In a bid to sidestep possible bankruptcy, General Motors will reportedly close plants and cut vehicle models up to four years sooner than originally planned. The move is intended to lower GM’s break-even point and spur debt for equity talks with lenders.
According to Bloomberg, the accelerated cuts would lower GM’s break-even point to just 10 million annual U.S. sales. GM’s current break even target is somewhere in the 11.5 million to 12 million unit range. Annualized sales figures for March checked in at 9.9 million units.
The move to make GM leaner and meaner could make a debt for equity swap more attractive for lenders. Per the Obama administration’s June 1st deadline, GM must receive further concessions from its bondholders, but is having a difficult time convincing lenders to give up $27.5 billion in debt. However, a break-even point of 10 million units could be just the ticket to get shareholders to buy into the new General Motors.
Although the news is encouraging for GM, it also has several GM employees on edge. The move to push up plant closing and model cuts from 2014 to 2010 may lower the company’s breakeven point, but it will also leave many unexpectedly jobless. GM’s viability plan from March 31st called for a reduction in nameplates from 43 to 36 and reduction in U.S. assembly capacity from 2.8 million units to 2 million units by 2014.
Despite the accelerated cuts, GM’s viability plan reportedly still includes the company’s four core brands – Chevrolet, Cadillac, GMC and Buick.
