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New GM CEO Confirms More Cuts Are Coming

Fritz Henderson vows to get the job done "in or out of court."

by on Mar.31, 2009

The aura of confidence projected by Henderson belies the enormity of the task in front of him.

An aura of confidence projected by Henderson belies the enormity of the task in front of him.

General Motors CEO Fritz Henderson in his second day on the job held a news conference that reaffirmed his commitment to “go deeper and go faster” in preparing a revised viability plan with “a clean balance sheet” that will pass muster with the President’s Auto Task Force. If not, Henderson said “we will do it in court.”

He acknowledged the sweeping criticisms of the President and the U.S. Treasury Department as “painful,” but quickly added that “we got it” and sketched in broad outlines the areas of the strategy that need improvement by June first. 

More job cuts and plant closings will be required, and bondholders and retirees will see commitments made to them by GM trimmed or eliminated. The decision on the sale or closing of Hummer will be made shortly. Saturn’s future remains in doubt beyond 2011, but Henderson said that it is still being studied with no immediate need to take action. Few details emerged, as Henderson said he was not going to conduct negotiations in public that are properly done at the bargaining table. 

Henderson also claimed not to be concerned about his own future beyond 60 days, “I don’t really worry too much about that,” he said. “If we get our job done it’s going to be okay,” he added. In a press briefing yesterday, Robert Gibbs, the President’s Press Secretary, denied that Rick Wagoner’s resignation as GM’s chairman was a quid pro quo for the continuation of aid. He also refused to speculate on what happens to Henderson or GM beyond the current 60-day deadline. 

Treasury is in the process of appointing two directors to the board of General Motors Acceptance Corporation, and is expected to have a significant, if not dominant role, in the remaking of the GM board of directors so that a majority of its members are new by the August meeting. Henderson now has the unenviable task of reporting to two constituencies – the changing GM board, with its new interim chairman, Kent Kresa, and Treasury through its Auto Task Force, headed by Steve Rattner and Ron Bloom. Treasury continues to be involved with any GM decisions that involve taxpayer funding on a “daily basis.”

Henderson said that the need for further cash is being evaluated, and would not say how much more liquidity from U.S. taxpayers would be needed during the next two months. The need for the $2 billion in support that was skipped in March and the $2.6 billion requested for April are still being evaluated. He would not say when taxpayers could expect to see repayment of the loans.

The aura of confidence projected by Henderson during his first leading role belies the enormity of the labors in front of him and his management team that has careened and crashed through an unending series of emergencies.  Henderson worked for virtually his entire career for Rick Wagoner, and he did not really say what would be different now that he is boss in spite of multiple questions on the topic.

Perhaps the biggest issue in getting through the next two months is the core problem of fleeing customers. It’s lights out, if an even worse sales collapse occurs than GM is currently enduring as car buyers shun its brands. The President’s warranty program announced yesterday will be of some, as yet unknown, help. GM also announced — just prior to Henderson speaking — that it will start a plan called “GM Total Confidence,” that it says protects a customer’s paycheck, investment and vehicle for 24 months. 

The question at Treasury remains taxpayer protection. The Loan and Security Agreement of December 31, 2008 between the General Motors and Treasury required that various agreements needed to be met by March 31, including compensation reductions; work rule modifications from union members; all necessary approvals of modifications to the Voluntary Employee Benefits Association; and the beginning of an exchange of outstanding bonds for equity.  As of today, none of these have been accomplished in Treasury’s view. 

Treasury’s analysis of the money GM is burning through is frightening. Its cash needs from legacy liabilities continue to grow, reaching about $6 billion per year in 2013 and 2014. To meet this cash outflow, GM needs to sell 900,000 additional cars per year, something it has repeatedly proven it cannot do. GM under its own assumptions — which Treasury rejects — remains breakeven, at best, on a free cash flow basis throughout the period, thus failing the fundamental test of viability. Under its own plan, GM generates -$14.5 billion (negative) free cash flow over its six year forecast period (2009-2014). Even in 2014, GM is still losing money.

Treasury also notes: “Since the company has built a plan with little margin for error, even slight swings in its assumptions produce significant and ongoing negative cash flows. For example, a 1% share miss in overall global sales, all else being equal, in 2014 would lead to a $2 billion cash flow reduction in that year.”

GM continues to earn a disproportionate share of its profits from high-margin trucks and SUVs and is thus vulnerable to energy cost-driven shifts in consumer demand. Of its top 20 profit contributors in 2008, only nine were cars. And, of course, the hemorrhaging of market share, going on for decades, continues. (In 1980, GM’s U.S. market share was 45%; in 1990, 36%; in 2000, 29%; in 2008, its share was 22%. GM has been losing 0.7% per year for the last 30 years.)

It also remains vulnerable to the upcoming regulatory increases in fuel economy – many of its products rank in the bottom quartile of fuel economy performance, compared with other automakers. Worse, the company has devoted significant resources to the Chevrolet Volt electric car in an attempt to catch up with Toyota in green car credibility, but at its currently projected price, it’s much more expensive than gasoline-fueled hybrid competitors, and needs substantial reductions in cost – or taxpayer financed incentives - to become viable.

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2 Responses to “New GM CEO Confirms More Cuts Are Coming”

  1. WHO KILLED BIG AUTO
    (Who Killed Davey Moore?, Bob Dylan)
    WilliamBanzai7 Blog

    Sing along link: http://www.youtube.com/watch?v=62daicHQ9as

    Who killed the BIG AUTO?,
    Why an’ what’s the reason for?

    “Not I,” says the FECKLESS MOTOWN CEO ,
    “Don’t point your finger at me.
    I could’ve retooled it to much better CAFE rate
    An’ maybe kept it from this fate,
    But the customers and dealers would’ve booed, I’m sure,
    At not gettin’ their money’s worth.
    It’s too bad it had to go,
    But there was a pressure on me too, you know.
    It wasn’t me that made it fall.
    No, you can’t blame me at all.”

    Who killed BIG AUTO ,
    Why an’ what’s the reason for?

    “Not us,” says the URBAN SUV WARRIOR CROWD,
    Whose off road dreams created one big greenhouse gas cloud.
    “It’s too bad it died alright
    But we just love that high line of sight.
    We didn’t mean for it to meet this death,
    We just wanted a safe ride instead,
    There ain’t nothing wrong in that.
    It wasn’t us that made it fall.
    No, you can’t blame us at all.”

    Who killed BIG AUTO,
    Why an’ what’s the reason for?

    “Not we,” says the POLITICIAN,
    Puffing on a BIG OIL private label cigar.
    “It’s hard to say, it’s hard to tell,
    I always thought that BIG AUTO was well.
    It’s too bad for Detroit City its dead,
    But if it was sick, they should’ve said.
    It wasn’t me that made it fall.
    No, you can’t blame me at all.”

    Who killed BIG AUTO,
    Why an’ what’s the reason for?

    “Not we,” say the GAMBLING SHAREHOLDERS and BONDHOLDERS,
    With their proxies and coupons still in their hands.
    “It wasn’t us that knocked it down,
    We always thought the Directors would do what needed to be done.
    We didn’t commit no ugly sin,
    Anyway, we put money on it to win.
    It wasn’t us that made it fall.
    No, you can’t blame us at all.”

    Who killed the BIG AUTO,
    Why an’ what’s the reason for?

    “Not me,” says the UAW NEGOTIATOR,
    Surfing for member benefits like a used lemon trader,
    Sayin’, “Unions ain’t to blame,
    There’s always legacy costs built in the automotive game.”
    Sayin’, “Big labor is here to stay,
    It’s just the good old American way.
    It wasn’t me that made him fall.
    No, you can’t blame me at all.”

    Who killed BIG AUTO,
    Why an’ what’s the reason for?

    “Not we,” say the JAPANESE whose well managed fists
    Laid it low in a cloud of hybrids and “kaizen” mist,
    Who came here after the Second World War
    Where efficient design was shown Motown’s back door.
    “We hit em, we hit em, yes, it’s true,
    But that’s what global competition is meant to do.
    Don’t say ‘murder,’ don’t say ‘kill.’
    It was engineering destiny, it was divine will.”

    Who killed the BIG AUTO,
    Why an’ what’s the reason for?

  2. Carol King says:

    I am a native Detroiter (not a suburban Detroiter — an east side of Detroit Detroiter) who grew up with the people who dreamed of getting good, steady jobs as autoworkers. Those days are gone. The American auto industry has been in decline for many years and while I’m hoping we can stop the slide, I am afraid it’s too far gone, at least for the American auto workers with nothing to replace those good jobs with decent wages and benefits.