Speech delivered on: 2008-07-15
Special Employee Broadcast by Rick Wagoner
Rick Wagoner
General Motors Chairman and Chief Executive Officer
Detroit, Michigan
- Welcome and thanks for joining us on short notice for today’s special broadcast.
- I want to share some important steps we’re announcing today in response to the worsening economic and automotive market conditions we’re experiencing in the U.S.
- When we conclude here, Fritz Henderson, Bob Lutz, Ray Young, and Troy Clarke will join me in a press conference that you will be able to view live.
* * * * * * *
- As you know, in recent years, we’ve been focused on several major strategies… including growing our business in emerging markets, product excellence and leading in advanced propulsion technology, and, of course, turning around our North American business.
- During that time, we’ve had tremendous success on our overseas growth initiatives, especially in places like China, Russia, India, and Brazil, where GM sales were up a combined 24 percent in the first half of 2008… impressive growth, and ahead of the industry.
- We’ve also made significant progress on our advanced propulsion technology strategy, and we’ve made major strides in our commitment to product excellence and design leadership… as cars like the Chevy Malibu and Cadillac CTS clearly demonstrate.
- We’ve also made a lot of progress on our North American turnaround plan… more than many people thought possible. And I thank each and every one of you for your tremendous work in helping to achieve such progress on all these fronts.
- And yet, since the first of this year, our progress has been threatened as U.S. economic conditions have become increasingly more difficult.
- Six weeks ago, at GM’s Annual Stockholders’ Meeting, I discussed a number of the challenges facing the U.S. auto industry – in particular, a weak U.S. economy and a rapid and unprecedented rise in oil prices, which are viewed by most experts as part of a long-term trend toward higher energy costs… a structural change, not just a cyclical change.
- In response to these challenges, we announced several important actions at that time, including:
- A new global compact car for Chevrolet, which we have since designated the Chevrolet Cruze; the next generation Chevy Aveo; and a new, highly efficient small engine for the North American market.
- Funding for production of the Chevy Volt extended-range electric vehicle.
- The addition of third shifts at two car plants.
- Cessation of production at four plants that build pickups, SUVs, and medium-duty trucks.
- And a strategic review of the Hummer brand.
- We’re making excellent progress on all these initiatives… but in the past six weeks, U.S. market and economic conditions have continued to decline.
- Of greatest concern is the continued rise in oil prices, which has led to a further slowdown in industry sales, as well as mix changes, and which require us to take further actions to position the company for sustainable profitability and growth.
* * * * * * *
- Today, we are announcing a number of initiatives aimed at generating about $15 billion of cash through year-end 2009.
- These tough but necessary actions, along with current cash and available credit lines, will provide us with ample liquidity through 2009, even under conservative U.S. industry sales assumptions of just 14 million light vehicles in both 2008 and 2009, and continuing high oil prices.
- I want to make it very clear that these assumptions are not our experts’ baseline projections for the auto industry, the U.S. economy, or the price of oil… but it’s prudent for us to use these conservative assumptions for liquidity-planning purposes… because we need to make sure we have ample funding if market conditions stay weak.
* * * * * * *
- The initiatives we’re announcing today fall into two main areas: operating actions, and asset sales and financing activities.
- I’ll begin with operating actions, which we expect will generate a total of $10 billion of cumulative cash improvements by the end of 2009.
- These actions include structural cost reductions initiatives in North America, in three main areas:
- First, further reductions in truck capacity and related component, stamping, and powertrain capacity .
- We now expect to reduce truck capacity by the end of 2009 by about 300,000 units… half of which is accounted for by advancing the timing of previously announced actions, and half of which will be additional steps, the specifics of which we’ll be announcing when they are finalized with affected parties.
- These are, for sure, very tough decisions. We’ll work closely with our union partners to mitigate the impact of these actions, made necessary by what we believe are long-term and permanent changes in consumer demand for trucks and SUVs.
- Second, reductions and consolidations in sales and marketing budgets.
- While we are committed to maintaining adequate resources to support launch products and brand advertising, we will implement significant reductions in promotional and event budgets, motorsports activities, and back-office expenses.
- And third, we will hold our global engineering spending in 2008 and 2009 at 2006/2007 levels, which represents a savings versus our prior planned increases.
- In total, these actions will generate about $2.5 billion of cumulative cash savings by year-end 2009.
- The second series of operating actions is a reduction of more than 20 percent in U.S. and Canadian active and retiree salaried cash expense, as a result of four initiatives:
- First, early retirements, mutual separation programs, normal attrition, and other separation tools will be employed to reduce salaried headcount.
- Second, beginning January 1, 2009, we will eliminate health-care coverage for U.S. salaried retirees after they reach age 65, when people typically become eligible for Medicare coverage. To help offset this, we will significantly increase pension payments for the eligible retirees and surviving spouses, paid for out of our over-funded U.S. salaried pension plan.
- Third, there will be no base compensation increases for U.S. and Canadian salaried and executive employees for the remainder of 2008 and 2009.
- And fourth, given our projected financial performance for 2008, there will be no annual discretionary cash bonuses this year for our executive group.
- Again, these were very difficult decisions, but ones necessary to help us get through the current weak U.S. market and position us for long-term success.
- These actions will generate about $1.5 billion of cumulative cash improvements by year-end 2009.
- The third operating initiative involves limiting our corporate capital expenditures to $8 billion in 2008 and $7 billion in 2009.
- This will generate about $1.5 billion of cumulative cash improvements through 2009, versus our currently planned spending level.
- A major part of our reduced spending is related to delaying our next-generation large pickup and SUV programs, as well as V-8 engine development and capacity.
- Savings will also be achieved by significantly reducing non-product spending in all areas of the business.
- At the same time we reduce spending in some areas, we will increase our powertrain spending for alternative-propulsion and fuel-economy technologies, and for small-displacement engines.
- And even with these lower capital spending levels, we will continue to be very aggressive in responding to U.S. market trends.
- In fact, after excluding our GMT 900 large pickup and SUV programs, our 2009 projected capital expenditures will still be greater than our average annual spending levels from 2005-2007.
- Beyond 2009, we expect to run capital expenditures in the $7 billion to $7.5 billion range, excluding spending at our Chinese joint ventures.
- Our fourth initiative is to improve working capital in North America and Europe… primarily through very focused management of all inventories… raw materials, work in progress, finished goods, and service parts stocks.
- Our operating units are already working on their targeted inventory reductions, which will generate about $2 billion of cumulative cash improvements by year-end 2009 versus our prior plans.
- In addition to these operating actions I’ve just reviewed, we have recently reached an agreement with the UAW and Class Counsel to defer, until 2010, a total of $1.7 billion in cash payments related to our 2007 healthcare agreement that were previously due in 2008 and 2009.
- And finally, the GM Board of Directors has decided to suspend future dividend payments, effective immediately. This will save the company approximately $800 million over the 2008-2009 timeframe.
- Overall, then, cumulative cash savings through the end of 2009 from these operating actions will total approximately $10 billion.
* * * * * * *
- Beyond these, we’re continuing to develop additional sources of liquidity.
- First, we are in the midst of a broad global assessment of GM assets for potential sale or monetization.
- We believe that we can raise significant liquidity… $2 billion to $4 billion… from asset sales, without impacting the strategic direction of our company .
- We have engaged outside advisors in this work, and will provide updates as our plans are finalized.
- Specifically with regard to our vehicle brands, as we announced six weeks ago, we are conducting a comprehensive strategic review of Hummer. Beyond that, we continue to focus on profit improvement initiatives across all of our remaining brands.
- In addition to asset sales, we’ll also continue to access global capital markets on an opportunistic basis.
- Based on the current rather difficult financial market conditions, our planned next step is targeting a $2 billion to $3 billion financing… and GM’s unencumbered assets of more than $20 billion could support a significantly larger debt offering as market conditions improve.
- Examples of GM assets that we could borrow against include stock of our foreign subsidiaries, our brands, our stake in GMAC, and real estate assets, to name a few.
* * * * * * *
- So, adding it all up, the operating actions, asset sales, and borrowing activities I’ve outlined here total about $15 billion.
- When this figure is combined with our existing cash and committed credit lines, our GM leadership team is highly confident that we have ample liquidity through 2009, even under the conservative industry volume and mix assumptions I mentioned earlier.
* * * * * * *
- Going forward, we’ll continue to build on the impressive progress we have made in recent years in improving GM’s competitiveness… reducing structural costs by $9 billion since 2005, improving our U.S. sales and marketing strategy , enhancing our quality, negotiating a groundbreaking labor agreement with the UAW, addressing our healthcare cost burden , and more.
- And as I have said from the start of our North American turnaround efforts in 2005, our goal is not just to change GM’s bottom line from red to black, which we’re all working hard to do, as soon as possible. Our goal is to change the company for the long haul… to structure GM for sustained profitability and growth… to set us up to be competitive for years to come.
- And this remains our overarching goal, even with the very challenging U.S. economic and auto market conditions.
- Let me be very clear about this.
- I don’t want to minimize the challenges we face here in the U.S., because they are substantial.
- But we face these challenges with confidence and strength, knowing that the progress we’ve made in recent years positions us to address them straight on… and that the momentum we have built throughout the business will allow us to emerge from the current market conditions as a stronger and more dynamic company in the U.S., and around the world.
- Frankly, we’re very well positioned outside the U.S.… and we’ll be there in the U.S., too, when this cycle concludes.
- In short, our plan is not a plan to survive. It is a plan to win.
* * * * * * *
- In fact, at this critical time in our history, it’s very important that we also remember what’s going right at GM these days.
- Just a few examples… we’ve done a terrific job taking advantage of the growth in emerging markets… making amazing progress in China, Russia, Brazil, India, the Middle East, and the Andean region, just to name a few.
- We’ve moved from being an also-ran in advanced propulsion technologies, to being viewed as a leader in biofuels and electrically driven vehicles, including fuel cells, and to being very much in the hybrid race.
- We’ve demonstrated our ability to anticipate consumer demand, by making 11 of our last 13 new products, and 18 of our next 19 new product launches in the U.S., cars or crossovers.
- We’ve made major strides in our commitment to product excellence and design leadership… as cars like the Chevy Malibu and Cadillac CTS clearly demonstrate. And we’re showing similar product strength around the globe.
- And, most important of all, we have a lineup of future products that are some of the best in our 100-year history.
- I’m talking about cars like our upcoming all-new entry in the compact-car segment, the Chevy Cruze, which will combine great looks with significantly improved fuel economy.
- Production will begin in the U.S. in mid-2010.
- The next-generation Chevy Equinox will begin production in May 2009.
- It’ll feature a new four-cylinder engine, which will place it among the best fuel-economy performers in its class.
- Here’s the next-generation Cadillac SRX crossover, which was introduced at the Consumer Electronics Show last January as the Cadillac Provoq concept vehicle.
- This model will debut in the second quarter of 2009, and will go to market globally.
- Here’s a car we’re very excited about, the Cadillac CTS Sportwagon.
- Today, we’re announcing that is has been approved for production, and will come to market next spring.
- You all remember the Cadillac CTS Coupe Concept from the Detroit Auto Show last January.
- It won a bunch of awards, and today we’re announcing that we’ll bring this car to market in summer 2009.
- Here’s the production version of our Buick Invicta concept, which we introduced at the Beijing auto show in April.
- This vehicle is the result of collaborative efforts by GM’s design and engineering teams from around the world.
- We’ll bring it to market next spring in the U.S .
- Finally, Saab will expand its product range with the all-new 9-4x, aimed right at the heart of the five-seat crossover segment, and headed for the market in the fall of 2009.
- And these are just some of the great new GM products that you’ll see in the U.S. and around the globe, over the next 18 to 24 months.
- So, I think it’s clear that our commitment to product excellence is not only continuing, it’s accelerating.
* * * * * * *
- Let me close today by saying that we have a solid and well-thought-out plan that aggressively addresses the challenges we face.
- We can’t sit back and wait for the U.S. economic and market conditions to improve… we need to continue to be proactive… and even take some very tough decisions… to ensure our survival and success.
- Many of the actions we’ve announced today are very difficult, and we take them only after a lot of thought and consideration. But we need to take them as part of our plan to keep GM on track, so that in the future we will have ample liquidity to fund our ongoing turnaround.
- By any measure, GM has been – and is – an extraordinarily successful company, with a 100-year record of product and technology excellence.
- We enjoy a unique American and global heritage, incredible engineering and technological capabilities, thousands of dedicated and talented employees and dealers, and – despite today’s challenges – absolutely awesome potential.
- Working with all of you… whom I consider to be the best automotive team in the business… and our leadership team… Fritz, Bob, Ray, Troy, and others… I know that we will realize this potential.
- Thanks for your time today, and thanks for your commitment and support , as we continue to create the new General Motors.
LinkBack URL
About LinkBacks
GM to Bolster Liquidity by $15 Billion through 2009
Reply With Quote
Bookmarks