General Motors will cut 21,000 jobs, swap debt, drop Pontiac
More plants shutting in plan to stay solvent
General Motors Corp. unveiled a plan Monday to close more factories, phase out the Pontiac brand, cut 21,000 jobs by next year and drastically reduce the number of dealerships.
The plan also would leave the automaker majority-owned by the federal government, based on an offer to swap much of the company’s roughly $27 billion in bond debt for GM stock.
Monday’s announcement reflects the urgency that the automaker feels to avoid bankruptcy. The government still must pass judgment on the plan ahead of a June 1 deadline.
“The task at hand in terms of what we need to get done is formidable,” said Fritz Henderson, GM’s chief executive officer. “But it can be done.”
How all of these sweeping changes will be felt in the Buffalo Niagara region is yet to be determined. GM said that it won’t identify which six additional plants it will target for shutdown until next month.
The local GM dealer network is expected to continue to shrink, with GM intending to lower its U. S. dealer count by 42 percent by the end of 2010 from where it was in 2008.
GM said that it will ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt.
In addition, GM is offering stock to the United Auto Workers for at least 50 percent of the $20 billion the company must pay into a union-run trust that will take over retiree health care expenses starting next year. The plan would leave current shareholders owning just 1 percent of the century-old company, which is fighting for its life in the worst climate for auto sales in 27 years.
GM is living on $15.4 billion in government loans. It said Monday in a filing with the Securities and Exchange Commission that it envisions receiving an additional $11.6 billion.
The company’s economic health resonates in Western New York. The region is home to a GM powertrain plant in the Town of Tonawanda with 1,140 hourly and salaried employees, as well as key GM suppliers such as the Delphi plant in Lockport.
Henderson said GM will move swiftly to close more assembly, powertrain and stamping plants, but he did not name the facilities that will be affected. Its number of U. S. factories, including some previously announced closings, will fall to 34 by the end of 2010 and to 31 by 2012. It had 47 factories operating at the end of 2008.
Plant closings up to 9
Based on GM’s updated timetable, there will be three more factory closings in 2010 in addition to the six already planned.
Nina Price, a GM spokeswoman at its Tonawanda plant, said that it was “premature” to say whether the River Road plant might be affected by the revised factory plan, with GM still completing work on issues such as labor costs, personnel and the health care trust.
Nallan C. Suresh, a University at Buffalo professor, said he thinks that the Tonawanda plant remains safe. “Tonawanda continues to look strong,” said Suresh, who is chairman of the department of operations management and strategy in UB’s School of Management.
The Tonawanda plant is already coping with GM’s reduced production, the auto sales slump and staffing reductions. About 360 of its 1,010 hourly workers are on layoff, and 60 of its salaried employees are losing their jobs by the end of this month.
Among the vehicles for which the Tonawanda site makes engines are Pontiac’s G6. The impact of GM’s decision about Pontiac at the River Road plant is still being determined, Price said.
Suresh said he was not surprised by most of the drastic steps outlined by GM, but the number of hourly job cuts that it plans by 2011 — about 7,000 to 8,000 more than projected back in February — exceeded what he expected. GM also plans more cuts in salaried job but has not yet provided details.
Sadness about Pontiac
Suresh said he believes that the overall plan will be sufficient to keep GM out of bankruptcy. “I think this time they have come up with a viable plan, at least from the government’s point of view,” he said.
Dealers who sell new Pontiacs are preparing for life without the storied brand, which has been popular locally. There are nine Pontiac dealers in Erie and Niagara counties, according to Pontiac’s Web site. Each of them sells at least one other GM brand; under a GM sales strategy, Pontiac is often grouped with Buick and GMC vehicles.
Joe Smith, owner of David Chevrolet Buick Pontiac in Niagara Falls, said he was disappointed but not surprised by GM's decision about Pontiac. When GM announced in February that it planned to turn Pontiac into a niche brand, he began to wonder what was in store for its product line.
"It's unfortunate they had to kill it," Smith said. "We sell a lot of Pontiacs."
Despite GM's decision, prospective buyers should not be scared off, Smith said, since parts and service will still be available after the brand is gone. "It's still a good-quality product."
Tammy Lostracco of North Tonawanda said she was sad to learn about Pontiac's fate, but she still had her eye on buying a Pontiac G6. She was preparing to trade in her Buick Rendezvous and was drawn to the G6's sporty look. Lostracco said she felt reassured about spare parts being available and the warranty being honored. "I think they'll take care of us," said Lostracco, whose brother is retired from the Delphi plant. "I do want to support the American-made car."
Pontiac sales at franchised new-car dealers in Buffalo Niagara in the first three months of this year were down nearly 50 percent from a year ago, according to the Niagara Frontier Automobile Dealers Association.
Dealers falling faster
GM said that its number of U. S. dealers will fall to 3,605 by the end of 2010, from 6,246 last year. The new plan is faster and more far-reaching than the one released in February, which called for shrinking the dealer network to 4,100 by 2014.
“The goal is to accomplish this reduction in an orderly, cost-effective, and customer-focused way,” GM said. “This reduction in U. S. dealers will allow for a more competitive dealer network and higher sales effectiveness in all markets.”
How many Buffalo-area GM dealers will be affected is not known. Western New York is considered a strong source of GM vehicle sales, with some of the nation’s top-selling Chevrolet dealerships operating here.
Suresh said the more-drastic dealership cutbacks are intended to sharply reduce GM’s distribution costs and move GM closer to Toyota’s more economical sales-per-dealer ratio.
The professor said he believes that the “stiff deadlines” imposed by the government have proven effective. “Normally a restructuring of this magnitude will drag on for many years,” Suresh said.
GM said that it will concentrate on Chevrolet, Cadillac, GMC and Buick as core brands. Still to come are its decisions about Hummer, Saturn and Saab, three brands from which GM plans to cut all its ties.
The Associated Press contributed to this report. mglynn@buffnews.com
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