GM Seen Cutting Deeper as Recovery Is Sideswiped

General Motors, facing a sinking U.S. market for trucks and SUVs, is expected to unveil steps on Tuesday to conserve cash and cut production of slower-selling models in a bid to shore up a faltering restructuring now in its third year, according to analysts.

GM said on Monday that Chief Executive Rick Wagoner and Chief Operating Officer Fritz Henderson would make a series of announcements and take questions from reporters and analysts as part of the automaker's annual meeting for shareholders.

General Motors
General Motors

Analysts expect GM to confirm deep production cuts pickup trucks and SUVs in North America as consumers bolt from those higher-margin vehicles in the face of record gas prices.

Beyond that, they say, the embattled automaker faces tough choices to protect its investment in heavily touted development programs such as the all-electric Chevrolet Volt, even as it works to conserve some $31 billion in cash and undrawn credit GM has described as its "liquidity cushion" in the downturn.

Among the options in its recession playbook, GM could also opt to cut dividend payments, commit to more quickly winnow overlapping models from its line-up and lay off white-collar workers in its sagging home market, analysts said.

GM's Wagoner and board members are also bound to be pressed by disgruntled investors on a CEO compensation package that rose 64 percent to $15.7 million last year given the growing pressure for cost cuts.

GM said last week that about 19,000 U.S. factory workers -- just over a quarter of its American blue-collar work force -- had taken buyouts to leave its payroll.

Analysts said the GM would have to quickly move beyond those sweeping hourly job cuts by cutting other costs to keep pace with a U.S. vehicle market that has dropped farther and faster than automakers thought possible a few months earlier.

GM's U.S. sales have dropped by almost 12 percent through April, a month that saw the industry's weakest sales since 1998. May U.S. sales, set to be announced on Tuesday just after GM's restructuring news, are expected to be as weak or weaker, with an even sharper drop in sales of more profitable trucks.

The declining truck and SUV market has prompted GM's cross-town Ford Motor to ready plans to cut white-collar jobs and stoked expectations GM will be pressed to follow suit with similar steps.

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All of GM's roughly 74,000 U.S. factory workers had been eligible for early retirement packages and buyouts intended to clear the way for hires of lower-wage workers under a deal negotiated last year with the United Auto Workers union.

But the full savings from that ground-breaking UAW deal will not kick in until 2010. That has left GM shares vulnerable to worries about the automaker's exposure to more immediate bad news, including the financial drag from former subsidiaries GMAC and Delphi.

GM shares have dropped almost 60 percent since October, when the UAW contract was ratified. The top U.S. automaker, which has been eclipsed by Toyota Motor in global sales has a market value of just 5 percent of Toyota.

The most pressing issue for GM is the collapsing demand for trucks and SUVs. Despite a three-month strike against supplier American Axle & Manufacturing Holdings that shut down GM's truck production into May, GM inventories remained high against diminished sales.

Lehman Brothers analyst Brian Johnson, who compares the market disruption for automakers to earlier oil shocks, said he expected GM to cut production of pickup trucks like the Chevy Silverado by 45 percent in 2008 and to cut output of full-size SUVs like the Tahoe by 38 percent.

"GM's inventories of large trucks have grown to worrying levels," Johnson said in a note for clients.

The impact would be immediate for GM's earnings in the coming quarters since the automaker, like its rivals, books revenue when vehicles are produced and shipped to dealers.

JPMorgan analyst Himanshu Patel said he saw scope for GM to take other steps to conserve capital, including eliminating a dividend payment of some $600 million per year.

One step GM has resisted is ramping up sales incentives as it did during the bounce back from the last recession in 2001. That could change with industry-wide sales on pace to slip to 15.5 million units or below this year, said Paul Taylor, chief economist with the National Automobile Dealers Association.

"I think we'll see more incentives" he said. "The major automakers are not set up for a market at these levels."