GM Slashes 2008 Truck Production

DETROIT _ Struggling to grasp the depths to which truck sales will fall this year, General Motors Corp. on Monday slashed its planned truck production by 170,000 vehicles _ almost double the size of cuts Ford Motor Co. announced Friday.

GM also plans to launch a week-long zero-percent-for-six-years financing incentive on most of its vehicles, even as it boosts production of cars, crossovers and commercial vans.

“This tells me there’s something very alarming in the June numbers and they’re trying to get the nose up before the end of the month,” said IRN Inc. analyst Erich Merkle.

He had been expecting GM to sell about 200,000 vehicles in June _ a drop of 35 percent to 40 percent from last year. With the new discounts, he added dryly: “Maybe then they’ll only be down 30 percent.”

GM also moved a step closer to selling the Hummer brand, saying it has hired Citibank to help it evaluate the Hummer offers.

The moves are the latest industry reaction to a U.S. automotive market in which a sluggish economy, a lack of consumer confidence and $4-a-gallon gas are driving consumers to shift away from larger vehicles to smaller and more fuel efficient cars and crossovers.

Monday’s announcements are just the latest of GM’s responses to the rapidly deteriorating market.

At the beginning of June, GM announced plans to cut production of 700,000 trucks annually, or 40 percent of its truck capacity, by idling four North American truck plants by mid-2010, considering “all options” for its Hummer brand and increasing car and crossover production.

Then, last Thursday, it announced that it is indefinitely freezing its future large truck development efforts, shifting engineers from its next-generation big truck programs to improvements in its current large pickups and other projects.

Ford said Friday said it plans to cut truck production by 90,000 over the next few months and delay the launch of its crucial new F-150 pickup until late fall after already cutting 2008 North American pickup and SUV production by 280,000 to 350,000 fewer vehicles. GM further reduced its production plans on Monday, saying it will reduce truck production by 170,000 _ nearly the equivalent of shutting down two GM truck plants for the rest of the year.

Credit Suisse analyst Chris Ceraso said it may not be enough.

Ceraso said in a note to investors last week that he believes GM needs to reduce truck production by 200,000 in the second half of the year. And in a note responding to GM’s Monday cuts, he wrote: “this does not mean, in our view, that it’s safe to go back in the water. Today’s announcement reflects the ‘current’ view on truck demand; a further increase in fuel prices or decrease in industry sales would likely trigger further cuts in truck production.”

But GM North America Vice President of Sales, Service and Marketing Mark LaNeve said Monday in a conference call with reporters that the automaker believes the current cuts are all that will be necessary for the rest of the year.

“It’s tough to see that it gets a whole lot better, but we do hope the second half doesn’t get a whole lot worse than” the second quarter, LaNeve said. “I believe we will start to get some recovery in the back half of the year.

“There still is a very large vibrant truck market out there; it’s just a lot smaller than it used to be.”

Several analysts, including J.D. Power & Associates forecast that U.S. light-vehicle sales could drop to an annualized rate of 12.5 million this June, down from a rate of 14.3 in May and 15.63 in June 2007.

In an effort to boost GM’s June results, LaNeve said GM will begin offering zero-percent financing for up to 6 years today through the end of the month on all except for its hottest sellers, such as the Chevrolet Malibu, Chevy Aveo and its large crossovers.

LaNeve also confirmed Monday that GM has hired Citibank to help it review the options for the Hummer brand.

GM Chairman and CEO Rick Wagoner announced June 3 that the company is considering “all options” for the brand, including a complete revamp of its product lineup, a joint venture or its sale.

While LaNeve said GM is still evaluating its options and has not settled on one, he said Citibank’s expertise would be particularly useful for evaluating “any potential offers we may get as part of that strategic review.”

LaNeve said GM’s time line continues to be to work through the evaluation process “as quickly as possible.

“We’ve got to make a good decision for the future of the brand, for our company and for our dealers,” LaNeve said.

Sales of the Hummer brand fell 62 percent in May compared with a year ago. From January through May, sales of the brand were off 36 percent.

“I would be surprised if they weren’t looking for buyers,” Merkle said. “I would be surprised if this isn’t an indication that GM is shopping around Hummer.”

While Hummer dealers and many of the SUV brand’s owners remain loyal to its in-your-face design, many analysts say GM must sell the niche brand to focus on driving revenue from its larger volume, core products.

Regarding revenue, LaNeve said GM will raise the prices on its 2009 models by an average of 3.5 percent _ or about $1,000 _ as the automaker responds to the rising cost of oil on the price of doing business, higher commodity prices and the price of adding more standard content to vehicles.

GM’s stock price fell 6.4 percent on Monday, or 88 cents a share, to $12.91, near its 33-year low.

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