GM bets big on small cars

DETROIT – With an almost certain bankruptcy filing days away, General Motors is beginning its reinvention, planning to retool one factory to make its smallest vehicles ever in the U.S. and rid itself of the biggest.

As GM’s board began two days of meetings Friday to make a final decision on the company’s fate, GM was also closing in on a sale of its European Opel unit, and its main union overwhelmingly approved dramatic labor cost cuts. A deal to sell its rugged but inefficient Hummer brand also appeared on the horizon.

The moves provided more clues about what a restructured GM might look like ahead of the expected Chapter 11 filing Monday. Taxpayers will eventually own nearly three-quarters of a leaner GM, with a total government commitment of nearly $50 billion.

GM has yet to confirm it will seek bankruptcy protection but scheduled a news conference for Monday in New York.

With the government’s backing and nearly $20 billion in U.S. loans so far, the company has made more dramatic changes in just a few days than it has in decades.

“It’s been coming to a head for a very long time,” said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. GM said it plans to reopen a shuttered U.S. factory to build subcompact cars. The retooled factory would be able to build 160,000 cars a year and create 1,200 jobs, offsetting some of the 21,000 that will be lost when GM closes 14 factories by the end of next year.

GM’s stock tumbled to the lowest price in the company’s 100-year history, closing at just 75 cents after trading as low as 74 cents. The government plan for GM revealed Thursday would make the shares virtually worthless.

The United Auto Workers’ reluctant but overwhelming ratification of concessions will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors. “They’ve eliminated their legacy costs. They’ve already invested in new product that’s coming. They have the ear of the government unlike any time in their history, and the government has said basically ‘we are going to help you survive and thrive,’ ” Bragman said.

GM is banking on more demand for smaller cars previously shunned by Americans. The government decided earlier this month to raise fuel economy standards for the entire U.S. fleet by 2016.

The new standards were one of the biggest factors in GM’s announcement to build subcompacts in the U.S. rather than in China, said a person familiar with GM’s plans who spoke on condition of anonymity because of the sensitive nature of the plans.

The strategy is still a big gamble. Americans have opted for bigger cars and trucks, with the exception of last summer, when gas topped $4 per gallon. GM and Chrysler LLC hope people will spend more for better-equipped subcompacts with more luxurious interiors and performance that rivals the best luxury sedans.

The UAW deal moves billions in retiree health care costs off GM’s books, giving a union-run retiree health care trust 17.5 percent ownership of a post-bankruptcy GM. The trust will take on health care costs for retirees next year.