Friday, October 24, 2008

GM Cuts Costs to the Bone

GM Cuts Costs to the Bone

Cash is getting so tight at General Motors (GM) that management has launched another wave of cost-cutting. The company is even scrutinizing the electricity bills.

Auto sales are in their worst slump in decades, resulting in a cash burn rate of about $1 billion a month at GM. The company is selling assets to raise money, but as the economic slump appears to be gaining traction, GM is now delaying new models, cutting benefits, laying off salaried workers, and looking at even small items like utility bills.

The latest round of cuts show just how quickly the world has changed around GM and how much pressure the company is under. In July, Chairman and CEO G. Richard Wagoner announced a plan to boost cash by $15 billion through cost-cutting, asset sales, and some borrowing. He said that the $15 billion would be enough even if sales fell to 14 million vehicles in the U.S. Last year, Americans bought 16.2 million vehicles.

Cruze May Be Delayed

But things have gotten worse, including overseas. So GM needs to get leaner for tough times. The company is beginning to delay even some new-vehicle programs that will be pivotal to its turnaround effort. Sources in the company say the Chevrolet Cruze compact will be delayed until 2011, almost a year after it was originally set to launch. The next-generation Chevy Malibu may also be delayed by six months, into 2013, sources say.

GM spokesman Dee Allen would not confirm specific product delays. He said only that GM will "continue to review the portfolio and concentrate on what's most important." He added that some new-car programs "are going to shift around a bit."

Delaying the Cruze and Malibu would conserve cash at a crucial time. Suspending projects now would save cash in 2009, which promises to be at least as difficult for carmakers as 2008 has been. This year the car business is on pace to sell just under 14 million vehicles in the U.S. Next year, Waltham, (Mass.) research firm IHS Global Insight says industry sales will be around 13.4 million vehicles.

Bankruptcy a Possibility

The delays will save precious cash at a time when analysts say bankruptcy is a real possibility. Yet the delays represent yet another year that GM will have to wait for a car the company hopes would make it a serious player in the compact-car market. GM has bragged that the Cruze would not only be the biggest and roomiest compact car on the market, but it would get at least 40 miles per gallon. "GM doesn't have a choice," says IHS Global Insight analyst John Wolkonowicz. "They have to do whatever it takes to get through until the car market recovers. That won't happen until 2010."

The Cruze is planned as a replacement for the Chevy Cobalt, which has performed well, with sales rising 6.3%, to 162,000, in this year's woeful market. But the Honda Civic and Toyota Corolla have sold more than 280,000 each through September.

Elsewhere, GM said it will cut 401(k) contributions for white-collar workers and more salaried jobs. As many as 5,000 workers could go, Dow Jones Newswires (NWS) reported on Oct. 23.

Staying Alive Till 2010

These are tough decisions, but the company has to save cash to stay out of bankruptcy in hopes of making it until 2010. By then, concessions in a new labor contract with the United Auto Workers will kick in, saving several billion dollars annually. And hopefully, the car market will rebound. "GM has to save cash until 2010," says James Hall, principal of Detroit-area consulting firm 2953 Analytics. "The trouble is that they're starting to delay some essential car programs to do it."

GM is also looking at more miserly ways to save money. The company has told engineers and product development staff at its sprawling technical center north of Detroit to turn the thermostats down to 66 degrees and turn lights off after hours. There was also an e-mail circulated saying GM will remove refrigerators from some offices to save on utility bills. Allen, the GM spokesman, said he didn't know about specific plans to save on power bills, but said the company has done things like that in the past when cash got tight.

  • Can GM and Ford Scrape By?
  • Can GM and Ford Scrape By?
  • Chevrolet Pins Europe Hopes on Cruze
  • No comments: