General Motors Announces Further Cuts, Markets Trade Lower

Published April 27th, 2009 - 06:17 GMT

Speaking before reporters, General Motors’ CEO Fritz Henderson and top executives discussed the latest efforts of the automaker to avoid a June 1 forced bankruptcy deadline. The company plans to reduce costs further by eliminating dealers by 42% to 3,600 while also taking further steps in lowering salaried and union expenses by cutting 21,000 hourly employees and closing 13 plants. Also, the Pontiac brand is to be eliminated following previous announcements to limit the line to a niche market with few vehicles. The actions announced today are intended to help GM cope with an auto market that could be worse than expected for some time to come. Specifically, the company expects to achieve breakeven with US auto sales at a total rate of ten million annually.  The figure posted at 9.9 million in March and will be carefully watched in April for further improvement. Remaining a significant risk, bondholders with claim to $27.5B will be offering 225 shares in the company for each $1,000 in principal. A debt exchange of less than 90% by May 26 would force the automaker into bankruptcy. General Motors has now taken $15.4 billion in loans from the US treasury and considerable risk with just over thirty days before the Obama administration’s auto task force decides on the next step for the firm. GM Stock opened more than 10% higher at $1.86 per share on the NYSE and has soared to more than thirty percent in volatile early morning trading.

US Markets this morning opened lower by more than one percent and dipped as much as 118.84 points to 7957.45 on lingering concerns in financial markets and investor fears that the swine flu may spread quickly in advanced economies.  Airliners and other travel firms are facing increased selling pressure with Delta Airlines and Continental down more than ten percent in New York. On the flip side, drugmakers are moving higher in response to the flu fears. Elsewhere, crude oil is trading under fifty dollars per barrel once again with a loss of more than five percent. Fears in automakers, coupled with financial distress and the recent flu scare, has kept risk appetite on hold follow a six-week rally from the March lows. Since April, dollar yen has moved lower in a clear downward channel and is currently trading at a fresh monthly low. More information on fundamental and technical aspects of the yen and other currencies can be found over at the currency rooms.

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