Business

GM To Slash Jobs, Borrow Billions

 CBS News Interactive: On The Job

DETROIT (CBS) ― General Motors Corp. said Tuesday it will lay off salaried workers, cut truck production, suspend its dividend and borrow $2 billion to $3 billion to weather a severe downturn in the U.S. market.

GM said the moves will raise $15 billion to help cover losses and turn around its North American operations.

"In short, our plan is not a plan to survive. It is a plan to win," GM Chairman and CEO Rick Wagoner said in a broadcast to employees.

Chief Operating Officer Fritz Henderson said GM wants to reduce its total salaried costs in the U.S. and Canada by 20 percent.

A large chunk of the reduction, he said, would come from cutting health care benefits for salaried retirees. Those people would get a pension increase from the company's overfunded pension fund to help compensate for Medicare and supplemental insurance, the company said.

Several thousand jobs will be cut through normal attrition and retirements, and through early retirement and buyout offers, Henderson said. The company could resort to involuntary layoffs but does not want to, he said.

GM has 40,000 salaried employees in the U.S. and Canada.

Henderson said the company intends to reduce its truck production capacity by 300,000 units, 150,000 more than it announced at its annual meeting in June.

The company will speed up closures of its truck and sport utility vehicle factories in Janesville, Wis.; Oshawa, Ontario; Silao, Mexico; and Moraine, Ohio, and it will make thousands of job cuts at other truck assembly and parts factories, Henderson said.

He would not say if further plants will be closed, and said the company still must negotiate further cuts with the United Auto Workers.

GM said it will suspend its $1 annual dividend immediately, which will improve liquidity by $800 million through 2009. It's the first time the company has suspended its dividend since 1922.

The company also plans to raise $2 billion to $4 billion through the sale of assets, including its Hummer brand. It also plans to borrow $2 billion to $3 billion by pledging assets including stock of foreign subsidiaries, brands, stake in its finance arm and real estate.

GM and other auto companies have been hammered by high gas prices, the weak economy and a rapid shift in consumer tastes away from trucks and SUVs. GM's sales were down 16 percent in the first six months of this year, led by a 21 percent decline in truck sales.

GM is forecasting total U.S. sales of 14.7 million this year. That's down from 17 million as recently as 2005.

Detroit's big three have less flexible factories than their Japanese competitors, reports CBS News correspondent Nancy Cordes, meaning they can't shift from one make to another that's selling better. As they struggle to meet demand for smaller, more fuel-efficient cars, the truck and SUV manufacturing plants sit idle.

"GM is sadly at the end of a 30-year decline," Car and Driver Editor-in-Chief Csaba Csere told Cordes, "and it started with poor quality, which has finally been turned around. Then it started with unattractive products, and that's been turned around. But at this point the company is still heavily dependent on trucks."

Just six weeks ago, GM said it would close the four truck and SUV plants and boost production of the smaller, more fuel-efficient cars that customers are demanding. It also announced production of a new car that could get 45 miles to the gallon and would go on sale in 2010.

But for an impatient Wall Street, those changes weren't enough, and the company's shares have hit a series of 50-year lows since July 2.

Analysts had speculated GM would need to raise more cash to get it to 2010, when it will start seeing the savings from its landmark 2007 contract with the United Auto Workers that cut hourly workers' wages and transferred billions in hourly retiree health care obligations to a union-led trust.

As part of its financing plan, GM will defer $1.7 billion in payments to that trust that had been scheduled for this year and next.

Some analysts have also speculated that GM would declare bankruptcy, but Wagoner said last week that bankruptcy isn't a consideration.

Cordes reports that the persistence of bankruptcy rumors creates a vicious cycle, making potential buyers nervous about buying into a brand that might go out of business.

Wagoner said the company believes the trend away from trucks and SUVs in the U.S. market is permanent and that the company is responding, with 18 cars or crossovers in development. But he said GM never could have predicted how quickly the change would come as oil prices doubled in the last year.

"We missed that, but I think us and 99.999 percent of the rest of the people in the world did too," he said.

(© 2008 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)