GM cuts back

GENERAL Motors last week announced massive cost cuts, including an unspecified number of salaried job terminations, and several other measures designed to increase its liquidity by $US15 billion through 2009.

As Holden this week celebrated the official launch of the Australian-engineered Chevrolet Camaro muscle car, the savage GM news that came last week – with the warning of more tough times and decisions in the months ahead – remained close to the surface.

In these latest cutbacks, GM will slash more than 20 per cent in payroll for salaried workers in the US and Canada, eliminate health care for US white-collar retirees, and suspend the annual share dividend of $US1 per GM share.

"We are responding aggressively to the challenges of today's US 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.

"Today's actions, combined with those of the past several years, position us not only to survive this tough period in the US, but to come out of it as a lean, strong and successful company."

Left: GM chairman and CEO Rick Wagoner.

GM's sales have fallen 16.3 per cent this year compared to the first half of 2007, amid economic conditions the company portrays as "a weak US economy, record high fuel prices, shifts in consumer vehicle preferences and the lowest US industry sales volumes in a decade".

The top American manufacturer revealed that at the end of the first quarter 2008 it had liquidity of $US23.9 billion, with access to US credit facilities of an additional $US7 billion.

While the company believes this is enough to meet its 2008 funding requirements, the additional measures announced last week are designed to "bolster liquidity to protect against a prolonged US downturn".

Through a number of internal operating changes and other actions, GM expects to generate $US10 billion of cumulative cash improvements by the end of 2009. Of these, "headcount reductions" and benefit changes will result in estimated cash savings of $US1.5 billion next year.

The company also anticipates rasing between $US4 and $US7 billion through asset sales and financing activities. The former could include sale of the Hummer brand, an option specifically referred to in a statement released last week that estimated $2-4 billion could be generated. No other brand was mentioned.

"Outside advisors are currently engaged in evaluating alternatives," the statement said. "A strategic analysis of the Hummer brand is underway, and GM is continuing to focus on profit improvement initiatives across all remaining GM brands." The specifics of these for Holden are not yet known.

While its second quarter financial results are still to be released, GM management said last week that the actions outlined in the plan took into account its poor performance during this period – and divulged that it will report "a significant second-quarter loss" driven by industrial action in North America as well the continued weakness in the US auto market and the "adverse vehicle segment mix" with its over-reliance on sales from pick-up trucks and SUVs.

"The actions announced today are difficult decisions, but necessary to respond to the current auto market conditions," Mr Wagoner said. "Even under conservative planning scenarios, GM is well-positioned to withstand the US 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 US market, a commitment to technology leadership, and an ever stronger and competitive product line-up." GM based its actions on the assumption that total US light-vehicle sales would not exceed 14 million units in 2008 or 2009 – the lowest sales level in more than a decade. Other "planning assumptions" included a lower US market share for the company of about 21 per cent, and continued elevated oil price estimates ranging from $130 to $150 per barrel by 2009.

If the crisis deepens, more cutbacks are certain to follow.