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GM to Bolster Liquidity by $15 Billion through 2009


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."
 

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OoOoOo...not paying dividends on $9 shares...wow, thatll change the face of GM for years to come....yawn
 

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I dont really understand the jist of this...basically, GM is gonna sell some things ('Trim some fat') and borrow some money so that they have an operating budget of about $15BILLION FOR 2009? Thats basically what Rick is saying, correct?
 

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He also mentioned cutting Medium trucks. How stupid!! We have orders for them and GM cant produce. Something is wrong at GM. Would you not want to increase production on a product that is in demand? If we place an order now we may get it before Christmas!
 

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CNN said that GM doesnt make the cars that Americans want.
An MSNBC talking head just said the same thing about a half hour ago, and said it was "a fact".

Here's less of a GM PR article:

AP
GM to cut salaried workers, production, dividend
Tuesday July 15, 9:11 am ET
By Tom Krisher and Dee-Ann Durbin, AP Auto Writers

DETROIT (AP) -- General Motors Corp. said Tuesday it will lay off salaried workers, cut truck production, suspend its dividend and borrow $2 billion to $3 billion to weather a severe downturn in the U.S. market.

GM said the moves will raise $15 billion to help cover losses and turn around its North American operations.

"In short, our plan is not a plan to survive. It is a plan to win," GM Chairman and CEO Rick Wagoner said in a broadcast to employees.

Chief Operating Officer Fritz Henderson said GM wants to reduce its total salaried costs in the U.S. and Canada by 20 percent.

A large chunk of the reduction, he said, would come from cutting health care benefits for salaried retirees. Those people would get a pension increase from the company's overfunded pension fund to help compensate for Medicare and supplemental insurance, the company said.

Several thousand jobs will be cut through normal attrition and retirements, and through early retirement and buyout offers, Henderson said. The company could resort to involuntary layoffs but does not want to, he said.

GM has 40,000 salaried employees in the U.S. and Canada.

Henderson said the company intends to reduce its truck production capacity by 300,000 units, 150,000 more than it announced at its annual meeting in June.

The company will speed up closures of its truck and sport utility vehicle factories in Janesville, Wis.; Oshawa, Ontario; Silao, Mexico; and Moraine, Ohio, and it will make thousands of job cuts at other truck assembly and parts factories, Henderson said.

He would not say if further plants will be closed, and said the company still must negotiate further cuts with the United Auto Workers.

GM said it will suspend its $1 annual dividend immediately, which will improve liquidity by $800 million through 2009. It's the first time the company has suspended its dividend since 1922.

The company also plans to raise $2 billion to $4 billion through the sale of assets, including its Hummer brand. It also plans to borrow $2 billion to $3 billion by pledging assets including stock of foreign subsidiaries, brands, stake in its finance arm and real estate.

http://biz.yahoo.com/ap/080715/gm_restructuring.html?.v=5

I guess I was hoping for more of a "here's how we're going to reinvent GM" sort of radical plan. All things considered, this kind of ho-hum, cut-cut, borrow-borrow speech is not what I was expecting after the hype last night. I mean, I'm sure it's big to people working at GM, but for outsiders it seems like just another speech, another plan and perennial promises of a turnaround from Rick.

Stock isn't moving up or down (yet), so maybe I'm not the only one left scratching my head and walking away disappointed. (Though it's good to hear the Equinox will get a good 4-cyl. that it should've had from day 1.)
 

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Sounds like they're doing what they need to do to make sure they have money through 2009.

And Lutz just mentioned a 2.3L four cylinder with direct injection for the next Equinox? WHOA!
 

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Something had to be done, sounds like a good plan. Hopefully the economy picks up and gas prices fall a bit. It would all certainly help thing out for GM.
 

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I dont really understand the jist of this...basically, GM is gonna sell some things ('Trim some fat') and borrow some money so that they have an operating budget of about $15BILLION FOR 2009? Thats basically what Rick is saying, correct?
Basically GM's problem right now is that it will be about two more years before the renegotiated union contract kicks in - along with the Billions of savings that it will provide. Because the US economy has gotten so bad, so fast it was looking like GM wouldn't make it until then. GM had to raise more money/cut spending to make sure the business survives until then.
 

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Yep, the suspension of dividends and elimination of retiree health care is really going to help ... lose some more people who made GM what it was. This has to be another one of those plans created by some brilliant mind fresh out of college who can see no further than the end of his/her paycheck.
 

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And Lutz just mentioned a 2.3L four cylinder with direct injection for the next Equinox? WHOA!
Oh gawd...hes bringing back the old 2.3 HO from the Sunbird :p
 

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Is there an online source? I turned off the Q/A (I was listening to it in the Yukon Hybrid outside my office, lol)
Not that I have seen. Bob just mentioned it in answering a question, saying it would aim to be the most fuel efficient crossover on the market or something, and post impressive FE numbers for being a non-hybrid
 

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GM to cut salaried workers, production, dividend

GM to cut salaried workers, production, dividend

DETROIT (AP) -- General Motors Corp. said Tuesday it will lay off salaried workers, cut truck production, suspend its dividend and borrow $2 billion to $3 billion to weather a severe downturn in the U.S. market.

GM said the moves will raise $15 billion to help cover losses and turn around its North American operations.

"In short, our plan is not a plan to survive. It is a plan to win," GM Chairman and CEO Rick Wagoner said in a broadcast to employees.

Chief Operating Officer Fritz Henderson said GM wants to reduce its total salaried costs in the U.S. and Canada by 20 percent.

A large chunk of the reduction, he said, would come from cutting health care benefits for salaried retirees. Those people would get a pension increase from the company's overfunded pension fund to help compensate for Medicare and supplemental insurance, the company said.

Several thousand jobs will be cut through normal attrition and retirements, and through early retirement and buyout offers, Henderson said. The company could resort to involuntary layoffs but does not want to, he said.

GM has 40,000 salaried employees in the U.S. and Canada.

http://biz.yahoo.com/ap/080715/gm_restructuring.html
 

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they also confirmed upcoming products like the CTS coupe and wagon, BRX, 9-4x, lacrosse, a new chevy compact crossover, etc.
 

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Anybody else catch all this? Bob's details on upcoming products are telling.....

Chevrolet: Lots in the pipeline. Cruze, Volt, new Equinox, but no mention of the Beat, Aveo, or another small car. Malibu is a success and the marketing methods used at the launch are a template for future product promotions. Bob again mentioned the 9 mpg improvement the Cruze will have over the Cobalt (and the way he said it, I think he meant a 9 mpg over the Cobalt XFE).

Cadillac: Some "modifications" have been made to the future lineup to make Caddy competitive on a global basis (he seemed to emphasize the "global"). Begin to speculate....

GMC: Keeping the full size pickups, mentioned the "highly differentiated sister product to the Equinox" (Terrain)

B-P-G Channel: "Needs smaller, more-fuel efficient vehicles" and future products in this channel won't be copies of products in other divisions and won't compete with one another. But no specifics on Buick or Pontiac.

Saturn: Has a good product mix....they sounded happy with the types of vehicles they have, probably just need to further improve them with the next generation.

Marketing cutbacks will be made on the "old" way of doing things.....promotions in motorsports will be assessed as well. More promotions and advertising like they did with the Malibu and the CTS, which IMO was really good. Saw those ads everywhere
 

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they also confirmed upcoming products like the CTS coupe and wagon, SRX, 9-4x, lacrosse, a new chevy compact crossover, etc.
Fixed it for you, they are keeping the SRX name for the Caddy cross over. These should all be very nice products and help GM out a lot once they come out.
 

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From Autoblog:
http://www.autoblog.com/

UPDATE: Wagoner addressed GM employees and shed some light on what products are in the pipeline.

The Chevrolet Cruze will begin production in the U.S. in 2010
The Chevrolet Equinox will go into production in May of 2009, equipped with a direct-injected 2.3-liter four-cylinder engine.
The Cadillac CTS coupe has been green lit and is coming in the summer of '09.
The Cadillac CTS Sportswagon will be on the market in next spring.
The next Cadillac SRX, inspired by the Provoq concept, will go on sale globally in 2009.
The rear-wheel-drive (????) Buick Invicta will be released in the U.S. next spring.
The Saab 9-4X is on its way in late 2009.
 

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Basically GM's problem right now is that it will be about two more years before the renegotiated union contract kicks in - along with the Billions of savings that it will provide. Because the US economy has gotten so bad, so fast it was looking like GM wouldn't make it until then. GM had to raise more money/cut spending to make sure the business survives until then.
exactly

they need to hoard their cash until the new contract comes in, the health care trust fund is set up, the Volt is launched, and the current generation of UAW employees start to retire

then they're back in business
 
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