GM To Close Factories, Cut Staff And Defer Or Eliminate Benefits

Detroit, MI (AHN) -- With stock prices plunging to lows seen half a century ago, General Motors has taken drastic steps to weather the downturn by cutting salaried jobs, closing factories sooner and suspending its dividend.

GM is also adding $15 billion in liquidity in 2009, even though the company said it had "ample liquidity" this year, in hopes of riding out an almost certain recession as it makes the switch from gas-guzzling SUV's to hybrids and other small economical cars to try and stay in the hunt with overall industry leader Toyota. Those liquidity additions would come through operational steps such as factory closings as well as through asset sales.

The Detroit-based automaker will reduce capital spending by $1.5 billion to about $7 billion next year, and will boost working capital by about $2 billion in North America and Europe by paring raw-material use and its inventory of unused parts, Bloomberg reported. GM also will cut health care for U.S. salaried employees older than 65 as of Jan. 1, 2009, with offsetting increases to pensions and eliminating cash bonuses for executives GM hopes the cuts in benefits and the salaried headcount reduction will save about $1.5 billion in 2009. Wagoner also said his company will delay $1.7 billion in payments to its union retiree health-care fund.

"We are responding aggressively to the challenges of today's U.S. auto market," GM Chairman and CEO Rick Wagoner said in a prepared statement Tuesday, announcing the company's strategy. "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."

For weeks, industry insiders have talked about drastic plans in play by GM, including the elimination or sale of some brands such as the Hummer, and though no announcement has come on the latter, the drastic cuts reflect GM's hopes of staying viable for the long haul. The No. 1 U.S. auto maker's market capitalization has declined to $5.31 billion, a 60 percent plunge from its value at the beginning of the year; largely the result of record gas prices to fuel SUVs. Though GM had $24 billion at the end of March, $5 billion is already lost in the second quarter alone, and the meter is running.

GM had 21.3 percent of the U.S. market in June, and sees total U.S. vehicle sales falling to about 15 million this year. GM entered the year expecting a 16-million-vehicle market, but demand hasn't been as strong as initially thought, the Wall Street Journal reported, quoting industry insiders. With the liquidity it has on hand, GM has enough to operate six more months, the newspaper reported. To generate more cash, GM has talked about issuing more equity and about selling off its remaining 49 percent in GMAC.

GM, about to turn 100, reported its largest annual loss in 2007, $38.7 billion, after a tax accounting change, and hasn't posted a profit since 2004, Blomberg reported, adding the car-maker's U.S. market-share hovers at the lowest level since 1925, and its stock is trading at 54-year lows.

GM has not talked seriously of eliminating brands beyond the Hummer and with 60 percent of its sales on light trucks, GM is hoping the transition to more economical cars will avert the possibility of bankruptcy. GM's 16 percent U.S. sales decline through June has exceeded the industry's 10 percent fall.