GM Wants as Much as $18 Billion; Prioritizes Brands
December 02, 2008
By Bill Visnic
General Motors Corp. Tuesday released the plan submitted to Congress in application for federal bridge loans to carry the company through 2009, when it expects a host of structural improvements and general downsizing to create "a new General Motors, one that is lean, profitable, self-sustaining and fully competitive."
What GM wants: up to $18 billion -- up to $12 billion in direct federal term loans and another $6 billion committed line of credit to guarantee the company can weather an auto-sales environment even worse than GM's projected 12-million-unit sales rate for 2009.
Congress, of course, expected GM planners to submit an outline for a company that can survive to repay the taxpayer's billions. Here's part of what GM proposes:
Brand, Nameplate and Dealer Cutbacks
A reduction in brands, nameplates and retail outlets. What this means is somewhat fluid, particularly in terms of dealer reductions, but this much is evident: the Saab and Saturn divisions are earmarked for some type of departure and Pontiac seemingly will be deconstructed to a boutique-type brand.
"Today, General Motors competes in the United States with eight brands," says GM in the report submitted to Congress. "Chevrolet, Cadillac, Buick and GMC represent the company's core brands, accounting for 83 percent of current sales. The company will focus substantially all of its product development and marketing resources in support of these brands. This will result in improvements in awareness, sales and customer satisfaction for these four core brands.
"This channel will be fully competitive in terms of total entries offered," the report continues, "with Pontiac serving as a specialty/niche brand with reduced product offerings solely intended to complement Buick and GMC models and reinforce the channel as a whole."
Meanwhile, although GM's been trying for some time to make Hummer disappear, Saab and Saturn also face a rocky future in the GM empire:
"Hummer has recently been put under strategic review, which includes the possible sale of the brand. GM will also immediately undertake and expedite a strategic review of the Saab brand globally," the report says.
"Finally, Saturn, which has performed below expectations, has a unique franchise agreement and operating structure. As part of the Plan, the company will accelerate discussions with Saturn retailers and explore alternatives for the Saturn brand."
GM also describes a serious reduction in nameplates -- and the dealers to sell them -- between now and 2012, as evidenced in the chart from the report:
GM Game Plan
Year 2000 2004 2008 2012
Total Nameplates 51 63 48 40
GM Dealer Count (Locations) 8,138 7,497 6,450 4,700
Big-Ticket Cost Reductions
GM also said in its plan it will achieve significant labor-cost and other competitiveness enhancements, including "full labor cost competitiveness with foreign manufacturers in the U.S. by no later than 2012."
This includes, apparently, an arrangement with the United Auto Workers union to delay a scheduled multi-billion-dollar payment to the Voluntary Employee Benefit Association (VEBA) trust established to cover the retiree legacy costs that GM says have cost it $103 billion to fund over the last 15 years.
GM also said in the report it will continue to save on labor cost through "further manufacturing and structural cost reductions through increased productivity and employment reductions"
Management and shareholders will bear part of the burden, too.
Dividends will remain suspended during the time GM makes use of the temporary federal loans, the plan stipulates, and Chairman and CEO Rick Wagoner "will reduce his salary to $1 for 2009. He will not receive an annual bonus for 2008 and 2009.
"Consistent with this action," the plan continues, "members of the GM Board of Directors will reduce their annual retainer to $1 for 2009."
And GM's four most senior officers (executive vice presidents and above) will reduce their total cash compensation by approximately 50% in 2009, which includes no bonus paid for 2008 and 2009 and a 30 percent salary reduction for the president and COO (Fritz Henderson), and 20 percent salary reductions for the remaining three.
Profitable in a Downsized Market
GM's plan to Congress says, in short, the company will be profitable (on an earnings before interest and taxes basis) at 12.5-13 million sales in the U.S. market.
GM wants a portion of the $12 billion direct loan to be in the form of preferred stock -- by taking repayment in the form of stock, GM says the government earns returns, but such an arrangement also, "creates a more effective platform for GM's future capital raising activities, and allows the company to devote resources to future product and technology investments."
GM says it would begin partial repayment of the ultimate loan amount beginning in 2011, with complete paydown coming by the end of 2012.
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