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GM may stop making Hummers

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  • Greg Cannon
    http://www.bloomberg.com/apps/news?pid=20601087&sid=a_HL22tswTWE&refer=worldwide GM to Close Four Truck Plants, Shift Output to Cars (Update7) By Jeff Green
    Message 1 of 1 , Jun 3, 2008

      GM to Close Four Truck Plants, Shift Output to Cars

      By Jeff Green and Bill Koenig
      Enlarge Image/Details

      June 3 (Bloomberg) -- General Motors Corp., struggling
      to return to profit amid record gasoline prices, said
      it will close four truck plants, make more small cars,
      and may drop its Hummer brand of large sport-utility

      Gasoline exceeding $4 a gallon represents ``a
      structural change, not just a cyclical change,'' Rick
      Wagoner, the largest U.S. automaker's chief executive
      officer, told reporters today before its annual
      shareholders' meeting in Wilmington, Delaware.

      The four plant closings will save $1 billion a year
      and cut North American capacity by 700,000 for trucks
      and, with added shifts at car factories, by 500,000
      overall, he said. At Hummer, ``we're considering all
      options from a complete revamp to a partial or
      complete sale of the brand,'' Wagoner said.

      A doubling of U.S. gasoline prices since 2004,
      including a 31 percent surge this year, is forcing
      Wagoner to accelerate production of more
      fuel-efficient vehicles as he tries to end three years
      of losses. GM today reported a 37 percent plunge in
      May U.S. sales of pickups, SUVs and vans. Cars will
      account for 60 percent of Detroit-based GM's North
      American production in three years, up from about 50
      percent now, Wagoner said.

      ``It is significant, but this is a late reaction to
      changing market dynamics,'' said Dennis Virag,
      president of Automotive Consulting Group in Ann Arbor,
      Michigan. ``The plans really should have been in place
      a number of years ago.''

      GM's total U.S. sales in May slid 28 percent from a
      year earlier, as it also sold 14 percent fewer cars.

      Ford Motor Co. last month said it was slashing truck
      production while trying to boost output of small cars.
      Ford also abandoned a target of returning to profit in
      2009. The company relied on large pickups and
      sport-utility vehicles for the bulk of its earnings in
      the 1990s.

      New Models

      GM also approved the production version of the
      Chevrolet Volt electric car. Wagoner said at the
      meeting that 18 of GM's next 19 vehicle introductions
      will be cars or crossover wagons.

      The automaker lost $38.7 billion last year, its
      largest deficit ever, after writing down $39 billion
      of future tax benefits. GM hasn't had an annual profit
      since 2004.

      GM rose 14 cents to $17.58 at 4:15 p.m. in New York
      Stock Exchange composite trading. The shares have
      declined 59 percent since Oct. 12, 2007, when they
      reached their highest point in the past two years
      after the automaker's U.S. union workers approved a
      cost-cutting four-year contract.

      The company's 8.375 percent note due July 2033 rose
      0.25 cent to 67.75 cents on the dollar, yielding 12.65
      percent, according to Trace, the bond-price reporting
      system of the Financial Industry Regulatory Authority.

      Plant Closings

      Truck output will end at plants in Oshawa, Ontario;
      Moraine, Ohio; Janesville, Wisconsin; and Toluca,
      Mexico. The factories produce models such as the
      Chevrolet Silverado and GMC Sierra large pickups,
      TrailBlazer and Envoy SUVs and medium-duty trucks.

      The plants will close in 2009 and 2010 and probably
      won't reopen, Wagoner said. They employ a total of
      7,590 hourly and 676 salaried employees, the company

      Buzz Hargrove, president of the Toronto-based Canadian
      Auto Workers union, said closing Oshawa would violate
      the three-year contract reached with GM last month.

      ````We are not going to allow this to happen,'' he
      said at a news conference, declining to specify how
      the union will respond.

      GM said that starting in September it will add a third
      shift at a factory in Orion Township, Michigan, that
      makes Chevrolet Malibu mid-size cars and a Lordstown,
      Ohio, plant that builds Chevrolet Cobalt small cars.

      Wagoner also said GM's board approved a new Chevrolet
      compact car for U.S. and international markets and a
      successor to the current Chevrolet Aveo small car. The
      new Aveo will be produced in Lordstown starting in
      2010, subject to talks with local and Ohio officials
      about incentives, GM said.

      `Adapt and Evolve'

      ``It's a sign that Detroit continues to adapt and
      evolve,'' White House spokeswoman Dana Perino told
      reporters in Washington.

      GM said April 28 that it would eliminate shifts at
      three truck plants and a factory that makes SUVs
      because of slack demand for models such as the
      Silverado pickup.

      GM, which got 57 percent of its U.S. sales this year
      from light trucks, is scrambling to adjust to
      consumers turning away from such models. Trucks have
      outsold cars annually since 2001, reaching 56 percent
      of the U.S. market in 2004, when gasoline prices
      averaged $1.85 a gallon.

      ``The biggest issue we're dealing with now in
      profitability is how weak the truck market is,'' GM
      sales chief Mark LaNeve said last week in an interview
      in Los Angeles. ``We have better profits in trucks;
      everybody has better profits in trucks.''

      Fuel Efficiency

      GM now is emphasizing fuel efficiency, with the Volt
      as its centerpiece. The car can be charged from a home
      electrical outlet and uses an onboard engine to
      recharge the batteries once the initial charge is used
      up. GM has said the Volt will be able to travel 40
      miles before having to the use the engine.

      The company said today that its board approved funding
      for Volt production and tooling.

      Chief Operating Officer Fritz Henderson also
      reiterated today that the automaker has no more
      funding obligations for GMAC LLC, the finance company
      GM owns 49 percent of, or GMAC's Residential Capital
      home-mortgage unit. GM paid GMAC $1 billion to
      compensate for subprime losses that occurred at ResCap
      in 2006, before the automaker completed the sale of a
      majority stake in the finance company Cerberus Capital
      Management LP.

      GM in April recorded a $1.45 billion first-quarter
      impairment charge for its GMAC investment.

      ``I can't say all the charges are behind us, I can't
      say that today,'' Henderson said on a conference call.

      Slowing U.S. sales may mean GM will cut its quarterly
      dividend of 25 cents a share to preserve cash and also
      add debt, Himanshu Patel, a JPMorgan Chase & Co.
      analyst in New York, wrote in a May 5 report.

      Credit-default swaps on GM debt climbed 9 basis points
      today to 1,200 basis points, according to CMA
      Datavision in London. The contracts are designed to
      protect bondholders against default. A rise in the
      price indicates a decline in the perception of a
      company's credit quality.

      To contact the reporters on this story: Jeff Green in
      Wilmington, Delaware, at jgreen16@...; Bill
      Koenig in Southfield, Michigan at
      Last Updated: June 3, 2008 16:18 EDT
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