GM to Layoff 25,000, Close Plants

[Hornhonker 0]

In his address to GM?s annual meeting of stockholders today, Chairman and Chief Executive Officer Rick Wagoner outlined in broad strokes his plan for turning around GM North America, which lost $1.3 billion in the first quarter of this year.

The basics of the downturn are pretty clear: GM?s costs are too high, sales are dropping, and the sales mix is skewing away from the high-profit SUVs to the lower-profit cars.

The highest profile action was his announcement of the closing of additional assembly and component plants over the next few years, and the layoff in the US of 25,000 or more workers in the 2005 to 2008 period to generate estimated annual savings of some $2.5 billion.

He also indicated that GM and the UAW are ?in discussion? as to how to resolve the issue of the cost of health care. With plant closings and job losses as a potential threat, the union may be more inclined to negotiate some sort of concession on health care. Or maybe not.

On the product side, GM is advancing the timing of several high-volume, high-profit programs (refreshes and new designs) in the area of large pick-ups and mid- and large-utilities.

Looking out a little farther, we?re prioritizing our product development resources in the areas where we see the greatest volume, growth, and profit opportunities?crossovers of all kinds; entry luxury and premium models; hybrids and other technologies to improve fuel efficiency.

At least hybrids and fuel efficiency made it onto the future shortlist.

Separately, GM and DaimlerChrysler indicated that they each will invest up to US$500 million in a joint venture to develop the two-mode hybrid powertrain (earlier post). The two companies intend to make the first cars using the hybrid system by early 2008. (AFX)

It seems that GM, even in its turnaround plan, is still dependent on the large trucks and SUVs to pull it out of its decline. The riskiness of that approach is reflected in the recently revised credit ratings that brought GM paper to junk-bond status.

That?s not to say that GM hasn?t had its success with recent launches. The new Chevy Cobalt, for example, was the sixth best-selling car in the US in May (behind Toyota, Honda and Nissan models). (Car Buyer?s Notebook)

But that?s not going to close the financial gap created by the over reliance on larger-format vehicles that suddenly are not selling.

Short-term Technology Associations

Automaker Technology

GM ?

Ford Hybrids, H2ICE

DaimlerChrysler Clean Diesel

Toyota Hybrids

Honda Hybrids, CNG

And in the area of strategically associating itself with a short-term technology solution for fuel efficiency and sustainable mobility?which will become increasingly important as oil prices remain upwardly volatile and climate change issues come more to the fore?GM has no short-term position or traction.

That?s not to say that they don?t have technology development underway, but that there is no popular association of such a technology with a GM product that someone can walk into a showroom and buy now. Fuel cell development doesn?t count?that?s too far down the road (so to speak).

The GM North America situation is a very tough problem, and one that will have nasty ripple effects throughout the supply chain. I think that the company will have to get more aggressive on the product side than currently suggested (to wait until 2008 to manufacture hybrids is not a good idea)?and that it will have to cut more than currently announced.