GM to cut jobs, suspend dividend
Beleaguered automaker also plans asset sales, aiming for $10 billion in 'cash improvements' by 2009. CEO Wagoner says 'difficult decisions' necessary for survival.
NEW YORK (CNNMoney.com) -- General Motors Corp. said Tuesday it will suspend its dividend, sell off $4 billion to $7 billion worth of assets and cut 20% worth of salaried cash costs in an overall plan to save billions of dollars.
"We need to take some very tough actions to ensure our survival and success," said Chief Executive Rick Wagoner, in a press conference, referring to the current market conditions as an "unprecedentedly difficult time."
In an earlier broadcast to employees, Wagoner said that these were "difficult decisions," but necessary for the company to prevail in the weak economy beset by high oil prices, which he called GM's "greatest concern."
Wagoner said the cost-cutting actions should help GM generate $10 billion in "cash improvements" by the end of 2009. Overall, the company plans to beef up liquidity by $15 billion through 2009.
At the end of the first quarter, GM said it had $23.9 billion in liquidity and access to $7 billion worth of U.S. credit, which is enough funding to get through 2008. But the company said it is gathering more liquidity to protect itself from a "prolonged U.S. downturn."
"Our plan is not just a plan to survive; it's a plan to win," said Wagoner, noting that raised cash could aid the company in shifting from trucks and SUVs to more fuel efficient cars.
"Our stated goal is to become the fuel economy leader in every sector in which we participate," said Robert Lutz, GM's vice chairman of global product development.
As part of its cost-cutting, GM plans to eliminate health care coverage for U.S. salaried retirees older than 65, effective Jan. 1. Wagoner said the company will increase pensions for affected retirees and their surviving spouses to "defray the impact."
"It's pretty ugly, but you have to do what you have to do under these conditions," said David Healy, an auto analyst for Burnham Securities.
GM was probably "reserving the option to make mandatory cuts," he said, depending on whether enough workers participated in buy-outs and early retirement.
GM was right to discontinue its dividend, according to Healy. "Any management that continues to pay a dividend under conditions like these ought to be fired," he said.
GM has lost about one third of its 107,000 U.S. hourly workers since 2004. GM offered buyouts to its entire remaining U.S. hourly workforce of 74,000 in February, in a bid to unload its more experienced, higher-paid employees.
The Detroit-based automaker has been hard-hit by record-high gas prices, economic weakness, and a waning consumer interest in trucks and sport utility vehicles. The company has not made a profit since 2005.
Truck sales were down 21% in the first six months of 2008, while car sales were down 9% and Hummer sales plunged 40%. Overall, GM's vehicle sales were down 16%: worse than the industry wide vehicle sales decline of 10%.
In June, GM said it would shut four SUV and truck plants, would shift to more fuel efficient vehicles and discontinue its Hummer brand.
The stock price for GM, the world's largest automaker, has plunged 62% this year, to 50-year lows.
Despite the doom and gloom in the U.S., GM's sales edged up in Europe by 3% in the first six months of 2008, including a 58% increase in Eastern Europe and a 60% surge in Russia. This includes a 21% increase in Russian Hummer sales.
"Frankly, we're very well positioned outside the U.S. now, and will be in [the U.S.] too, when this cycle concludes," said Wagoner.
Ray Young, executive vice president and chief finance officer for GM, said in a webcast that he expects a "significant" loss for the second quarter, which he blamed on worker strikes, charges from employee buy-out packages, and weakness in auto sales.
GM did not provide specific projections for the second quarter. But analyst consensus from Thomson First Call expects sales to slip 2% from the year-ago quarter to $45 billion, and earnings to plunge 214% to a loss of $2.62 a share.
Sen. Barack Obama, D-Ill., the presumptive Democratic candidate for president, said Tuesday in a prepared statement he recently met with the CEOs and plant workers of GM and Ford Motor Co. and that "the impact of their hardship goes far beyond their own companies."
"When a mainstay of the American economy is forced to make a restructuring decision like the one General Motors is announcing today, it is a sober reminder of the difficult economic times we're facing and of why we need change and a new direction in Washington," said Obama.
While GM is closing factories in the U.S., Volkswagen AG announced plans to open one. The German autobuilder said on Tuesday that it will open a new auto plant in Chattanooga, Tenn.