GM Sees $3-Billion Charge for Plant Closings
General Motors Corp. expects to take up to $3 billion in charges to cover plant closings and other restructuring costs, a figure that could exceed some of the massive write-offs GM took in the early 1990s to pay for closing 23 plants.
GM said estimated after-tax charges of $2 billion to $3 billion, equal to $2.85 to $4.27 a share of its $1.67 par value stock, are associated with several internal studies on the competitiveness of its worldwide operations.
GM plans to record the charges in the quarter the studies are completed. A majority of the studies should be finished in the fourth quarter of 1997 or early 1998.
GM made the one-paragraph disclosure in a Securities and Exchange Commission filing Monday that was more than 300 pages long. The filing was the final registration statement covering the spinoff and sale of GM’s Hughes defense unit to Raytheon Co.
The world’s largest auto maker said it is reviewing each of its business lines as industry players around the world continue to slash costs and improve efficiencies. At the same time, too much vehicle capacity in North America and Europe has added to price pressures.
“The findings of these studies will result in changes to, or the realignment of, those activities that are not performing as effectively as necessary to meet GM’s objectives of increasing market share, customer satisfaction and profitability,” the company said in the filing.
The only specific plant actions GM mentioned are the lighting, coil spring and seating businesses its Delphi Automotive Systems unit wants to sell, and the restructuring at its Adam Opel unit that will cut 1,900 jobs.
A GM spokeswoman said the charges cover actions that have not yet been announced. “There will be more actions coming out of this. We just don’t know . . . where yet,” she said.
GM also warned that weakness in overseas markets, including Brazil, and higher-than-expected sales incentives in North America will trim its earnings. That triggered concern that profit growth will slow at all U.S. auto makers.
The GM warning underscores the growing impact of slumping demand in Brazil and Asia and intense competition in Europe and North America, all of which will make 1998 a more difficult year for auto makers than had been anticipated, analysts said.
The slowdown in Brazil is probably more troublesome for U.S. auto makers than is the slowdown in Asia, analysts said. U.S. auto makers do more business in Brazil, where year-to-date sales were up 17% through September.
Analysts said the GM write-offs represent a series of actions designed to tie up numerous loose ends. Analysts also noted they will be offset by $3.9 billion to $4.5 billion in other income the auto maker expects to book from the Hughes sale.
The company is in the process of reorganizing its Delphi Automotive Systems components unit for a future public offering.
Analysts speculated that the charges will include further Delphi divestitures, cutbacks at the Buick City car assembly and parts operations in Flint, Mich., as well as other restructuring in Europe.
