GM Viability Plan: Spin Off Saab, Saturn, and HUMMER

February 17, 2009
General Motors has released the viability plan it expects to win more bailout loans from Congress--another $16.6 billion, to keep it operating until it can begin repaying the loans in 2012.

Like the earlier filing by Chrysler, GM's plan involves trimming down in the number of models it sells, and betting heavily on electrified vehicles like the 2011 Chevrolet Volt. Unlike Chrysler's plan, though, GM's sketches include the sale, spin-off, or shuttering of three brands: Saab, Saturn and HUMMER.

Saab is the most likely to survive the cuts. That's only because the Swedish government is negotiating with GM to inject $3 billion into the automaker, recenter production of Saabs in Sweden, and relieve GM of all responsibilities to market and engineer cars for the brand. In short, it's spinning off the brand to the Swedish government. If that plan fails, Saab could be shut down.

A less happy future is likely for HUMMER. If a sale to any one of several interested companies--late speculation has a Chinese car company taking control by March 31--the brand will be shut down.

Saturn will be closed in 2011, unless a buyer can be found for its assets. The brand was launched in 1990 but has never turned a profit--and GM is content to keep selling the current lineup through 2011 and then to end sales, negotiating an out clause with several hundred Saturn dealers in the process.

GM says it will press ahead with new vehicles for its core brands--Chevrolet, Cadillac, Buick and GMC. Pontiac will continue as a niche nameplate under the Buick-GMC brand. The planned launches include the 2011 Chevrolet Volt, the 2011 Chevrolet Cruze, the 2010 Chevrolet Equinox, the 2010 Buick LaCrosse, and 2010 Cadillac SRX.

Hidden deeper in the document available at the GM Web site is the slowdown in introductions of new product--by the time GM begins to repay its taxpayer loans, it will be introducing 5 new vehicles a year. And trucks will be the least loved-on vehicles in its lineup--the company says it will focus new vehicle development primarily on cars and crossovers.

The release follows; see the full PDF at the GM Web site.

2011 Cadillac CTS Coupe

2011 Cadillac CTS Coupe

WASHINGTON - General Motors (NYSE: GM) today presented the United States Department of Treasury with an updated plan that boldly responds to the weaker global auto market conditions and details the company's long term viability. The plan, which provides a comprehensive review of key aspects of GM's restructuring, is the first of two status reports required by the loan agreement signed by GM and the U.S. Treasury on Dec. 31, 2008.

The plan submitted today addresses the key restructuring targets required by the loan agreement, including a number of the critical elements of the turnaround plan that was submitted to the U.S. government on Dec. 2, 2008. Among these are: U.S. market competitiveness; fuel economy and emissions; competitive labor cost; and restructuring of the company's unsecured debt. It also includes a timeline for repayment of the Federal loans, and an analysis of the company's positive net present value (NPV).

The plan also details the future reduction of GM's vehicle brands and nameplates in the U.S., further consolidation in its workforce and dealer network, accelerated capacity actions and enhanced manufacturing competitiveness, while maintaining GM's strong commitment to high-quality, fuel-efficient vehicles and advanced propulsion technologies.

GM's viability plan actions result in a projected GM North America (GMNA) earnings before interest and taxes (EBIT) breakeven point of 11.5-12.0 million units in the U.S., compared to the 12.5-13.0 million unit range indicated in the Dec. 2, 2008 plan. The operating and balance sheet improvements outlined in GM's viability plan are forecasted to result in a significant enterprise value and positive net present value, positive adjusted EBIT in 2010 and positive operating cash flow for its North American operations in the same year.

Overall adjusted operating cash flows are expected to approach breakeven levels in 2011, and improve to more than $6 billion in the 2012-2014 period, reflecting both the full effect of GM's global restructuring initiatives and recovering industry volumes.

GM's need for government support was driven by the global financial market crisis, dramatically weaker economy and the resulting precipitous decline in vehicle demand. These conditions have impacted the entire auto industry, which in the U.S. is down approximately 40 percent from its peak in 2005, to the lowest per capita sales rate in 50 years. Though the impact has been most severe in the U.S. and Western Europe, automakers around the world are reporting large losses, with many seeking government assistance to weather the downturn.

Following the steep decline in U.S. industry sales in December 2008 and January 2009, GM responded by further lowering its forecast for 2009 U.S. industry sales to 10.5 million units (57.5 million units globally) for viability planning purposes. These industry planning volumes are more conservative than those being used by most other industry sources.

"The U.S. and global auto industries are facing times of unprecedented challenge," said GM Chairman and CEO Rick Wagoner. "These conditions dictate that we must take very tough actions to accelerate GM's restructuring efforts. We've made a lot of progress since the plan we submitted on December 2, 2008, and we have more to do before March 31. The plan we delivered today to the U.S. Treasury is aggressive but achievable. It provides a clear pathway for GM that continues to support American manufacturing and technology innovation, which are vital to the future of our nation's economy."

Since the original plan submission on Dec. 2, 2008, GM has made significant progress in a number of areas, including the following:

Dealers and Brands

Evaluating Hummer sale options
Completed strategic review of global Saab business and sought buyers for the business
Saturn review complete; sale or spin-off possible; if not, phase out the brand at the end of current product lifecycle
Further reduction in model nameplates
Accelerated consolidation of GM's dealer network
Cost Competitiveness

Further reduction in U.S. manufacturing capacity beyond Dec. 2 targets
Significant progress with the UAW to address labor cost competitiveness
Special hourly attrition program, salaried employment reductions
Canada restructuring discussions advancing
Engaged with European labor partners to achieve $1.2 billion in cost reductions
Balance Sheet

Term sheets exchanged with UAW and bondholder committee advisors
Initiated bond exchange negotiations with bondholder committee advisors
UAW and bondholder committee advisors conducting extensive due diligence
Building on progress GM has already made, the company is taking a number of additional actions to reduce costs, streamline its business and improve its competitive position.

Marketing and Revenue Improvement

In the U.S., GM will focus on its core brands; Chevrolet, Cadillac, Buick and GMC. Pontiac will serve as a focused brand with fewer entries, within the Buick-Pontiac-GMC channel. GM will have a total of 36 nameplates in 2012, down 25 percent from 2008 levels. The plan also provides additional detail on the Hummer, Saturn and Saab brands.

GM expects to make a decision to sell or phase out the Hummer brand by Mar. 31, with a final resolution expected no later than 2010.

GM has conducted a strategic review of the global Saab business and has offered it for sale. Given the urgency of stemming sizeable cash demands associated with Saab operations, GM is requesting Swedish government support prior to any sale. The company has developed a specific proposal that would have the effect of capping GM's financial support, with Saab's operations effectively becoming an independent business entity Jan. 1, 2010. While GM hopes to reach agreement with the Swedish government, the Saab Automobile AB subsidiary could file for reorganization as early as this month.

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