By Kathy Chu and Taylor McGraw, USA TODAY
In a verdict that could have far-reaching implications for elderly and disabled bank customers, the California Supreme Court ruled this week that banks can tap Social Security benefits in bank accounts to cover bounced-check fees.
The decision, in the Miller v. Bank of America case, effectively reverses a 2004 San Francisco trial court ruling ordering the bank to pay at least $284.4 million in damages to more than 1.1 million customers.
Spokeswoman Shirley Norton says the verdict confirms that BofA "has always acted lawfully in maintaining and balancing its customer accounts." James Sturdevant, the lawyer who brought the case against BofA (BAC), says the opinion "condemns the most vulnerable bank consumers to predatory practices."
The Center for Responsible Lending, an advocacy group, has found that consumers heavily dependent on Social Security income pay $1 billion in overdrafts a year. Most overdrafts are triggered by small-dollar debit card transactions, says Eric Halperin, director of the center's Washington office.
The California ruling — along with a 2002 federal verdict in Lopez v. Washington Mutual Bank favoring the thrift — could make it more daunting to challenge banks' ability to deduct overdraft fees from government benefits. "It will make plaintiffs pause at least in bringing other cases," says Greg Taylor, associate general counsel at the American Bankers Association, a trade group.
FIND MORE STORIES IN: Bank of America Washington Mutual American Bankers Association
But Margot Saunders, counsel for the National Consumer Law Center, says the Supreme Court ruling merely "interprets a California statute" and doesn't prevent similar cases from moving forward elsewhere. It also won't stymie general lawsuits dealing with overdrafts, she says.
BofA, in an unrelated overdraft case, recently agreed to a $35 million settlement. The lawsuit alleged the bank processed transactions and provided account information in a way that increased overdraft fees. In settling, the bank denied the claims and said it fully complied with the law.
Federal law generally prohibits creditors from seizing Social Security or other government benefits to pay a debt. But California law says overdraft charges are not debt. The highest state court viewed the bank account as "a running tally of debits and credits," entitling banks to deduct overdraft charges, says Daniel Bussel, law professor at UCLA.
The U.S. government sided with BofA. The government said if banks are not able to tap Social Security benefits for overdraft charges, they may restrict electronic deposits, which could force the government to issue costly paper checks.
Friday, June 5, 2009
By Sharon Silke Carty, USA TODAY
DETROIT — Car buyers and deal-hunters heading out to Chrysler showrooms this weekend hoping to snag a once-in-a-lifetime deal may be out of luck: Closing dealers have little inventory to sell.
Dealers scheduled to close Tuesday have only 1,981 vehicles left to sell, and many of those dealers still have the option of finding another dealer to buy their excess inventory, Chrysler spokeswoman Carrie McElwee says. Dealers closing down soon sold 16,000 cars in May, and another 23,000 have been cherry-picked by dealers remaining in business.
The automaker told 789 dealers last month that they would remain Chrysler dealers only until June 9, at which time their franchises would be revoked.
Some affected dealers went before Chrysler's bankruptcy judge Thursday to protest the closing notice, and closing arguments by Chrysler and dealer attorneys are scheduled for Tuesday. McElwee says the dealers will remain part of Chrysler until the judge issues a decision, which may not be until later next week.
Any dealer with remaining inventory can ask Chrysler to help find another dealer to sell their vehicles, or keep the cars and try selling them without the benefit of Chrysler incentives. Also, once the store is dropped by Chrysler, the cars and trucks will be considered used, since they'll need to be registered in the dealership's name.
FIND MORE STORIES IN: Jeep Edmunds.com Chrysler
But dealers may not want Chrysler's help. The automaker is asking $350 per car to help redistribute the vehicles, which could add up if a dealer has a significant number of cars on its lots.
Dealers say some buyers have been calling Chrysler stores, asking for $10,000 discounts. But even though their franchise agreements are being dropped, store owners are bristling at the bargain hunters.
"Just because a brand is hurting doesn't mean that a shopper can automatically walk in and simply get a great deal," says Philip Reed, consumer advice editor for Edmunds.com.
Daniel Amaral, a dealer in Newtown, Conn., has just two Chryslers left: a four-door Sebring and a PT Cruiser. Someone called this week asking if he'd take $15,000 for the Sebring. The sticker price is $26,500, and he's asking $23,500.
"I'll keep it," says Amaral, who plans to keep the dealership open as a used car store and repair shop. "Eventually, people will need cars, and when they do, they'll know this is a good price."
Wade Walker, a Jeep dealer in Montpelier, Vt., found another dealer nearby to take the seven Jeeps he had on his lot at the start of May. He says he feels bad both for colleagues being cut off who are stuck with Chrysler vehicles, and for dealers staying in business who he says are being pressured to take on new cars they may not want or need.
"The market is just going to be flooded with these discounted vehicles for a while," Walker says.
DETROIT — Car buyers and deal-hunters heading out to Chrysler showrooms this weekend hoping to snag a once-in-a-lifetime deal may be out of luck: Closing dealers have little inventory to sell.
Dealers scheduled to close Tuesday have only 1,981 vehicles left to sell, and many of those dealers still have the option of finding another dealer to buy their excess inventory, Chrysler spokeswoman Carrie McElwee says. Dealers closing down soon sold 16,000 cars in May, and another 23,000 have been cherry-picked by dealers remaining in business.
The automaker told 789 dealers last month that they would remain Chrysler dealers only until June 9, at which time their franchises would be revoked.
Some affected dealers went before Chrysler's bankruptcy judge Thursday to protest the closing notice, and closing arguments by Chrysler and dealer attorneys are scheduled for Tuesday. McElwee says the dealers will remain part of Chrysler until the judge issues a decision, which may not be until later next week.
Any dealer with remaining inventory can ask Chrysler to help find another dealer to sell their vehicles, or keep the cars and try selling them without the benefit of Chrysler incentives. Also, once the store is dropped by Chrysler, the cars and trucks will be considered used, since they'll need to be registered in the dealership's name.
FIND MORE STORIES IN: Jeep Edmunds.com Chrysler
But dealers may not want Chrysler's help. The automaker is asking $350 per car to help redistribute the vehicles, which could add up if a dealer has a significant number of cars on its lots.
Dealers say some buyers have been calling Chrysler stores, asking for $10,000 discounts. But even though their franchise agreements are being dropped, store owners are bristling at the bargain hunters.
"Just because a brand is hurting doesn't mean that a shopper can automatically walk in and simply get a great deal," says Philip Reed, consumer advice editor for Edmunds.com.
Daniel Amaral, a dealer in Newtown, Conn., has just two Chryslers left: a four-door Sebring and a PT Cruiser. Someone called this week asking if he'd take $15,000 for the Sebring. The sticker price is $26,500, and he's asking $23,500.
"I'll keep it," says Amaral, who plans to keep the dealership open as a used car store and repair shop. "Eventually, people will need cars, and when they do, they'll know this is a good price."
Wade Walker, a Jeep dealer in Montpelier, Vt., found another dealer nearby to take the seven Jeeps he had on his lot at the start of May. He says he feels bad both for colleagues being cut off who are stuck with Chrysler vehicles, and for dealers staying in business who he says are being pressured to take on new cars they may not want or need.
"The market is just going to be flooded with these discounted vehicles for a while," Walker says.
By Tim Higgins, Detroit Free Press
DETROIT — General Motors announced a tentative deal Friday for Roger Penske to acquire GM's struggling Saturn brand and distribution network.
Penske's Saturn will continue to receive GM-made vehicles for two years, and is looking for another manufacturer to make vehicles that will bear the Saturn brand.
"We will have a supply of vehicles for at least two years with existing brands, and we have been in discussions during this diligence period with a number of manufacturers on a worldwide basis," Penske said Friday morning. "We would expect to have a lineup going forward, which would be manufactured by a worldwide partner."
Penske said he expects the vehicles to be manufactured in the United States if sales are sufficient.
Saturn would be wholly owned by the Penske Automotive Group. Penske said he hopes retired Chrysler President Tom LaSorda, who was advising Penske on the deal, will have a role with the company.
FIND MORE STORIES IN: General Motors Roger Penske Jill Lajdziak
The deal is expected to close in the late third quarter. A price was not disclosed.
As part of its effort to narrow its offerings from eight brands to four, GM has been trying to find a buyer for Saturn. Earlier this week, the automaker said it had 16 interested parties.
A deal to sell Saturn caps a week of sweeping restructuring efforts tied to GM's bankruptcy filing, including the announcement that GM plans to sell Hummer to a Chinese manufacturer.
"We are bringing together two icons: the Saturn brand and the Penske organization," said Jill Lajdziak, Saturn's general manager. "When completed, this deal will save more than 350 dealerships and over 13,000 jobs in the United States."
Saturn dealers will be offered a franchise agreement, Penske said.
The deal includes Saturn's parts operation.
Penske called the dealer network "one of the best in the business."
The idea that Penske was closing in on a deal to acquire the Saturn brand and its dealer network appealed to franchise owners, who could have seen their businesses phased out.
In February, GM announced it would phase out Saturn after 2011 unless dealers could find a better option. In April, GM said it would close the brand down at the end of the year if a deal wasn't arranged.
"There's a lot of us that hope that's the deal because we know Roger Penske is a guy that's detail-oriented, who has capital and standing in the automotive community," George Nahas, president of Saturn of the Lakes in Tavares, Fla., said Thursday. "I think Roger Penske would be a great fit for us."
Saturn sold about 188,000 vehicles last year, down 21.7% from 2007. It has about 380 U.S. stores.
About 25 years ago, GM launched the stand-alone Saturn brand to be "A Different Kind of Car Company" in an attempt to better compete against Japanese brands. It gathered some of the industry's best car dealers to be franchise holders.
Analysts today say the value of Saturn lies with that dealer network, which gained a reputation for being consumer-friendly.
"The only real value in Saturn, frankly, is that distribution network. There is no discrete plant, there is no discrete model," said Aaron Bragman, an industry analyst with IHS Global Insight. "I can't imagine that GM is going to continue to make these vehicles much beyond selling the brand because they would be competing against themselves."
GM's Spring Hill, Tenn., assembly plant opened to build Saturn vehicles but no longer builds them and is among plants facing closure.
Penske has made a name for himself by taking struggling companies and fixing them, such as Hertz Truck Leasing in the 1980s and Detroit Diesel in the 1990s.
In 1999, he invested $83 million into United Auto Group Inc., now called the Penske Automotive Group. The group is the second-largest auto dealer in the United States and is the sole U.S. distributor of the Smart car.
Penske said Friday he would not be combining Saturn and Smart car operations
DETROIT — General Motors announced a tentative deal Friday for Roger Penske to acquire GM's struggling Saturn brand and distribution network.
Penske's Saturn will continue to receive GM-made vehicles for two years, and is looking for another manufacturer to make vehicles that will bear the Saturn brand.
"We will have a supply of vehicles for at least two years with existing brands, and we have been in discussions during this diligence period with a number of manufacturers on a worldwide basis," Penske said Friday morning. "We would expect to have a lineup going forward, which would be manufactured by a worldwide partner."
Penske said he expects the vehicles to be manufactured in the United States if sales are sufficient.
Saturn would be wholly owned by the Penske Automotive Group. Penske said he hopes retired Chrysler President Tom LaSorda, who was advising Penske on the deal, will have a role with the company.
FIND MORE STORIES IN: General Motors Roger Penske Jill Lajdziak
The deal is expected to close in the late third quarter. A price was not disclosed.
As part of its effort to narrow its offerings from eight brands to four, GM has been trying to find a buyer for Saturn. Earlier this week, the automaker said it had 16 interested parties.
A deal to sell Saturn caps a week of sweeping restructuring efforts tied to GM's bankruptcy filing, including the announcement that GM plans to sell Hummer to a Chinese manufacturer.
"We are bringing together two icons: the Saturn brand and the Penske organization," said Jill Lajdziak, Saturn's general manager. "When completed, this deal will save more than 350 dealerships and over 13,000 jobs in the United States."
Saturn dealers will be offered a franchise agreement, Penske said.
The deal includes Saturn's parts operation.
Penske called the dealer network "one of the best in the business."
The idea that Penske was closing in on a deal to acquire the Saturn brand and its dealer network appealed to franchise owners, who could have seen their businesses phased out.
In February, GM announced it would phase out Saturn after 2011 unless dealers could find a better option. In April, GM said it would close the brand down at the end of the year if a deal wasn't arranged.
"There's a lot of us that hope that's the deal because we know Roger Penske is a guy that's detail-oriented, who has capital and standing in the automotive community," George Nahas, president of Saturn of the Lakes in Tavares, Fla., said Thursday. "I think Roger Penske would be a great fit for us."
Saturn sold about 188,000 vehicles last year, down 21.7% from 2007. It has about 380 U.S. stores.
About 25 years ago, GM launched the stand-alone Saturn brand to be "A Different Kind of Car Company" in an attempt to better compete against Japanese brands. It gathered some of the industry's best car dealers to be franchise holders.
Analysts today say the value of Saturn lies with that dealer network, which gained a reputation for being consumer-friendly.
"The only real value in Saturn, frankly, is that distribution network. There is no discrete plant, there is no discrete model," said Aaron Bragman, an industry analyst with IHS Global Insight. "I can't imagine that GM is going to continue to make these vehicles much beyond selling the brand because they would be competing against themselves."
GM's Spring Hill, Tenn., assembly plant opened to build Saturn vehicles but no longer builds them and is among plants facing closure.
Penske has made a name for himself by taking struggling companies and fixing them, such as Hertz Truck Leasing in the 1980s and Detroit Diesel in the 1990s.
In 1999, he invested $83 million into United Auto Group Inc., now called the Penske Automotive Group. The group is the second-largest auto dealer in the United States and is the sole U.S. distributor of the Smart car.
Penske said Friday he would not be combining Saturn and Smart car operations
FAYETTEVILLE, Ark. (AP) — Wal-Mart Stores' newly installed President and CEO Mike Duke pledged to shareholders Friday that the world's largest retailer will build on its success by keeping its customers even when the economy improves.
But at an annual meeting that was often about celebrating recent business success, the CEO emphasized that the discounter also needs to make even more strides in larger issues of sustainability and health care.
"I believe the economic crisis has brought a fundamental shift in consumer attitudes and behavior," Duke told cheering shareholders packed into a University of Arkansas arena in Fayetteville, about 30 miles from its Bentonville headquarters.
"There is a 'new normal' in which people want to save money and are getting smarter about saving money. ... So let me be clear, and people ask me about this all the time: Our customers will stay with us when this economy turns around," he said.
Wal-Mart (WMT) has taken customers from competitors and been a bright light in a bleak recession for retailers. The company's challenge now is to make sure new shoppers stay when the economy recovers.
FIND MORE STORIES IN: Wal-Mart Goldman Sachs Fidel Castro Target Corporation
As a testament to recent success, Wal-Mart announced it would launch a $15 billion share buyback. The program replaces a $15 billion program begun in 2007 that $3.4 billion of remaining authorization.
In his address, Duke touched on various issues from increasing career advancement and developing better training for its workers to accelerating its environmental efforts like further reducing waste.
Duke, who had been vice chairman of the company's international business, succeeded Lee Scott, who retired Feb. 1. Scott is continuing as chairman of the executive committee of the board until January 2011.
Chief Financial Officer Tom Schoewe told shareholders that the company was increasing sales and profits faster than its competitors. He noted that Wal-Mart forecast earnings per share for fiscal 2008 of between $3.30 and $3.43.
The company came in at $3.35. Meeting that projection came as the economy went into a nosedive.
"Did we know when we provided guidance that consumer confidence would look like this?" Schoewe said, pointing at a graphic that featured a sharp downward arrow. He said the retail environment became increasingly difficult and that Wal-Mart was pressured internationally by a stronger dollar.
The meeting featured Wal-Mart's customary celebrity appearances. Miley Cyrus, who has a new apparel line with Wal-Mart, performed, as did American Idol winner Kris Allen, who is from Arkansas. Basketball legend Michael Jordan also spoke briefly.
Vice Chairman Eduardo Castro-Wright promised shareholders that the company will press for more diversity in its workforce and create more career opportunities for advancement.
"In the year ahead, we will take bold steps. We will not confuse efforts with results," said Castro-Wright Ark. Without offering specifics, Castro-Wright said that the company will do more to help associates, including hourly associates, advance in the workforce and get competitive pay.
The nation's biggest private employer has long been under pressure by labor-backed critics to keep improving its workplace practices, though criticism has diminished recently.
Castro-Wright says that 40% of regional general managers are "of color"; 20% of that group are women.
Wal-Mart, which generated more than $400 billion in sales last year, has pulled shoppers away from rivals around the globe because its re-emphasis on low prices along with the right mix of merchandise and marketing have come together just as the economy went sour.
Even entertainer Ben Stiller, the host of the meeting, took the opportunity to take a jab at Target.
"You guys get up early," said Stiller, referring to the 7 a.m start of the meeting. "I hear they are still sleeping over at Target."
Still, after enjoying a 20% surge in its stock price in 2008, Wal-Mart has seen its shares fall 7.5% so far this year as Wall Street turns to retailers that sell more discretionary goods and could benefit when the economy improves. That has driven up share prices for such merchants as Macy's and Target.
Wal-Mart continues to move forward with an aggressive remodeling of its stores, which includes a better display of electronics and lower shelves to help shoppers navigate the store more easily. The company plans to remodel 500 of its more than 3,600 stores in the U.S. this year.
The company is also launching more exclusive launches in apparel and home furnishings that should help shoppers buy more than just detergent and groceries. This week, the company launched a new fashion line with teen star Cyrus and BCBG designer Max Azria for the critical back-to-school shopping season.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
But at an annual meeting that was often about celebrating recent business success, the CEO emphasized that the discounter also needs to make even more strides in larger issues of sustainability and health care.
"I believe the economic crisis has brought a fundamental shift in consumer attitudes and behavior," Duke told cheering shareholders packed into a University of Arkansas arena in Fayetteville, about 30 miles from its Bentonville headquarters.
"There is a 'new normal' in which people want to save money and are getting smarter about saving money. ... So let me be clear, and people ask me about this all the time: Our customers will stay with us when this economy turns around," he said.
Wal-Mart (WMT) has taken customers from competitors and been a bright light in a bleak recession for retailers. The company's challenge now is to make sure new shoppers stay when the economy recovers.
FIND MORE STORIES IN: Wal-Mart Goldman Sachs Fidel Castro Target Corporation
As a testament to recent success, Wal-Mart announced it would launch a $15 billion share buyback. The program replaces a $15 billion program begun in 2007 that $3.4 billion of remaining authorization.
In his address, Duke touched on various issues from increasing career advancement and developing better training for its workers to accelerating its environmental efforts like further reducing waste.
Duke, who had been vice chairman of the company's international business, succeeded Lee Scott, who retired Feb. 1. Scott is continuing as chairman of the executive committee of the board until January 2011.
Chief Financial Officer Tom Schoewe told shareholders that the company was increasing sales and profits faster than its competitors. He noted that Wal-Mart forecast earnings per share for fiscal 2008 of between $3.30 and $3.43.
The company came in at $3.35. Meeting that projection came as the economy went into a nosedive.
"Did we know when we provided guidance that consumer confidence would look like this?" Schoewe said, pointing at a graphic that featured a sharp downward arrow. He said the retail environment became increasingly difficult and that Wal-Mart was pressured internationally by a stronger dollar.
The meeting featured Wal-Mart's customary celebrity appearances. Miley Cyrus, who has a new apparel line with Wal-Mart, performed, as did American Idol winner Kris Allen, who is from Arkansas. Basketball legend Michael Jordan also spoke briefly.
Vice Chairman Eduardo Castro-Wright promised shareholders that the company will press for more diversity in its workforce and create more career opportunities for advancement.
"In the year ahead, we will take bold steps. We will not confuse efforts with results," said Castro-Wright Ark. Without offering specifics, Castro-Wright said that the company will do more to help associates, including hourly associates, advance in the workforce and get competitive pay.
The nation's biggest private employer has long been under pressure by labor-backed critics to keep improving its workplace practices, though criticism has diminished recently.
Castro-Wright says that 40% of regional general managers are "of color"; 20% of that group are women.
Wal-Mart, which generated more than $400 billion in sales last year, has pulled shoppers away from rivals around the globe because its re-emphasis on low prices along with the right mix of merchandise and marketing have come together just as the economy went sour.
Even entertainer Ben Stiller, the host of the meeting, took the opportunity to take a jab at Target.
"You guys get up early," said Stiller, referring to the 7 a.m start of the meeting. "I hear they are still sleeping over at Target."
Still, after enjoying a 20% surge in its stock price in 2008, Wal-Mart has seen its shares fall 7.5% so far this year as Wall Street turns to retailers that sell more discretionary goods and could benefit when the economy improves. That has driven up share prices for such merchants as Macy's and Target.
Wal-Mart continues to move forward with an aggressive remodeling of its stores, which includes a better display of electronics and lower shelves to help shoppers navigate the store more easily. The company plans to remodel 500 of its more than 3,600 stores in the U.S. this year.
The company is also launching more exclusive launches in apparel and home furnishings that should help shoppers buy more than just detergent and groceries. This week, the company launched a new fashion line with teen star Cyrus and BCBG designer Max Azria for the critical back-to-school shopping season.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
NEW YORK (AP) — Many retailers said same-store sales fell in May, as expected, as shoppers continue to spend cautiously, focusing on bargains and food.
The declines came in largely in line with analyst expectations, with frequent standouts such as The Buckle (BKE) posting better results. Cheap chic discounter Target (TGT) reported a bigger drop than analysts expected, as apparel and home products continued to be weak sellers. Overall, necessities like food and health care products continued to be the strongest sellers.
According to a preliminary tally by Thomson Reuters, 13 retailers missed estimates, five retailers beat estimates and one matched expectations.
"There's general softness across the board, as consumers continue to face rising unemployment, falling home values and rising gas prices," said Ken Perkins, president of retail consulting firm Retail Metrics LLC. He expects same-store sales to fall 3.6% overall. "One good sign so far is that results aren't coming in drastically worse than expected, so maybe there is stabilization taking place here."
Another positive was some retailers said traffic had improved during the month.
Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance because they measure growth at existing stores rather than newly opened ones. Economists closely monitor consumer spending because it accounts for about 70% of economic activity.
Drawing conclusions about the broader economy from the numbers is more difficult, Perkins said, because Wal-Mart (WMT), the world's largest retailer, stopped reporting monthly same-store sales as of this month. He said Wal-Mart accounts for about 10% of retail sales.
The world's largest retailer has also been a standout in recent months. "Wal-Mart has been lifting everybody for the last year and a half," Perkins said.
WAL-MART: Plans to create 22k jobs in '09
Also weighing on results was last year's $50 billion fiscal stimulus, which shoppers received in May last year and retailers credited for a lift in sales.
Elsewhere, "the trends we've seen through the first quarter are continuing," said Stifel Nicolaus analyst Richard Jaffe. "The consumer has voted with their pocketbook, they want better value and higher quality at better prices."
Target same-store sales fell 6.1%, a bigger drop than the 4.3% analysts expected. Non-discretionary items such as healthcare and baby products and food were the best sellers, while apparel and home products were weaker.
Warehouse club operator Costco Wholesale (COST) said same-store sales slipped 7% in May. Its strongest categories included fresh food and other food products.
Meanwhile BJ's Wholesale (BJ) said same-store sales fell 6.8%, while analysts predicted a 4.4% decline. Traffic was up 5% compared with a year ago, however. Food, TVs and computer equipment were the strongest sellers.
TJX Cos. (TJX)— which said same-store sales rose 5%, above expectations — also said traffic increased.
Department-store operator Macy's (M) said same-store sales slipped 9.1%, slightly above the 9.3% drop Wall Street expected.
The teen sector continued to be among the best performing sectors, with low-price stores doing the best. The Buckle and Aeropostale (ARO), both known for good deals on trendy fashions, reported double-digit increases.
However, Abercrombie & Fitch (ANF)— which has kept prices high despite competitors' markdowns — said same-store sales fell 28%. Last month, Abercrombie finally bowed to pressure and said it has started to reduce prices.
Limited Brands (LTD), which operates Victoria's Secret and Bath & Body Works stores, said same-store sales fell 7%, matching analyst expectations. Gap (GPS) same-store sales fell 6%, below expectations, though its Old Navy chain posted a 3% rise.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed
The declines came in largely in line with analyst expectations, with frequent standouts such as The Buckle (BKE) posting better results. Cheap chic discounter Target (TGT) reported a bigger drop than analysts expected, as apparel and home products continued to be weak sellers. Overall, necessities like food and health care products continued to be the strongest sellers.
According to a preliminary tally by Thomson Reuters, 13 retailers missed estimates, five retailers beat estimates and one matched expectations.
"There's general softness across the board, as consumers continue to face rising unemployment, falling home values and rising gas prices," said Ken Perkins, president of retail consulting firm Retail Metrics LLC. He expects same-store sales to fall 3.6% overall. "One good sign so far is that results aren't coming in drastically worse than expected, so maybe there is stabilization taking place here."
Another positive was some retailers said traffic had improved during the month.
Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance because they measure growth at existing stores rather than newly opened ones. Economists closely monitor consumer spending because it accounts for about 70% of economic activity.
Drawing conclusions about the broader economy from the numbers is more difficult, Perkins said, because Wal-Mart (WMT), the world's largest retailer, stopped reporting monthly same-store sales as of this month. He said Wal-Mart accounts for about 10% of retail sales.
The world's largest retailer has also been a standout in recent months. "Wal-Mart has been lifting everybody for the last year and a half," Perkins said.
WAL-MART: Plans to create 22k jobs in '09
Also weighing on results was last year's $50 billion fiscal stimulus, which shoppers received in May last year and retailers credited for a lift in sales.
Elsewhere, "the trends we've seen through the first quarter are continuing," said Stifel Nicolaus analyst Richard Jaffe. "The consumer has voted with their pocketbook, they want better value and higher quality at better prices."
Target same-store sales fell 6.1%, a bigger drop than the 4.3% analysts expected. Non-discretionary items such as healthcare and baby products and food were the best sellers, while apparel and home products were weaker.
Warehouse club operator Costco Wholesale (COST) said same-store sales slipped 7% in May. Its strongest categories included fresh food and other food products.
Meanwhile BJ's Wholesale (BJ) said same-store sales fell 6.8%, while analysts predicted a 4.4% decline. Traffic was up 5% compared with a year ago, however. Food, TVs and computer equipment were the strongest sellers.
TJX Cos. (TJX)— which said same-store sales rose 5%, above expectations — also said traffic increased.
Department-store operator Macy's (M) said same-store sales slipped 9.1%, slightly above the 9.3% drop Wall Street expected.
The teen sector continued to be among the best performing sectors, with low-price stores doing the best. The Buckle and Aeropostale (ARO), both known for good deals on trendy fashions, reported double-digit increases.
However, Abercrombie & Fitch (ANF)— which has kept prices high despite competitors' markdowns — said same-store sales fell 28%. Last month, Abercrombie finally bowed to pressure and said it has started to reduce prices.
Limited Brands (LTD), which operates Victoria's Secret and Bath & Body Works stores, said same-store sales fell 7%, matching analyst expectations. Gap (GPS) same-store sales fell 6%, below expectations, though its Old Navy chain posted a 3% rise.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed
TOKYO (AP) — Mitsubishi Motors' electric vehicle is twice as expensive as popular hybrid cars by rivals Toyota and Honda, but Japan's No. 4 automaker said Friday the i-MiEV will help it survive increasingly intense global competition.
"With the electric vehicle, we will challenge global players," said Mitsubishi President Osamu Masuko at a news conference where the company rolled out the electric model.
The i-MiEV is powered solely by electricity, and can be recharged from a regular home socket. The four-seater vehicle can run up to 100 miles after charging seven hours at 200 volts.
"It is a zero-emission vehicle. It does not rely on oil, which is different from hybrid cars," Masuko said. A hybrid car switches between a gasoline engine and an electric motor to boost mileage.
Initially, Mitsubishi aims to target local governments and companies, and hopes to sell 1,400 units of the electric car for the fiscal year through March 2010, mostly in Japan.
FIND MORE STORIES IN: Japan Mitsubishi Toyota Motor Corporation Nissan Motor Co., Ltd. Tesla Motors Honda Motor Company, Ltd Mitsubishi Motors
Mitsubishi also aims to sell 250 units abroad, mainly in Britain and other European countries, in the current financial year.
Individual buyers in Japan can place orders for the car in July, with deliveries starting in April 2010.
It also plans to sell the car in China and the United States, but Masuko gave no details.
Mitsubishi's i-MiEV costs 4.59 million yen ($47,560), more than twice as much as Toyota's Prius hybrid, which is just over 2 million yen ($20,700), or Honda's Insight, which starts at 1.89 million yen, the cheapest hybrid on the market.
Masuko acknowledged the high price is a major hurdle to encouraging people to buy the i-MiEV, which stands for Mitsubishi innovative electric vehicle. (The initial "i" doesn't have any particular meaning, the company says.)
"This is not the price that ordinary people can easily buy. But as we increase our production, we aim to cut the price below 2 million yen," he said without elaborating further.
Masuko noted that i-MiEV Japanese consumers can receive hefty subsidies and pay no tax under a government program promoting the use of ecological vehicles. With the help of government subsidies, the car costs 3.209 million yen, down 43% from the original price, or about $33,000.
The subsidy program for electric vehicles runs from April to next March. But an official at the trade ministry said the government plans to extend the program.
Also, electric cars, as well as hybrids, are tax-free for three years in Japan.
Masuko said the company had spent more than 40 years to develop the i-MiEV, but declined to say how much the company had invested in its development.
"We are looking ahead. We look at the global auto market of 10 or 20 years later from now," the president said. "We are in the midst of global auto competition, and we should not be left behind."
Various automakers are racing to develop electric cars amid rising oil prices and concerns about global warming.
Malaysia's national carmaker Proton and Detroit Electric, a Netherlands-based company, plan to make electric cars by early next year. U.S.-based Tesla Motors has a prototype electric car that is scheduled to be produced by 2011.
Toyota said it plans to sell electric vehicles in the U.S. by 2012, while Nissan said it will market electric vehicles in Japan and the U.S. after April 2010.
Globally, Mitsubishi hopes to sell 15,000 units for the year through March 2012.
But it can only make a profit on the electric car if it produces 30,000 units per year, Masuko said.
"We want to reach that level as early as possible," he said.
He added that the company is considering making a commercial electric vehicle.
Mitsubishi's share price has jumped recently on hopes for the new car. On Friday, it rose 2.3% to close at 175 yen after surging almost 12% Thursday.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
"With the electric vehicle, we will challenge global players," said Mitsubishi President Osamu Masuko at a news conference where the company rolled out the electric model.
The i-MiEV is powered solely by electricity, and can be recharged from a regular home socket. The four-seater vehicle can run up to 100 miles after charging seven hours at 200 volts.
"It is a zero-emission vehicle. It does not rely on oil, which is different from hybrid cars," Masuko said. A hybrid car switches between a gasoline engine and an electric motor to boost mileage.
Initially, Mitsubishi aims to target local governments and companies, and hopes to sell 1,400 units of the electric car for the fiscal year through March 2010, mostly in Japan.
FIND MORE STORIES IN: Japan Mitsubishi Toyota Motor Corporation Nissan Motor Co., Ltd. Tesla Motors Honda Motor Company, Ltd Mitsubishi Motors
Mitsubishi also aims to sell 250 units abroad, mainly in Britain and other European countries, in the current financial year.
Individual buyers in Japan can place orders for the car in July, with deliveries starting in April 2010.
It also plans to sell the car in China and the United States, but Masuko gave no details.
Mitsubishi's i-MiEV costs 4.59 million yen ($47,560), more than twice as much as Toyota's Prius hybrid, which is just over 2 million yen ($20,700), or Honda's Insight, which starts at 1.89 million yen, the cheapest hybrid on the market.
Masuko acknowledged the high price is a major hurdle to encouraging people to buy the i-MiEV, which stands for Mitsubishi innovative electric vehicle. (The initial "i" doesn't have any particular meaning, the company says.)
"This is not the price that ordinary people can easily buy. But as we increase our production, we aim to cut the price below 2 million yen," he said without elaborating further.
Masuko noted that i-MiEV Japanese consumers can receive hefty subsidies and pay no tax under a government program promoting the use of ecological vehicles. With the help of government subsidies, the car costs 3.209 million yen, down 43% from the original price, or about $33,000.
The subsidy program for electric vehicles runs from April to next March. But an official at the trade ministry said the government plans to extend the program.
Also, electric cars, as well as hybrids, are tax-free for three years in Japan.
Masuko said the company had spent more than 40 years to develop the i-MiEV, but declined to say how much the company had invested in its development.
"We are looking ahead. We look at the global auto market of 10 or 20 years later from now," the president said. "We are in the midst of global auto competition, and we should not be left behind."
Various automakers are racing to develop electric cars amid rising oil prices and concerns about global warming.
Malaysia's national carmaker Proton and Detroit Electric, a Netherlands-based company, plan to make electric cars by early next year. U.S.-based Tesla Motors has a prototype electric car that is scheduled to be produced by 2011.
Toyota said it plans to sell electric vehicles in the U.S. by 2012, while Nissan said it will market electric vehicles in Japan and the U.S. after April 2010.
Globally, Mitsubishi hopes to sell 15,000 units for the year through March 2012.
But it can only make a profit on the electric car if it produces 30,000 units per year, Masuko said.
"We want to reach that level as early as possible," he said.
He added that the company is considering making a commercial electric vehicle.
Mitsubishi's share price has jumped recently on hopes for the new car. On Friday, it rose 2.3% to close at 175 yen after surging almost 12% Thursday.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
By David Ellis, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- The recent bank stock rally may have finally run its course.
After bottoming out in early March on fears that some of the biggest banks were insolvent, shares across the sector skyrocketed before government regulators finally unveiled the findings of their stress test program for the nation's largest financial firms in May.
Since then, however, investor interest in banks has cooled considerably. Two of the most widely-watched barometers of the sector - the KBW Bank Index and S&P Banking Index - have each fallen more than 10% since the stress test results were announced and remain well below where they were trading back in mid-September before the collapse of Lehman Brothers.
Lenders that enjoyed the biggest returns during the months of March, April and early May, such as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500), have taken a hit in recent days.
Citigroup fell again Monday, despite a broad market rally, on the news that it was being removed from the Dow Jones industrial average. Ironically, it is being replaced by the Travelers Companies, a leading insurer that once was part of Citigroup.
Big banks aren't the only one suffering from pullbacks. Shares of SunTrust (STI, Fortune 500) and Regions Financial (RF, Fortune 500), two top regional banks based in the Southeast which were also deemed to be in need of additional capital by the government, are both off more than 30% since the results of the stress test were revealed.
Massive gyrations in the financial sector are hardly a new phenomenon. For nearly a year now, bank stocks have endured wild swings, falling as much as 25% in a single trading session.
Still, those who track the industry tend to agree that investors are now viewing bank stocks differently.
Blake Howells, director of research at Portland, Ore.-based Becker Capital Management, which oversees $1.7 billion in assets, said investors are now more focused on whether banks can return to normal, stable earnings growth, rather than fears about nationalization and an institution's solvency.
Some critics insist that the surprisingly strong numbers generated by large lenders in the first quarter were exaggerated as banks tried to pass the government's stress test. A surge in mortgage refinancing activity did not hurt either, although that is a trend that many analysts see as unsustainable -- especially since mortgage rates have been rising in the past few weeks.
Banks also remain saddled with loan portfolios that are ripe for further losses, particularly in areas like commercial real estate. The percentage of construction and development loans that were 30 to 89 days past due climbed to 3.56% from 2.92% during the first quarter, according to figures published last week by the Federal Deposit Insurance Corporation.
"Credit trends are negative across the board whether you are a community lender, regional or national bank," said Eric Hovde, chief executive of Hovde Capital Advisors LLC, a money-management firm in Washington that focuses on the financial services sector.
Of course, other factors could figure into bank stock performance in the coming quarters, including future actions by the government. Banks with sizable credit card businesses suffered somewhat of a setback last month following the passage of legislation that reined in lenders' credit card practices.
There is also widespread speculation that banking regulators could take a hard line on the industry, demanding that lenders, for example, hold more capital on their books to compensate for future losses. That could crimp profitability.
Curves ahead
Others have a less dire view however. Bank stock bulls contend that the worst may be over for many lenders, as some banks have, and will continue to, aggressively reserve for future losses.
The increasing number of signals that the nation's economy may finally have reached a bottom is also encouraging for the industry.
Weekly figures on first-time unemployment claims, often viewed as a real-time assessment of labor conditions, have started to slow in recent weeks even as continuing claims remain at historic levels.
Activity in the manufacturing sector has also been on the mend in recent months, according to recent readings by the Institute for Supply Management.
0:00 /1:56Banks face good, bad and ugly
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The emergence of such signals foreshadowed an economic recovery in five of the last recessions dating back to the 1970s, notes Peter Winter, managing director at BMO Capital Markets. Winter upgraded a number of regional banks two weeks ago, including U.S. Bancorp (USB, Fortune 500) and California-based lender EastWest Bancorp (EWBC).
Should a similar trend occur this time around, that would certainly bode well for the more than 8,200 lenders that make up the nation's banking system and the roughly $13.5 trillion in assets they control.
But investor confidence in the banking sector, much like the U.S. economy itself, remains shaky at best, setting up what most analysts believe will be another volatile, albeit more modest, period for bank stocks.
"Unfortunately the group is going to trade more on economic news than anything else, at least in the near term because the recovery is tentative," said Winter.
Of course, some lenders are widely believed to be better positioned than others to navigate the current environment, including JPMorgan Chase (JPM, Fortune 500) and U.S. Bancorp, two banks that were deemed not to need any additional capital by the government.
Their position of strength may translate into stable stock performances rather than outsized returns though. Part of that is due to the fact that healthier banks didn't fall as sharply as weaker lenders.
For that reason, Howells of Becker Capital Management, whose firm owns shares of U.S. Bancorp and JPMorgan Chase, said some of the undercapitalized regional lenders could enjoy the biggest bounces going forward.
Some of those bets could misfire, Howells said. But he added that it is not farfetched to think that Fifth Third (FITB, Fortune 500) or KeyCorp (KEY, Fortune 500) -- two Ohio-based banks that were also told by the government to raise capital -- or Regions Financial could double in price before long
NEW YORK (CNNMoney.com) -- The recent bank stock rally may have finally run its course.
After bottoming out in early March on fears that some of the biggest banks were insolvent, shares across the sector skyrocketed before government regulators finally unveiled the findings of their stress test program for the nation's largest financial firms in May.
Since then, however, investor interest in banks has cooled considerably. Two of the most widely-watched barometers of the sector - the KBW Bank Index and S&P Banking Index - have each fallen more than 10% since the stress test results were announced and remain well below where they were trading back in mid-September before the collapse of Lehman Brothers.
Lenders that enjoyed the biggest returns during the months of March, April and early May, such as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500), have taken a hit in recent days.
Citigroup fell again Monday, despite a broad market rally, on the news that it was being removed from the Dow Jones industrial average. Ironically, it is being replaced by the Travelers Companies, a leading insurer that once was part of Citigroup.
Big banks aren't the only one suffering from pullbacks. Shares of SunTrust (STI, Fortune 500) and Regions Financial (RF, Fortune 500), two top regional banks based in the Southeast which were also deemed to be in need of additional capital by the government, are both off more than 30% since the results of the stress test were revealed.
Massive gyrations in the financial sector are hardly a new phenomenon. For nearly a year now, bank stocks have endured wild swings, falling as much as 25% in a single trading session.
Still, those who track the industry tend to agree that investors are now viewing bank stocks differently.
Blake Howells, director of research at Portland, Ore.-based Becker Capital Management, which oversees $1.7 billion in assets, said investors are now more focused on whether banks can return to normal, stable earnings growth, rather than fears about nationalization and an institution's solvency.
Some critics insist that the surprisingly strong numbers generated by large lenders in the first quarter were exaggerated as banks tried to pass the government's stress test. A surge in mortgage refinancing activity did not hurt either, although that is a trend that many analysts see as unsustainable -- especially since mortgage rates have been rising in the past few weeks.
Banks also remain saddled with loan portfolios that are ripe for further losses, particularly in areas like commercial real estate. The percentage of construction and development loans that were 30 to 89 days past due climbed to 3.56% from 2.92% during the first quarter, according to figures published last week by the Federal Deposit Insurance Corporation.
"Credit trends are negative across the board whether you are a community lender, regional or national bank," said Eric Hovde, chief executive of Hovde Capital Advisors LLC, a money-management firm in Washington that focuses on the financial services sector.
Of course, other factors could figure into bank stock performance in the coming quarters, including future actions by the government. Banks with sizable credit card businesses suffered somewhat of a setback last month following the passage of legislation that reined in lenders' credit card practices.
There is also widespread speculation that banking regulators could take a hard line on the industry, demanding that lenders, for example, hold more capital on their books to compensate for future losses. That could crimp profitability.
Curves ahead
Others have a less dire view however. Bank stock bulls contend that the worst may be over for many lenders, as some banks have, and will continue to, aggressively reserve for future losses.
The increasing number of signals that the nation's economy may finally have reached a bottom is also encouraging for the industry.
Weekly figures on first-time unemployment claims, often viewed as a real-time assessment of labor conditions, have started to slow in recent weeks even as continuing claims remain at historic levels.
Activity in the manufacturing sector has also been on the mend in recent months, according to recent readings by the Institute for Supply Management.
0:00 /1:56Banks face good, bad and ugly
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The emergence of such signals foreshadowed an economic recovery in five of the last recessions dating back to the 1970s, notes Peter Winter, managing director at BMO Capital Markets. Winter upgraded a number of regional banks two weeks ago, including U.S. Bancorp (USB, Fortune 500) and California-based lender EastWest Bancorp (EWBC).
Should a similar trend occur this time around, that would certainly bode well for the more than 8,200 lenders that make up the nation's banking system and the roughly $13.5 trillion in assets they control.
But investor confidence in the banking sector, much like the U.S. economy itself, remains shaky at best, setting up what most analysts believe will be another volatile, albeit more modest, period for bank stocks.
"Unfortunately the group is going to trade more on economic news than anything else, at least in the near term because the recovery is tentative," said Winter.
Of course, some lenders are widely believed to be better positioned than others to navigate the current environment, including JPMorgan Chase (JPM, Fortune 500) and U.S. Bancorp, two banks that were deemed not to need any additional capital by the government.
Their position of strength may translate into stable stock performances rather than outsized returns though. Part of that is due to the fact that healthier banks didn't fall as sharply as weaker lenders.
For that reason, Howells of Becker Capital Management, whose firm owns shares of U.S. Bancorp and JPMorgan Chase, said some of the undercapitalized regional lenders could enjoy the biggest bounces going forward.
Some of those bets could misfire, Howells said. But he added that it is not farfetched to think that Fifth Third (FITB, Fortune 500) or KeyCorp (KEY, Fortune 500) -- two Ohio-based banks that were also told by the government to raise capital -- or Regions Financial could double in price before long
By Steve Hargreaves, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- General Motors unveiled plans to close 14 plants and three warehouses Monday in a move that could ultimately slash up to 20,000 workers from its payrolls, as the company undergoes an historic bankruptcy restructuring.
The largest closures include a 3,405-worker assembly facility in Orion, Mich, that makes the popular Chevy Malibu and the Pontiac G6, a 2,671-employee Chevy plant in Spring Hill, Tenn. that used to make Saturns, and a truck plant in Pontiac, Mich. that employs over 1,400 people.
"We had our suspicions, but we had hoped that we were going to remain open, so it's a little bit of a shock," Brian Larkin, an official at United Auto Workers Local 594 in Pontiac, Mich., told CNNRadio. "People are just going to have to see what their options are. Right now, that's not clear."
The Orion, Mich and Spring Hill, Tenn. plants, along with a stamping plant in Pontiac, Mich., are being placed on "standby" status, meaning they could re-open if demand bounces back.
GM said the moves will result in lower fixed costs per vehicle, and lower and more efficient capital investment.
"Our manufacturing operations will emerge even leaner, stronger and more flexible, as part of the New GM, " Gary Cowger, an executive at GM's Global Manufacturing and Labor Relations division, said in a statement.
At least one of the assembly plants on standby will reopen when GM starts building a new small car in the United States, although the company didn't specify which plant.
0:00 /2:43GM: Beyond bankruptcy
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The closures, which will be phased in over the next few years, will result in GM going from 47 plants currently to 33 by 2012.
Shuttering the factories is part of an unprecedented effort to turn around the once mighty U.S. company that has suffered from overcapacity, high labor costs and vehicle quality issues for years.
Other plants slated for closure include a 1,069-worker assembly plant in Wilmington, Del. that makes soon-to-be-discontinued Pontiac models, as well as stamping facilities in Indianapolis, Ind., and Mansfield, Ohio.
Michigan powertrain facilities in Livonia, Flint and Ypsilanti, as well as Parma, Ohio, and Fredericksburg, Va., are also on the closure list.
Additionally, a powertrain plant in Massena, N.Y., and a stamping plant in Grand Rapids, Mich., will shut down - moves that had been previously announced.
Warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio employing a total of 232 people will also be closed.
GM (GM, Fortune 500) didn't specify how many people will be laid off from each factory, but said between 18,000 and 20,000 workers will ultimately be affected. Over 15,000 people currently work at the facilities that were listed on Monday, according to the GM Web site.
A GM spokesman said all the laid-off employees will receive some type of severance package, although he could not comment on the details.
Lincoln Merrihew, an autos analyst at the market research firm TNS, said the compensation would likely be short term, not a paycheck-for-life type arrangement.
"All indications are that this will be intermittent, a couple of weeks pay for every year at the firm, or something like that," said Merrihew.
He also said he expects Monday's layoffs to account for the lion's share of job losses at GM, although what happens to workers at brands the company is spinning off - like Saturn - is another matter.
The closures are bound to be tough on the towns where these factories are located. Many have few other employment options.
The job losses are also likely to spread beyond GM, as dealerships, parts suppliers and others indirectly dependent on the auto industry feel the pinch.
In Mansfield, Ohio, the manager of a 860-person stamping plant tried to let his employees down easy.
"This decision has not been made because of something that you, plant management, the union, local or state government's have failed to do," the manager wrote in a letter to employees, now posted on CNN affiliate WMFD's Web site. "I want to stress the fact that GM management knows that all of you - the men and women of Mansfield - are proud, hard working people who have dedicated your working lives to building high quality parts for your assembly plants."
The Mansfield plant is set to close next June
NEW YORK (CNNMoney.com) -- General Motors unveiled plans to close 14 plants and three warehouses Monday in a move that could ultimately slash up to 20,000 workers from its payrolls, as the company undergoes an historic bankruptcy restructuring.
The largest closures include a 3,405-worker assembly facility in Orion, Mich, that makes the popular Chevy Malibu and the Pontiac G6, a 2,671-employee Chevy plant in Spring Hill, Tenn. that used to make Saturns, and a truck plant in Pontiac, Mich. that employs over 1,400 people.
"We had our suspicions, but we had hoped that we were going to remain open, so it's a little bit of a shock," Brian Larkin, an official at United Auto Workers Local 594 in Pontiac, Mich., told CNNRadio. "People are just going to have to see what their options are. Right now, that's not clear."
The Orion, Mich and Spring Hill, Tenn. plants, along with a stamping plant in Pontiac, Mich., are being placed on "standby" status, meaning they could re-open if demand bounces back.
GM said the moves will result in lower fixed costs per vehicle, and lower and more efficient capital investment.
"Our manufacturing operations will emerge even leaner, stronger and more flexible, as part of the New GM, " Gary Cowger, an executive at GM's Global Manufacturing and Labor Relations division, said in a statement.
At least one of the assembly plants on standby will reopen when GM starts building a new small car in the United States, although the company didn't specify which plant.
0:00 /2:43GM: Beyond bankruptcy
vidConfig.push({videoArray: ["/video/news/2009/05/28/news.gm.bankruptcy.cnnmoney.json"], collapsed:true});
The closures, which will be phased in over the next few years, will result in GM going from 47 plants currently to 33 by 2012.
Shuttering the factories is part of an unprecedented effort to turn around the once mighty U.S. company that has suffered from overcapacity, high labor costs and vehicle quality issues for years.
Other plants slated for closure include a 1,069-worker assembly plant in Wilmington, Del. that makes soon-to-be-discontinued Pontiac models, as well as stamping facilities in Indianapolis, Ind., and Mansfield, Ohio.
Michigan powertrain facilities in Livonia, Flint and Ypsilanti, as well as Parma, Ohio, and Fredericksburg, Va., are also on the closure list.
Additionally, a powertrain plant in Massena, N.Y., and a stamping plant in Grand Rapids, Mich., will shut down - moves that had been previously announced.
Warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio employing a total of 232 people will also be closed.
GM (GM, Fortune 500) didn't specify how many people will be laid off from each factory, but said between 18,000 and 20,000 workers will ultimately be affected. Over 15,000 people currently work at the facilities that were listed on Monday, according to the GM Web site.
A GM spokesman said all the laid-off employees will receive some type of severance package, although he could not comment on the details.
Lincoln Merrihew, an autos analyst at the market research firm TNS, said the compensation would likely be short term, not a paycheck-for-life type arrangement.
"All indications are that this will be intermittent, a couple of weeks pay for every year at the firm, or something like that," said Merrihew.
He also said he expects Monday's layoffs to account for the lion's share of job losses at GM, although what happens to workers at brands the company is spinning off - like Saturn - is another matter.
The closures are bound to be tough on the towns where these factories are located. Many have few other employment options.
The job losses are also likely to spread beyond GM, as dealerships, parts suppliers and others indirectly dependent on the auto industry feel the pinch.
In Mansfield, Ohio, the manager of a 860-person stamping plant tried to let his employees down easy.
"This decision has not been made because of something that you, plant management, the union, local or state government's have failed to do," the manager wrote in a letter to employees, now posted on CNN affiliate WMFD's Web site. "I want to stress the fact that GM management knows that all of you - the men and women of Mansfield - are proud, hard working people who have dedicated your working lives to building high quality parts for your assembly plants."
The Mansfield plant is set to close next June
By Chris Taylor
SAN FRANCISCO (Fortune Small Business) -- As an editor, I should have a hard time writing a column in praise of Digg.com. After all, Digg wants to make jobs like mine redundant. Its news aggregation site determines which stories make the grade based not on the whims of mandarins like me but on votes from its 35 million users (whose numbers are growing by 20,000 a month).
I'm also jealous of the stars of its weekly video podcast, Diggnation -- who reach 200,000 viewers by sitting in recliners and discussing the top news on Digg while they chug beer that the show's sponsor pays them to drink.
But recently I met Jay Adelson, CEO of Digg, and it's hard not to like him. Adelson is a workhorse: He also chairs Revision3, the film company he founded that produces Diggnation. Last year Adelson hoped to grow Digg to 150 employees and beyond (the company currently has 70). But the recession, along with painful memories of what a previous downturn did to his parents' business, changed his mind. Digg can do great things, Adelson says now, without ever growing beyond 100 employees.
That idea would have been heresy in the late 1990s, when the mantra of dot-com companies was Jeff Bezos's dictum "Get big fast." The idea was to persuade venture capitalists to empty their wallets, hire like it was going out of style, and bank on a successful IPO. We all know how that turned out. The second wave of Web startups burned far less VC cash -- but the exit strategy was usually to be acquired by an industry giant (think YouTube, which Google (GOOG, Fortune 500) swallowed for $1.65 billion).
In the cautious new world of recession, companies that think small are thriving. Entrepreneurs can cobble together successful Websites in their apartments, as Digg founder Kevin Rose did. There are more examples of such low-cost launches every day. (My favorite is AirBnB.com, created by a New York City startup; users rent out air mattresses on their floors as a cheap alternative to hotel rooms for conferencegoers.)
In place of "Get big fast," this new breed of entrepreneur is more likely to follow Digg's business plan: Seek VC cash only when you've reached profitability. Closely held Digg has raised $40 million in venture capital since its inception, briefly reached profitability at least twice, and expects to finish 2009 in the black. The company makes money by placing targeted ads alongside the stories on its site.
"This is what I tell youngsters," says Adelson, 38. "You don't have to make a billion dollars. Just be sustainable. Create a system that fills a void. And if you can't get to profitability in the first place without a ramp-up from investors, start over."
Adelson's frugality dates back to his apprenticeship in the small retail business that three generations of his family ran in Detroit. His parents owned the top electric supply store on 8 Mile Rd. They worked until nine every night and hoped their son, a computer geek at age 12, might take over one day. Then the recession of the late 1980s hit Detroit so hard that Adelson's parents lost both the store and their house.
Adelson has been working at Internet companies since 1993. His first job was at a plain-vanilla service provider called Netcom, in San Jose. He had plenty of offers to join high-flying VC-backed startups but never accepted, even at the height of the gold rush. The memory of his family's crash and burn was too fresh. When dot-com friends who were paper millionaires laughed at him, Adelson told them, "I'll have a job tomorrow."
His caution paid off then, and it seems likely to pay off now. Many large Websites have pretty lean operations, but few are as lean as Adelson's. Revision3 runs an entire HDTV studio with only 20 employees. When I visited Digg's offices, the company had just one ad sales guy on staff (granted, it was hiring 10 more). Meanwhile, a lone manager was policing comments to a Web site on which a whopping 35 million people could post. (There are more community managers, but they work in shifts.)
One department Digg doesn't skimp on: R&D. Its four employees are constantly tweaking the algorithm that weighs users' votes so that no one can game the system - though plenty try. Replacing editors, I was relieved to note, isn't as easy as it seems.
SAN FRANCISCO (Fortune Small Business) -- As an editor, I should have a hard time writing a column in praise of Digg.com. After all, Digg wants to make jobs like mine redundant. Its news aggregation site determines which stories make the grade based not on the whims of mandarins like me but on votes from its 35 million users (whose numbers are growing by 20,000 a month).
I'm also jealous of the stars of its weekly video podcast, Diggnation -- who reach 200,000 viewers by sitting in recliners and discussing the top news on Digg while they chug beer that the show's sponsor pays them to drink.
But recently I met Jay Adelson, CEO of Digg, and it's hard not to like him. Adelson is a workhorse: He also chairs Revision3, the film company he founded that produces Diggnation. Last year Adelson hoped to grow Digg to 150 employees and beyond (the company currently has 70). But the recession, along with painful memories of what a previous downturn did to his parents' business, changed his mind. Digg can do great things, Adelson says now, without ever growing beyond 100 employees.
That idea would have been heresy in the late 1990s, when the mantra of dot-com companies was Jeff Bezos's dictum "Get big fast." The idea was to persuade venture capitalists to empty their wallets, hire like it was going out of style, and bank on a successful IPO. We all know how that turned out. The second wave of Web startups burned far less VC cash -- but the exit strategy was usually to be acquired by an industry giant (think YouTube, which Google (GOOG, Fortune 500) swallowed for $1.65 billion).
In the cautious new world of recession, companies that think small are thriving. Entrepreneurs can cobble together successful Websites in their apartments, as Digg founder Kevin Rose did. There are more examples of such low-cost launches every day. (My favorite is AirBnB.com, created by a New York City startup; users rent out air mattresses on their floors as a cheap alternative to hotel rooms for conferencegoers.)
In place of "Get big fast," this new breed of entrepreneur is more likely to follow Digg's business plan: Seek VC cash only when you've reached profitability. Closely held Digg has raised $40 million in venture capital since its inception, briefly reached profitability at least twice, and expects to finish 2009 in the black. The company makes money by placing targeted ads alongside the stories on its site.
"This is what I tell youngsters," says Adelson, 38. "You don't have to make a billion dollars. Just be sustainable. Create a system that fills a void. And if you can't get to profitability in the first place without a ramp-up from investors, start over."
Adelson's frugality dates back to his apprenticeship in the small retail business that three generations of his family ran in Detroit. His parents owned the top electric supply store on 8 Mile Rd. They worked until nine every night and hoped their son, a computer geek at age 12, might take over one day. Then the recession of the late 1980s hit Detroit so hard that Adelson's parents lost both the store and their house.
Adelson has been working at Internet companies since 1993. His first job was at a plain-vanilla service provider called Netcom, in San Jose. He had plenty of offers to join high-flying VC-backed startups but never accepted, even at the height of the gold rush. The memory of his family's crash and burn was too fresh. When dot-com friends who were paper millionaires laughed at him, Adelson told them, "I'll have a job tomorrow."
His caution paid off then, and it seems likely to pay off now. Many large Websites have pretty lean operations, but few are as lean as Adelson's. Revision3 runs an entire HDTV studio with only 20 employees. When I visited Digg's offices, the company had just one ad sales guy on staff (granted, it was hiring 10 more). Meanwhile, a lone manager was policing comments to a Web site on which a whopping 35 million people could post. (There are more community managers, but they work in shifts.)
One department Digg doesn't skimp on: R&D. Its four employees are constantly tweaking the algorithm that weighs users' votes so that no one can game the system - though plenty try. Replacing editors, I was relieved to note, isn't as easy as it seems.
By David Ellis, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- There are plenty of ailing banks out there. But there are also lots of big investors with plenty of cash. So why haven't there been more deals between the two?
Despite the severe slump in the banking industry since last fall, private equity firms have made only a handful of plays for U.S. banks. It's a bit of a surprise since many private equity firms are known for "vulture investing" -- picking through the carcasses of beaten-down firms to find hidden value.
But that may be slowly changing. Buyout shops, which rose to prominence in the 1980s as the so-called "barbarians at the gate," are starting to take a closer look at some struggling financial firms.
Last week, the failed Florida lender BankUnited (BKUNA) was bought by a group of well-known buyout shops, including WL Ross & Co., Carlyle Investment Management and Centerbridge Capital Partners.
Top executives at Blackstone Group (BX), another participant in the BankUnited deal and a major private equity player, have outlined their interest in investing in the financial services sector in recent weeks.
A source close to the New York City-based firm said that the company considered upwards of 40 other bank deals before agreeing to team up with others to buy the assets of BankUnited.
At first glance, it would seem that now is a great time for buyout firms to go shopping for banks.
While fundraising levels are down from the pre-credit crunch days, private equity firms, as a group, have a lot of cash that could be used for more investments. U.S. buyout shops alone currently sit on an estimated $605 billion in unallocated capital, according to the London-based research and consultancy firm Preqin.
Banking regulators have even begun to relax some rules in order to encourage buyout shops to invest in banks that still face a severe shortage of capital.
Last week, the Federal Deposit Insurance Corp. signaled its willingness to play matchmaker, pledging to soon offer "policy guidelines" for buyout shops looking to take stakes in ailing lenders.
"It is definitely an important recognition that good capital from outside the banking industry is very useful at this point in time," said Gerard Comizio, senior partner in the financial services practice group at the law firm Paul Hastings.
Still, private equity investors remain extremely cautious. And for good reason.
Several buyout firms were burned badly by investments in troubled banks. TPG and Corsair Capital poured a combined $14 billion into Washington Mutual and National City a little more than a year ago, only to watch their respective investments get wiped out just months later.
Uncertainty about the direction of the U.S. economy and continued loan losses, particularly in areas like commercial real estate, have also tempered investor interest.
Sensing that, regulators agreed to share in some of the losses as part of the BankUnited deal. They did so as well in the sale of the California-based mortgage lender IndyMac to a group of investors earlier this year.
With that in mind, experts contend that similar loss-sharing arrangements may need to be part of any other future private equity-banking deals.
Washington roadblock
Banking regulators have already made a lot of concessions to private equity investors in recent months to keep capital flowing to banks that need it.
The Federal Reserve, for example, deemed in September that non-banking firms can control as much as a third of a bank and also allowed them a greater presence in the boardroom. Previously, non-banking entities were restricted from owning more than a 25% equity stake in a bank or thrift.
At the same time, the Office of the Comptroller of the Currency and the FDIC rolled out programs late last year aimed at making it easier for willing buyers to acquire failed banks.
"It is easy to lose sight of the fact that the government has made tremendous progress in opening doors to private equity to own banks," said Jaret Seiberg, policy analyst for Concept Capital's Washington research group.
Nonetheless, some believe regulatory restrictions remain the biggest hurdle for private equity investors looking to bet big on the U.S. banking sector.
Many experts contend that policy is rooted in the long-standing notion that U.S. companies should not be allowed to engage in both commercial activities and banking.
0:00 /3:59Stuck banks in trouble
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Among other things, regulators fear that a non-banking institution, namely buyout firms, could use an acquired bank to limit credit to competitors or plunder the bank's deposit-gathering resources to fund their commercial operations.
Since some private equity firms own hundreds of other businesses at any given time, experts said there could be such a conflict if they were allowed to control a bank.
Some buyout shops have managed to make an end-run around these restrictions through a so-called "silo" structure, in which its investment in a bank is walled off from its other investments. Private equity firm Matlin Patterson, for example, won over the Office of Thrift Supervision with such an approach when it acquired Michigan thrift Flagstar earlier this year.
But that transaction has raised eyebrows among some lawmakers and fellow banking regulators.
The Federal Reserve, which oversees a portion of the nation's banking industry, has indicated that a firm that buys a bank should be willing to abide by the "source of strength" concept, meaning that the acquirer would agree to marshal all of its resources to help a bank get out of financial trouble.
"No private equity firm wants to do that since it is an unlimited call on capital," notes Hal Scott, a Harvard Law School professor who also serves as director of the Committee on Capital Markets Regulation. That group published a series of regulatory recommendations this week, including removing restrictions on private equity firms owning banks.
Other experts place the possibility of such changes as slim, even as regulators continue to coax buyout shops to invest more in the nation's banking industry.
As a result, capital hungry banks and the buyout world may just have to make due with the status quo. There may be more deals here and there, but not the glut that both industries are hoping for
NEW YORK (CNNMoney.com) -- There are plenty of ailing banks out there. But there are also lots of big investors with plenty of cash. So why haven't there been more deals between the two?
Despite the severe slump in the banking industry since last fall, private equity firms have made only a handful of plays for U.S. banks. It's a bit of a surprise since many private equity firms are known for "vulture investing" -- picking through the carcasses of beaten-down firms to find hidden value.
But that may be slowly changing. Buyout shops, which rose to prominence in the 1980s as the so-called "barbarians at the gate," are starting to take a closer look at some struggling financial firms.
Last week, the failed Florida lender BankUnited (BKUNA) was bought by a group of well-known buyout shops, including WL Ross & Co., Carlyle Investment Management and Centerbridge Capital Partners.
Top executives at Blackstone Group (BX), another participant in the BankUnited deal and a major private equity player, have outlined their interest in investing in the financial services sector in recent weeks.
A source close to the New York City-based firm said that the company considered upwards of 40 other bank deals before agreeing to team up with others to buy the assets of BankUnited.
At first glance, it would seem that now is a great time for buyout firms to go shopping for banks.
While fundraising levels are down from the pre-credit crunch days, private equity firms, as a group, have a lot of cash that could be used for more investments. U.S. buyout shops alone currently sit on an estimated $605 billion in unallocated capital, according to the London-based research and consultancy firm Preqin.
Banking regulators have even begun to relax some rules in order to encourage buyout shops to invest in banks that still face a severe shortage of capital.
Last week, the Federal Deposit Insurance Corp. signaled its willingness to play matchmaker, pledging to soon offer "policy guidelines" for buyout shops looking to take stakes in ailing lenders.
"It is definitely an important recognition that good capital from outside the banking industry is very useful at this point in time," said Gerard Comizio, senior partner in the financial services practice group at the law firm Paul Hastings.
Still, private equity investors remain extremely cautious. And for good reason.
Several buyout firms were burned badly by investments in troubled banks. TPG and Corsair Capital poured a combined $14 billion into Washington Mutual and National City a little more than a year ago, only to watch their respective investments get wiped out just months later.
Uncertainty about the direction of the U.S. economy and continued loan losses, particularly in areas like commercial real estate, have also tempered investor interest.
Sensing that, regulators agreed to share in some of the losses as part of the BankUnited deal. They did so as well in the sale of the California-based mortgage lender IndyMac to a group of investors earlier this year.
With that in mind, experts contend that similar loss-sharing arrangements may need to be part of any other future private equity-banking deals.
Washington roadblock
Banking regulators have already made a lot of concessions to private equity investors in recent months to keep capital flowing to banks that need it.
The Federal Reserve, for example, deemed in September that non-banking firms can control as much as a third of a bank and also allowed them a greater presence in the boardroom. Previously, non-banking entities were restricted from owning more than a 25% equity stake in a bank or thrift.
At the same time, the Office of the Comptroller of the Currency and the FDIC rolled out programs late last year aimed at making it easier for willing buyers to acquire failed banks.
"It is easy to lose sight of the fact that the government has made tremendous progress in opening doors to private equity to own banks," said Jaret Seiberg, policy analyst for Concept Capital's Washington research group.
Nonetheless, some believe regulatory restrictions remain the biggest hurdle for private equity investors looking to bet big on the U.S. banking sector.
Many experts contend that policy is rooted in the long-standing notion that U.S. companies should not be allowed to engage in both commercial activities and banking.
0:00 /3:59Stuck banks in trouble
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Among other things, regulators fear that a non-banking institution, namely buyout firms, could use an acquired bank to limit credit to competitors or plunder the bank's deposit-gathering resources to fund their commercial operations.
Since some private equity firms own hundreds of other businesses at any given time, experts said there could be such a conflict if they were allowed to control a bank.
Some buyout shops have managed to make an end-run around these restrictions through a so-called "silo" structure, in which its investment in a bank is walled off from its other investments. Private equity firm Matlin Patterson, for example, won over the Office of Thrift Supervision with such an approach when it acquired Michigan thrift Flagstar earlier this year.
But that transaction has raised eyebrows among some lawmakers and fellow banking regulators.
The Federal Reserve, which oversees a portion of the nation's banking industry, has indicated that a firm that buys a bank should be willing to abide by the "source of strength" concept, meaning that the acquirer would agree to marshal all of its resources to help a bank get out of financial trouble.
"No private equity firm wants to do that since it is an unlimited call on capital," notes Hal Scott, a Harvard Law School professor who also serves as director of the Committee on Capital Markets Regulation. That group published a series of regulatory recommendations this week, including removing restrictions on private equity firms owning banks.
Other experts place the possibility of such changes as slim, even as regulators continue to coax buyout shops to invest more in the nation's banking industry.
As a result, capital hungry banks and the buyout world may just have to make due with the status quo. There may be more deals here and there, but not the glut that both industries are hoping for
By David Goldman, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- Dell Inc. reported a sharp drop in first-quarter sales and earnings Thursday amid a 34% drop in PC sales.
The company said it was readying for an industrywide turnaround but cautioned that the environment is still "challenging."
"What we're seeing is a big deferral of purchases among corporations, but they're planning on a pretty big 2010 client refresh," said Dell founder and Chief Executive Michael Dell on a conference call with analysts. "Customers will be very focused on new technology, and virtualization ... and we think there are some big opportunities there."
The company expanded its services capabilities during the quarter. For example, it started offering cloud-computing services for monitoring and managing IT networks to small and medium businesses. Dell had previously provided those services only for large customers.
Still, Dell said the road ahead will remain bumpy.
"We don't believe there's enough momentum to call a bottom yet," said Dell's finance chief, Brian Gladden, on the conference call. "Businesses have been conservative with IT budgets and we believe they will be slow in coming back."
Declining profit and sales. The company said first-quarter net income fell 63% to $290 million, or 15 cents per share, for the period ended April 30.
Results included a charge of 9 cents per share for cost-cutting expenses. Without the charge, Dell earned $475 million, or 24 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, had expected a profit of 23 cents per share.
Sales fell 23% to $12.3 billion, narrowly missing analysts' forecasts of $12.7 billion. Along with its dismal PC sales, Dell's laptop sales slumped 20% year over year.
0:00 /1:40$500 laptops
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The Round Rock, Texas-based company is the world's second largest PC maker, taking in about 60% of its revenue from selling desktop computers and laptops. By comparison, computer sales account for just a third of rival Hewlett-Packard's (HPQ, Fortune 500) revenue.
Shares of Dell (DELL, Fortune 500) rose 1% after hours.
Seeking diversity. Dell is trying to better diversify its products, especially by expanding its software and services divisions. Consumers and businesses are pinching pennies, and hardware sales have fallen dramatically industrywide. As a result, companies that sell service contracts or online software have a leg up.
"Dell clearly doesn't have the broad depth that its competitors do," said John Enck, Dell analyst at Gartner. "They're primarily hardware based, and that restricts their opportunities."
Currently, Dell's services sales account for just 9% of the company's revenue, but earlier this month Dell said it is committed to growing that share. By comparison, HP's quarterly services accounted for 31% of its revenue, and IBM's (IBM, Fortune 500) was 14% of its quarterly sales.
Long slump for PCs. Dell's dependence on computer sales has burdened the company, especially since business users drive about 80% of Dell's overall revenue. Amid a deep and prolonged recession, businesses have been trying to extend the life of their computers to save money.
Dell reported large enterprise revenue fell 31%, and small to medium business sales fell 30% in the quarter.
"Businesses are trying to not spend money on capital expenses, and one way to do that is to increase the lifecycle of their desktops to four or five years rather than the typical three," said Enck. "Most corporations don't need more horsepower on their desktops anyway."
Enck said Dell needs to prepare for a lengthy downturn in computer sales, since most Dell computers run Microsoft's Windows operating system. Sales of the latest OS, Vista, were largely disappointing, and most businesses continue to run the previous OS, Windows XP, which debuted in 2001.
Though Windows 7 is scheduled to be released early next year, which should drive consumer demand back up, Enck said it usually takes six to nine months of compatibility testing until businesses begin to adopt a new OS. As a result, Enck said the PC market slump could last until at least the third quarter of 2010.
Michael Dell agreed that a technology refresh cycle is about "9 months to a year out," but he said demand will likely pick up quite sharply when companies are ready to replace old computers, on new Intel (INTC, Fortune 500) and Microsoft (MSFT, Fortune 500) product releases scheduled for next year.
Dell is also the world's third-largest server maker, maintaining an 11% market share, according to IDC. But the company still lags behind rivals HP and IBM, which both maintain a more than 29% share.
Cost cutting. To weather the storm, Dell said it would continue its aggressive cost-cutting campaign.
"Re-establishing cost leadership and having flexibility to invest in our business will position us well as IT spending improves," said the company.
Dell raised its cost-reduction target in February to $4 billion from $3 billion and said Thursday it will try to go beyond $4 billion this year. The company said it already has implemented about $1.8 billion in operating expense reduction.
The company said 50% of its shipped products have been cost-reduced, with the average cost per unit reduced 2% quarter over quarter and 10% since the first quarter of 2008.
The company said it is making its supply chain more efficient by opting for outsourced manufacturers to manage operating expenses. Analysts expect operational changes to continue, rather than mass layoffs.
"It certainly will be enough to weather the storm, and Dell has always done well to control costs," said Enck. "The problem is it hamstrings Dell's ability to get into services, which is an expensive business to get into. It can't do both, and that's the dilemma Dell faces
NEW YORK (CNNMoney.com) -- Dell Inc. reported a sharp drop in first-quarter sales and earnings Thursday amid a 34% drop in PC sales.
The company said it was readying for an industrywide turnaround but cautioned that the environment is still "challenging."
"What we're seeing is a big deferral of purchases among corporations, but they're planning on a pretty big 2010 client refresh," said Dell founder and Chief Executive Michael Dell on a conference call with analysts. "Customers will be very focused on new technology, and virtualization ... and we think there are some big opportunities there."
The company expanded its services capabilities during the quarter. For example, it started offering cloud-computing services for monitoring and managing IT networks to small and medium businesses. Dell had previously provided those services only for large customers.
Still, Dell said the road ahead will remain bumpy.
"We don't believe there's enough momentum to call a bottom yet," said Dell's finance chief, Brian Gladden, on the conference call. "Businesses have been conservative with IT budgets and we believe they will be slow in coming back."
Declining profit and sales. The company said first-quarter net income fell 63% to $290 million, or 15 cents per share, for the period ended April 30.
Results included a charge of 9 cents per share for cost-cutting expenses. Without the charge, Dell earned $475 million, or 24 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, had expected a profit of 23 cents per share.
Sales fell 23% to $12.3 billion, narrowly missing analysts' forecasts of $12.7 billion. Along with its dismal PC sales, Dell's laptop sales slumped 20% year over year.
0:00 /1:40$500 laptops
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The Round Rock, Texas-based company is the world's second largest PC maker, taking in about 60% of its revenue from selling desktop computers and laptops. By comparison, computer sales account for just a third of rival Hewlett-Packard's (HPQ, Fortune 500) revenue.
Shares of Dell (DELL, Fortune 500) rose 1% after hours.
Seeking diversity. Dell is trying to better diversify its products, especially by expanding its software and services divisions. Consumers and businesses are pinching pennies, and hardware sales have fallen dramatically industrywide. As a result, companies that sell service contracts or online software have a leg up.
"Dell clearly doesn't have the broad depth that its competitors do," said John Enck, Dell analyst at Gartner. "They're primarily hardware based, and that restricts their opportunities."
Currently, Dell's services sales account for just 9% of the company's revenue, but earlier this month Dell said it is committed to growing that share. By comparison, HP's quarterly services accounted for 31% of its revenue, and IBM's (IBM, Fortune 500) was 14% of its quarterly sales.
Long slump for PCs. Dell's dependence on computer sales has burdened the company, especially since business users drive about 80% of Dell's overall revenue. Amid a deep and prolonged recession, businesses have been trying to extend the life of their computers to save money.
Dell reported large enterprise revenue fell 31%, and small to medium business sales fell 30% in the quarter.
"Businesses are trying to not spend money on capital expenses, and one way to do that is to increase the lifecycle of their desktops to four or five years rather than the typical three," said Enck. "Most corporations don't need more horsepower on their desktops anyway."
Enck said Dell needs to prepare for a lengthy downturn in computer sales, since most Dell computers run Microsoft's Windows operating system. Sales of the latest OS, Vista, were largely disappointing, and most businesses continue to run the previous OS, Windows XP, which debuted in 2001.
Though Windows 7 is scheduled to be released early next year, which should drive consumer demand back up, Enck said it usually takes six to nine months of compatibility testing until businesses begin to adopt a new OS. As a result, Enck said the PC market slump could last until at least the third quarter of 2010.
Michael Dell agreed that a technology refresh cycle is about "9 months to a year out," but he said demand will likely pick up quite sharply when companies are ready to replace old computers, on new Intel (INTC, Fortune 500) and Microsoft (MSFT, Fortune 500) product releases scheduled for next year.
Dell is also the world's third-largest server maker, maintaining an 11% market share, according to IDC. But the company still lags behind rivals HP and IBM, which both maintain a more than 29% share.
Cost cutting. To weather the storm, Dell said it would continue its aggressive cost-cutting campaign.
"Re-establishing cost leadership and having flexibility to invest in our business will position us well as IT spending improves," said the company.
Dell raised its cost-reduction target in February to $4 billion from $3 billion and said Thursday it will try to go beyond $4 billion this year. The company said it already has implemented about $1.8 billion in operating expense reduction.
The company said 50% of its shipped products have been cost-reduced, with the average cost per unit reduced 2% quarter over quarter and 10% since the first quarter of 2008.
The company said it is making its supply chain more efficient by opting for outsourced manufacturers to manage operating expenses. Analysts expect operational changes to continue, rather than mass layoffs.
"It certainly will be enough to weather the storm, and Dell has always done well to control costs," said Enck. "The problem is it hamstrings Dell's ability to get into services, which is an expensive business to get into. It can't do both, and that's the dilemma Dell faces
By David Goldman, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- Microsoft Corp. on Thursday offered Internet users a first glimpse at Bing, its fresh attempt to gain ground in the online search market.
Bing is a search engine to replace its current Live Search product. Microsoft hopes it will provide users with a more streamlined, focused approach to search. Bing is set to launch on June 3.
Microsoft's search market share has been slipping for more than two years, and it has struggled to make its online advertising unit profitable. The company maintains just an 8.2% share of the market for core searches, according to comScore, compared to 64.2% for Google (GOOG, Fortune 500) and 20.4% for Yahoo (YHOO, Fortune 500).
0:00 /4:25Google's beefed-up search
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Microsoft CEO Steve Ballmer demonstrated Bing Thursday at the All Things Digital conference in Carlsbad, Calif. The new search engine will help users refine their queries and initially offer four different categories of search: purchases, travel, health and local businesses.
"Today, search engines do a decent job of helping people navigate the Web and find information, but they don't do a very good job of enabling people to use the information they find," said Ballmer in a statement. "Bing [will] enable people to find information quickly and use the information they've found to accomplish tasks and make smart decisions."
In addition to offering search by category, Bing will offer more relevant search results, snapshots of search results' Web pages, color-coded search results and search tools on the left side of the page, according to Microsoft.
Bing is also set up to organize search results in relevant groups rather than as a series of links. For instance, a search for "fly to New York," may yield New York destinations like hotels, restaurants and museums as almost a guidebook page. The same search on Live.com generates straight individual links that users have to go through one by one.
Sandeep Aggarwal, senior Internet research analyst with Collins Stewart LLC, said Bing may have chance at becoming a "destination" Web site like Google, because the site's technology has been better tested.
"Live wasn't ready for prime time because the technology was too premature" and users weren't repeat customers, he said. "Now Microsoft thinks they're ready."
Microsoft has looked for ways to improve its search advertising revenue for years, including offering rival Yahoo a more than $47 billion takeover bid early last year.
Though that deal fell through, the companies have been in and out of discussions about a potential search tie-up since last May.
On Wednesday, Yahoo Chief Executive Carol Bartz told attendees at the All Things Digital conference that talks between the two companies have continued "a little bit," but no agreement has been reached.
Aggarwal said he expects a Microsoft-Yahoo search deal to be reached by the time the companies report their quarterly results in late July.
Shares of Microsoft (MSFT, Fortune 500) rose 2% in afternoon trading
NEW YORK (CNNMoney.com) -- Microsoft Corp. on Thursday offered Internet users a first glimpse at Bing, its fresh attempt to gain ground in the online search market.
Bing is a search engine to replace its current Live Search product. Microsoft hopes it will provide users with a more streamlined, focused approach to search. Bing is set to launch on June 3.
Microsoft's search market share has been slipping for more than two years, and it has struggled to make its online advertising unit profitable. The company maintains just an 8.2% share of the market for core searches, according to comScore, compared to 64.2% for Google (GOOG, Fortune 500) and 20.4% for Yahoo (YHOO, Fortune 500).
0:00 /4:25Google's beefed-up search
vidConfig.push({videoArray: ["/video/news/2009/05/26/news.052609.googgrowth.cnnmoney.json"], collapsed:true});
Microsoft CEO Steve Ballmer demonstrated Bing Thursday at the All Things Digital conference in Carlsbad, Calif. The new search engine will help users refine their queries and initially offer four different categories of search: purchases, travel, health and local businesses.
"Today, search engines do a decent job of helping people navigate the Web and find information, but they don't do a very good job of enabling people to use the information they find," said Ballmer in a statement. "Bing [will] enable people to find information quickly and use the information they've found to accomplish tasks and make smart decisions."
In addition to offering search by category, Bing will offer more relevant search results, snapshots of search results' Web pages, color-coded search results and search tools on the left side of the page, according to Microsoft.
Bing is also set up to organize search results in relevant groups rather than as a series of links. For instance, a search for "fly to New York," may yield New York destinations like hotels, restaurants and museums as almost a guidebook page. The same search on Live.com generates straight individual links that users have to go through one by one.
Sandeep Aggarwal, senior Internet research analyst with Collins Stewart LLC, said Bing may have chance at becoming a "destination" Web site like Google, because the site's technology has been better tested.
"Live wasn't ready for prime time because the technology was too premature" and users weren't repeat customers, he said. "Now Microsoft thinks they're ready."
Microsoft has looked for ways to improve its search advertising revenue for years, including offering rival Yahoo a more than $47 billion takeover bid early last year.
Though that deal fell through, the companies have been in and out of discussions about a potential search tie-up since last May.
On Wednesday, Yahoo Chief Executive Carol Bartz told attendees at the All Things Digital conference that talks between the two companies have continued "a little bit," but no agreement has been reached.
Aggarwal said he expects a Microsoft-Yahoo search deal to be reached by the time the companies report their quarterly results in late July.
Shares of Microsoft (MSFT, Fortune 500) rose 2% in afternoon trading
By Allan Sloan senior editor at large
NEW YORK (Fortune) -- You don't often get to use "Time Warner" and "hot stock" in the same sentence, given the company's horrible investment performance over the years.
But Time Warner's pending deal to unburden itself of AOL by dumping it onto its shareholders is one of those times, thanks to an insight I got from tax guru Bob Willens of Robert Willens LLC. Willens, who lives and breathes (and probably dreams about) the tax code, says that Time Warner's plan to distribute AOL stock to its shareholders in a tax-free transaction is benefiting from a little-noticed change last year in the rules governing "hot stocks."
In this case, "hot stock" doesn't mean shares with a rapidly rising price, it means shares that can trigger a tax liability.
0:00 /1:59Google, Apple face off
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The "hot stock" here would be Google's 5% stake in AOL. Time Warner (TWX, Fortune 500) sold those shares to Google (GOOG, Fortune 500) in 2005, and plans to buy them back by the end of this year, then distribute them (along with the other 95% of AOL) to Time Warner shareholders in a tax-free deal.
Without last year's change, Willens says, the Google stake in AOL would have been a "hot stock" to both Time Warner and its shareholders because Time Warner would be distributing it to its holders within five years after buying it.
How much in tax savings are we talking about? Call it $200 million or so. The exact size depends on the market value of AOL stock when Time Warner distributes it. Should AOL be valued at $5.5 billion, the value that Google placed on AOL in February, the "hot stock" rule change would save Time Warner and its shareholders from having to report $275 million each in taxable income. (I'm assuming that Time Warner's cost of AOL for tax purposes is close to zero.) At federal, state and local tax rates totaling 40%, Time Warner and its shareholders each save about $110 million.
Willens says the "hot stock" rule was changed last December when the Treasury tweaked the appropriate regulations. A Time Warner spokesman said the company played no role in the change. Spokesmen for the Treasury and Google both declined comment.
Under the previous rules, there would have been a "hot stock" liability because Google decided to invoke its right under the AOL stock-purchase agreement to sell back its AOL stake to Time Warner. The price is currently being negotiated.
I suspect that taxes play a big role in Google's decision to sell. If Google, which paid $1 billion for its AOL stake, sells the stake for the $274 million at which it's now carried on its books, it gets a $726 million tax loss. That would reduce its income tax-bill by around $290 million.
Time Warner and its shareholders avoid taxes, perfectly legally, and Google gets to save some taxes, also perfectly legally. All other taxpayers, in effect, pick up the tab for those savings.
'Twas ever thus, when it comes to big-time dealmaking. And 'twill always be thus.
(Full disclosure: many of my Fortune colleagues have stakes in the stock price of Time Warner, our employer. I joined Fortune in 2007 and have a minor, indirect stake in Time Warner's stock price.)
With reporting by Alyssa Abkowitz
NEW YORK (Fortune) -- You don't often get to use "Time Warner" and "hot stock" in the same sentence, given the company's horrible investment performance over the years.
But Time Warner's pending deal to unburden itself of AOL by dumping it onto its shareholders is one of those times, thanks to an insight I got from tax guru Bob Willens of Robert Willens LLC. Willens, who lives and breathes (and probably dreams about) the tax code, says that Time Warner's plan to distribute AOL stock to its shareholders in a tax-free transaction is benefiting from a little-noticed change last year in the rules governing "hot stocks."
In this case, "hot stock" doesn't mean shares with a rapidly rising price, it means shares that can trigger a tax liability.
0:00 /1:59Google, Apple face off
vidConfig.push({videoArray: ["/video/technology/2009/05/27/fortune.tt.applegoogle.fortune.json"], collapsed:true});
The "hot stock" here would be Google's 5% stake in AOL. Time Warner (TWX, Fortune 500) sold those shares to Google (GOOG, Fortune 500) in 2005, and plans to buy them back by the end of this year, then distribute them (along with the other 95% of AOL) to Time Warner shareholders in a tax-free deal.
Without last year's change, Willens says, the Google stake in AOL would have been a "hot stock" to both Time Warner and its shareholders because Time Warner would be distributing it to its holders within five years after buying it.
How much in tax savings are we talking about? Call it $200 million or so. The exact size depends on the market value of AOL stock when Time Warner distributes it. Should AOL be valued at $5.5 billion, the value that Google placed on AOL in February, the "hot stock" rule change would save Time Warner and its shareholders from having to report $275 million each in taxable income. (I'm assuming that Time Warner's cost of AOL for tax purposes is close to zero.) At federal, state and local tax rates totaling 40%, Time Warner and its shareholders each save about $110 million.
Willens says the "hot stock" rule was changed last December when the Treasury tweaked the appropriate regulations. A Time Warner spokesman said the company played no role in the change. Spokesmen for the Treasury and Google both declined comment.
Under the previous rules, there would have been a "hot stock" liability because Google decided to invoke its right under the AOL stock-purchase agreement to sell back its AOL stake to Time Warner. The price is currently being negotiated.
I suspect that taxes play a big role in Google's decision to sell. If Google, which paid $1 billion for its AOL stake, sells the stake for the $274 million at which it's now carried on its books, it gets a $726 million tax loss. That would reduce its income tax-bill by around $290 million.
Time Warner and its shareholders avoid taxes, perfectly legally, and Google gets to save some taxes, also perfectly legally. All other taxpayers, in effect, pick up the tab for those savings.
'Twas ever thus, when it comes to big-time dealmaking. And 'twill always be thus.
(Full disclosure: many of my Fortune colleagues have stakes in the stock price of Time Warner, our employer. I joined Fortune in 2007 and have a minor, indirect stake in Time Warner's stock price.)
With reporting by Alyssa Abkowitz
By Chris Isidore, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- General Motors filed for bankruptcy protection early Monday, a move once viewed as unthinkable that became inevitable after years of losses and market share declines capped by a dramatic plunge in sales in recent months.
The bankruptcy is likely to lead to major changes and job cuts at the battered automaker. But President Obama and GM CEO Fritz Henderson both promised that a more viable GM will emerge from bankruptcy.
In the end, even $19.4 billion in federal help wasn't enough to keep the nation's largest automaker out of bankruptcy. The government will pour another $30 billion into GM to fund operations during its reorganization.
U.S. Judge Robert Gerber, the bankruptcy judge will oversee GM's bankruptcy, ruled Monday that GM will have access to $15 billion in government funds immediately. He will make a final ruling on bankruptcy financing approval on June 25.
Taxpayers will end up with a 60% stake in GM, with the union, its creditors and federal and provincial governments in Canada owning the remainder of the company.
Owners of GM cars should see little change as a result of the bankruptcy since warranties will still be honored. But there will be plenty of pain caused by the bankruptcy and the company's efforts to stem losses.
GM will shed its Pontiac, Saturn, Hummer and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year. That could result in more than 100,000 additional job losses if those dealerships are forced to close.
0:00 /1:17American motorists sound off
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A dozen facilities were identified for closure. Those plants employ most of the more than 20,000 U.S. workers GM intends to cut by the end of next year.
Assembly lines at a plant in Pontiac, Mich., which make full-size pickup trucks, will be closed later this year. A Wilmington, Del.-based facility that makes roadsters for the Pontiac and Saturn brands will also close later this year.
Three parts distribution warehouses are set to close at the end of this year, while five engine plants and a stamping plant are due to close in 2010. An additional stamping plant is set to close in 2011.
Three more plants. including assembly lines in Spring Hill, Tenn., and Orion, Mich.,are set to be idled and put on stand by status in hopes for a rebound in sales that may never come.
Pain for retirees, investors
More than 650,000 retirees and their family members who depend on the company for health insurance will experience cutbacks in their coverage, although their pension benefits are unaffected for now.
Investors in $27 billion worth of GM bonds, including mutual funds and thousands of individual investors, will end up with new stock in a reorganized GM worth a fraction of their original investment.
Owners of current GM (GM, Fortune 500) shares, which closed at just 75 cents a share on Friday, will have their investments essentially wiped out.
Officials from the Obama administration and the United Auto Workers union both have said they hope to sell their stakes in GM as soon as possible, but it is likely that shares of the new GM will not be publicly traded for at least a year or two.
The bankruptcy filing led the New York Stock Exchange to announce it would no longer list GM shares after Monday.
It will also lead to the removal of GM as of June 8 from the Dow Jones industrial average, a distinction it has held since 1925. The company will be replaced in the Dow by technology giant Cisco Systems (CSCO, Fortune 500), Dow Jones said.
President Obama said Monday he was confident that the additional federal help was justified by the changes being made at GM.
"GM and its stakeholders have produced a viable, achievable plan that will give this iconic American company a chance to rise again," he said. "But GM can't put this plan into effect on its own. Executing this plan will require a substantial amount of money that only a government can provide."
Henderson, who took over for former CEO Rick Wagoner on March 30, will continue running the company. Henderson thanked Obama as well as the unions and creditors who had agreed to changes.
He vowed the company will not need additional help from the government beyond what it will receive during the bankruptcy process and added that the part of GM that emerges from bankruptcy will not be at risk of failure in the future.
"We understand there are no second chances," he said. "We won't need one."
GM and the Treasury Department were able to get key concessions from the unions and major bondholders in the past two weeks. Those deals paved the way for a cleaner bankruptcy process, one that a senior administration official said Sunday could allow GM to emerge from the bankruptcy process in only two to three months.
GM faced a deadline from the Treasury Department to come up with a plan to turnaround the company or file for bankruptcy by June 1. The company also owed its bondholders $1 billion in interest payments on June 1, money it did not have available to pay.
According to GM's bankruptcy filing , the company has assets of $82.3 billion, and liabilities of $172.8 billion. That would make GM the fourth largest U.S. bankruptcy on record, according to Bankruptcydata.com, just behind the 2002 bankruptcy of telecom WorldCom.
Three of the largest bankruptcies in history - GM, Wall Street investment bank Lehman Brothers and savings and loan Washington Mutual, have occurred in the last nine months.
Plans for a 'new' GM
GM will use the trip into bankruptcy court to shed plants, dealerships, debt and other liabilities it can no longer afford. Emerging out of bankruptcy quickly will be a "new GM," made up of the four brands that GM will keep in the U.S. market -- Chevrolet, Cadillac, GMC and Buick -- as well as many of its more successful overseas operations.
This is the same process that Chrysler LLC used in its bankruptcy process. Chrysler filed for bankruptcy April 30, and the judge in that case approved the creation of a new company that will be run by Italian automaker Fiat in a ruling Sunday.
GM, being a larger, more complicated and global company than Chrysler, is not expected to have its valuable units exit bankruptcy quite as quickly, though.
The new GM will have only $17 billion in debt, rather than the $54.4 billion it owed as of March 31. The unions' new contracts with the company and GM's underfunded pension funds will stay with the new company.
But for the turnaround to be successful, both outside experts and company officials agree there needs to be improvement in U.S. auto sales, which have fallen to a 26-year low this year.
Sales plunge the final blow
GM has been hit harder than most of its competitors during the sales slump. The company's U.S. sales through April were down 45% from a year ago, compared to a 37% decline for the overall industry.
GM also faces tough competition from Toyota Motor (TM) and Ford Motor (F, Fortune 500), which are both in much stronger financial condition.
Even though Ford has reported years of losses as well, it had far more cash on hand than GM or Chrysler going into this crisis. The same is true for Toyota, which reported a loss in its recently completed fiscal year.
GM's decision to shed its weaker brands and dealers is expected to lead to further market share losses, which could result in the company giving up its long-time position as the largest automaker in terms of U.S. sales.
The company already lost the global sales title to Toyota last year, and it could soon fall behind Toyota and possibly Ford in the U.S. as well.
NEW YORK (CNNMoney.com) -- General Motors filed for bankruptcy protection early Monday, a move once viewed as unthinkable that became inevitable after years of losses and market share declines capped by a dramatic plunge in sales in recent months.
The bankruptcy is likely to lead to major changes and job cuts at the battered automaker. But President Obama and GM CEO Fritz Henderson both promised that a more viable GM will emerge from bankruptcy.
In the end, even $19.4 billion in federal help wasn't enough to keep the nation's largest automaker out of bankruptcy. The government will pour another $30 billion into GM to fund operations during its reorganization.
U.S. Judge Robert Gerber, the bankruptcy judge will oversee GM's bankruptcy, ruled Monday that GM will have access to $15 billion in government funds immediately. He will make a final ruling on bankruptcy financing approval on June 25.
Taxpayers will end up with a 60% stake in GM, with the union, its creditors and federal and provincial governments in Canada owning the remainder of the company.
Owners of GM cars should see little change as a result of the bankruptcy since warranties will still be honored. But there will be plenty of pain caused by the bankruptcy and the company's efforts to stem losses.
GM will shed its Pontiac, Saturn, Hummer and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year. That could result in more than 100,000 additional job losses if those dealerships are forced to close.
0:00 /1:17American motorists sound off
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A dozen facilities were identified for closure. Those plants employ most of the more than 20,000 U.S. workers GM intends to cut by the end of next year.
Assembly lines at a plant in Pontiac, Mich., which make full-size pickup trucks, will be closed later this year. A Wilmington, Del.-based facility that makes roadsters for the Pontiac and Saturn brands will also close later this year.
Three parts distribution warehouses are set to close at the end of this year, while five engine plants and a stamping plant are due to close in 2010. An additional stamping plant is set to close in 2011.
Three more plants. including assembly lines in Spring Hill, Tenn., and Orion, Mich.,are set to be idled and put on stand by status in hopes for a rebound in sales that may never come.
Pain for retirees, investors
More than 650,000 retirees and their family members who depend on the company for health insurance will experience cutbacks in their coverage, although their pension benefits are unaffected for now.
Investors in $27 billion worth of GM bonds, including mutual funds and thousands of individual investors, will end up with new stock in a reorganized GM worth a fraction of their original investment.
Owners of current GM (GM, Fortune 500) shares, which closed at just 75 cents a share on Friday, will have their investments essentially wiped out.
Officials from the Obama administration and the United Auto Workers union both have said they hope to sell their stakes in GM as soon as possible, but it is likely that shares of the new GM will not be publicly traded for at least a year or two.
The bankruptcy filing led the New York Stock Exchange to announce it would no longer list GM shares after Monday.
It will also lead to the removal of GM as of June 8 from the Dow Jones industrial average, a distinction it has held since 1925. The company will be replaced in the Dow by technology giant Cisco Systems (CSCO, Fortune 500), Dow Jones said.
President Obama said Monday he was confident that the additional federal help was justified by the changes being made at GM.
"GM and its stakeholders have produced a viable, achievable plan that will give this iconic American company a chance to rise again," he said. "But GM can't put this plan into effect on its own. Executing this plan will require a substantial amount of money that only a government can provide."
Henderson, who took over for former CEO Rick Wagoner on March 30, will continue running the company. Henderson thanked Obama as well as the unions and creditors who had agreed to changes.
He vowed the company will not need additional help from the government beyond what it will receive during the bankruptcy process and added that the part of GM that emerges from bankruptcy will not be at risk of failure in the future.
"We understand there are no second chances," he said. "We won't need one."
GM and the Treasury Department were able to get key concessions from the unions and major bondholders in the past two weeks. Those deals paved the way for a cleaner bankruptcy process, one that a senior administration official said Sunday could allow GM to emerge from the bankruptcy process in only two to three months.
GM faced a deadline from the Treasury Department to come up with a plan to turnaround the company or file for bankruptcy by June 1. The company also owed its bondholders $1 billion in interest payments on June 1, money it did not have available to pay.
According to GM's bankruptcy filing , the company has assets of $82.3 billion, and liabilities of $172.8 billion. That would make GM the fourth largest U.S. bankruptcy on record, according to Bankruptcydata.com, just behind the 2002 bankruptcy of telecom WorldCom.
Three of the largest bankruptcies in history - GM, Wall Street investment bank Lehman Brothers and savings and loan Washington Mutual, have occurred in the last nine months.
Plans for a 'new' GM
GM will use the trip into bankruptcy court to shed plants, dealerships, debt and other liabilities it can no longer afford. Emerging out of bankruptcy quickly will be a "new GM," made up of the four brands that GM will keep in the U.S. market -- Chevrolet, Cadillac, GMC and Buick -- as well as many of its more successful overseas operations.
This is the same process that Chrysler LLC used in its bankruptcy process. Chrysler filed for bankruptcy April 30, and the judge in that case approved the creation of a new company that will be run by Italian automaker Fiat in a ruling Sunday.
GM, being a larger, more complicated and global company than Chrysler, is not expected to have its valuable units exit bankruptcy quite as quickly, though.
The new GM will have only $17 billion in debt, rather than the $54.4 billion it owed as of March 31. The unions' new contracts with the company and GM's underfunded pension funds will stay with the new company.
But for the turnaround to be successful, both outside experts and company officials agree there needs to be improvement in U.S. auto sales, which have fallen to a 26-year low this year.
Sales plunge the final blow
GM has been hit harder than most of its competitors during the sales slump. The company's U.S. sales through April were down 45% from a year ago, compared to a 37% decline for the overall industry.
GM also faces tough competition from Toyota Motor (TM) and Ford Motor (F, Fortune 500), which are both in much stronger financial condition.
Even though Ford has reported years of losses as well, it had far more cash on hand than GM or Chrysler going into this crisis. The same is true for Toyota, which reported a loss in its recently completed fiscal year.
GM's decision to shed its weaker brands and dealers is expected to lead to further market share losses, which could result in the company giving up its long-time position as the largest automaker in terms of U.S. sales.
The company already lost the global sales title to Toyota last year, and it could soon fall behind Toyota and possibly Ford in the U.S. as well.
By Aaron Smith, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- General Motors Corp. has struck a deal to sell its Hummer truck unit to a Chinese industrial business, the two companies confirmed Tuesday.
Privately owned Sichuan Tengzhong Heavy Industrial Machinery Company Ltd., based in China, will acquire the truck brand, which has been part of GM since 1999. Tengzhong said it plans to keep Hummer's management team.
"We plan to ... allow Humer to innovate and grow in exciting new ways under the leadership and continuity of its current management team," said Yang Yi, chief executive of Tengzhong.
Yang said the deal "will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S."
The companies said the deal would likely close by the end of September.
As part of the deal, some GM plants will continue to build the Hummer brand for the new owner, at least for awhile. The company said its Shreveport, La., plant will keep building Hummers for the new owner until at least 2010.
The news comes a day after GM (GMGMQ) filed for bankruptcy protection in New York.
"I'm confident that Hummer will thrive globally under its new ownership," said Troy Clarke, president of GM North America, in a press release. "And for GM, this sale continues to accelerate the reinvention of GM into a leaner, more focused, and more cost-competitive automaker."
GM also said that the deal should protect more than 3,000 jobs in manufacturing and engineering, and at dealerships "around the country."
The sale of the Hummer brand to a Chinese company will not impact the production of U.S. military vehicles. Military Humvees are produced by a different company, privately held AM General, based in South Bend, Ind.
The Hummer and other large vehicles have been a drag on the U.S. auto industry since fuel prices spiked in 2008 and the recession deepened.
GM said it sold 5,013 Hummers worldwide in the first quarter, down 62% from the 13,050 that it sold in the same period the prior year.
Hummer isn't the only brand that GM is leaving behind. The automaker will also shed its Pontiac, Saturn and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year.
That could result in more than 100,000 additional job losses if those dealerships are forced to close.
GM filed for bankruptcy hours after Chrysler's bankruptcy process cleared a hurdle when a federal judge approved its asset sale.
The GM bankruptcy was hailed by President Obama, who wants a complete overhaul of the U.S. auto industry, even though the Chapter 11 filing is expected to result in the loss of 20,000 jobs and the closure of a dozen facilities.
Citigroup (C, Fortune 500) was financial adviser in GM's Hummer deal.
--CNNMoney.com senior writer Peter Valdes-Dapena contributed to this report.
NEW YORK (CNNMoney.com) -- General Motors Corp. has struck a deal to sell its Hummer truck unit to a Chinese industrial business, the two companies confirmed Tuesday.
Privately owned Sichuan Tengzhong Heavy Industrial Machinery Company Ltd., based in China, will acquire the truck brand, which has been part of GM since 1999. Tengzhong said it plans to keep Hummer's management team.
"We plan to ... allow Humer to innovate and grow in exciting new ways under the leadership and continuity of its current management team," said Yang Yi, chief executive of Tengzhong.
Yang said the deal "will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S."
The companies said the deal would likely close by the end of September.
As part of the deal, some GM plants will continue to build the Hummer brand for the new owner, at least for awhile. The company said its Shreveport, La., plant will keep building Hummers for the new owner until at least 2010.
The news comes a day after GM (GMGMQ) filed for bankruptcy protection in New York.
"I'm confident that Hummer will thrive globally under its new ownership," said Troy Clarke, president of GM North America, in a press release. "And for GM, this sale continues to accelerate the reinvention of GM into a leaner, more focused, and more cost-competitive automaker."
GM also said that the deal should protect more than 3,000 jobs in manufacturing and engineering, and at dealerships "around the country."
The sale of the Hummer brand to a Chinese company will not impact the production of U.S. military vehicles. Military Humvees are produced by a different company, privately held AM General, based in South Bend, Ind.
The Hummer and other large vehicles have been a drag on the U.S. auto industry since fuel prices spiked in 2008 and the recession deepened.
GM said it sold 5,013 Hummers worldwide in the first quarter, down 62% from the 13,050 that it sold in the same period the prior year.
Hummer isn't the only brand that GM is leaving behind. The automaker will also shed its Pontiac, Saturn and Saab brands and cut loose more than 2,000 of its 6,000 U.S. dealerships by next year.
That could result in more than 100,000 additional job losses if those dealerships are forced to close.
GM filed for bankruptcy hours after Chrysler's bankruptcy process cleared a hurdle when a federal judge approved its asset sale.
The GM bankruptcy was hailed by President Obama, who wants a complete overhaul of the U.S. auto industry, even though the Chapter 11 filing is expected to result in the loss of 20,000 jobs and the closure of a dozen facilities.
Citigroup (C, Fortune 500) was financial adviser in GM's Hummer deal.
--CNNMoney.com senior writer Peter Valdes-Dapena contributed to this report.
NEW YORK (Reuters) -- India's Tata Motors hopes to offer the Nano, dubbed the world's cheapest car, in the United States within two years, its chairman said.
"It will need to meet all emission and crash standards and so we hope in the next two years we will be offering such a vehicle in the U.S," Ratan Tata told a panel at the Cornell Global Forum on Sustainable Global Enterprise late Wednesday.
The company plans to offer a European version of the car, which costs about $2,300, in 2011.
Tata got the idea to make a car that poor people could afford while thinking about the motorbike and scooter riders who maneuver through the streets of Indian cities with their children on board.
The four-seater car gets up to 65 miles per gallon. Cheap labor helps to keep the price down.
Tata said his company was also working to develop cars that run on fuels other than gasoline such as clean diesel, biofuels and batteries.
0:00 /4:42Brave new world for automakers
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The Nano debuted in showrooms in January 2008, but production was delayed by protests over land use where a plant was to be located. The cars will be available in India by July with a lottery to select the first 100,000 owners.
"It will need to meet all emission and crash standards and so we hope in the next two years we will be offering such a vehicle in the U.S," Ratan Tata told a panel at the Cornell Global Forum on Sustainable Global Enterprise late Wednesday.
The company plans to offer a European version of the car, which costs about $2,300, in 2011.
Tata got the idea to make a car that poor people could afford while thinking about the motorbike and scooter riders who maneuver through the streets of Indian cities with their children on board.
The four-seater car gets up to 65 miles per gallon. Cheap labor helps to keep the price down.
Tata said his company was also working to develop cars that run on fuels other than gasoline such as clean diesel, biofuels and batteries.
0:00 /4:42Brave new world for automakers
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The Nano debuted in showrooms in January 2008, but production was delayed by protests over land use where a plant was to be located. The cars will be available in India by July with a lottery to select the first 100,000 owners.
By Parija B. Kavilanz, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Wal-Mart Stores Inc. said Thursday that it expects to hire more than 22,000 people to staff its new or expanded domestic stores this year.
"During this difficult economic time, we're proud to be able to create quality jobs for thousands of Americans this year," Eduardo Castro-Wright, vice chairman of Wal-Mart U.S., said in a statement.
Wal-Mart (WMT, Fortune 500), the world's largest retailer, had previously announced it would open 142 to 157 stores new or expanded stores in 2009, which is fewer than the total number of its new or expanded stores in 2008. The company did not specify how many stores it opened last year.
Wal-Mart added 33,000 jobs in the United States last year, according to the annual report released in April.
The company said it will add 1,000 or more workers in each of 8 states: Arizona, California, Florida, Michigan, New Jersey, South Carolina, Utah and Virginia.
The retailer said the new hires will fill positions across its business units, including cashiers and sales associates, as well as pharmacists, human resource managers and customer service associates.
The discounter said benefits, including health plans that offer customized health coverage options, will be offered to its full and part-time workers.
Wal-Mart is the largest private-sector employer in the United States with a workforce of 1.45 million. Its total worldwide workforce is more than 2 million.
The announcement comes on the eve of the government's May report on national employment, which is expected to remain bleak. Economists surveyed by Briefing.com forecast that the unemployment rate will rise to a 25-year high of 9.2%, with 520,000 jobs lost last month.
NEW YORK (CNNMoney.com) -- Wal-Mart Stores Inc. said Thursday that it expects to hire more than 22,000 people to staff its new or expanded domestic stores this year.
"During this difficult economic time, we're proud to be able to create quality jobs for thousands of Americans this year," Eduardo Castro-Wright, vice chairman of Wal-Mart U.S., said in a statement.
Wal-Mart (WMT, Fortune 500), the world's largest retailer, had previously announced it would open 142 to 157 stores new or expanded stores in 2009, which is fewer than the total number of its new or expanded stores in 2008. The company did not specify how many stores it opened last year.
Wal-Mart added 33,000 jobs in the United States last year, according to the annual report released in April.
The company said it will add 1,000 or more workers in each of 8 states: Arizona, California, Florida, Michigan, New Jersey, South Carolina, Utah and Virginia.
The retailer said the new hires will fill positions across its business units, including cashiers and sales associates, as well as pharmacists, human resource managers and customer service associates.
The discounter said benefits, including health plans that offer customized health coverage options, will be offered to its full and part-time workers.
Wal-Mart is the largest private-sector employer in the United States with a workforce of 1.45 million. Its total worldwide workforce is more than 2 million.
The announcement comes on the eve of the government's May report on national employment, which is expected to remain bleak. Economists surveyed by Briefing.com forecast that the unemployment rate will rise to a 25-year high of 9.2%, with 520,000 jobs lost last month.
By Ben Rooney, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- Manchester United will soon shed the AIG logo, the British soccer team announced Wednesday, officially ending its association with the fallen insurance giant next year.
The team, which has one of the most recognizable sports brands in the world, said it reached a new sponsorship agreement with global risk management company Aon Corporation.
Aon will replace American International Group Inc., the massive insurance group that was taken over by the government last year, as the team's sponsor.
Under the terms of the deal, which goes into effect in 2010, the Manchester United shirt will feature the Aon brand for the following four years. AIG still owns the rights to the shirt for the coming 2009 season.
An Aon (AOC, Fortune 500) spokesman declined to comment on the financial terms of the agreement.
0:00 /04:13WNBA team jersey goes corporate
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"We are delighted that our brand will be showcased to the over 330 million fans of Manchester United as well as the countless followers of football worldwide," said Greg Case, president and chief executive officer of Aon, in a statement.
Manchester lost to Barcelona in the European Champions League last week. But the team took the Barclay's Premier League Championship title last month for the third year in a row.
AIG (AIG, Fortune 500) reached a deal Tuesday to sell two New York buildings, including its downtown Manhattan headquarters, according to published reports.
The company is in the process of selling off the bulk of its assets to repay billions of dollars in federal loans. AIG, once one of the biggest companies in the world, was brought to the brink of collapse last year as the financial crisis unfolded.
NEW YORK (CNNMoney.com) -- Manchester United will soon shed the AIG logo, the British soccer team announced Wednesday, officially ending its association with the fallen insurance giant next year.
The team, which has one of the most recognizable sports brands in the world, said it reached a new sponsorship agreement with global risk management company Aon Corporation.
Aon will replace American International Group Inc., the massive insurance group that was taken over by the government last year, as the team's sponsor.
Under the terms of the deal, which goes into effect in 2010, the Manchester United shirt will feature the Aon brand for the following four years. AIG still owns the rights to the shirt for the coming 2009 season.
An Aon (AOC, Fortune 500) spokesman declined to comment on the financial terms of the agreement.
0:00 /04:13WNBA team jersey goes corporate
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"We are delighted that our brand will be showcased to the over 330 million fans of Manchester United as well as the countless followers of football worldwide," said Greg Case, president and chief executive officer of Aon, in a statement.
Manchester lost to Barcelona in the European Champions League last week. But the team took the Barclay's Premier League Championship title last month for the third year in a row.
AIG (AIG, Fortune 500) reached a deal Tuesday to sell two New York buildings, including its downtown Manhattan headquarters, according to published reports.
The company is in the process of selling off the bulk of its assets to repay billions of dollars in federal loans. AIG, once one of the biggest companies in the world, was brought to the brink of collapse last year as the financial crisis unfolded.
By Chris Isidore, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- General Motors has been the largest automaker in terms of U.S. sales for 78 years. Whether it runs that streak to 79 is an open question.
The gap between GM (GM, Fortune 500) and Toyota Motor (TM) has been narrowing for years. Ford Motor (F, Fortune 500), the No. 3 automaker in U.S. sales, has started to gain ground as well.
Both companies may gain even more share on GM now that the company is shedding brands, plants and dealerships as part of its bankruptcy reorganization.
Experts say they wouldn't be surprised if GM falls to second, or possibly even third place, in U.S. sales later this year or by 2010.
GM lost the global sales title to Toyota in 2008, an event long anticipated in the industry. But it wasn't that long ago that the idea of GM being overtaken in U.S. sales seemed incredible. As recently as 2004, GM's market share was 27.3%. Its sales were nearly 50% greater than then No. 2 Ford and more than double those of Toyota.
Today, GM's U.S. market share is just 19.5%, down from 22.3% in 2008. Toyota is second in the market with a 16.2% share so far this year, followed by Ford at 15.1%.
GM has said it expects its market share to be at 18% to 18.5% after it exits bankruptcy protection. But Stephen Spivey, senior auto analyst for business consultant Frost & Sullivan, said GM's U.S. market share could fall as low as 12% to 13% as soon as next year.
That would put GM far behind the current market shares of Toyota and Ford and just barely ahead of Honda Motor (HMC). Spivey added that GM is likely to continue losing market share after it emerges from bankruptcy.
Other experts believe GM's market share should stay above 15% or 16% going forward, but that it will be a battle to hold off Toyota and Ford.
0:00 /4:32Bad deal for dealers
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"I think both Toyota and Ford are very serious competitors," said Tom Libby, president of the Society of Automotive Analysts. "I think those three will be close to each other for quite a while."
Getting rid of brands will eat into market share
GM has been losing share for years primarily because of tougher competition from Asian rivals. That isn't going to change anytime soon.
But the fact that GM is planning to shed the Pontiac, Hummer, Saturn and Saab brands will only add to the pressure on its market share. Those four brands account for 2.8 percentage points of GM's current market share.
GM vice president Mark LaNeve, head of its North American sales and marketing, said the company believes it will lose only 1 percentage point of share from the loss of those four brands.
"We're very confident we can do that and stabilize the share once and for all," LaNeve said Tuesday when discussing the company's May sales.
But to do that, GM will obviously have to do a better job of convincing customers of the four discontinued brands to switch to Chevrolet and Buick, two of the four "core" brands GM is retaining.
Fortunately for GM, it won't lose market share overnight from the brands it is dropping. Pontiac, which is responsible for 1.6 percentage points of GM's market share, is being phased out by 2010. And unlike the other three brands, it is not in the process of being sold.
The Pontiac brand is also aligned closely with Chevy and Buick, which means GM dealers that currently sell Pontiacs will have a chance to convince consumers to switch to another GM brand. Still, experts believe GM will ultimately wind up losing between a third and a half of former Pontiac buyers.
Keeping the 1.1% of U.S. car customers now turning to Hummer, Saturn or Saab could be far more problematic, especially if the brands continue to operate under new ownership in the U.S.
"Some Saturn buyers are actually anti-GM buyers," said Jesse Toprak, an auto sales analyst with Edmunds.com. He said they're drawn to Saturn's policy of no-haggle pricing unique to its dealership network, or the image of it as a greener car brand.
"A lot of them aren't feeling great about GM's decision to get rid of Saturn," said Toprak, adding that no more than a quarter of current Saturn owners will stick with another GM brand.
There is a chance that Saturn owners might buy comparable models from other GM brands. The Saturn Aura and the Chevy Malibu are similar, for example. But convincing Saab and Hummer owners to buy another GM vehicle will be a tougher sell since there are few similarities between Saab or Hummer models and vehicles from the four continuing GM brands.
Why smaller might be better
Another reason GM is likely to take a hit in market share is because it will probably lose sales to fleet customers, such as rental car companies. Those sales accounted for 27% of its sales in 2008, and 25% so far this year.
Some experts say that GM's fleet sales are likely to fall to between 15% and 20% of its overall sales once it closes plants and dumps the Pontiac brand. That would lead to a drop of between 1% and 2% in market share all by itself.
But Jeff Schuster, executive director of global forecasting at J.D. Power & Associates, said it's better for GM to cut back on its fleet share, even if it means falling behind Toyota and Ford. Sales to rental car companies and other fleet customers tend to be less profitable than sales to individual consumers.
"Daily rental volume has been propping up the total number for years," he said. "That is not necessary healthy market share."
Schuster said that it's better for GM to focus on retail customers in order to stem some of the gains made by Toyota, which has almost caught up to GM in this portion of the market.
That will be a challenge since retail sales are handled at dealerships, and GM plans to slash up to 40% of its network of 6,000 dealers by the fall of 2010.
GM is hoping the loss in sales that results from axing these dealers will be limited.
About 500 of the dealerships being dropped only sell the four brands being discontinued. The rest are generally dealerships with small sales volumes. All told, the first 1,100 of the dealers being notified that they will be discontinued accounted for only 7% of GM sales in 2008.
Experts and GM officials believe most of those sales will shift to the remaining GM dealers, which should be more profitable and thus better able to market GM's better brands. But GM officials concede in company documents that there could be some slight loss of sales due to fewer dealerships.
Still, GM's LaNeve argued that rather than focus on the sales GM might lose, it's more important to look at gains that he believes will be possible for the brands the company is keeping because GM is slimming down and becoming more focused.
"That's what core brand strategy is all about - to have more than adequate marketing money to be able to support these products and not just launch them and forget about them," he said.
NEW YORK (CNNMoney.com) -- General Motors has been the largest automaker in terms of U.S. sales for 78 years. Whether it runs that streak to 79 is an open question.
The gap between GM (GM, Fortune 500) and Toyota Motor (TM) has been narrowing for years. Ford Motor (F, Fortune 500), the No. 3 automaker in U.S. sales, has started to gain ground as well.
Both companies may gain even more share on GM now that the company is shedding brands, plants and dealerships as part of its bankruptcy reorganization.
Experts say they wouldn't be surprised if GM falls to second, or possibly even third place, in U.S. sales later this year or by 2010.
GM lost the global sales title to Toyota in 2008, an event long anticipated in the industry. But it wasn't that long ago that the idea of GM being overtaken in U.S. sales seemed incredible. As recently as 2004, GM's market share was 27.3%. Its sales were nearly 50% greater than then No. 2 Ford and more than double those of Toyota.
Today, GM's U.S. market share is just 19.5%, down from 22.3% in 2008. Toyota is second in the market with a 16.2% share so far this year, followed by Ford at 15.1%.
GM has said it expects its market share to be at 18% to 18.5% after it exits bankruptcy protection. But Stephen Spivey, senior auto analyst for business consultant Frost & Sullivan, said GM's U.S. market share could fall as low as 12% to 13% as soon as next year.
That would put GM far behind the current market shares of Toyota and Ford and just barely ahead of Honda Motor (HMC). Spivey added that GM is likely to continue losing market share after it emerges from bankruptcy.
Other experts believe GM's market share should stay above 15% or 16% going forward, but that it will be a battle to hold off Toyota and Ford.
0:00 /4:32Bad deal for dealers
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"I think both Toyota and Ford are very serious competitors," said Tom Libby, president of the Society of Automotive Analysts. "I think those three will be close to each other for quite a while."
Getting rid of brands will eat into market share
GM has been losing share for years primarily because of tougher competition from Asian rivals. That isn't going to change anytime soon.
But the fact that GM is planning to shed the Pontiac, Hummer, Saturn and Saab brands will only add to the pressure on its market share. Those four brands account for 2.8 percentage points of GM's current market share.
GM vice president Mark LaNeve, head of its North American sales and marketing, said the company believes it will lose only 1 percentage point of share from the loss of those four brands.
"We're very confident we can do that and stabilize the share once and for all," LaNeve said Tuesday when discussing the company's May sales.
But to do that, GM will obviously have to do a better job of convincing customers of the four discontinued brands to switch to Chevrolet and Buick, two of the four "core" brands GM is retaining.
Fortunately for GM, it won't lose market share overnight from the brands it is dropping. Pontiac, which is responsible for 1.6 percentage points of GM's market share, is being phased out by 2010. And unlike the other three brands, it is not in the process of being sold.
The Pontiac brand is also aligned closely with Chevy and Buick, which means GM dealers that currently sell Pontiacs will have a chance to convince consumers to switch to another GM brand. Still, experts believe GM will ultimately wind up losing between a third and a half of former Pontiac buyers.
Keeping the 1.1% of U.S. car customers now turning to Hummer, Saturn or Saab could be far more problematic, especially if the brands continue to operate under new ownership in the U.S.
"Some Saturn buyers are actually anti-GM buyers," said Jesse Toprak, an auto sales analyst with Edmunds.com. He said they're drawn to Saturn's policy of no-haggle pricing unique to its dealership network, or the image of it as a greener car brand.
"A lot of them aren't feeling great about GM's decision to get rid of Saturn," said Toprak, adding that no more than a quarter of current Saturn owners will stick with another GM brand.
There is a chance that Saturn owners might buy comparable models from other GM brands. The Saturn Aura and the Chevy Malibu are similar, for example. But convincing Saab and Hummer owners to buy another GM vehicle will be a tougher sell since there are few similarities between Saab or Hummer models and vehicles from the four continuing GM brands.
Why smaller might be better
Another reason GM is likely to take a hit in market share is because it will probably lose sales to fleet customers, such as rental car companies. Those sales accounted for 27% of its sales in 2008, and 25% so far this year.
Some experts say that GM's fleet sales are likely to fall to between 15% and 20% of its overall sales once it closes plants and dumps the Pontiac brand. That would lead to a drop of between 1% and 2% in market share all by itself.
But Jeff Schuster, executive director of global forecasting at J.D. Power & Associates, said it's better for GM to cut back on its fleet share, even if it means falling behind Toyota and Ford. Sales to rental car companies and other fleet customers tend to be less profitable than sales to individual consumers.
"Daily rental volume has been propping up the total number for years," he said. "That is not necessary healthy market share."
Schuster said that it's better for GM to focus on retail customers in order to stem some of the gains made by Toyota, which has almost caught up to GM in this portion of the market.
That will be a challenge since retail sales are handled at dealerships, and GM plans to slash up to 40% of its network of 6,000 dealers by the fall of 2010.
GM is hoping the loss in sales that results from axing these dealers will be limited.
About 500 of the dealerships being dropped only sell the four brands being discontinued. The rest are generally dealerships with small sales volumes. All told, the first 1,100 of the dealers being notified that they will be discontinued accounted for only 7% of GM sales in 2008.
Experts and GM officials believe most of those sales will shift to the remaining GM dealers, which should be more profitable and thus better able to market GM's better brands. But GM officials concede in company documents that there could be some slight loss of sales due to fewer dealerships.
Still, GM's LaNeve argued that rather than focus on the sales GM might lose, it's more important to look at gains that he believes will be possible for the brands the company is keeping because GM is slimming down and becoming more focused.
"That's what core brand strategy is all about - to have more than adequate marketing money to be able to support these products and not just launch them and forget about them," he said.
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