GM to cut jobs, slash truck production: sources briefed on restructuring
Last Updated: Monday, July 14, 2008 | 8:16 PM ET
The Associated Press
General Motors Corp. is expected to cut several thousand salaried jobs and further slash truck production in response to falling U.S. sales and Wall Street's demands for more action to stem its losses, according to people briefed on the plan.
GM chairman and CEO Rick Wagoner is scheduled to discuss the changes at a news conference Tuesday morning. The company released no further details, but job cuts and cuts to benefits and executive compensation are likely.
The people briefed on the plan say Detroit-based GM will further reduce its truck production to focus more on small cars, and will likely disclose plans to raise more cash to fund its restructuring. The people requested anonymity because the plan was not yet public.
The changes come amid pressure from Wall Street for GM to cut some of its eight brands, but it wasn't clear whether it would make such an announcement Tuesday. The company has said it is exploring the sale of its Hummer brand, known for its hulking SUVs, but Mike LaNeve, vice-president of North American sales, told dealers in a letter last week that no other brands are under such a review.
Just six weeks ago, GM said it will close four truck and sport utility vehicle plants and boost production of the smaller, more fuel-efficient cars that customers are demanding. It also announced production of a new car that would use 6.3 litres of fuel to go 100 kilometres and would go on sale in 2010.
But for an impatient Wall Street, those changes weren't enough, and the company's shares have hit a series of 50-year lows since July 2. GM and other auto companies have been hammered by high gas prices, the weak economy and a rapid shift in consumer tastes away from trucks and SUVs. GM's sales were down 16 per cent in the first six months of this year, led by a 21 per cent decline in truck sales. In May, Toyota Motor Corp. came close to overtaking GM as the top-selling company in the U.S.
Salaried cuts would not be a surprise. GM's crosstown rival, Ford Motor Co., announced earlier this summer it would cut 15 per cent of its salaried work force costs, or around 2,000 employees, by Aug. 1.
Critics have said GM still has too much fat in its middle management, despite shrinking white-collar employment to 32,000 last year from 44,000 in 2000. They also say the engineering, manufacturing and marketing costs are too high.
GM executives also have taken pay cuts during past lean times. Wagoner, vice-chairman Bob Lutz and others voluntarily reduced their salaries in 2006.
Analysts have speculated GM will need to raise more cash to get it to 2010, when it will start seeing the savings from its landmark 2007 contract with the United Auto Workers that cut hourly workers' wages and transferred billions in hourly retiree health-care obligations to a union-led trust.
GM has $24 billion US in cash but could burn through as much as $18 billion US this year and next, JPMorgan analyst Himanshu Patel predicted in a recent note to investors.
There has been some speculation on Wall Street that GM could declare bankruptcy, but Wagoner dismissed those rumours last week at a meeting of Dallas business leaders, saying it's "not at all constructive or accurate."
Wagoner said the company believes the trend away from trucks and SUVs in the U.S. market is permanent and that the company is responding, with 18 cars or crossovers in development. But he said GM never could have predicted how quickly the change would come as oil prices doubled in the last year.
"We missed that, but I think … 99.999 per cent of the rest of the people in the world did too," he said.
