A-list message, [A-List] GM reduces Suzuki stake to raise cash

GM reduces Suzuki stake to raise cash

They will still work on joint projects

March 7, 2006

BY JASON ROBERSON

FREE PRESS BUSINESS WRITER

General Motors Corp., the world's largest automaker, is selling most of its
stake in Suzuki Motor Corp., a move analysts say a new board member
pressured GM to make to generate much-needed cash.

On the same day GM directors met for their monthly meeting, GM said it will
reduce its stake in Suzuki from 20.4% to 3% by selling 92.36 million shares
valued at $2 billion back to Suzuki. GM and Suzuki will continue working on
joint projects, including collaboration on fuel cell and hybrid systems
development and joint operation of CAMI Automotive Inc. in Ingersoll,
Canada, where a new medium-size SUV is made. Additionally, GM and Suzuki
plan to work together on a new automatic transmission program.

GM said Monday it is trying to strengthen its balance sheet and increase
cash flow.

Suzuki will keep the shares for a year until GM is ready to discuss what to
do with the stake, the Japanese carmaker's Chairman Osamu Suzuki said. He
said that the companies will start a new project, without elaborating on the
specifics.

"I wasn't aware that GM was in this much trouble," Suzuki told Bloomberg at
a news conference Monday in Tokyo. "GM probably had a problem with cash
flow."

GM has held an equity stake in Suzuki since 1981 when it purchased
approximately 5.3% of the Suzuki shares outstanding. GM's stake was diluted
to 3.5% in subsequent years, but in 1998 GM increased its holding in Suzuki
to 10%, and to slightly more than 20% in 2001.

"GM has a great deal of respect and admiration for Suzuki based on our long
and productive history of working together," GM Chairman and CEO Rick
Wagoner said in a statement. "Our relationship is strong, and we look
forward to our continued partnership."

Suzuki and GM's manufacturing relationship goes back to 1985 when Suzuki
produced the Chevrolet Sprint subcompact for the U.S. market. Over the
years, Suzuki has had limited success producing some vehicles -- Suzuki
Swift/Geo Metro, Suzuki Sidekick/Geo Tracker -- at CAMI.

Monday's announcement follows GM's decision to sell its 20% stake of Fuji
Heavy Industries Inc., owner of Subaru, in October 2005, and the long
process of trying to sell General Motors Acceptance Corp., which still has
not been sold.

"These asset sales are indicative of a company in trouble, attempting to
head off a near-term liquidity crunch," John Murphy, auto analyst with
Merrill Lynch, said in a report to investors.

GM's decision to sell its shares in Suzuki may have been accelerated by the
arrival of GM board member Jerome York, a representative of billionaire
investor Kirk Kerkorian.

"Although York was not explicit about the Suzuki equity stake in his January
10th speech, his aim appears to build up a cash hoard necessary to
restructure GM," Murphy said.

Now GM's small-car focus could move from Suzuki to Daewoo, Murphy said. GM
partnered with Suzuki to purchase Daewoo Motor's assets in 2001 after the
Asian financial crisis and an ill-timed acquisition had left the company in
financial trouble. Suzuki sold its Daewoo stake to GM in August, giving GM
majority control.

"The departure of Suzuki from the venture gave GM a clean slate to rethink
its Asian small-car strategy, which now appears to be much less dependent on
Suzuki," said Murphy, who is advising investors to sell their GM stock.

Brad Rubin, senior credit analyst at BNP Paribas in New York, said GM's
divestiture of its stake in Suzuki makes financial sense as it tries to find
ways of bailing out Delphi Corp., its former subsidiary and now chief parts
supplier, which is now in bankruptcy.

Delphi, which filed for bankruptcy on Oct. 8, is negotiating with GM and the
UAW to cut jobs, wages and benefits. It hopes to reach a deal by March 30.
Rubin said a deal could come in the form of allowing Delphi workers to go
back to GM plants or spending money to subsidize reduced Delphi wages. GM
has an incentive to help Delphi because it wants to prevent a strike.

"Here's an extra $2 billion they can use at the restructuring," Rubin said.
"It's certainly a positive."

Contact JASON ROBERSON