GM transition under way
By Tom Krisher
DETROIT — With an almost certain bankruptcy filing days away, General Motors is beginning its reinvention, planning to retool one factory to make its smallest vehicles ever in the U.S. and rid itself of the biggest.
As GM's board began two days of meetings yesterday to make a final decision on the company's fate, its main union overwhelmingly approved dramatic labor cost cuts. Germany's finance minister said a plan was approved for Canadian auto parts maker Magna International Inc. to rescue GM's European Opel unit. And a deal to sell GM's rugged but inefficient Hummer brand also appeared on the horizon.
The moves provided more clues about what a restructured GM might look like ahead of the expected Chapter 11 filing Monday. Taxpayers will eventually own nearly three-quarters of GM, with a total government commitment of nearly $50 billion.
GM has yet to confirm it will seek bankruptcy protection but scheduled a news conference for Monday in New York.
With the government's backing and nearly $20 billion in U.S. loans so far, the company has made more dramatic changes in just a few days than it has in decades.
"It's been coming to a head for a very long time," said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. "But in just the past few months, we've really seen steps being taken to completely and dramatically change the face of American auto manufacturing."
GM said it plans to reopen a shuttered U.S. factory to build subcompact cars. The retooled factory would be able to build 160,000 cars a year and create 1,200 jobs, offsetting some of the 21,000 that will be lost when GM closes 14 factories next year.
GM's plans required the backing of the United Auto Workers union, which has ratified a package of concessions designed to reduce General Motors Corp.'s labor costs.
UAW President Ron Gettelfinger said 74 percent of GM's 54,000 U.S. production and skilled-trade workers voted in favor of the deal.
Bankruptcy experts say having the labor agreement in place will help move the process through court more quickly.
"We accept what it is and did the best we could," Gettelfinger said. "We've given a lifeline to GM until they can rebound."
GM's stock tumbled to the lowest price in the company's 100-year history, closing yesterday at just 75 cents after trading as low as 74 cents. The government plan for GM revealed Thursday would make the shares virtually worthless.
The United Auto Workers' reluctant but overwhelming ratification of concessions will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.
The changes, plus others that will be worked out in court, will shrink GM and position it to be among the world's most competitive automakers if it can emerge from bankruptcy protection and survive the global auto sales slump, Bragman said.
"They've eliminated their legacy costs. They've already invested in new product that's coming. They have the ear of the government unlike any time in their history, and the government has said basically 'we are going to help you survive and thrive,' " Bragman said.
GM is banking on more demand for smaller cars previously shunned by Americans. The government decided earlier this month to raise fuel economy standards for the entire U.S. fleet by 2016.
The new standards were one of the biggest factors in GM's announcement to build subcompacts in the U.S. rather than in China, said a person familiar with GM's plans who spoke on condition of anonymity because of the sensitive nature of the plans.
Chrysler LLC, already in bankruptcy protection, is banking on the same thing. It wants to sell all its assets to Fiat Group SpA so the Italian automaker can start building its sophisticated small cars on this side of the ocean.
The strategy is still a big gamble. Americans have opted for bigger cars and trucks, with the exception of last summer, when gas topped $4 per gallon. GM and Chrysler hope people will spend more for better-equipped subcompacts with more luxurious interiors and performance that rivals luxury sedans.
Smaller costs after bankruptcy should help the companies make money even though compact cars carry far smaller profit margins than pricey SUVs. But there remains a risk that gas prices will remain low and the cars won't sell, blowing up the automakers' new business models.