GM puts Volt engine plant on hold to conserve cash

General Motors Corp., anxiously conserving cash so it can keep operating into 2009, said Wednesday it would halt construction of a plant tied to one of its most important projects while the automaker awaits a Washington bailout.

GM said it is putting the brakes on the construction of a factory in Flint, Mich., set to make 1.4-liter engines for the Chevrolet Cruze and the Chevy Volt plug-in electric car.

It's just one more effort by GM to hold on to every penny possible as it speeds closer to the day when the 100-year-old industrial giant won't be able to pay its bills.

The company has been scaling back just about everywhere — shutting down vehicle production, ending sports sponsorships, turning off escalators and even cutting back on office supplies — to stay afloat.

GM is seeking up to $18 billion in government loans as it tries to survive the worst U.S. auto sales environment in 26 years. It says it needs $4 billion before this year runs out.

GM board member Kent Kresa told The Associated Press last week that the company might make it into the early part of the first quarter, depending on auto sales, yet GM has several billion dollars worth of supplier payments due shortly after the first of the year, and analysts have said the company probably doesn't have the cash to pay them.

GM announced plans in September for the new engine plant in Flint, 50 miles northwest of Detroit, and said production would begin in 2010. But the company is delaying the purchase of big-ticket items needed to build the factory, such as structural steel, spokeswoman Sharon Basel said.

The plant's engines will extend the range of the rechargeable Volt, GM's high-profile next-generation vehicle that will be able to travel 40 miles on electricity alone. They will also power the Cruze, GM's new small car that is supposed to get around 40 miles per gallon.

Basel said Volt and Cruze development will continue as scheduled and the company still plans to bring them to showrooms in 2010. The construction delay, she said, may be temporary until the company figures out its cash situation.

"Everything that involves heavy cash outlays obviously is under review," Basel said Wednesday. "Our intent is to still go forward with a new facility bringing that engine to Flint, Mich."

Basel said the delay, which The Flint Journal reported Wednesday on its Web site, is part of GM's overall effort to conserve cash until a decision is made on the government loans. President George W. Bush stepped forward to say he would act to save the domestic auto industry after a bill authorizing $14 billion in loans for GM and Chrysler LLC was thwarted in Congress.

Ford Motor Co. has said it has enough cash to survive 2009.

Bush administration officials said they were still evaluating options and attempting to avoid a disorderly bankruptcy of the companies while suggesting that concessions from all sides would need to accompany any deal. Several lawmakers have pressed for an array of terms and conditions in any deal crafted by the White House, complicating matters.

Meanwhile, GM has held off many large expenditures, such as the steel for the Flint plant, Basel said.

"Those are huge cash outlays, and we don't have the cash," she said.

Basel said there is plenty of time to build the factory, install equipment and get it up and running in time to produce engines for the two new cars. The company already makes the 1.4-liter engine at a plant in Austria, she said, giving it another option for engines.

"We have lots of options. The construction of the new plant is not going to interrupt our plans for the Volt or Cruze," Basel said.

GM said in September it would invest $370 million in the new factory, which will employ 330 hourly and salaried workers and allow the company to double its global production of smaller engines by 2011. The plant will have 300 flexible work stations that will let GM build different four-cylinder engines without retooling.

The United Auto Workers union agreed that new hires for the plant would be paid $14 per hour, about half the wages of a current UAW worker. It also agreed to a new flexible pact with GM that lets workers do multiple jobs.

The new factory brings the prospect of more jobs to an industrial city hard hit by auto job losses. GM's nearby Flint Engine North plant closed in August.

The state of Michigan approved $132.5 million in tax incentives for the automaker to spend $838 million on the new plant and to upgrade four other facilities.

Original Story - Associated Press

Update - February 25, 2009

GM to use existing Flint plant for Volt engine

General Motors Corp., facing serious financial strains, announced Tuesday that it will build the small engine for the Chevrolet Volt electric car at an existing Flint engine plant, scrapping a more-expensive plan for a new facility in the beleaguered manufacturing town.

Instead of building a $349-million, 552,000-square-foot plant next to the Flint South engine plant, as originally announced, the Detroit automaker will use available space within the current facility.

The factory space is now available because production of the 4.2-liter engine at the plant has stopped because GM is no longer building the Chevrolet TrailBlazer and GMC Envoy, said Sharon Basel, a GM spokeswoman.

GM said it will invest $250 million at Flint South to build the new 1.4-liter, 4-cylinder engine, which will be used in the Volt and Chevrolet Cruze. Preparations to the facility are to begin this spring. Production of the engine is to begin in December 2010.

"This means that GM will not invest in new floor space at this time," a GM statement said.

IHS Global Insight analyst Aaron Bragman said he was not surprised by the announcement, especially considering the industrywide drop-off in sales.

"When they were announcing the new plant, that was when they couldn't make enough small cars," Bragman said. "There's been a dramatic change."

Just last September, GM executives celebrated the announcement of a new Flint plant to make the engine.

"GM is here to stay, and today we celebrate the latest evidence," GM CEO Rick Wagoner said at the time. "This new engine plant plays a key role in GM's plans to double our global production of these small four-cylinder engines by 2011, with more than half of those engines coming from North America."

But those plans were made long before GM fell into its current troubles. The automaker is operating with a $13.4-billion loan from the U.S. government and is seeking as much as $16.6 billion more from the government to become viable.

Update Story - Detroit Free Press