General Motors Corp on Tuesday said it was closing four 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.GM was late to unload GMAC, and when they reacted only managed to get rid of half of it. ResCap is history but GM keeps wasting money on that. The Hummer is as ugly as a vehicle can possibly get so I am surprised the thing ever sold. Somehow Hummers became a status symbol. That is when GM should have unloaded it. Now GM will get nothing for it.
Chief Executive Rick Wagoner, speaking after a revised restructuring plan was approved by the automaker's board, said GM would close the four North American truck plants and add shifts at two U.S. 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 higher-margin trucks and SUVs faster than GM had expected.
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 and to assemble in Detroit.
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.
"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.
Canadian Auto Workers President Buzz Hargrove, who last month negotiated a three-year cost-saving contract with GM, called the automaker's decision to close its Oshawa plant making the Silverado pickup truck a "betrayal." He said the union would press for a reversal of the planned move.
"We are not going to let GM walk away from the bargaining table," Hargrove told reporters in Toronto. "I want to state as clearly as I can: We are not going to allow this to happen."
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.
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.
Wagoner made no mention of cutting GM's dividend and that is another huge mistake. Companies that lose $51 billion and can provide no estimate for returning to profitability (not that anyone would believe it), have no business paying a dividend.
The mistakes keep piling up at GM, yet somehow they have been able to repeatedly go to the bond market to raise cash. The next time they need to do so, the terms are going to be a lot tougher, if the cash is there at all. That is something Wagoner ought to be thinking about, but GM never sees the obvious, until it's too late.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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