GM to announce job cuts, plant closures: analysts


Mon, Nov 21, 2005 - Page 12

General Motors Corp is expected to unveil sweeping plant closures and job cuts in coming days, in response to falling market share and revenues, analysts say.

GM's previously announced plan, to slash up to 25,000 jobs over three years, is likely to accelerate in talks with the United Auto Workers, analysts say, so GM can shutter plants before the company's national union contract expires in 2007.

The world's largest automaker lost market share as high gas prices drove consumers away from its gas-guzzling sport utility vehicles. GM lost US$3.8 billion in the first three quarters of this year and saw sales drop more than 20 percent in September and last month.

Chairman Rick Wagoner told employees on Wednesday that he had no plans to file for bankruptcy, even as debt markets worried about GM's future. Credit default swaps, which protect debt holders against default, have increased for GM creditors in recent days, signaling Wall Street doubts GM's prospects in the long haul.

"I'd like to just set the record straight here and now: There is absolutely no plan, strategy or intention for GM to file for bankruptcy," Wagoner said in a letter.

"The large losses at GM North America are unsustainable, for sure, and require a comprehensive strategy to address them ... a strategy that must be implemented promptly and effectively, to get our US business profitable again," he said.

GM share prices hit a 13-year low on Nov. 16, ending trading at US$21.29 before rebounding to more than US$24 per share by week's end.

Brian Johnson, analyst for Sanford C. Bernstein and Co in New York, called bankruptcy speculation "over-reaction." He joins Standard and Poor's analyst Efrain Levy, who this week upgraded his recommendation on GM shares to "hold" from "strong sell," citing GM's "sufficient" near-term liquidity, including US$19.2 billion in cash and marketable securities.

Troubles at GM's largest parts supplier, Delphi Corp, also pressure the company. Delphi, under bankruptcy protection from its creditors, wants wage concessions from the workers union and cuts of up to 26,000 jobs. The standoff could spark strikes or work slowdowns at Delphi plants. The resulting lack of parts could halt several GM assembly lines.

"The probability of work stoppages at certain [Delphi] facilities is high, and could still be very damaging to GM," Goldman Sachs analyst Robert Barry said.

A three-month strike at Delphi could cost GM upwards of US$13 billion, according to Deutsche Bank analyst Rod Lache.

"Delphi is a problem, bankruptcy concerns are not," JP Morgan analyst Himanshu Patel wrote in a report. "We acknowledge that a potential strike at Delphi represents a clear risk, and may weigh on the stock .... We are less concerned about a potential bankruptcy at GM."