Cooler but still well above normal this week

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General Motors Corp. is planning to temporarily
close most of its U.S. factories for up to nine weeks this summer
because of slumping sales and growing inventories of unsold
vehicles, three people briefed on the plan said Wednesday.

      Analysts say the company could be seeing sales decline because
of talk about a potential bankruptcy.

      The exact dates of the closures are not known, but the people
said they will occur around the normal two-week shutdown in July
when changes are made from one model year to the next. None of the
people wanted to be identified because workers have not yet been
told of the shutdowns.

      GM spokesman Chris Lee would not comment other than to say the
company notifies employees before making any production cuts
public.


      One of the people briefed on the plan said details are still
being worked out. Some of the closings could be staggered between
mid-May and the end of July, but the exact number of plants to be
idled has not yet been determined.

      Another person said a few plants that make more popular models
could remain open for part of the shutdown period, but at reduced
assembly line speeds.

      Thousands of workers could be laid off but would still get most
of their pay because their United Auto Workers union contract
requires the company to make up much of the difference between
state unemployment benefits and their wages. UAW officials at
several factories said they have meetings scheduled Thursday and
Friday with plant managers and GM human resource officials to
discuss production changes.

      GM is living on $13.4 billion in government loans and faces a
June 1 deadline to cut its debt, reduce labor costs and take other
restructuring steps. If it doesn't meet the deadline, the company's
CEO has said it will enter Chapter 11 bankruptcy protection.

      The Treasury Department declined to comment on any effect the
plant shutdowns might have on GM's restructuring plans.

      Separately Wednesday, GM announced that it may miss a $1 billion
bond payment also due June 1 if its debt-for-equity exchange is
still in progress by then. GM also could go into bankruptcy
protection, which could make the company miss the payment as well.

      The company plans to make the exchange offer soon to
bondholders, perhaps as early as next week. GM has $28 billion in
unsecured bond debt and is under government pressure to reduce that
to solidify its balance sheet.

      The automaker's sales were down 49 percent in the first quarter
compared with the same period last year, and GM had a 123-day
supply of cars and trucks at the end of March, according to Ward's
AutoInfoBank. That's down from 162 days worth in January.

      But as of March 31, the automaker had a more than six-month
supply of several models including the Pontiac G5 compact and
Chevrolet Silverado hybrid pickup truck. The lengthy shutdown
likely means that GM doesn't see its sales rebounding anytime soon,
said Tom Libby, an independent Detroit-area auto industry analyst.

      "They must be forecasting a sales level that is low enough
between now and the summer that they see their inventories
building," he said. "It's sort of an ominous comment on what they
see for the industry."

      Libby also suggested that the company's sales may be declining
because customers are concerned about the automaker possibly filing
for bankruptcy protection.

      GM CEO Fritz Henderson has said the company would prefer to
restructure outside of court, but it is preparing for a prearranged
bankruptcy as well as one in which good assets would be separated
from underperforming ones.

      "Just using the word bankruptcy, their (market) share is down a
lot just because of this talk," Libby said. "They may be counting
on a further decline."

      However, Libby said GM should be applauded for not building too
many vehicles and then having to spend big on rebates and other
incentives to move them, something the Detroit Three have been
guilty of in the past.

      Some GM dealers said a shutdown of up to nine weeks is jarring,
but not unexpected given the sales slump.


      "Nine weeks seems like an awful long time, but the way business
is, not an awful lot of cars are being sold anyway," said George
Tasker, fleet manager at Martin Chevrolet in Torrance, Calif.

      Tasker said the move wouldn't affect business, as dealers would
"get together and trade more easily" to find the exact car a
customer wanted.


      Nearly all automakers with U.S. factories have closed plants or
cut production to deal with the auto sales slump. Earlier this
year, GM temporarily closed 20 factories across North America due
to weak sales, some for the entire month of January. Chrysler LLC,
also subsisting on government loans, closed all 30 of its
manufacturing plants for a month in January to counter the auto
sales downturn.

      Ford Motor Co. also shut down 10 North American assembly plants
for an extra week in January, and both Toyota Motor Corp. and Honda
Motor Co. have cut production.

Gallery

Business and Economic News

Two people briefed on the plan say General Motors
Corp. will close most of its U.S. factories for up to nine weeks
this summer because of slumping sales and growing inventories of
unsold vehicles.

GM to shut many U.S. plants up to 9 weeks

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