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    Default GM Plans Mass U.S. Shut Downs

    GM employees may get shutdown details this week

    By TOM KRISHER, AP

    DETROIT — Thousands of GM workers could learn as early as Thursday that they will be idle for up to nine weeks this summer as the automaker's plants stop making all but its most popular cars and trucks.

    The move is a result of slumping sales and growing inventories of unsold vehicles, but some analysts and dealers fear the plant closings could further scare car buyers already made nervous by talk of a GM bankruptcy.

    General Motors Corp. is planning to temporarily close most of its U.S. factories for up to nine weeks, three people briefed on the plan said Wednesday. The exact dates of the closures are not known, but the people said they will occur around the normal two-week shutdown in July when changes are made from one model year to the next. None of the people wanted to be identified because workers have not yet been told of the shutdowns.

    GM spokesman Chris Lee would not comment other than to say the company notifies employees before making any production cuts public. But UAW officials will likely raise questions about the move during meetings they have scheduled at several factories Thursday and Friday with plant managers and GM human resource officials to discuss production changes.

    Thousands of workers could be laid off but would still get most of their pay because their United Auto Workers union contract requires the company to make up much of the difference between state unemployment benefits and their wages.

    One of the people briefed on the plan said details are still being worked out. Some of the closings could be staggered between mid-May and the end of July, but the exact number of plants to be idled has not yet been determined. Another person said a few plants that make more popular models could remain open for part of the shutdown period, but at reduced assembly line speeds.

    But the shutdown could be catastrophic to many auto parts suppliers that already are near bankruptcy due to previous production cuts. During the shutdown, suppliers couldn't ship parts to GM and would lose critical revenue.

    "It's one of those things we've been dreading for a long time," said Jim Gillette, director of financial services at auto-industry consultant CSM Worldwide in Grand Rapids. "It's as bad as its ever been."

    He said that many suppliers are making employee cuts or forcing workers to take furloughs to reduce operating expenditures.

    GM is living on $13.4 billion in government loans and faces a June 1 deadline to cut its debt, reduce labor costs and take other restructuring steps. If it doesn't meet the deadline, the company's CEO has said it will enter Chapter 11 bankruptcy protection.

    The Treasury Department declined to comment on any effect the plant shutdowns might have on GM's restructuring plans.

    Separately Wednesday, GM announced that it may miss a $1 billion bond payment also due June 1 if its debt-for-equity exchange is still in progress by then. GM also could go into bankruptcy protection, which could make the company miss the payment as well.

    The company plans to make the exchange offer soon to bondholders, perhaps as early as next week. GM has $28 billion in unsecured bond debt and is under government pressure to reduce that to solidify its balance sheet.

    GM's sales were down 49 percent in the first quarter compared with the same period last year, and GM had a 123-day supply of cars and trucks at the end of March, according to Ward's AutoInfoBank. That's down from 162 days worth in January.

    But as of March 31, the automaker had a more than six-month supply of several models including the Pontiac G5 compact and Chevrolet Silverado hybrid pickup truck. The lengthy shutdown likely means that GM doesn't see its sales rebounding anytime soon, said Tom Libby, an independent Detroit-area auto industry analyst.

    "They must be forecasting a sales level that is low enough between now and the summer that they see their inventories building," he said late Wednesday. "It's sort of an ominous comment on what they see for the industry."

    Libby also suggested that the company's sales may be declining because customers are concerned about the automaker possibly filing for bankruptcy protection.

    GM CEO Fritz Henderson has said the company would prefer to restructure outside of court, but it is preparing for a prearranged bankruptcy as well as one in which good assets would be separated from underperforming ones.

    "Just using the word bankruptcy, their (market) share is down a lot just because of this talk," Libby said. "They may be counting on a further decline."

    The plant closures add to the onslaught of bad news coming out of GM, said John Clark, president of Avenue Chevrolet, a dealership in Batavia, Ill., near Chicago.

    "Henderson making statements about bankruptcy sure doesn't help his cause, and all of the sudden we have this," he said. "I've been getting calls from customers about warranties. I can't see this as a positive move."

    The government has said it would guarantee GM and Chrysler warranties as the companies restructure.

    Libby did say GM should be applauded for not building too many vehicles and then having to spend big on rebates and other incentives to move them, something the Detroit Three have been guilty of in the past.

    Other GM dealers said a shutdown of up to nine weeks is jarring, but not unexpected given the sales slump.

    "Nine weeks seems like an awful long time, but the way business is, not an awful lot of cars are being sold anyway," said George Tasker, fleet manager at Martin Chevrolet in Torrance, Calif.

    Tasker said the move wouldn't affect business, as dealers would "get together and trade more easily" to find the exact car a customer wanted.

    Nearly all automakers with U.S. factories have closed plants or cut production to deal with the auto sales slump. Earlier this year, GM temporarily closed 20 factories across North America due to weak sales, some for the entire month of January. Chrysler LLC, also subsisting on government loans, closed all 30 of its manufacturing plants for a month in January to counter the auto sales downturn.

    Ford Motor Co. also shut down 10 North American assembly plants for an extra week in January, and both Toyota Motor Corp. and Honda Motor Co. have cut production.

    ___

    AP Auto Writer Kimberly S. Johnson contributed to this report.

    Copyright 2009 The Associated Press. All rights reserved.
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    Default

    GM Said to Speed Cutbacks to Lower Break-Even Point

    By Jeff Green and Caroline Salas

    April 22 (Bloomberg) -- General Motors Corp., trying to avoid a U.S.-backed bankruptcy on June 1, may close plants and scrap models as much as four years sooner than planned to lower its break-even point, people familiar with the effort said.

    The cuts may mean GM can be profitable in a U.S. market with sales of as few as 10 million autos, said the people, who asked not to be identified because the details are private. The annual sales rate was 9.9 million in March, after GM said Feb. 17 its break-even target was at 11.5 million to 12 million.

    A new business plan that speeds GM’s return to profit may make it easier for the biggest U.S. automaker to persuade bondholders to accept an offer to exchange $27.5 billion in unsecured bonds for equity and accrued cash interest, the people said this week.

    “The most interesting news there to me is the closing of brands and dealerships earlier,” said Stephanie Brinley, an AutoPacific Inc. analyst in Troy, Michigan. “If they can strategically decide the dealerships to let go, they could be a stronger company.”

    GM executives will meet with advisers to the U.S. auto task force, probably through the weekend, to cut costs faster and deeper than a proposal rejected last month by the Obama administration, the people said.

    The company is pushing to revise its business plan in time for a debt-cutting offer to bondholders as early as April 27, people familiar with the plans said. Chief Executive Officer Fritz Henderson said last week he expects Detroit-based GM to make a new offer this month.

    A Treasury spokeswoman, Jenni Engebretsen, and Steve Harris, a GM spokesman, declined to comment.

    Accelerated Changes

    The new plan may require GM to complete much of the scaling back in models and dealers planned by 2014 as soon as next year, allowing earlier plant and job reductions, people briefed on the talks said. GM said March 31 that by 2014 it would trim dealers to 4,100 from 6,122, nameplates to 36 from 43, and U.S. assembly capacity to 2 million vehicles from 2.8 million.

    The bond offer may include some framework of GM’s plan to cut $20.4 billion in obligations to a United Auto Workers union- run retiree-medical fund by more than half, two of the people said. The bond offer may disclose what portion, if any, of U.S. loans would be converted to equity, one person said.

    GM doesn’t expect to make a June 1 bond payment it owes because it will either be in the process of the debt exchange offer or have filed for bankruptcy court protection by that date, GM spokeswoman Renee Rashid-Merem said today.

    Brand Moves

    GM’s brand shuffling, which envisions the survival of at least Chevrolet, Buick and Cadillac, is part of talks with President Barack Obama’s task force on how best to use the divisions and dealerships, people familiar with the matter have said. GM has already said it will shed Hummer, Saab and Saturn.

    Pontiac and GMC have been discussed for possible cuts, people have said, with GMC more likely to survive. No decisions have been made, they said. GM said on Feb. 17 that it planned to focus on Chevrolet, Cadillac, Buick and GMC, with Pontiac as a niche entry. Henderson said last week both GMC and Buick are profitable.

    “We developed a plan with four core brands,” he said April 17. “What we’re making sure is every entry within those brands and every brand within those channels has a purpose for being and generates a suitable rent on those channels and generates a suitable return.”

    The task force has contacted representatives of GM bondholders to set up their first meeting in more than six weeks to discuss the automaker’s restructuring, said a person with knowledge of the dialogue.

    Bondholders Meeting

    The original loan terms called for GM to slash two-thirds of its bonds through an equity exchange.

    The Obama administration said last month that GM’s plan to return to profitability wasn’t aggressive enough. The task force removed CEO Rick Wagoner and ordered Henderson to cut the automaker’s debt by more than the amount initially demanded.

    GM is trying to prove it’s viable, a U.S. requirement to keep $13.4 billion in federal loans. A government auditor said this week the Treasury will supply $5 billion in additional aid.

    GM fell 1 cent, or 0.7 percent, to $1.69 at 4 p.m. in New York Stock Exchange composite trading. The shares dropped 47 percent this year before today.

    The automaker’s $3 billion of 8.375 percent bonds due in 2033 were unchanged at 9.06 cents on the dollar today in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 90 percent.

    Workers Worry

    Henderson said the automaker has been meeting with bondholders and the UAW to try to reach an agreement outside of bankruptcy court. UAW leaders agreed to changes in work rules, bonuses and unemployment compensation that GM says may save more than $1.1 billion. Members have neither ratified those changes nor has an accord been reached on health spending.

    The new CEO also said last week he expects to need to cut additional jobs and those decisions will come before June 1.

    UAW members at the Bowling Green, Kentucky, assembly plant, where GM builds the Chevrolet Corvette and Cadillac XLR, haven’t heard anything and are worried about whether the factory may be marked to close, said Ed Pietrowski, a worker at the site.

    “People are on pins and needles,” said Pietrowski. “It’s like a morgue in here. People just want to know what’s going to happen, so we can move on with our lives.”

    To contact the reporters on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Caroline Salas in New York at
    csalas1@bloomberg.net.

    Last Updated: April 22, 2009 16:15 EDT
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