Will spending cuts save GM?

Source: Exec Digital USA

Date :15/07/2008 06:37:07

General Motors Corp announces plan to add US$15 billion in liquidity as it plans to avoid bankruptcy.

General Motors has been battered by a steep decline in US sales.

The automaker is to suspend its stock dividend, cutting salaried payroll by 20 percent and proposing a sale of assets to raise at least US$15 billion in liquidity by 2009.

After three years of losses, GM is going through an unprecedented difficult time.

It has been bleeding red ink and posting negative cash flow for too long.

While GM is not projecting when it will return to profitability, it believes these actions will put it on solid ground once the US auto market bounces back in 2010.

“We're trying to build a liquidity plan that allows us to traverse two consecutive years of a light market,” GM chief operating officer Fritz Henderson said.

“This allows us to focus our minds on what we need to do to be competitive.”

Tough times

This move comes about a month after GM reported a steep decline in demand for the large vehicles.

The market for pickups and SUVs has crashed amid weakness in the economy and the sharp rise in gas prices to more than US$4 a gallon, a development that has stung the firm pretty hard.

GM shares have been trading at their lowest levels since the mid 1950s recently.