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GM Steering Big Changes
General Motors Corp. (GM) will be discontinuing the Pontiac brand by 2010. It is unknown how much this will cost GM as it discontinues contracts with dealers and they are now left with worthless products to sell. The Pontiac G6 will also be a victim, and it is one of GM’s top-10 selling cars.
Our review of Pontiac’s product line from the San Diego Auto Show is below:
PONTIAC (G6, G3, Vibe, G5, G8)
(This company is owned by General Motors.)
G6 - Sales are up 6% for this car with 21 MPG and 80% US content. There is 4/5 star safety and a price of $31-33K. The interior is sporty, but needs some improvement. Smog emissions are 30% above average.
Models that should be consolidated - G3 with Vibe
Models that should be discontinued - G5.
On balance, we do not disagree with this decision. This is one of GM’s weakest brands and it is unprofitable. Also, GM announced in an 8-K that it has liquidated two key employee benefit plans -- the Savings-Stock Purchase Program and the Personal Savings Plan. Thirteen plants will be closed and 21,000 employees laid off.
The company is also trying to reduce its debt with current bondholders from $24 billion to $3 billion through a bond exchange. The company is also exchanging half of its debt with the government in exchange for half of the equity of the company. GM will also receive $11.6 billion in additional aid. The dealer network will be reduced by 40%.
Moreover, there are rumors that Chrysler will terminate its employee benefit plan. Daimler AG (DAI - Analyst Report) will guarantee up to $1 billion of the underfunded position. The PBGC will assume up to $2 billion. However, there is $9.3 billion of under-funded position now.
Chrysler also announced that it has come to an agreement with its Canadian UAW [United Auto Workers]. Hourly labor costs were reduced by $16/hour, which will save the company $200 million annually. This deal, along with another deal with the U.S. UAW, may be a prelude to a deal with Fiat.
The company is also aiming to cut its debt in half with bondholders.