GM Cuts back, Again

The U.S. auto industry is deep in the throes of a massive restructuring. General Motors Chairman and CEO Rick Wagoner will tell the next chapter this morning. GM won’t divulge details, but several company sources say that Wagoner will announce several cost-cutting moves as well as a few ways GM can conserve or raise more cash. One big theme: Wagoner will make the case that GM has enough cash to stave off bankruptcy even under pretty dire circumstances. GM needs to stay flush until around 2010, when a recently-inked union contract will save the company billions in cash a year. By then, a deal to set up a union-led healthcare fund would save GM more than $4 billion a year. Lower wages will also save billions.

GM insiders say that, as of Monday evening, the company had not finalized the details of the announcement. But GM’s cash position will be a key component. GM had $24 billion at the end of March, down $6 billion since last fall. Since March, truck and suv sales have cratered, burning even more cash. Management has discussed selling off some assets and perhaps even cutting its dividend, which costs $570 million a year, to conserve cash. GM has already sold off many assets, but the company has been trying to sell its shuttered Oklahoma City and Doraville, Ga., plants. There are a few other assets that could bring some cash. The company could also issue more equity or convertible debt.

White-collar staff cuts are the next shoe to drop. GM already bought out 34,500 union factory workers since 2005 and announced another 19,000 blue-collar buyouts this year. Now, say inside sources, Wagoner will take an ax to the salaried staff. The company may announce targets for salaried staff reductions. There will be buyout packages and perhaps even some layoffs. Cutting benefits and executive pay has also been discussed.

One source said that GM will assure the media and investment community that the cuts will be made in areas like truck engineering where the business is in decline. But advanced-technology development and car engineering still need plenty of people. So the company will try to keep manpower in those offices.

It makes sense. Over the past few years, GM has gone through its global engineering ranks and slashed redundant car-development operations. Instead of having teams in, say, Europe, the U.S. and Asia all developing different small cars, one team develops one globally. GM’s German-based Opel unit develops compact cars, GM-Daewoo heads up engineering for subcompacts, the Australian Holden business takes point on developing rear-wheel drive cars like the future Chevy Camaro and the Warren, Michigan engineering center takes lead on trucks and large suvs. Since expensive gasoline has trucks and big rear-drive sedans on the wane, American and Australian engineers may be nervous. GM may just be realigning its business to pay fewer American engineers to do work on its cars. One bright spot: Advanced technologies like hybrids, electric drive and vehicles like the Chevy Volt will be done in the U.S. So those people will have some job security.

There may also be a hint of future production cuts. GM has already announced plans to close plants or cut shifts at several truck plants. But more may eventually be on the way. The bottom line is that Wagoner is trying to show Wall Street that he has a plan to get through a couple of thorny years until his deals with the union bear fruit. We’ll see what details he has.

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