Business

GM to close plants, focus on small car

General Motors Corp. officially blew up its old business model Tuesday, closing four pickup truck and sport utility vehicle factories, announcing a new small car that could get 45 miles per gallon and shedding 10,000 jobs in the process.

But it remains to be seen whether the world's largest automaker by sales can sell enough cars to make money in a shrinking U.S. market that's shifting to smaller vehicles as gasoline hits $4 a gallon.

GM said the truck plant cuts, which will reduce capacity to produce pickups and large SUVs by about 35 percent, will save the company $1 billion per year, and when combined with earlier measures, by 2011 will save $15 billion over 2005 costs.

GM's moves, which come after a series of restructuring measures since 2005, are the result of a huge shift in U.S. consumer preferences for small cars and crossovers during the past two months.

“We at GM don't think this is a spike or temporary shift,” chief executive Rick Wagoner said. “We believe that it is, by and large, permanent.”

The automaker now will have to parlay its strong overseas sales and the lower North American costs into a profit by selling cars in the $15,000 to $20,000 range, half the price of its high-profit SUVs and pickup trucks.

GM lost $3.3 billion in the first quarter and burned through $3.4 billion in cash from January through March. Its May sales were down 28 percent compared with last May.

The pace of the cash burn may force GM back to the capital markets for more borrowing, although the company has said it has sufficient cash to withstand a downturn.

Wagoner also announced the automaker will build a new generation small car starting in mid-2010 at a factory in Lordstown, Ohio, that now makes the Chevrolet Cobalt.

In the past, costs generally were too high for Detroit automakers to turn a profit on small U.S.-built cars. But Wagoner said GM has lowered costs enough with new labor contracts and other measures to turn a profit.

“The direct answer is we need to,” Wagoner told reporters. “We believe we can build a car there profitably.”

The new car likely would be priced higher than the Cobalt, which runs in the mid-teens depending on how it's equipped. It would hit showrooms in the second half of 2010 and be powered by a 1-liter to 1.4-liter four-cylinder gasoline engine.

Wagoner also announced that the board of directors has approved production of the Chevrolet Volt plug-in electric car, which GM plans to bring to showrooms by the end of 2010.

News of the job cuts was devastating to communities that house the factories, but hourly workers likely will move to other plants to replace 19,000 who will leave the company this year under early retirement and buyout offers.

The automaker said it would idle pickup and SUV factories in Janesville, Wis.; Oshawa, Ontario; Moraine, Ohio; and Toluca, Mexico.

The announcement was an economic blow to some of the communities that have long been entwined with auto making.

“There were some tears and a lot of people were kind of ticked off, but it's part of the business,” said Scott Lambert, 39, who has worked at the Janesville plant for 13 years.

GM's actions add to a string of plant closures by the Big Three in the past several years. GM, Ford Motor Co. and Chrysler LLC have announced the shutdown of 35 plants since 2005, according to Sean McAlinden, chief economist with the Center for Automotive Research in Ann Arbor. Along with 35 additional closures at GM and Ford's chief suppliers, Delphi Corp. and Automotive Components Holdings LLC, he said the total hourly and salaried jobs eliminated comes to 149,000.

GM President and Chief Operating Officer Fritz Henderson said GM is planning for gasoline prices to stay around $4 per gallon for the foreseeable future, “with a bias upwards.”

When asked if GM should have moved more quickly to smaller vehicles, Henderson said he doesn't spend time looking in the rearview mirror.

“There's not much I can do about what I didn't do in the past,” he said.

General Motors Corp. officially blew up its old business model Tuesday, closing four pickup truck and sport utility vehicle factories, announcing a new small car that could get 45 miles per gallon and shedding 10,000 jobs in the process.

But it remains to be seen whether the world's largest automaker by sales can sell enough cars to make money in a shrinking U.S. market that's shifting to smaller vehicles as gasoline hits $4 a gallon.

GM said the truck plant cuts, which will reduce capacity to produce pickups and large SUVs by about 35 percent, will save the company $1 billion per year, and when combined with earlier measures, by 2011 will save $15 billion over 2005 costs.

GM's moves, which come after a series of restructuring measures since 2005, are the result of a huge shift in U.S. consumer preferences for small cars and crossovers during the past two months.

“We at GM don't think this is a spike or temporary shift,” chief executive Rick Wagoner said. “We believe that it is, by and large, permanent.”

The automaker now will have to parlay its strong overseas sales and the lower North American costs into a profit by selling cars in the $15,000 to $20,000 range, half the price of its high-profit SUVs and pickup trucks.

GM lost $3.3 billion in the first quarter and burned through $3.4 billion in cash from January through March. Its May sales were down 28 percent compared with last May.

The pace of the cash burn may force GM back to the capital markets for more borrowing, although the company has said it has sufficient cash to withstand a downturn.

Wagoner also announced the automaker will build a new generation small car starting in mid-2010 at a factory in Lordstown, Ohio, that now makes the Chevrolet Cobalt.

In the past, costs generally were too high for Detroit automakers to turn a profit on small U.S.-built cars. But Wagoner said GM has lowered costs enough with new labor contracts and other measures to turn a profit.

“The direct answer is we need to,” Wagoner told reporters. “We believe we can build a car there profitably.”

The new car likely would be priced higher than the Cobalt, which runs in the mid-teens depending on how it's equipped. It would hit showrooms in the second half of 2010 and be powered by a 1-liter to 1.4-liter four-cylinder gasoline engine.

Wagoner also announced that the board of directors has approved production of the Chevrolet Volt plug-in electric car, which GM plans to bring to showrooms by the end of 2010.

News of the job cuts was devastating to communities that house the factories, but hourly workers likely will move to other plants to replace 19,000 who will leave the company this year under early retirement and buyout offers.

The automaker said it would idle pickup and SUV factories in Janesville, Wis.; Oshawa, Ontario; Moraine, Ohio; and Toluca, Mexico.

The announcement was an economic blow to some of the communities that have long been entwined with auto making.

“There were some tears and a lot of people were kind of ticked off, but it's part of the business,” said Scott Lambert, 39, who has worked at the Janesville plant for 13 years.

GM's actions add to a string of plant closures by the Big Three in the past several years. GM, Ford Motor Co. and Chrysler LLC have announced the shutdown of 35 plants since 2005, according to Sean McAlinden, chief economist with the Center for Automotive Research in Ann Arbor. Along with 35 additional closures at GM and Ford's chief suppliers, Delphi Corp. and Automotive Components Holdings LLC, he said the total hourly and salaried jobs eliminated comes to 149,000.

GM President and Chief Operating Officer Fritz Henderson said GM is planning for gasoline prices to stay around $4 per gallon for the foreseeable future, “with a bias upwards.”

When asked if GM should have moved more quickly to smaller vehicles, Henderson said he doesn't spend time looking in the rearview mirror.

“There's not much I can do about what I didn't do in the past,” he said.

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