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General Motors' Wagoner to Close 12 North American Locations

General Motors' Wagoner to Close 12 North American Locations

Nov. 21 (Bloomberg) -- General Motors Corp. Chief Executive Rick Wagoner, who said in June he would eliminate 25,000 North American manufacturing jobs by 2008, today said he will close 12 facilities and cut 30,000 jobs.

The world's largest automaker will idle or reduce operations at nine manufacturing sites and several non-manufacturing facilities, Wagoner said at a press conference today in Detroit.

``If they're not selling the cars, I don't know how they can keep running the plants,'' said Al Benchich, president of United Auto Workers Local 909 at a GM transmission factory in Warren, Michigan. ``The UAW has acknowledged that GM doesn't have the market share to support its current structure.''

Wagoner is making the cuts after the Detroit-based automaker's North American operations posted $4.8 billion in losses this year. The losses have grown as competition from rivals such as Toyota Motor Corp. pushed the automaker's U.S. market share to 80-year lows. Ratings companies responded by cutting the automaker's debt to junk.

GM shares, which on Nov. 17 touched their lowest level since 1987, have fallen 40 percent this year. That is the most of any company in the Dow Jones Industrial Average as investors waited for Wagoner's job-cut plans. The stock in Germany rose 43 cents from Nov. 18's U.S. close to $24.46 at 1:13 p.m. in Frankfurt.

Swaps

The annual cost to insure payments on $10 million of General Motors Acceptance Corp debt using credit-default swaps fell to $375,000 today from about $400,000 at the end of New York trading on Nov. 18, according to Deutsche Bank AG prices. The costs have jumped from as little as $200,000 in the past month.

Investors use credit-default swaps to bet on a company's creditworthiness or protect against non-payment. A buyer typically pays an annual fee and gets the full amount insured if the borrower defaults. In return, the swap seller gets the defaulted loans or bonds. Swap prices typically decline when creditworthiness improves, and rise when it worsens.

GM's 8.375 percent bond due in 2033 rose about 4 cents on the dollar to 75 cents today in New York, according to Trace, the bond-price reporting system of the NASD. The yield fell to 11.3 percent. The bond hasn't closed at that level since Oct. 27, according to Trace data.

The extra yield, or spread, narrowed 64 basis points to about 667 basis points, according to Trace. The bond was the most widely traded company bond in transactions of $1 million or more, Trace data showed.

GM's U.S. sales fell 26 percent in October, and the automaker this month returned to rebates as high as $12,000 on some sport-utility vehicles to regain buyers. Asian automakers' October U.S. market share rose to a record.

Job Cuts

Toyota, by contrast to Wagoner's plan to cut plants, is adding plants in North America and has released cars this year such as a redesigned Avalon sedan targeted at people who might otherwise buy GM's Buick Lucerne. Toyota plans to open a factory for Tundra pickups in San Antonio next year and a plant for the RAV4 sport-utility vehicle in Woodstock, Ontario, in 2008.

The Toyota City, Japan-based carmaker has said it plans to take 15 percent of the global auto market in the next decade, rising from about 12 percent now.

``It's not just a matter of the size of the reduction but also the timing,'' said John Casesa, a Merrill Lynch auto analyst in New York. ``The market reacted skeptically to GM's announcement in June that said 25,000 jobs would be eliminated over several years. GM's financial condition doesn't permit such a leisurely pace of restructuring.''

`Up in the Air'

``Over the long term, if GM keeps losing market share, everything is up in the air,'' Canadian Auto Workers President Buzz Hargrove said last week. The CAW agreed to more than 1,000 GM jobs cuts last month. ``The October numbers were just horrible.''

GM's U.S. market share, which peaked at 51 percent in 1962, fell to 26 percent in the first 10 months of this year. That's the lowest since 19.1 percent in 1925, according to the trade publication Automotive News.

Wagoner reassigned two top lieutenants and took charge of North American operations on April 4 after the automaker lost $1.6 billion in U.S., Canadian and Mexican auto operations in the first quarter. He pledged to end losses.

Since then, in addition to the job cuts, UAW members agreed this month to concessions that will trim GM's estimated $5.6 billion annual health-care costs by $1 billion. Wagoner also said for the first time Oct. 17 he is seeking a buyer for a majority of the General Motors Acceptance Corp. finance unit, GM's most profitable group.

Wagoner Under Pressure

Wagoner has been under increased pressure since May 4, when billionaire investor Kirk Kerkorian, who led an unsuccessful Chrysler Corp. takeover a decade ago, said he was making a passive investment in GM shares.

Kerkorian, 88, has spent $1.7 billion this year for a 9.9 percent stake in the automaker. He said in September that he may ask for a board seat. At the Nov. 18 closing price, his holdings in GM had lost $334 million in value.

GM's stock may not rise after today's announcement because investors are expecting the plant closings, analyst Lache said. They're also concerned that a UAW strike at Delphi Corp., the company's former components unit and largest supplier, could cause havoc.

Delphi, of Troy, Michigan, filed for bankruptcy-court protection from creditors last month. Delphi Chief Executive Steve Miller has proposed cutting wages by two-thirds to as low as $10 an hour. He also has proposed reducing the number of U.S. hourly workers to about 10,000, from 33,650, according to the UAW. Union President Ron Gettelfinger has called the offer an ``insult.''

Concern about a bankruptcy at GM from a Delphi strike or other problems last week prompted Wagoner to send an e-mail to employees assuring them he didn't plan to declare bankruptcy. The letter helped the stock gain more than 6 percent each day on Nov. 17 and Nov. 18.

Any details of the job-cut plan are welcome, Merrill Lynch's Casesa said.

``Any capacity reduction also has to be part of a comprehensive and broad plan to address the company's competitiveness,'' he said. ``Downsizing has to be followed by a refashioning of the business model and aggressive reinvestment in what's left of the company.''

To contact the reporters on this story:
Jeff Green in Southfield, Michigan, at [e-mail];
John Lippert in Southfield, Michigan, at [e-mail]


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