July 15 (Bloomberg) -- General Motors Corp., buffeted by a U.S. sales collapse and three years of losses, will suspend its dividend for the first time since 1922, cut the management payroll by 20 percent and sell assets to raise at least $15 billion in the next 18 months.
Eliminating the 25-cent quarterly dividend and an unspecified number of salaried jobs will help save $10 billion a year, the biggest U.S. automaker said today. GM plans to generate $4 billion to $7 billion by selling as yet unidentified assets, borrowing from banks and paring benefits to retirees.
The spending reductions accelerate Chief Executive Officer Rick Wagoner's efforts to conserve cash and avert bankruptcy as a slowing economy and record gasoline prices push U.S. industry sales to a 15-year low. Merrill Lynch & Co. said July 2 that GM needed to raise $15 billion and a Chapter 11 filing is ``not impossible'' should sales continue to deteriorate.
``At first blush, these would be positive steps for liquidity, but we would view them as absolute necessities given the current market conditions,'' said Gregg Lemos Stein, a credit analyst at Standard & Poor's in New York.
GM said it is trying to raise $2 billion to $4 billion in additional liquidity with asset sales and $2 billion to $3 billion of new financing secured by assets such as foreign subsidiaries, brands and its remaining stake in GMAC LLC.
Assets
Among the assets GM may consider selling are its OnStar communication system division or the GM Asset Management investment company, said Citigroup analyst Itay Michaeli in a research note today.
The company didn't identify what assets might be sold. ``We have gone through a pretty exhaustive analysis,'' Chief Operating Officer Fritz Henderson told reporters, without elaborating.
GM gained 46 cents, or 4.9 percent, to $9.84 at 4:15 p.m. in New York Stock Exchange composite trading. Its U.S. sales are heading for their ninth straight annual fall after a 16 percent plunge through June. The overall market was down 10 percent.
The increased cash means the automaker will have enough to operate should U.S. sales fall to 14 million cars and trucks this year and next, lower than analysts expect, Wagoner, 55, said in a broadcast to employees. Detroit-based GM also figures on oil costing $130 to $150 a barrel, compared with $138 currently.
``The cost cutting is ahead of market expectations -- and relatively credible, while the fundraising provides less up-front cash than we and the market had been looking for,'' Lehman Brothers analyst Brian Johnson wrote in a report today.
Moody's Caution
Moody's Investors Service said it may cut its credit ratings on GM, saying raising $15 billion may not be enough to offset its losses.
``Despite the very constructive nature of the initiatives announced by GM, the company will continue to face the significant challenge of building enough profitability in its car and crossover portfolio to make up for the earnings that will no longer be generated on the truck and SUV side,'' Bruce Clark, a Moody's analyst in New York, said in a report.
The dividend cut is the second for GM since February 2006, when it was reduced by half following the automaker's first annual loss in 13 years. That same year, Wagoner fended off former shareholder Kirk Kerkorian's push for an alliance with Renault SA and Nissan Motor Co. He also raised $7.4 billion by selling a majority of the finance unit known now as GMAC .
UAW Contract
Last year, Wagoner won a contract with the United Auto Workers union that reduced wages and permits GM to transfer retiree health-care obligations for U.S. factory workers to a union fund. The stock rose above $42, a three-year high, when the accord was signed.
Since then, the shares have sunk to 54-year lows as Wagoner battles what he has called a permanent shift in consumer behavior prompted by gasoline that has soared to $4-a-gallon. On June 3, he announced plans to close four truck plants and make more cars.
Today, GM said it will have a ``significant'' second-quarter loss because of weak U.S. auto sales and a strike at two of its own factories as well as parts-supplier American Axle & Manufacturing Holdings Inc..
``We do have the ability to take actions to generate cash,'' Wagoner said in a Bloomberg Television interview. Bankruptcy, he said, is ``a bad idea.''
More Factory Cuts
GM may also cut thousands of additional factory jobs as it further trims production capacity, Henderson said, declining to be more specific. ``We're not talking about 100 or 200,'' he said.
The Detroit-based automaker will reduce capital spending by $1.5 billion to about $7 billion next year, and will boost working capital by about $2 billion in North America and Europe by reducing raw-material use and its inventory of unused parts. GM won't cut back on capital spending in China, Wagoner said.
The company also will cut health care for U.S. salaried employees older than 65 as of Jan. 1, 2009, with offsetting increases to pensions. Cash bonuses for executives will be eliminated. The reductions in benefits and salaried headcount will save about $1.5 billion in 2009, GM said.
The automaker will also delay $1.7 billion in payments to the union retiree health-care fund, Wagoner said.
Losing Streaks
GM, turning 100 this year, reported its largest annual loss in 2007, $38.7 billion, after a tax accounting change, and hasn't posted a profit since 2004. The carmaker's U.S. market share hovers at the lowest level since 1925.
Since Wagoner became CEO in June 2000, GM has cut its U.S. salaried workforce to 32,000 from 44,000. GM shares through yesterday have lost 87 percent during Wagoner's tenure, and the stock is the worst-performing member of the 30-company Dow Jones Industrial Average over the past 12 months.
Some of the truck-plant reductions announced June 3 will be accelerated, he said today, without giving details.
Before today, Wagoner had already identified structural cost cuts of $15 billion from the end of 2005 through 2010.
He said last week he isn't considering bankruptcy and doesn't plan to eliminate vehicle brands beyond a possible sale or shutdown of the Hummer line of sport-utility vehicles.
GM's sales of pickups, SUVs and vans -- the vehicles most affected by record gasoline prices -- are down 21 percent through June. The company relies on light trucks for about 60 percent of its U.S. volume.
GM said it will bring five new products to the U.S. by the third quarter of 2010. The automaker is adding a Chevrolet small car, the Buick Invicta sedan and a sports wagon and coupe version of the Cadillac CTS sedan. The company will also begin producing a 4-cylinder version of its Chevrolet Equinox SUV in May 2009.
Industrywide sales of large trucks may fall by about 36 percent to 1.8 million units this year, said Chief Financial Officer Ray Young on a conference call. GM is planning for a 21 percent share of the U.S. market, down from 23.5 percent in 2007.
15-Year Lows
At the current pace, U.S. auto sales may decline to 14.5 million units for 2008, the lowest in 15 years, according to Deutsche Bank AG. The industry average this decade through last year was 16.8 million.
GM has said it is delaying plans to design future large pickups and SUVs and is studying whether to bring a car to its home market that is smaller than any currently sold. GM reiterated that 18 of its next 19 product debuts will be cars or car-based SUVs.
Besides the minicar, GM is weighing a list of options for refocusing its auto lineup on fuel efficiency rather than performance, people familiar with those plans said this month.
GM's 8.375 percent note due July 2033 fell 3.75 cent to 51.5 cents on the dollar, yielding 16.56 percent, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.
Credit-default swaps on GM debt rose 84 basis points to 2,177 basis points, according to CMA Datavision in London. The contracts are designed to protect bondholders against default. A gain in the price indicates a decline in the perception of a company's credit quality.
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