GM Announces $5 billion in Additional Liquidity Enhancement Initiatives

  • Operating actions announced July 15 remain on track, targeted at $10 billion in cash improvements through 2009
  • Asset sales of $2-4 billion in process, including Hummer, ACDelco and Strasbourg facilities
  • Additional actions targeted at further improving liquidity by $5 billion by end of 2009
    • 2009 capital spending reduced by $2.5 billion; key product and technology programs on track
    • Additional GMNA structural cost reductions of $1.5 billion
    • Further working capital improvements of $500 million
    • Further salaried employment cost reductions of $500 million
  • Engaging the U.S. government to aid the domestic auto industry

General Motors Corp. (NYSE: GM) today announced it is taking further
actions to improve liquidity and reduce structural cost in response to
deteriorating global economic conditions, tight credit market
conditions and a rapid retraction of sales in the auto industry.

“Volatility in the world’s financial markets, tightening of consumer
and business credit and historically-low consumer confidence has
created a very challenging environment ,” said Rick Wagoner, GM
chairman and chief executive officer. “Given the current lack of credit
availability we must take further difficult ‘self-help’ actions .”

Over the past several years, GM has been taking major actions to
restructure its business and position it for long-term growth, making
dramatic reductions in structural cost, revitalizing its product
portfolio with award-winning vehicles, growing aggressively in emerging
markets around the world and making demonstrable strides in advanced
technology leadership (link to release).

As part of its ongoing restructuring, on July 15, 2008 GM outlined a
number of initiatives aimed at improving liquidity by an estimated $15
billion through 2009. Those initiatives included internal operating
actions within the company’s control that are estimated at $10 billion,
asset sales estimated at $2-4 billion and capital market activities
targeted at $2-3 billion (link to release).

To date, the $10 billion in internal operating actions have either been
completed or are on track for full execution by the end of 2009.

GM’s assets currently being assessed for potential sale include the
Hummer vehicle business and brand and its ACDelco all-makes aftermarket
parts business, which has distribution channels in more than 100
countries. GM is also evaluating strategic options for its technical
and manufacturing center in Strasbourg, France. GM is also analyzing
other potential asset sales.

Despite the seizing up of the credit markets, GM completed some capital market transactions (link to release)
in September to improve the company’s liquidity by $500 million by
year-end 2009. While GM has unencumbered assets of more than $20
billion that it could potentially use as collateral for a secured debt
offering, the U.S. credit markets remain inaccessible, and the
contagion effect on other financial markets around the world provides
limited alternatives. Accordingly, t he timing of the $2-3 billion of
capital market financing GM initially targeted remains uncertain.

In light of the further deterioration in the U.S. auto market and
continued turmoil in the global financial markets, GM is making
downward revisions to its liquidity planning assumptions. For planning
purposes, GM is assuming U.S. light industry sales volumes of 11.7
million units in 2009, and 12.7 million units in 2010. GM is also
revising its average oil price estimates to range between $60-80 per
barrel in 2009, and $100-$120 per barrel in 2010.

In addition to its previously announced liquidity and capacity actions,
GM is taking further actions to improve liquidity by an incremental $5
billion by the end of 2009.

GM is reducing its
capital spending for the calendar year 2009 from approximately $7.2
billion to $4.8 billion. The reductions will be achieved by retiming
select vehicle programs in North America and Europe by three to 12
months, and deferring capacity expansion projects. Every automaker is
having to adjust portfolios and spending plans to some degree, due to
the rapidly changing business conditions and increasing challenging
regulatory requirements. Lengthening product lifecycles is a common
response to these pressures.

Although the
timing of several vehicle programs will be revised, key product and
technology programs remain on track. GM has a robust pipeline of
competitive new vehicles over the next two years. In GM’s largest
markets, U.S., China and Europe, 22 new vehicles will be launched in
2009, and 19 in 2010. In the U.S. alone, GM will launch 15 new vehicles
through year-end 2010, 14 of which will be fuel-efficient cars or
crossovers, including the Cadillac CTS wagon and SRX crossover,
Chevrolet Camaro Coupe and Equinox crossover in 2009, and Saab 9-4x
crossover, Chevrolet Cruze small car in 2010. Spending levels for the
extended range electric Chevrolet Volt and other fuel-economy
improvement initiatives to meet increasingly aggressive global fuel
economy standards have been increased.

GM is
also taking steps to reduce structural cost by an additional $1.5
billion. Actions being employed to achieve the savings include further
reductions in sales promotion spending, further reductions in support
of dealer network activities and channel consolidations, and further
revisions to production scheduling reflective of depressed industry
conditions. In response to declining demand, GM will re-rate operations
at a number of operations in North America to scale back production,
beginning in the first quarter of 2009.

GM also
expects to make further reductions in engineering expense due to the
aforementioned delays in capital spending. In addition, various types
of discretionary spending, such as travel, use of consulting resources,
and non-scheduled overtime for hourly and salaried employees, will also
be restricted.

A number of working capital
improvements, totaling approximately $500 million, are also being
taken, including additional inventory reductions, with an emphasis on
further cuts in components, buffer stocks and finished goods.

Measures are also being taken to further reduce salaried employment
costs in the U.S. and Canada. The cost reduction target has been
increased to approximately 30 percent, up from approximately 20 percent
as announced on July 15. The reductions will be achieved with further
contract and salaried headcount reductions by the recent
over-achievement of the salaried window retirement goal, mutual
separation programs, and if necessary, involuntary separations.
Employment cash cost savings will also be achieved in Western Europe in
2009 as part of its necessary, broad-based labor cost reduction

Salaried employees will not
receive enhanced variable pay (incentive compensation) in 2009 for the
2008 performance period. GM had previously announced there would be no
discretionary cash bonuses for 2008 for the company’s executive

In addition, GM suspended the
company match for the stock savings (401k) plan in the U.S., effective
November 1, 2008, and matching contributions for tuition assistance and
other reimbursement programs are being suspended effective January 1,

Even if GM implements the planned
operating actions that are substantially within its control, GM’s
estimated liquidity during the remainder of 2008 will approach the
minimum amount necessary to operate its business.  Looking into the
first two quarters of 2009, even with its planned actions, the
company’s estimated liquidity will fall significantly short of that
amount unless economic and automotive industry conditions significantly
improve, it receives substantial proceeds from asset sales, takes more
aggressive working capital initiatives, gains access to capital markets
and other private sources of funding, receives government funding under
one or more current or future programs, or some combination of the
foregoing.  The success of GM’s plans necessarily depends on other
factors, including global economic conditions and the level of
automotive sales, particularly in the United States and Western Europe.

Further detail on the additional liquidity actions and
GM’s current liquidity position and outlook will be disclosed in a Form
8-K filing with the Securities and Exchange (SEC) later today.

GM has taken a host of aggressive “self help” actions to improve its
business, but additional support from the U.S. government to aid the
auto industry during this industry downturn is essential. The company
has engaged in discussions with various U.S. federal government
agencies and Congressional leaders about the important role that the
domestic automotive industry plays in the U.S. economy, and the need
for immediate government funding support given the economic and credit
crisis and its impact on the industry, including consumers, dealers,
suppliers and manufacturers. Many in the government have acknowledged
the important role of the industry in the national economy and the
discussions are ongoing; and at this point, their outcome cannot be
predicated with certainty.

“These tough
actions, though very difficult to make, demonstrate our commitment and
determination to weather this economic downturn and emerge a stronger
and more competitive company,” said Wagoner. “We remain focused on
retaining our focus on product excellence and our commitment to
advanced propulsion technology leadership and returning the business to
profitability despite the current market conditions.”

Finally, GM has recently explored the possibility of a strategic
acquisition that it believed would generate significant cost reduction
synergies and substantially strengthen GM’s financial position in the
medium and long term, while being neutral or modestly positive to cash
flow even in the near term. While the acquisition could potentially
have provided significant benefits, the company has concluded that it
is more important at the present time to focus on its immediate
liquidity challenges and, accordingly, considerations of such a
transaction as a near-term priority have been set aside.

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