle Weight Rating.
So, either be consistent, get a memory, or learn.
Besides, as a GM fan, I like HUMMER's image potential. In reality, the H3 should be the biggest vehicle they sell (and it shouldnt weigh over 5000lbs either). GM has a global brand that has great recognition. If Jeep and Land Rover can survive in todays world, so can HUMMER.
jay tee 12:52PM (7/15/2008)
Please, Vintage, don't try and argue dumb points with an automotive engineer.
You stated:
"No it does not. The H2 weighs over 8,000lbs, on purpose, in an effort to exploit a loophole in Cafe requirements. "
Weight != Gross Vehicle Weight Rating.
So, either be consistent, get a memory, or learn.
Besides, as a GM fan, I like HUMMER's image potential. In reality, the H3 should be the biggest vehicle they sell (and it shouldnt weigh over 5000lbs either). GM has a global brand that has great recognition. If Jeep and Land Rover can survive in todays world, so can HUMMER.
Harrison 7:48PM (7/15/2008)
vintage, you are aware that there are people who don't blink an eye at $100 fillups?
You make it as if GM's building the H2 to spite people; but as incompetent as they are, there's probably still a market. I still see brand-new SUVs driving up and down the road. Expensive? Yes. But it's not stupid because you can't afford. It's stupid for other reasons - namely because you'd be better off buying a Tahoe/Suburban.
Torrent 2:31AM (7/16/2008)
My gosh, Vintage....Low ranked again....... People hate you even if you make sense sometimes......I not saying you make total sense right now but damn, you get hated on mostly.
Justin 9:32AM (7/15/2008)
Simple plan for savings:
-Fire everyone in the union.
-Hire the millions of Americans who will work for only $10 - $12 an hour and be far more appreciative.
-Problem solved.
*flame suit on*
Reply
Vintage 9:40AM (7/15/2008)
Why? They should just move all operations to Mexico. The only country with money worth less than ours.
MGBYG 9:41AM (7/15/2008)
Even simpler: White collar makes = pay as blue collar.
Unions made America. Why do you hate America?
Justin 9:44AM (7/15/2008)
Hey, if the Mexicans can do the job just as well and the corporation survives...thatd be GM's prerogative.
As for hating America, I don't hate America. Unions certainly did build this country, but they were more necessary at a time where workers' rights were few and far between and they were necessary. Today the UAW (in my opinion) wields far too much power and most workers get compensated far too well in many jobs where a monkey could practically do the labor. The constant pushing the bar higher only hurts to corporation and ultimately American by destroying corporations that were once the backbone of our economy.