GM president and chief operating officer Fritz Henderson confirmed Tuesday what most have thought for some time.
“When the price of oil tops $145 a barrel, it’s obvious the shift in mix from full-size SUVs and pickup trucks is permanent,” he said. “We can’t wait for conditions to improve to ensure survival and success. It’s time to react by going to where the customer is going and not where he just left.”
With that, GM detailed plans Tuesday to cut costs in order to generate about $15 billion in cash through the end of 2009 to ensure ample liquidity to survive even if industry sales continue to slide and gas prices continue to rise.
GM said it has doubled the number of trucks and SUVs it will remove from production plans by the end of 2009, taking that number up to 300,000 units. GM wouldn’t specify which plants will be affected until after it meets with the UAW.
“We’re retreating from trucks but protecting cars and crossovers,” GM vice chairman Bob Lutz said. “Our goal is to adopt technology to become the fuel-economy leader in every segment we participate in in the future.”
So don’t look for trucks or truck-based derivatives, but rather for high-mileage cars and car-based crossovers to fill showrooms.
How will GM make a profit selling low-priced economy cars rather than big SUVs and trucks?
“Why haven’t we made money on small cars?” Lutz said. “Because with gas at $1.25 a gallon no one wants small, they want big cars with V-8s. But you’ll see profits on small cars go up as volume goes up.”
GM chairman Rick Wagoner said the automaker will also cut capital spending by $1.5 billion by the end of 2009, though the cuts will come from deferring next-generation pickups and SUVs, as well as a V-8 engine program, so cars and crossovers won’t be shorted a dime.
To ensure GM has ample liquidity, it will also cut sales and marketing programs, though Troy Clarke, president of GM North America, wouldn’t elaborate on that other than to say GM would cut spending on promotional events and motorsports. Asked if GM would abandon such things as NASCAR, he replied that GM has “given scrutiny to modifications in our promotional footprint.”
Wagoner also said GM continues to shop its Hummer brand around, and that there’s been “lots of interest,” but nothing to report yet. As for disposing of other assets, like other GM brands, Wagoner said GM is committed to finding ways to boost profits of other brands, not dispose of them.
In addition to cutting truck and SUV production, GM said other sacrifices to ensure it has the dough to survive include halting common-stock cash dividends and doing away with cash bonuses to executives. It will also halt medical coverage to retirees over the age of 65, who will now have to use Medicare.