GM shifts lineup from trucks to cars

Four truck factories to close; 9,100 jobs affected; Challenge is to woo more small-car buyers

Sharon Terlep / The Detroit News

WILMINGTON, Del. -- General Motors Corp., which laid out plans Tuesday for another seismic restructuring, is racing to reinvent itself as a smaller company less reliant on big trucks.

By decade's end, the No. 1 U.S. automaker will have shuttered four truck plants, cut thousands more jobs and re-created its lineup to include more fuel-efficient cars and crossovers and less of the hulking SUVs and pickups that have long driven profits in Detroit.

Michigan, much of the traditional Rust Belt and the United Auto Workers were spared the most wrenching actions outlined by CEO Rick Wagoner at GM's annual shareholders meeting. But towns such as Moraine, Ohio, and Oshawa, Ontario, were left reeling from news of impending plant closures that will affect 9,100 hourly and salaried workers in North America.

"This is a tough situation," Wagoner said after the automaker's 100th shareholder's meeting. "This is about, 'The U.S. market has radically changed and we have to adapt to that.' "

The restructuring is GM's most aggressive response to a disappearing U.S. truck market and economic pressures that have thwarted the automaker's North American turnaround. GM is banking on the dramatic moves to put it back in the black after years of losses.

But Wagoner acknowledged an uncertain road ahead as the company grapples with a combination of broad economic woes as well as challenges facing GM alone. Among them: continuing pressure from volatile gas prices, a potential financial drain from GMAC LLC and Delphi Corp., lower profit margins on cars, and questions about whether enough consumers will embrace GM sedans and subcompacts after long showing a preference for import models.

"GM will now need to deliver on both volume and pricing enhancement in cars -- a more difficult challenge given the strong position of transplant brands," Lehman Brothers analyst Brian Johnson wrote in a research note.

When the restructuring is done, midsize SUVs such as the Chevrolet TrailBlazer, and the entire lineup of Hummer trucks may disappear from GM's portfolio. Wagoner said GM is considering all options for the Hummer brand, including a possible sale.

In their place, GM will add an array of small cars, which Wagoner expects to include the battery-powered Chevrolet Volt. GM's board of directors on Monday approved production funding for the car whose fate depends on GM's ability to deliver lithium-ion battery technology.

The restructuring blueprint was finalized late Monday night at a meeting of GM's board. It will result in a fundamental shift in GM's product mix from half cars and half trucks to a lineup that is 60 percent cars and 40 percent trucks.

The company hopes to turn out new models that replicate the success of its hot-selling new Chevrolet Malibu and a successful trio of new crossovers.

But even resounding success with smaller models won't deliver the profit margins GM enjoys with its pickups and SUVs.

A greater reliance on cars, said GM Chief Operating Officer Fritz Henderson, "keeps the pressure on us to keep our costs in line."

4 plants to shut by 2010

By 2010, the automaker plans to close factories in Moraine; Janesville, Wis.; Oshawa; and Toluca, Mexico. Only the Janesville plant is represented by the UAW, which last year struck landmark cost-saving labor deals with Detroit's Big Three. Wagoner said the plant closing decisions were solely based on which vehicles each factory builds. Plants that build strong sellers or have the flexibility to produce different vehicles were the ones that survived.

While slashing truck output, GM will ramp up production of more fuel-efficient cars.

GM's Orion Township factory will get a third shift to build more Chevrolet Malibu and Pontiac G6 midsize sedans. Many new workers likely will come from Flint and Pontiac truck plants, where GM is eliminating shifts this year.

An assembly plant in Lordstown, Ohio, is promised the next-generation replacement for the Chevrolet Cobalt and will get a third shift to build more Cobalts and Pontiac G5 small cars.

A new, fuel-efficient engine will be built in Flint.

Wagoner also said to expect the Chevy Volt electric car in showrooms by the end of 2010.

GM is working diligently to produce a lithium-ion battery that can adequately power the car, and is seeking tax breaks to build the Volt at its Hamtramck assembly plant.

He said a production model will soon be unveiled. "The Chevrolet Volt is a go," Wagoner said.

Turnaround delayed

Wagoner noted that the U.S. auto market has fared worse than was expected heading into the year.

The company had predicted a turnaround in the second half of 2008, but now doesn't expect that until well into 2009.

GM hasn't reported a full-year profit since 1994 and began this year with a $3.3 billion loss in the first quarter. Company executives have said their recovery plan didn't account for $4-a-gallon gasoline and higher energy costs that Wagoner said he believes are "by and large, permanent."

The factory closures, along with shift reductions announced earlier this year at four truck plants in the U.S. and Canada, will save GM $1 billion a year, the company said.

That's in addition to $5 billion annual savings expected from the automaker's new contract with the UAW by 2010.

GM also will usher out 19,000 hourly workers by July 1 as part of a buyout program extended to all 74,000 hourly workers this spring. In 2006, another 34,000 rank-and-file left the company as part of a similar program.

When the reductions are in place, GM will have cut $15 billion in annualized costs since 2005.

Wagoner said GM has no plans to reduce the automaker's salaried work force. Nor will GM cut its dividend of 25 cents per quarter.

The timing of all of the moves is subject to changes in market demand, Wagoner said.

GM stock closes up

Wall Street's reaction to GM's plan was measured. Shares closed up 14 cents on Tuesday, at $17.58.

"We believe these actions are further winding up GM's operating leverage that will drive earnings well beyond investors' current expectations as the U.S. market stabilizes and ultimately recovers in late 2009," Merrill Lynch analyst John Murphy wrote in a research note.

A reminder of the substantial pressure on GM came just a few hours after the shareholders meeting, when GM announced that its sales plummeted 27.5 percent in May, and are down 15.9 percent so far this year.

At the same time, massive mortgage losses at GMAC, the financial firm part-owned by GM, and continued cash demands from bankrupt Delphi Corp, GM's former parts unit, continue to weigh on the automaker's bottom line.

"I wish I knew where the bottom is," COO Henderson said of money-losing GMAC. "I don't."

As for GM overall, he added: "I can't say all the charges are behind us."

Reach Sharon Terlep at (313) 223-4686 or sterlep@detnews.com.