GM bows to gas prices, to cut SUVs, pickups

WILMINGTON, Del. - General Motors Corp. officially blew up its old business model yesterday, closing four pickup-truck and sport-utility-vehicle factories, announcing a new small car that could get 45 miles per gallon and shedding 10,000 jobs in the process.

Now the world's largest automaker by sales needs to figure out how it can sell enough cars to make money in a shrinking U.S. market and stay ahead of the bill collectors.

GM President and Chief Operating Officer Fritz Henderson said that GM is planning for gasoline prices to stay around $4 per gallon for the foreseeable future, "with a bias upwards."

The automaker said that it would idle pickup and SUV factories in Janesville, Wis.; Oshawa, Ontario; Moraine, Ohio; and Toluca, Mexico, as it tries to deal with a shift to smaller vehicles brought on by skyrocketing gasoline prices. GM also took aim at the Hummer, one of the largest vehicles on U.S. highways, saying that it would either be sold or get a remake.

GM said that the truck-plant cuts, which will reduce capacity to produce pickups and large SUVs by about 35 percent, will save the company $1 billion per year, and, when combined with earlier measures, by 2011 will save $15 billion over 2005 costs.

GM's moves, which come after a series of restructuring measures since 2005, are the result of a huge shift in U.S. consumer preferences for small cars and crossovers during the past two months.

"We at GM don't think this is a spike or temporary shift," Chief Executive Rick Wagoner said. "We believe that it is, by and large, permanent."

The automaker now will have to parlay its strong overseas sales and the lower North American costs into a profit by selling cars in the $15,000 to $20,000 range, half the price of its high-profit SUVs and pickup trucks.

"The new cars, they tend to price those accordingly," said Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co. "They tend to make money, just not as much money compared to the nice margins on the SUVs and large trucks."

GM lost $3.3 billion in the first quarter and burned through $3.4 billion in cash from January through March. Its May sales were down 28 percent compared with last May.

Just before the company's annual shareholders' meeting in Wilmington, Wagoner also announced that the automaker will build a new generation small car starting in mid-2010 at a factory in Lordstown, Ohio, that now makes the Chevrolet Cobalt.

In the past, costs generally were too high for Detroit automakers to turn a profit on small U.S.-built cars. But Wagoner said that GM has lowered costs enough with new labor contracts and other measures to turn a profit.

"The direct answer is, we need to," Wagoner told reporters. "We believe we can build a car there profitably."

Wagoner also announced that the board of directors has approved production of the Chevrolet Volt plug-in electric car, which GM plans to bring to showrooms by the end of 2010.

Fully charged, the Volt could drive about 40 miles without using any gasoline, and a small conventional engine would recharge the vehicle, extending its range and allowing it to get the equivalent of 150 miles per gallon.

Wagoner also said that the iconic Hummer brand will be reviewed and potentially sold or revamped due to high fuel prices.

News of the job cuts was devastating to communities that house the factories, but hourly workers likely will move to other plants to replace 19,000 who will leave the company this year under early retirement and buyout offers.

Shares of GM rose 14 cents to $17.58 in trading yesterday. *