GM Announces Actions to Improve Competitiveness, Profitability; Also Revises Fourth Quarter Outlook, Will Take Special Charges
DETROIT -- General Motors today announced a series of actions intended to strengthen the company's competitiveness in a rapidly changing business landscape and better focus its resources on key growth activities.
In making the announcement, GM President and Chief Executive Officer Rick Wagoner said GM will phase out its Oldsmobile marketing division and brand over the next several years - a measure that will accelerate GM's effort to focus resources on strengthening its market position and growth opportunities. The company also intends to phase out passenger car production at its Luton, England, site as part of plans to restore profitability at GM Europe (GME). In addition, GM will reduce salaried employment levels by 10 percent in North America and Europe during the next year.
Phase-out of Oldsmobile
The phase-out of the Oldsmobile division further streamlines GM's product portfolio, focusing engineering and marketing resources more sharply on the company's most successful products and brands. It will also facilitate the development of more innovative products with shorter lifecycles.
"This is a very difficult decision for us," said Wagoner. In recent years, major investments have been made in new Oldsmobile products expending significant capital and engineering resources to reposition the brand. Even with the introduction of highly regarded new products, and with the great efforts of the Oldsmobile dealer and marketing team, the brand's sales and profit performance have remained under pressure.
"Our teams worked hard to find profitable ways to further strengthen the Oldsmobile product line, including consideration of products developed with our global alliance partners," Wagoner added. "But in the current environment, we simply couldn't find an approach that would ensure Oldsmobile's future success."
Oldsmobile's current model lineup will continue to be produced and sold until the end of their current product lifecycles or as long as they remain economically viable. GM will work proactively with its dealers to ensure a smooth and orderly transition of existing franchises, and to ensure that Oldsmobile customers continue to receive quality service and parts. (See separate Oldsmobile press release).
GM Europe's capacity reduction and cost improvements
GM Europe's plan to reduce production capacity and salaried employment are expected to generate significant cost savings to aid in returning the region to profitability. This includes a restructuring of Vauxhall Motors' manufacturing operations in the UK. One of Vauxhall's two plants in Luton, England, will cease passenger car production in 2002, and the remaining Luton facilities will concentrate exclusively on commercial and off-road vehicles. Combined with the previously announced leanfield conversion of Opel's Rüsselsheim plant, GM Europe's total installed capacity will be reduced by more than 400,000 units by 2004. In addition, lean manufacturing implementation will be accelerated across all European plants.
Other initiatives include implementing efficiency measures at the national sales offices throughout Europe, and accelerating the consolidation of certain back-office and support functions so that projected savings will be achieved sooner. Overall, GME will achieve a salaried employment reduction of 10 percent during 2001. When combined with production employment reductions, GME's total employment level will be reduced by 5,000 within the next 12-18 months.
Another area of planned savings is further material cost reductions, driven in part by synergies derived from GM's recent alliance with Fiat. In addition, improvements in current product material cost will be accelerated by the establishment of a dedicated joint purchasing/engineering project team that will work with GM Europe's supplier community.
Finally, GM Europe plans to maintain the same significant investment levels of the past few years in order to support its aggressive future product lineup.
Financial outlook and special charges
General Motors is revising its outlook for financial results in the fourth quarter. GM North America and GMAC remain on track. However, lower than expected sales volume coupled with increasing price pressure in key European markets such as Germany, will result in GM Europe experiencing significantly greater losses than in the third quarter of this year. Additionally, GM Asia Pacific results will be affected by losses at Isuzu and other factors.
GM now expects to post fourth quarter consolidated net income of between $550-$600 million, or $1.10 - $1.20 per share of GM $1-2/3 common stock. For the calendar year 2000, GM expects to post consolidated net income of approximately $4.9 - $5.0 billion, or between $8.47 - $8.57 per share. GM also noted that its overall tax rate for the calendar year will be approximately 31 percent, slightly lower than previously expected due to a shift in regional earnings.
These foregoing estimates exclude the effect of special items, which include charges totaling $1.5 - $2.5 billion before tax ($900 million to $1.5 billion after tax, or about $1.60- $2.75 per share of GM $1-2/3 common stock) to account for the following:
· Costs associated with the phase-out of the Oldsmobile division and brand;
· Employment costs and the write-down of production equipment associated with the reductions in production capacity in North America and Europe. These actions affect approximately 4,000 U.S. employees at four plants in the U.S. as detailed below. The actions primarily at the Luton assembly plant in England will affect approximately 2,000 employees.
· Reserves for certain legal matters related to prior business restructurings.
Also, in the fourth quarter GM will report a $1.2 billion after-tax gain ($0.65 per share of GM $1-2/3 common and $0.90 per share of GMH) on the previously announced sale of its Hughes satellite manufacturing business to the Boeing Company.
Employment and production reductions in GM North America
In North America, GM continues to implement previously announced actions to convert and reduce production. GMNA will also reduce salaried employment, including contract staff, by 10 percent over the next year. The ongoing convergence of GMNA car and truck groups into streamlined engineering and manufacturing organizations, which will be completed as of year-end 2000, has provided opportunities to allocate engineering and design resources more efficiently, and reduce redundant staff and support operations. Further employment reductions will be achieved by accelerating attrition in GMNA through a voluntary separation and early retirement program.
The previously announced production plant actions in the United States are necessary as GM prepares to align production with market demand and convert capacity to produce more trucks. The assembly operation in Oklahoma City, Ok., will be converted for truck production, and production of its current product, the Chevrolet Malibu, will transfer to the Lansing, Mich., assembly plant in June 2001. The Delta Engine plant in Lansing, Mich., will be idled in September 2001. At the assembly plants in Wilmington, Del., and Spring Hill, Tenn., production volume will continue at reduced levels.
GM anticipates that many of the affected U.S. hourly workers will have an opportunity to move into other openings at GM facilities or take advantage of retirement provisions in the UAW-GM national agreement. Those who remain on layoff will receive comprehensive wage and benefit protection under the contract or, in Spring Hill's case, under the Memorandum of Agreement.
In this press release and related comments by General Motors management, our use of the words "expect," "anticipate," "estimate," forecast," "objective," "plan," "goal" and similar expressions is intended to identify forward looking statements. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, actual results may differ materially due to numerous important factors that are described in GM's most recent report on SEC Form 10-K (at page II-20) which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors include, among others, the following: changes in economic conditions, currency exchange rates or political stability; shortages of fuel, labor strikes or work stoppages; market acceptance of the corporation's new products; significant changes in the competitive environment; changes in laws, regulations and tax rates; and, the ability of the corporation to achieve reductions in cost and employment levels to realize production efficiencies and implement capital expenditures at levels and times planned by management.