By Soyoung Kim
42 minutes ago
General Motors Corp on Tuesday said it was closing four North American truck plants and could sell its Hummer brand to cut slow-selling trucks and SUVs from its lineup in response to higher gasoline prices the automaker now sees as a permanent threat to its business.
Chief Executive Rick Wagoner, speaking after a revised restructuring plan was approved by the automaker's board, said GM would close the four truck plants and add shifts at two other plants making more popular car models.
In addition, Wagoner said GM was reviewing the Hummer brand and could sell the military-derived SUV line, which has become synonymous with gas-guzzling excess.
"U.S. economic and market conditions have become significantly more difficult," Wagoner said, adding higher gasoline prices have caused consumers to swap out of trucks and SUVs faster than the automaker had expected.
In a related shift, Wagoner also said GM's board had approved funding for a next-generation compact model for the Chevrolet brand as well as a new subcompact Chevy Aveo, expected to go on sale in the U.S. market in 2010.
GM's board also allocated production funding to the Chevy Volt, a heavily touted, all-electric vehicle that GM expects to have in showrooms by 2010, Wagoner said.
GM shares, which have lost almost 60 percent since their peak in October last year, were up about 2 percent at $17.79 in early trading on the New York Stock Exchange.
Wagoner said GM, which has lost a combined $51 billion over the past three years, was not ready to detail a timeline for returning to profitability.
Some analysts questioned whether the embattled automaker had moved too slowly, particularly with regard to weighing its options for Hummer.
"Unfortunately, it's just a sign that once again they're behind the curve," said Peter Jankovskis, a chief investment officer with OakBrook Investments, which owns GM shares in some of its portfolios.
"If they were looking to sell the Hummer brand, the more sensible thing would have been to do it three years ago. They're not going to get anything for it. Just in terms of timing, it's a very poor example," he said.
Pete Hastings, a corporate bond analyst at Morgan Keegan, agreed that GM had missed a chance to shop Hummer with potential buyers earlier.
"I wish they had done it awhile ago when it was really hot," he said. "I don't know what price they will get for it as now everyone is conscious of the permanent shift away from less fuel-efficient vehicles."
GM said it would stop making light trucks at plants in Oshawa, Ontario; Silao, Mexico, and two U.S. plants covered by its contract with the United Auto Workers: Moraine, Ohio, and Janesville, Wisconsin.
'TOTAL CAPITULATION'
Tim Ghriskey, chief investment officer with Solaris Asset Management in New York, said GM would eventually see cost savings from its decision to close the truck plants.
"This is total capitulation by GM management to the price of oil," said Ghriskey, who does not currently own GM shares but has in the past and follows the stock closely. "GM believes that the high price of oil is permanent and therefore they are making dramatic cuts in their low-mileage vehicles."
GM said it took the latest steps in a 3-year-old program of cost-cutting in response to a U.S. sales decline and a shift out of higher-margin trucks and SUVs that have both shot past expectations.
Major automakers, including GM, are expected to post steep declines in U.S. sales for May later on Tuesday, as the spike in gas prices batters an industry that has been reeling this year from weak consumer confidence and tighter credit.
GM's rival Ford Motor Co warned last month it no longer expected to turn a profit in 2009 because of the impact of runaway gas prices.
President and Chief Operating Officer Fritz Henderson said GM was no longer confident the U.S. auto market would recover in the second half of this year as it had earlier predicted.
But Henderson, who was speaking to reporters before GM's annual meeting with shareholders, said GM has adequate cash to fund operations in 2008 and could raise more liquidity if the downturn in the auto market persists.
GM ended the first quarter with $31 billion in cash, available liquidity and undrawn credit. Analysts handicapping GM's turnaround efforts have increasingly focused on the cash drain from its operations and support for troubled former subsidiaries, GMAC and bankrupt parts supplier Delphi Corp.
In a sign of the deepening trouble for GMAC's mortgage unit, ResCap, GMAC and Cerberus Capital Management on Tuesday said they had agreed to inject more than $1.4 billion to help the struggling mortgage lender avoid running short of cash.
Cerberus bought 51 percent of Detroit-based GMAC from GM, which retains the rest of the equity in the financing company.
"The economy will see some improvement in the second half, but we're not convinced we're going to see improvement in the auto sector," Henderson told reporters.
(Additional reporting by Ben Klayman in Chicago and Poornima Gupta in Detroit, writing by Kevin Krolicki; Editing by Maureen Bavdek)
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