GM to Sell Suzuki Stock for $2 Billion
Ailing General Motors Corp. said Monday that it would raise about $2 billion by selling most of its stake in Japanese automaker Suzuki Motor Corp. to help its tattered balance sheet.
GM said it would sell the stock back to Suzuki in a deal expected to close today. Selling the shares will add to GM’s liquidity “during this critical phase of our turnaround,” GM Chief Executive Rick Wagoner said in a statement.
The Detroit automaker is beginning a major restructuring to close a dozen North American plants and cut as many as 30,000 jobs over the next two years.
GM did not say how it would use the funds from the sale.
The Detroit News reported Monday that the automaker was negotiating a buyout plan with the United Auto Workers for about 20,000 union members eligible for retirement. Neither the union nor GM would comment on the report.
Under existing contracts, UAW workers who lose their jobs when a GM plant closes continue to receive pay and benefits. Each active hourly employee costs GM about $130,000 a year in wages and benefits, versus $50,000 for a retiree, said David Cole, director of the Center for Automotive Research in Ann Arbor, Mich.
GM and rival Ford Motor Co. face huge pension and healthcare costs for their union workforce and are trying to pare these expenses. Both companies also are cutting production after losing sales in the U.S. for decades, largely because of competition from Toyota Motor Corp. and other foreign brands.
In the past GM paid as much as $100,000 to each hourly worker who agreed to leave the company when the plants at which they worked were shuttered.
And $100,000 may be the current rate as well. Ford confirmed Monday that it was offering $100,000 to each eligible employee at plants being closed in Ohio and New Jersey if they give up all their benefits except their pensions.
The infusion of cash for GM from the Suzuki sale also prompted speculation on Wall Street. GM may use the cash to help prevent a strike at bankrupt auto parts maker Delphi Corp., Commerzbank analyst Philip Watkins said in a research note Monday. Delphi and GM are in talks with workers on cutting wages and healthcare expenses at the parts maker.
A strike at Delphi could halt shipments of parts to GM, its largest customer and former parent company.
GM lost $8.6 billion last year as its sagging North American auto business devoured profits from its finance arm and global automotive operations.
At the moment, GM has more than $19 billion in cash and securities, but the automaker is burning through an estimated $24 million a day. On Monday, GM’s board met to consider an offer to sell a majority stake in its profitable finance arm, General Motors Acceptance Corp., to raise additional cash.
“Every little bit helps,” Burnham Securities auto industry analyst David Healy said of the Suzuki deal. “GM wasn’t getting any cash return on its investment, and the cash will give them more flexibility.”
GM expects a pretax gain of as much as $750 million from the sale, which would cut its Suzuki stake to 3% from 20.4%.
Wagoner announced GM’s restructuring drive late last year. It’s been stepped up with the election to GM’s board of Jerome York, chief advisor to billionaire Los Angeles investor Kirk Kerkorian -- the automaker’s largest individual shareholder.
York, who joined the board Feb. 7, has urged GM’s management to speed up its turnaround efforts. He was instrumental in the recent decision to cut pay for top managers and to slash GM’s annual dividend by 50%. Before joining the company, York suggested that GM sell assets, including its Saab and Hummer brands.
“I wasn’t aware that GM was in this much trouble,” Suzuki Chairman Osamu Suzuki said in a news conference in Tokyo. “GM probably had a problem with cash flow.”
Last year, GM sold its 20% stake in Japan’s Fuji Heavy Industries, parent of the Subaru automotive brand.
GM still holds an 8% stake in Japanese truck and diesel engine specialist Isuzu Motors Ltd., which has seen U.S. sales drop in recent years. But GM isn’t considering selling its Isuzu shares because the companies have a number of “mutual and beneficial” projects, the Detroit automaker said.
GM made its initial investment in Suzuki 25 years ago, and the Japanese company said Monday that the two intended to continue working together. Suzuki co-owns a Canadian auto plant with GM and holds an 11% stake in GM Daewoo Automotive & Technology Co., GM’s South Korean unit.
Mike Anson, a spokesman for Brea-based American Suzuki Motor Corp., said the sale wasn’t expected to have any effect on Suzuki’s U.S. operations.
Suzuki’s sales here have climbed recently in part because of the popularity of the Forenza sedan built by GM Daewoo. But Suzuki still has less than 1% of the U.S. auto market.
GM’s shares rose 60 cents to $19.81.
Times wire services was used in compiling this report.
