General Motors Cutting More Jobs and Fast-Tracking Plant Closings Amid Merger Talks with Chrysler

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Researched by Industrial Info Resources (Sugar Land, Texas)--The final 10 weeks of 2008 will go a long way in deciding the near-term future of automotive giant General Motors Corporation (NYSE:GM) (Detroit, Michigan). After decades of mismanagement and poor decision-making, the automaker has lost more than $57 billion in the past 18 months. The losses, combined with a slumping automotive market as a result of the economic crash, credit crisis and financial destruction on Wall Street, have forced the automaker to make additional changes in its work force as well as begin negotiations with Chrysler LLC (Dearborn, Michigan) over a potential purchase of the smallest member of the Detroit Three.

Throughout the last half of 2007 and the first three quarters of 2008, GM has been trimming the fat throughout its massive infrastructure. Tens of thousands of jobs have been lost as a result, either through layoffs, early retirement or buyouts. In addition, several plants have been closed or had closing dates announced for some time in the near future. As part of its continuing effort to return to profitability, GM recently announced that it would be moving up the closing date on its Janesville, Wisconsin, truck and SUV assembly plant from 2010 to December 23, 2008, to coincide with the previously announced closure of the Moraine, Ohio, SUV-assembly plant. GM will also close its metal stamping plant in Grand Rapids, Michigan, on the same day. These two announcements will result in more than 2,600 jobs being lost.

In addition, GM has announced that it will lay off an additional 1,600 workers beginning in December 2008 and concluding in February 2009. On December 8, 400 workers at the Wilmington, Delaware, assembly plant will lose their jobs. The Wilmington facility currently assembles two-seat sports cars. On January 12, 500 workers will lose their jobs at the Detroit/Hamtramck sedan-assembly plant. To complete this current round of cutbacks, 700 workers will lose their jobs at the Pontiac, Michigan, pickup-truck-assembly plant on February 1.

The Wilmington facility, which assembles the Pontiac Solstice, Saturn Sky and Opel GT, will lose one complete shift as a result of these layoffs while the Detroit/Hamtramck plant, which assembles the Buick Lucerne and the full-size Cadillac DTS sedan, will only see a line speed reduction from 56 to 38 cars per hour. The Pontiac plant, which assembles the Chevrolet Silverado and the GMC Sierra pickup trucks, will also see a line speed reduction as a result of the layoffs, lowering production from 55 to 24 trucks per hour.

In the midst of all of these cutbacks in employment, GM has reportedly been in heavy negotiations with Chrysler on a merger. Cerberus Capital Management LP (New York, New York), which recently purchased the majority stake in Chrysler, is looking to get out of the automotive manufacturing business. Both sides have been negotiating for months in secret, and sources are indicating that the talks are in the advanced stages now. The deal would revolve around GM taking over Chrysler and handing its 49% stake in GMAC Financial Services to Cerberus, which purchased 51% of GMAC from GM back in 2006.

If the purchase does come to pass, GM would get an influx of much-needed capital that would help the company stay afloat, at least for a few more months. Currently, estimates have GM going through more than $1 billion each month to maintain operations. Many analysts believe that GM is nearing its minimum operating cash level of $14 billion at some point in early 2009, putting all of its operations at risk. With automotive sales tanking across the board, this move may be the only option left for GM as it comes precariously close to bankruptcy as the only option, an option that could potentially be extremely devastating for the automaker, especially with Toyota Motor Manufacturing North America (NYSE:TM) (Torrance, California) gobbling up market share on a daily basis.

While this purchase certainly looks good for GM's short-term future, one has to wonder whether the deal would be the largest bad move in a history of extremely bad moves made by the automaker. The acquisition of Chrysler would certainly give GM a much-needed shot in the arm with immediate cash, but it also would add plants that the company doesn't need, since it is currently planning to close operational facilities left and right. The acquisition would also mean more models, which, again, is about the last thing GM needs with sales plummeting on a daily basis; more brands, which the company possibly could sell off, especially the Jeep brand; more employees that it would have to lay off; and more dealers that the company cannot supply with vehicles that the consumer wants to purchase.

All in all, GM appears to be grasping at straws right now. The closures and layoffs, unfortunately, were going to happen no matter what other moves the automakers makes. The economy is dictating the downsizing of GM. Credit has dried up for the automaker, so it is easy to see where some easy, available cash would be a bright golden ring it could grasp for. But at the end of the day, when the company replaces all of the plants it has closed in the last several years with new plants that they will have to close in the near future to stay in business, and when it accumulates more employees that it eventually will just have to lay off, is this really all worth it? Perhaps Chapter 11 is the better part of valor.

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