GM’s CEO Rick Wagoner announced today the many new steps that GM is going to take to cut costs by $15 billion by the end of 2009.
“We are responding aggressively to the challenges of today’s U.S. auto market,” said GM Chairman and CEO, Rick Wagoner. “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.”
The major parts of GM's new plan is to:
-Cut more than 20 percent of its salaried workers
-Suspend stock dividends
-Cut all salaried retiree health care after age 65
-Cut truck production by 300k units by 2009
-Delay the launch of the next-generation trucks and SUVs and V8 engine development
-Further review of the HUMMER brand
Related Stories:
GM May Keep Existing Brands but Kill Overlapping Models
GM May Be Considering Cutting More Jobs and Selling off Slow Selling Brands
PRESS RELEASE:
GM to Bolster Liquidity by $15 Billion through 2009
-Operating and related actions to generate approximately $10 billion in cash improvements
-More than 20 percent reduction in salaried employment cash costs
-Dividend on common stock suspended
-Asset sales and capital market activities to raise $4-7 billion of additional liquidity
DETROIT - General Motors Corp. (NYSE: GM) today announced it is taking further steps to adapt its business to rapidly changing market conditions, marked by the weak U.S. economy, record high fuel prices, shifts in consumer vehicle preferences, and the lowest U.S. industry sales volumes in a decade.
“We are responding aggressively to the challenges of today’s U.S. auto market,” said GM Chairman and CEO, Rick Wagoner. “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.” Wagoner noted that 11 of GM’s 13 most recent major U.S. product launches, and 18 of its next 19 launches, are cars and crossovers, which are key growth areas.
“Today’s actions, combined with those of the past several years, position us not only to survive this tough period in the U.S., but to come out of it as a lean, strong and successful company,” Wagoner said.
For liquidity planning purposes, GM is using assumptions of U.S. light vehicle industry volumes of 14.0 million units in 2008-2009 which are significantly below trend. Other planning assumptions include lower U.S. share of approximately 21 percent and continued elevated average oil price estimates ranging from $130 to $150 per barrel by 2009. Based on those assumptions, GM is taking actions to further reduce structural cost, and generate cash, with the goal of maximizing liquidity.
At the end of the first quarter 2008, GM had liquidity of $23.9 billion, with access to U.S. credit facilities of an additional $7 billion. While the company has ample liquidity to meet its 2008 funding requirements, it is taking additional measures to bolster liquidity to protect against a prolonged U.S. downturn. The actions include a combination of operating and related actions, as well as asset sales and capital market activities. The cumulative impact on cash through 2009 is projected to be approximately $15 billion.
Operating and Other Actions
Through a number of internal operating changes and other actions, GM expects to generate approximately $10 billion of cumulative cash improvements by the end of 2009, versus original plans.
GM plans further salaried headcount reductions in the U.S. and Canada in the 2008 calendar year, which will be achieved through normal attrition, early retirements, mutual separation programs and other separation tools. In addition, health care coverage for U.S. salaried retirees over 65 will be eliminated, effective January 1, 2009. Affected retirees and surviving spouses will receive a pension increase from GM’s over funded U.S. salaried plan to help offset costs of Medicare and supplemental coverage. And there will be no new base compensation increases for U.S. and Canadian salaried employees for the remainder of 2008 and 2009.
Beyond these moves, which also impact GM executives, additional actions are being taken. There will be no annual discretionary cash bonuses for the company’s executive group in 2008. With the elimination of the annual cash bonus, combined with GM’s long-term incentives which are driven by GM stock price performance to assure alignment with its stockholders, GM’s executive group will have a significant reduction in their cash compensation opportunity for 2008. For the company’s top executive officers, it represents a reduction in their cash compensation opportunity of 75 to 84 percent.
These benefit changes, salaried headcount reductions and other related savings will result in an estimated reduction in cash costs of more than 20 percent, or $1.5 billion in 2009.
Additional structural cost reductions of approximately $2.5 billion are expected in GM North America (GMNA). The reductions will be partially achieved through further adjustments in truck capacity and related component, stamping and powertrain capacity in response to lower U.S. industry volume. Truck capacity is expected to be reduced by 300,000 units by the end of 2009, half of which is from acceleration of prior announced actions, and half from new capacity actions.
In addition, GM will reduce and consolidate sales and marketing budgets, with a focus on protecting launch products and brand advertising. Engineering spending in 2008 and 2009 will be held at 2006-2007 levels, substantially lower than original plans. These operating actions, combined with the benefits of the 2007 GM-UAW labor agreement, are targeted to reduce North American structural cost from $33.2 billion in 2007 to approximately $26-27 billion in 2010, a reduction of $6-7 billion.
GM is revising its capital spending plan and reducing approximately $1.5 billion in expenditures versus prior plans. Capital expenditures are now estimated to total $7 billion in 2009 versus prior plans of $8.5 billion (these figures do not include the $1 billion in capital spending planned in both 2008 and 2009 in China, which is self-funded by the GM joint ventures, to support growth in that market). A major part of the reductions is related to the delay of the next generation large pickup and SUV program, as well as V-8 engine development and associated capacity.
Spending for non-product programs will also be significantly reduced, while powertrain spending will be increased to support the development of alternative propulsion and fuel economy technologies and small displacement engines. The revised 2009 capital spending plan is higher than the average capital expenditures in 2005-2007, excluding large pickup and SUV-related spending. Excluding China, GM expects capital expenditures to run in the $7-7.5 billion range beyond 2009.
Aggressive actions are being taken to improve working capital by approximately
$2 billion in North America and Europe, primarily related to the reduction of raw material, work-in-progress and finished goods inventory levels as well as lean inventory practices at parts warehouses.
GM will defer approximately $1.7 billion of payments that had been scheduled to be made to a temporary asset account over the balance of 2008 and 2009 for the establishment of the new UAW VEBA.
The GM Board of Directors has decided to suspend future dividends on common stock, effective immediately, which is expected to improve liquidity by approximately $800 million through 2009.
Asset Sales and Financing Activities
In addition to the operating changes and other actions, GM expects to raise additional liquidity of $4-7 billion through asset sales and financing activities.
GM is undertaking a broad global assessment of its assets for possible sale or monetization, which is expected to generate approximately $2-4 billion of additional liquidity. The company believes there is significant liquidity potential from asset sales, without impacting the strategic direction of the company. Outside advisors are currently engaged in evaluating alternatives. A strategic analysis of the Hummer brand is underway, and GM is continuing to focus on profit improvement initiatives across all remaining GM brands.
GM will continue to opportunistically access global markets to raise additional liquidity. The company is initially targeting at least $2-3 billion of financing. The company has gross unencumbered assets of over $20 billion, which could support a significant secured debt offering, or multiple offerings, that would far exceed the initial target. Examples of such assets include stock of foreign subsidiaries, brands, stake in GMAC, and real estate.
Actions outlined today comprehend the anticipated impact of second quarter results, which the company plans to announce in the near future. GM anticipates it will report a significant second quarter loss, driven in part by the previously disclosed negative impact of the American Axle and local union strikes in North America, as well as the continued weakness in the U.S. auto market and adverse vehicle segment mix.
In addition, the company expects to record significant charges or expenses related to its previously announced hourly attrition program in the U.S., the recently announced North American truck capacity actions, valuation of GMAC stock, lease assets, Delphi recoveries, the American Axle settlement, the Canadian labor contract, and others.
GM is highly confident that the initiatives announced today, in conjunction with the current cash position and its $4-5 billion of committed U.S. credit lines, will provide the company with ample liquidity to meet its operational needs through 2009.
“The actions announced today are difficult decisions, but necessary to respond to the current auto market conditions,” said Wagoner. “Even under conservative planning scenarios, GM is well-positioned to withstand the U.S. market downturn and emerge a stronger company. We have a solid position in the rapidly growing emerging markets, a global operating framework that allows us to respond to changes in the U.S. market, a commitment to technology leadership, and an ever stronger and competitive product line-up.”
Comments (34)
Have the big shots that are making all the money on the top floor @ GM considered a pay cut for themselves so that they can keep more of their workers? Just an idea...
I mean really, do you need those crazy big salaries to live decently? They might have to save up for a few more days before they can buy their next private jet...
Again, this is just an idea.
*puts flame suit on*
Posted by Dan | July 15, 2008 10:44 AM
Posted on July 15, 2008 10:44
@Dan.. What's your problem man! People have worked hard to get where they are at. What is the purpose of achieving for higher if you are not going to be compensated for it?
Here's an idea, let everyone all make $4.75 an hour.....
You do not have the right to tell someone what they are worth.
By your statement, we need to make sure Toyota, Honda, and all the other car manufactures cut the fat from the upper management....
GM has done a good job trying to turn around itself, it will take time but they may become a good company again.
They definitely need to get rid of the overlapping models in their lineup.
Posted by Andrew | July 15, 2008 10:58 AM
Posted on July 15, 2008 10:58
"GM’s executive group will have a significant reduction in their cash compensation opportunity for 2008. For the company’s top executive officers, it represents a reduction in their cash compensation opportunity of 75 to 84 percent."
Someone didn't read very well.
Posted by Avatar | July 15, 2008 11:07 AM
Posted on July 15, 2008 11:07
@ Avatar:
you got me there. served.
@ Andrew:
i'm not saying that they can't make lots of money. but you must admit that there comes a point where you are making so much money it doesn't matter if you make more...
Posted by Dan | July 15, 2008 11:51 AM
Posted on July 15, 2008 11:51
@Dan
Why do you worry so much about how much money someone is making? Shouldn't it be the investors complaining and not you? You're far to stupid to own stock, and I know you hate GM and wouldn't buy a car from them, so why do you care?
There is never a point where you are making too much money. If your life was worth anything and you had a decent paying job you'd always want more because there's never enough. Unless you're paying someone, their salary is of no concern to you.
If you worked hard your whole life (this is obviously a hypothetical situation) wouldn't it irritate you if some piss-poor good for nothing stoner told you that you were making enough money? And, you were not allowed to work any harder and make any more money because it's not fair(in his opinion)? Then, he had the government take some money out of your wallet to buy more drugs? You're that stoner, loser.
Luckily executive pay is up to intelligent people, not middle schoolers who grumble on TR.
Here's some ideas for you. They're in order so you don't have to think about it. --- Grow up. Stop whining. Get an education. Get a job. Get a girlfriend. Get a life. Start climbing the ladder to success.
and BTW: never post on TR again, we all hate you
Posted by Dan is a Parasite | July 15, 2008 12:29 PM
Posted on July 15, 2008 12:29
GM is an example I am seeing more and more often. A company that is unable to save itself due to the short term greed of it's stockholders.
Stockholders demands for short term profits resulted in a vehicle lineup heavy with large, inefficient trucks and SUV's, and short on light trucks and efficient commuter vehicles. The writing's been on the wall for over a decade that this market was due to change. Other makers are far better prepared. Why not GM?
Now that the market has changed, GM is drenched in red ink. Since GM has no short term plan that remotely resembles reality, it's faced with two choices: Re-invent itself with a rethought product line via a massive R&D effort, funded by long term investments, or correct it's books in the short term via layoffs and sink ever farther into it's own cesspool.
Guess what strategy GM is adopting? At this rate it will eventually be gobbled up by Renault.
Posted by kw | July 15, 2008 2:12 PM
Posted on July 15, 2008 14:12
God damn
Youse yanks are pointing out why youhave really poor people and really rich peoope.....AND YOU SUPPORT IT!!! u guys are nuts, u can't tell me that youse really believe that board of directors and people like that get paid the right amount, to me they are a bunch of overepaid cocks.
What youse need is more unions not less, support the wokers, not the rich prick bosses and dodgy governemnt economy!
Ow and screw "stock holders". Make the right cars and you won't have a problem to begin with.
You yanks are to economy driven and screwing the little guy driven.
Posted by Luke K | July 15, 2008 2:27 PM
Posted on July 15, 2008 14:27
@ Luke
Actually, Unions are part of the reason GM is in so much financial trouble.
Don't get me wrong, there are good unions and bad unions, but I don't think factory jobs should pay $80/ hr.
Posted by ThrawnDougal | July 15, 2008 3:09 PM
Posted on July 15, 2008 15:09
The unions do cost GM some money, but GM's real problem is they just do not make enough products that people want to buy. They were totally unprepared for the gas price issue (writing was on the wall long ago, they ignored it). They want to be profitable by penny pinching. Someday they will learn that the way to be profitable is to have quality products that people want to buy, in a timely manner and when the market needs it, not two years later. There once was a time, 50's & 60’s when GM was an innovator, now they are constantly a day late and a dollar short in all areas. If they made great products that sold in huge numbers, nobody would be blaming the unions for all their troubles.
Posted by The Man From Utopia | July 15, 2008 3:30 PM
Posted on July 15, 2008 15:30
GM's real problem is that all the people who post here about how great the company is and how superior their vehicles are don't actually buy their cars.
Posted by Tommy Boy | July 15, 2008 5:11 PM
Posted on July 15, 2008 17:11
We are aware that GM pays $31.35 an hour for labor, working or not, and those on protected status. Then GM pays out $1525 per vehicle made for health care. Then they have 36,000 white collar workers, 106,000 production workers, and 460,000 retirees which they pay benefits for in the USA.
Now let's compare that to, Toyota. $27 per hour for labor, no protected or idle pay put out, and includes bonuses. $201 per vehicle made for health care. Workers in the US, 17,000 white collar, 21,000 production, and only 1,600 retirees in the US.
So yeah, I guess those Japs are bring tons of jobs over and unions clearly aren't hurting GM. These are 2005 numbers by the way, sure it is worse now for GM. I will have to see if I can find 2007 numbers.
Posted by Avatar | July 15, 2008 5:46 PM
Posted on July 15, 2008 17:46
More people in America buy GMs than anybody other manufacturer loser boy. They have only given up number 1 to Toyota worldwide in the last 18 months (which they swapped back for a couple months to lose again, but nobody talked about it when they swapped back). Do you have a clue about anything?
Yes, Dan, no executive bonuses (boni?) will be paid this year. I know you've already been informed...
Luke K. I disagree with your take on "people can make too much". However, I do think lots of people make too little, but when you contribute 5 / per hour of value, I still have to pay you 6 / hour. GM has to pay some 20 / hour for 0 / hour contribution. It's bad when people don't get the job done and get paid anyway (which I think was Dan's point and why I'm not arguing his point) whether that's a few dollars an hour or thousands. It's economically inefficient to impose floors or ceilings.
So kw, what you're saying is, companies need to ignore the desires of their customers today and have a perfect crystal ball, brilliant. Just like Toyota with the Sequoia and Tundra and Honda with the Pilot and Ridgeline.
The Man, I agree with you to a point. GM does have multiple issues and it does center around the desirability issue. This stems from all sorts of sources, not the least of which people who believe crap in the comments of this blog.
However, I believe GM has prepared to some extent for the gas issue. They had the Aveo before Honda had the Fit, they sell more of them, too (though that's probably a supply issue). They actually have very competitive gas mileage across classes. What they haven't done is fix their public relations nightmare. You have a stupid public who thinks an Accord gets better gas mileage than a Malibu. WRONG. What is true is that HONDA gets better gas mileage than CHEVROLET because Honda sold (before may) as many Civics as Chevy did pickups. Chevy sold as many Aveos and Cobalts as Honda did Ridgelines (which was never many).
A seemingly different group of people think that quality issues are the same today as they were in the 80s. It's not, if you want to run around saying it is, you sound stupid to people who know and crazy to people who don't care. So go ahead.
Looking for an extinguisher
Posted by Flame Thrower | July 15, 2008 6:41 PM
Posted on July 15, 2008 18:41
This plan makes sense, we'll see if it's in time and/or enough.
Posted by Hater | July 15, 2008 6:44 PM
Posted on July 15, 2008 18:44
@kw:
"A company that is unable to save itself due to the short term greed of it's stockholders."
GM stock has been sliding for years and is at a 50-year low. Darn those greedy stockholders who aren't willing to fund a 50-year turnaround story! How selfish of them to think about their families, homes, and retirement first. How dare they not lose their shirts on GM stock!
@Flame Thrower
"More people in America buy GMs than anybody other manufacturer loser boy. They have only given up number 1 to Toyota worldwide in the last 18 months (which they swapped back for a couple months to lose again, but nobody talked about it when they swapped back). Do you have a clue about anything?"
Yes, thank you for reminding me that GM is still #1 - in losing money!
Posted by Tommy Boy | July 15, 2008 7:38 PM
Posted on July 15, 2008 19:38
Robert Nardelli, google him and you'll understand where dan's coming.
Posted by Joe | July 15, 2008 7:42 PM
Posted on July 15, 2008 19:42
Robert Nardelli, google him and you'll understand where dan's coming.
Posted by Joe | July 15, 2008 7:42 PM
Posted on July 15, 2008 19:42
I googled Nardelli and it took me to Businessweek's Best Managers of 2004 page. Pssst.....Nardelli is at Chrysler not GM, Einstein.
Posted by Cobaltssman | July 15, 2008 11:30 PM
Posted on July 15, 2008 23:30
I would say that this plan in not completely screwing the "little man" as the job cuts are of salary employees, not hourly. Of course it sucks, but hopefully it will help GM turn around. Its going to be interesting on how the domestic auto industry is doing in 5+ yrs. Hope they can make it.
Posted by Alex | July 16, 2008 2:06 AM
Posted on July 16, 2008 02:06
i am waiting for the press announcement : GM is cutting their Management.
Posted by Waldorf (Statler is back from holidays) | July 16, 2008 5:09 AM
Posted on July 16, 2008 05:09
Fat asses on the office
Posted by R3TNIAP | July 16, 2008 5:24 AM
Posted on July 16, 2008 05:24
GM needs to break away from union (UAW) oppression.
It sucks that they have to cut salaried jobs (people that have an education) so that they can keep the UAW monkeys on the line, doing jobs that, well, monkeys could do, and probably better.
Posted by Sabby | July 16, 2008 5:39 AM
Posted on July 16, 2008 05:39
GM, get the UAW out of your britches first. Don't kill off your only resource that got you where you are today (or were,)....your people.
Posted by WVO | July 16, 2008 6:47 AM
Posted on July 16, 2008 06:47
@ Flame Thrower:
'So kw, what you're saying is, companies need to ignore the desires of their customers today and have a perfect crystal ball, brilliant. Just like Toyota with the Sequoia and Tundra and Honda with the Pilot and Ridgeline.'
Perfect? No. But they should have a better vision of the changing market than GM has demonstrated. Toyota and Honda aren't perfect either, but they didn't place most of their eggs into the large pickup and SUV baskets. Plus, Toyota and Honda have always paid attention to the smaller, more economical markets, which GM has always treated like a resented step-child.
'However, I believe GM has prepared to some extent for the gas issue. They had the Aveo before Honda had the Fit, they sell more of them, too (though that's probably a supply issue).'
Daewoo had the Aveo, which GM has imported from Korea. Looking at reviews, it seems it was a reasonable buy when it was introduced to the US market back in 2004. But even then, reviewers commented that, at it's price point, a buyer should consider instead buying a used Civic or Corolla, which would likely deliver better power, milage, comfort and reliability. What does it say when reviewers of a NEW car say 'maybe a used car wold do better?'
And today, the Aveo continues relatively unchanged, while facing competition from new Accent, Fit, Versa and Yaris.
The place where I think Chevy IS paying attention here is with the Volt. But they may be dropping the ball there as well. The Volt is still vaporware, while the Prius is gaining marketshare and respect. When (if?) the Volt becomes available in 2010 will it be able to compete? I hope so. (Because I like the Volts approach better than the Prius's.) But I'm not placing bets on the matter.
Look. I really want American manufacturers to do better. I believe they CAN succeed in this market. But they can ONLY do so by producing quality products when people want them. Trucks worked for the mainstream yesterday. They don't today. GM has been caught unprepared for that, and that is why they are loosing their market dominance.
Posted by kw | July 16, 2008 9:54 AM
Posted on July 16, 2008 09:54
loosing != losing
Posted by cobaltssman | July 16, 2008 1:27 PM
Posted on July 16, 2008 13:27
It is certainly possible for a person to make more than enough money. Making to much is simply a matter of personal opinion.
In MY opinion, as CEO/President/Owner of a company, your job is to make the most of what your company can do. If that means you need extra money, and that new private jet you want can wait another year then so be it. As for "these people obviously are super smart and almost god like, no one else can do what they can, so we need to pay them tons of money...", bullshit.
Lets swing the camera from GM to computer chip maker AMD.... Hector Ruiz makes a good chunk of chain every year, but AMD has been in the red for the last several, and it's not getting better. Has he done any serious corrective actions? No. He's riding the gravy train, and when it runs out, he gets off with a nice fat wallet and all the peaons get screwed.
So yeah, sometimes the people at the top need a reality check. Sometimes, the lowly workers making minimum wage at the bottom do know better.
Posted by Brian | July 16, 2008 2:30 PM
Posted on July 16, 2008 14:30
Any monkey can fly around in a plane, go play golf with clients, take two hour lunchs at fine dining instituions, tour factories, and take a 40 million dollar severance pay for doing a lousy job.
Posted by Peter | July 16, 2008 3:22 PM
Posted on July 16, 2008 15:22
Conclusion:
Peter < monkey
Posted by cobaltssman | July 16, 2008 4:20 PM
Posted on July 16, 2008 16:20
@ cobaltssman:
'loosing != losing'
D'oh!
I stand corrected.
Posted by kw | July 17, 2008 6:56 AM
Posted on July 17, 2008 06:56
whats better cutbacks or letting the rest of america pay with a govenment bailout??? you decide.
Posted by lotus1 | July 17, 2008 10:31 AM
Posted on July 17, 2008 10:31
oh and this is a great time for them to be shipping ZR1's and CTS-V's to Germany on a rediculouse persuit to become the fastest cars arround a race track no american will ever get to drive arround...
i bet all the R/D staff flew coach and are staying at a german hostile...
Posted by lotus1 | July 17, 2008 10:34 AM
Posted on July 17, 2008 10:34
@lotus1,
As long as they stay away from those Bratislava (Czech) hostels (or hostiles as you prefer to call them).
Posted by gm0n3y | July 17, 2008 11:37 AM
Posted on July 17, 2008 11:37
Czech women are hot - at least until they kidnap and torture you.
Posted by Fred | July 18, 2008 12:12 AM
Posted on July 18, 2008 00:12
Since it came up up above, i'll say this about CEO and other top executive pay:
Start them all at only $1 million a year salary. No benefits or anything (they can buy health insurance on the salary surely). Then, give them a cut off the bottom line. The higher your rank, the bigger your percentage cut.
In good years, no one ever really complains about executive pay, just in bad years. This way, Executives are both 1) trying their best to get profitable and 2) people stop complaining.
You may ask how thats different from options programs: options have a unique effect that it makes executives chase short term gains. If you sell them a $50 option, then right before that option comes up they'd do everything within their power thats reasonable to get their share price up. "Of course," you say," they'd make more money if they were there longer, hence they'd try not to just chase the short term you dunce." This may seem logical, but the fact is that every day mounds of news pours in from top management decisions to CNBC and financial news reporting services that most investors just neglect. A CEO can easily make a decision that boosts short term bottom line, make his options money, and an investor wouldn't know the difference. Then at the shareholders meetings and sit downs with top investors, the higher ups (using some accounting miracles) will show how unprofitable the company has become and its clearly according to this chart this lower executives fault and we're firing him right away.
Senior management keeps gaming the options and the investor keeps getting the bill. This practice is actually quite splendid, because its rather easy to create short term depressions or rises in stock price. Hence executives will get the price as low as they can before the next options offering, let prices correct to more reasonable levels, and then before the sell off drive the price as high as they can.
All with just some accounting you learn in the sophomore year of university.
Posted by Allen | July 18, 2008 7:21 PM
Posted on July 18, 2008 19:21
i hate pickup junk trucks anyway they cant handel like my exige
Posted by lotus1 | July 21, 2008 7:36 AM
Posted on July 21, 2008 07:36