General Motors (NYSE: GM) today presented the United States Department of Treasury with an updated plan that boldly responds to the weaker global auto market conditions and details the company’s long term viability. The plan, which provides a comprehensive review of key aspects of GM’s restructuring, is the first of two status reports required by the loan agreement signed by GM and the U.S. Treasury on Dec. 31, 2008.
The plan submitted today addresses the key restructuring targets required by the loan agreement, including a number of the critical elements of the turnaround plan that was submitted to the U.S. government on Dec. 2, 2008. Among these are: U.S. market competitiveness; fuel economy and emissions; competitive labor cost; and restructuring of the company’s unsecured debt. It also includes a timeline for repayment of the Federal loans, and an analysis of the company’s positive net present value (NPV).
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The plan also details the future reduction of GM’s vehicle brands and nameplates in the U.S., further consolidation in its workforce and dealer network, accelerated capacity actions and enhanced manufacturing competitiveness, while maintaining GM’s strong commitment to high-quality, fuel-efficient vehicles and advanced propulsion technologies.
GM’s viability plan actions result in a projected GM North America (GMNA) earnings before interest and taxes (EBIT) breakeven point of 11.5-12.0 million units in the U.S., compared to the 12.5-13.0 million unit range indicated in the Dec. 2, 2008 plan. The operating and balance sheet improvements outlined in GM’s viability plan are forecasted to result in a significant enterprise value and positive net present value, positive adjusted EBIT in 2010 and positive operating cash flow for its North American operations in the same year.
Overall adjusted operating cash flows are expected to approach breakeven levels in 2011, and improve to more than $6 billion in the 2012-2014 period, reflecting both the full effect of GM’s global restructuring initiatives and recovering industry volumes.
GM’s need for government support was driven by the global financial market crisis, dramatically weaker economy and the resulting precipitous decline in vehicle demand. These conditions have impacted the entire auto industry, which in the U.S. is down approximately 40 percent from its peak in 2005, to the lowest per capita sales rate in 50 years. Though the impact has been most severe in the U.S. and Western Europe, automakers around the world are reporting large losses, with many seeking government assistance to weather the downturn.
Following the steep decline in U.S. industry sales in December 2008 and January 2009, GM responded by further lowering its forecast for 2009 U.S. industry sales to 10.5 million units (57.5 million units globally) for viability planning purposes. These industry planning volumes are more conservative than those being used by most other industry sources.
“The U.S. and global auto industries are facing times of unprecedented challenge,” said GM Chairman and CEO Rick Wagoner. “These conditions dictate that we must take very tough actions to accelerate GM’s restructuring efforts. We’ve made a lot of progress since the plan we submitted on December 2, 2008, and we have more to do before March 31. The plan we delivered today to the U.S. Treasury is aggressive but achievable. It provides a clear pathway for GM that continues to support American manufacturing and technology innovation, which are vital to the future of our nation’s economy.”
Since the original plan submission on Dec. 2, 2008, GM has made significant progress in a number of areas, including the following:
Click Here To View The Plan-Report In PDF File
Dealers and Brands
Evaluating Hummer sale options
Completed strategic review of global Saab business and sought buyers for the business
Saturn review complete; sale or spin-off possible; if not, phase out the brand at the end of current product lifecycle
Further reduction in model nameplates
Accelerated consolidation of GM’s dealer network
Cost Competitiveness
Further reduction in U.S. manufacturing capacity beyond Dec. 2 targets
Significant progress with the UAW to address labor cost competitiveness
Special hourly attrition program, salaried employment reductions
Canada restructuring discussions advancing
Engaged with European labor partners to achieve $1.2 billion in cost reductions
Balance Sheet
Term sheets exchanged with UAW and bondholder committee advisors
Initiated bond exchange negotiations with bondholder committee advisors
UAW and bondholder committee advisors conducting extensive due diligence
Building on progress GM has already made, the company is taking a number of additional actions to reduce costs, streamline its business and improve its competitive position.
Marketing and Revenue Improvement
In the U.S., GM will focus on its core brands; Chevrolet, Cadillac, Buick and GMC. Pontiac will serve as a focused brand with fewer entries, within the Buick-Pontiac-GMC channel. GM will have a total of 36 nameplates in 2012, down 25 percent from 2008 levels. The plan also provides additional detail on the Hummer, Saturn and Saab brands.
GM expects to make a decision to sell or phase out the Hummer brand by Mar. 31, with a final resolution expected no later than 2010.
GM has conducted a strategic review of the global Saab business and has offered it for sale. Given the urgency of stemming sizeable cash demands associated with Saab operations, GM is requesting Swedish government support prior to any sale. The company has developed a specific proposal that would have the effect of capping GM’s financial support, with Saab’s operations effectively becoming an independent business entity Jan. 1, 2010. While GM hopes to reach agreement with the Swedish government, the Saab Automobile AB subsidiary could file for reorganization as early as this month.
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Saturn will remain in operation for the next several years, through the end of the planned lifecycle for all Saturn products. In the interim, if Saturn retailers or other investors present a plan that would allow a spin-off or sale of Saturn Distribution Corporation, GM would be open to any such possibility. If a spin-off or sale does not occur, GM plans to phase out the Saturn brand at the end of the current product lifecycle.
GM’s dealer count is also projected to be further reduced, from 6,246 in 2008 to 4,700 by 2012, and to 4,100 by 2014. Most of this reduction will take place in metro and suburban markets where dealership overcapacity is most prevalent. The result will be a smaller, but healthier GM dealer network.
Technology/Regulation Compliance
As indicated in the Dec. 2, 2008 plan, GM is moving ahead aggressively with plans to improve the fuel efficiency of its vehicles and develop a broad range of advanced propulsion technologies. The company is investing significantly in alternative fuel and advanced propulsion technologies in the 2009-2012 timeframe, supporting the expansion of GM’s hybrid offerings and development of the Chevrolet Volt’s extended-range electric vehicle technology.
For example, GM in January announced construction of a new U.S. manufacturing facility to build lithium-ion battery packs for the Volt. Lithium-ion batteries are an essential technology for advanced hybrids and electrically driven vehicles, and an important energy storage technology for other applications. GM has also committed to increasing its number of hybrid models to 14 by 2012, and to making more than 60 percent of its fleet alternative-fuel capable.
The investments in this restructuring plan will allow GM to become a long-term global leader in the development of fuel efficient and advanced technology vehicles. In doing so, the company will contribute to the development of this country’s advanced manufacturing capabilities and support the growth of “green” industries in the U.S.
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