US auto giant General Motors on Tuesday warned of “significant” losses in the second quarter and unveiled a fresh cost-cutting program to battle slumping sales amid soaring fuel prices.
The largest US automaker said it will lay off white collar workers, slash truck and sport utility vehicle production, sell assets, borrow money and eliminate dividends paid to shareholders in order to boost liquidity by 15 billion by 2009.
The bulk of the money — about 10 billion — will come from cuts to operational expenses.
“We are responding aggressively to the challenges of today's US auto market,” GM chairman and chief executive Rick Wagoner said in a statement.
“We will continue to take the steps necessary to align our business structure with the lower vehicle sales volumes and shifts in sales mix.”
GM said it “anticipates it will report a significant second-quarter loss” driven in part by costly strikes at a key supplier and several US plants, and also by the continued weakness in the US auto market, marked by a sharp drop in demand for its profitable but gasoline-guzzling trucks and sport utility vehicles.
These losses will be deepened as a result of “significant charges” GM expects to report in the second quarter related to a massive restructuring program initiated in 2005, recently announced plans to cut North American truck capacity, a new labor contract with Canadian workers and other one-off costs.
“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 US downturn,” GM said.
The automaker said it was basing its plan on the assumption that its US market share would fall to 21 percent, with total industry sales dropping sharply to 14 million vehicles in 2008 and 2009 from more than 16 million in 2007.
GM said it expected crude oil prices to remain in the 130-150 dollar a barrel range through 2009.
GM would not say how many non-union jobs it would eliminate but said it would cut its salaried employee costs by 20 percent, or 1.5 billion dollars, through attrition, the elimination of executive bonuses and health-care coverage for retired white-collar workers over 65, and other measures.
GM has already cut its US workforce by more than 40,000 people as it shuttered scores of plants in the wake of a steady loss of market share and financial losses which have topped 54 billion dollars since 2005.
The automaker reiterated plans to examine the potential sale of its gasoline-guzzling Hummer brand. But Wagoner said GM would focus on “profit improvements” at its other brands.
Truck capacity reductions will be accelerated and doubled to 300,000 vehicles by the end of 2009.
GM will also cut its sales and marketing budgets, with a focus on “protecting launch products and brand advertising” while planned increases to the engineering budget will be eliminated.
“We hope today's actions are sufficient to get us through the downtrend, but there are no guarantees,” Wagoner said in a conference call with reporters.
GM saw sales slump 16.5 percent in the first six months of the year and analysts have warned that GM may not have enough cash available to cover its costs until the market improves and it begins to realize the big cost savings achieved in a historic deal with its main union.
GM shares close up 4.9 percent at 9.84 dollars in New York but remains at 50-year lows with the automaker now valued at just 5.5 billion dollars.
“Too little, too late?” Deutsch Bank analyst Rod Lache wrote in a research note.
“While the planned cuts will help mitigate the impact of market share declines… it is not clear that these will be sufficient to restore profitability.”
With operating fundamentals expected to continue to deteriorate, GM may have to come up with another cash-raising plan, warned Goldman Sachs analyst Patrick Archambault.
“As it stands, GM's current plan puts a lot of emphasis on delivering cash savings from operating measures, and in the current environment investors remain skeptical on GM's ability to execute,” Archambault wrote.
