GM to Open Formal Talks For Hummer Sale

[Klaus]

GM to Open Formal Talks
For Hummer Sale

Auto Maker Plans
A Big Investment
In New Small Car
By SHARON TERLEP
August 22, 2008; Page B5


LORDSTOWN, Ohio -- General Motors Corp. has had initial expressions of interest from potential buyers of its Hummer brand and is preparing data and other materials to open formal talks, Chief Executive Rick Wagoner said Thursday.

Mr. Wagoner's comments about Hummer, the most substantive update by the company since announcing a strategic review of the brand June 3, contradict some media reports suggesting GM is in deep discussions with foreign auto makers concerning a sale. Instead, they imply GM is still in the preliminary phase of a broad strategic review of the Hummer brand.
GM The Cruze is a so-called global car to replace the Chevrolet Cobalt.


The comments came as the company announced a $350 million investment in its next small car in this town in northeastern Ohio. The investment will outfit the plant to produce the next-generation of small cars that GM plans to sell in North America. The flagship will be the Chevrolet Cruze, a so-called global car that GM will offer in regions around the world. It will replace the Chevrolet Cobalt.



GM believes the growing demand for premium, well-equipped small cars in the U.S. will help the auto maker command higher sticker prices for the forthcoming Cruze. GM currently makes little, if any, money selling passenger cars in North America, instead relying on more-expensive trucks and SUVs for the bulk of profits.

But the collapse of the heavier-vehicle market in the U.S. because of high gasoline prices is pushing GM to completely juggle its business plan. The company has recently introduced a few passenger cars -- notably the Chevrolet Malibu and Cadillac CTS -- that are more profitable and sell at higher prices than typical GM passenger cars. Mr. Wagoner has said it needs to transform the entire car lineup into a profit center.

GM decided to consider selling its Hummer brand earlier this year when the demand for SUVs began to significantly recede under the weight of $4-a-gallon gasoline costs. Hummers are widely viewed as gas guzzlers, and that image has crimped GM's ability to sell the SUVs amid high fuel prices. It has also slowed GM's push to convince U.S. buyers it is committed to fuel efficiency.

People familiar with the matter said GM isn't any longer seriously considering a complete revamp of the Hummer division into a lineup selling vehicles with better fuel economy. That would be a costly proposition for the auto maker at a time when it faces a potential liquidity crunch.

One significant hurdle for GM is its relationships with Hummer dealers. Because of tough dealer-franchise laws and other agreements the auto maker has with dealers, it needs to negotiate closely with hundreds of individual store owners on the future steps it takes with the brand.

The potential sale of the Hummer brand would be a minor part of GM's plan to raise the $15 billion in additional liquidity by the end of 2009 that it needs to remain viable during a significant slowdown for the entire U.S. auto industry. GM will trim costs, pledge assets for new financing and sell assets to raise the needed cash.

Mr. Wagoner said Thursday that capital markets "have not opened up robustly" and are "moving in fits and starts." He noted that GM anticipated the tough environment when it laid out its $15 billion liquidity plan.