General Motors presented an updated Viability Plan that accelerates and deepens the cuts in US brands and nameplates, dealers, manufacturing operations and employees intended to enable GM North America to breakeven (on an adjusted EBIT basis) at a US total industry sales volume of approximately 10 million vehicles. As part of the new plan, GM will accelerate the wind-down or sale of HUMMER, Saturn and Saab to the end of 2009, and phase out Pontiac by the end of 2010.
The new plan is included in the prospectus for bond exchange offer in which GM is offering certain bondholders 225 shares of GM common stock for each $1,000 principal amount of GM notes and a cash payment for all accrued but unpaid interest to the settlement date. The bond exchange is a critical step; failure will result in GM’s entering the bankruptcy process. If the exchange succeeds, GM shares will be 89% owned by a combination of the US Treasury and the UAW Voluntary Employee Benefit Association (VEBA); the US Treasury will own at least 50%.
|“The objective [of the plan] is not to survive; the objective is to develop an operating plan that allows us to win.”
In total, the US Treasury debt conversion, VEBA modification and bond exchange could result in at least $44 billion in debt reduction.
Significant changes in the viability plan from the February 2009 version include:
A focus on four core brands in the US—Chevrolet, Cadillac, Buick and GMC—with fewer nameplates and a more competitive level of marketing support per brand. Media speculation to the contrary, GM CEO Fritz Henderson said on a conference call this morning, GM and Buick are highly profitable brands, and the company has no intention of losing either of them.
The Pontiac brand will be phased out by the end of 2010. GM will offer a total of 34 nameplates in 2010, a reduction of 29% from 48 nameplates in 2008, reflecting both the reduction in brands and continued emphasis on fewer and stronger entries. The revised plan moves up the resolution of Saab, Saturn, and Hummer to the end of 2009, at the latest.
Saab Automobile AB filed for protection under the reorganization laws of Sweden in order to reorganize itself into a stand-alone entity. GM has received final bids for HUMMER from potential purchasers and is in the process of reviewing them. A final decision regarding a sale or phase-out of HUMMER is expected in early May. With regard to Saturn, GM is currently evaluating opportunities regarding a potential sale of the Saturn Distribution Corporation, and expects to make a decision regarding a sale or phase out by the end of 2009.
Accelerated idling and closures of powertrain, stamping, and assembly plants to improve US capacity utilization.
A more aggressive restructuring of GM’s US dealer organization. The number of dealers will drop to 3,605 by end of 2010 from 6,246 in 2008—a 42% reduction. This is a further reduction of 500 dealers, and four years sooner, than in the 17 February plan.
The Viability Plan lowers GMNA’s breakeven volume to a US annual industry volume of 10 million total vehicles, based on the pricing and share assumptions in the plan. GM will lower its breakeven point by cutting its structural costs faster and deeper than had previously been planned.
GM will reduce the total number of assembly, powertrain, and stamping plants in the US from 47 in 2008 to 34 by the end of 2010, a reduction of 28%, and to 31 by 2012. This would reflect the acceleration of six plant idling/closures from the 17 February plan, and one additional plant idling. Throughout this transition, GM will continue to implement its flexible global manufacturing strategy (GMS), which allows multiple body styles and architectures to be built in one plant.
US hourly employment levels are projected to be reduced from about 61,000 in 2008 to 40,000 in 2010, a 34% reduction, and level off at about 38,000 starting in 2011. This is a further planned reduction of an additional 7,000 to 8,000 employees from the 17 February plan. GM also anticipates a further decline in salaried and executive employment as it continues to assess its structure and execute the Viability Plan.
The Viability Plan assumes a reduction of US hourly labor costs from $7.6 billion in 2008 to $5 billion in 2010, a 34% reduction.
As a result of these and other actions, GMNA’s structural costs are projected to decline 25%, from $30.8 billion in 2008 to $23.2 billion in 2010, a further decline of $1.8 billion by 2010 versus the 17 February plan.
|“None of us like this situation; it’s our job to do something about it...I’m a believer in dealing with reality.”
GM dealers in the United States sold 412,903 vehicles during the first quarter of 2009, which represents a decline of approximately 49% compared to the same period in 2008. The baseline sales assumption in the Viability Plan for the United States in 2009 is 2,048,000 vehicles, which is based on a baseline industry vehicle sales forecast for 2009 of 10.5 million total vehicles sold in the United States.
The Viability Plan reduces GM’s market share projections to adjust for the impact of the brand and dealer consolidation, as well as for the short-term impact of speculation regarding a GM bankruptcy. The plan assumes a 19.5% share in 2009, with share stabilizing in the 18.4 to 18.9% range in subsequent years.
Throughout the Plan, GM will continue to make significant investment in future products and new technologies, with an investment of $5.4 billion in 2009, and investments ranging from $5.3 to $6.7 billion from 2010 to 2014. Very importantly, development and testing of the Chevy Volt extended-range electric car remains on track for start of production by the end of 2010 and arrival in Chevrolet dealer showrooms soon thereafter.