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| GM may close plants, scrap models to lower break-even point |
| Bloomberg / Apr 23, 2009, 01:04 IST |
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General Motors Corp trying to avoid a US backed bankruptcy on June 1, may close plants and scrap models as much as four years sooner than planned to lower its break-even point, people familiar with the plan said.
The cuts may mean Detroit-based GM can turn a profit in a US market with sales of as few as 10 million vehicles, said the people, who asked not to be named because the planning is private. GM said Feb. 17 it was targeting break-even at 11.5 million to 12 million annual vehicle sales. They fell in 2008 by 18 per cent to 13.2 million. In March, the annual rate was 9.9 million.
The largest US automaker is pushing to revise its business plan in time for a debt-cutting offer to bondholders as early as April 27, people familiar with the plans said.
“The most interesting news there to me is the closing of brands and dealerships earlier than they planned,” said Stephanie Brinley, senior manager of product analysis at AutoPacific Inc “If they can strategically decide the dealerships to let go, they could be a stronger company.”
GM executives will meet with advisers to the US auto task force, probably through the weekend, to cut costs faster and deeper than a proposal rejected last month by the Obama administration, the people said.
A new business plan that speeds a GM return to profit may make it easier for the automaker to persuade bondholders to accept an offer to exchange $27.5 billion in unsecured bonds for equity and accrued cash interest, the people said this week. GM Chief Executive Officer Fritz Henderson said last week he expects GM to make a new offer this month.
A Treasury spokeswoman, Jenni Engebretsen, and Steve Harris, a GM spokesman, declined to comment.
The new plan may require GM to complete many of the reductions in models and dealers planned by 2014 as early as next year, allowing earlier plant and job reductions, people briefed on the talks said. GM said March 31 that by 2014 it would trim 6,122 dealers to 4,100 and 43 nameplates to 36, cutting US assembly capacity from 2.8 million cars and trucks to 2 million.
The bond offer may include some framework of GM’s plan to cut $20.4 billion in obligations to a United Auto Workers union- run retiree-medical fund by more than half, two of the people said. The bond offer may disclose what portion, if any, of US loans would be converted to equity, one person said.
GM’s brand shuffling, which envisions the survival of at least Chevrolet, Buick and Cadillac, is part of talks with Obama’s task force on how best to use the divisions and dealerships, people familiar with the matter have said. GM has already said it will shed Hummer, Saab and Saturn.
Pontiac and GMC have been discussed for possible cuts, people have said, with GMC more likely to survive. No decisions have been made, they said. GM said on February. 17 that it planned to focus on Chevrolet, Cadillac, Buick and GMC, with Pontiac as a niche entry.
Henderson said last week both GMC and Buick are profitable.
“We developed a plan with four core brands,” he said April 17. “What we’re making sure is every entry within those brands and every brand within those channels has a purpose for being and generates a suitable rent on those channels and generates a suitable return.”The Obama administration said last month that GM’s plan to return to profitability wasn’t aggressive enough. The task force removed CEO Rick Wagoner and ordered Henderson to cut the automaker’s debt by more than the amount initially demanded.
GM is trying to prove it’s viable, a US requirement to keep $13.4 billion in federal loans. A government auditor said this week the Treasury will supply $5 billion in additional aid.
GM rose 4 cents to $1.70 yesterday in New York Stock Exchange composite trading. The shares have fallen 47 per cent so far thsi year.
The automaker’s $3 billion of 8.375 per cent bonds due in 2033 fell about 0.44 cent to 9.06 cents on the dollar yesterday in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 90 per cent.
Workers Worry
Henderson said the automaker has been meeting with bondholders and the UAW to try and reach an agreement outside of bankruptcy court. The UAW leaders already preliminarily agreed to changes in work rules, bonuses and unemployment compensation that GM says may save more than $1.1 billion if ratified by members. The UAW has not yet agreed to cut health-care funding.
The new CEO also said last week he expects to need to cut additional workers and those decisions will come before June 1.
UAW members at GM’s Bowling Green, Kentucky, assembly plant, where GM manufactures the Chevrolet Corvette and Cadillac XLR, haven’t heard anything and are worried about whether the plant could be marked for closure, said Ed Pietrowski, a worker at the plant.
“People are on pins and needles,” said Pietrowski. “It’s like a morgue in here. People just want to know what’s going to happen, so we can move on with our lives.”
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