General Motors Corp said on Thursday it would slash production over the next three months to cut its inventory of cars and trucks and avoid the risk of an uncontrolled shutdown from the financial crisis at bankrupt supplier Delphi Corp .

By shutting down 13 assembly plants for as long as nine weeks, GM will cut its North American production by 190,000 vehicles in the second and third quarters.

The action represents one of the deepest cutbacks by any of the major U.S. automakers during a four-year downturn that has driven the industry to the brink of collapse.

Analysts said it also will have the effect of choking off GM's revenue and adding to the financial stress on its key suppliers at a point when the automaker is seen as facing a growing risk of a government-financed bankruptcy.

In our view, these actions increase the financial risk profile not just for GM but for the industry in general, S&P equity analyst Efraim Levy said in a note for clients.

We also believe a GM bankruptcy filing is becoming more likely, as the chances for settlement with various stakeholders diminishes.

The shutdowns of the 13 assembly plants from Michigan to Mexico range from two weeks to nine weeks. Collectively, the plants employ about 21,000 workers who will be left temporarily unemployed during the time the plants are idled.

GM will also reduce output at the stamping and powertrain plants that provide components to the assembly plants, affecting an unspecified number of workers.

The news dragged down shares of auto parts suppliers, which depend on GM for a significant portion of their revenue.

American Axle & Manufacturing Holdings Inc , which relies on the automaker for three quarters of its sales, closed down 21 percent, or 28 cents, to $1.07 on the New York Stock Exchange.

Shares of Lear Corp dropped nearly 10 percent, or 9 cents, to 84 cents, while shares of Tenneco Inc fell 12.5 percent, or 32 cents, to close at $2.24.

GM said it expected the production shutdown would cut its U.S. dealer inventories by almost 32 percent to 525,000 vehicles by the end of July.

GM North America President Troy Clarke said the automaker's decision to shut down production was not intended to prepare for any bankruptcy filing. These really are just production schedule adjustments, he told reporters.

He said GM executives had told the U.S. Treasury's autos task force of the production cutbacks in advance, but they had made the decision on their own.


The production shutdowns will run longest at four GM truck plants: Fort Wayne, Indiana; Flint, Michigan; Pontiac, Michigan; and Silao, Mexico.

Those plants are scheduled to be shut down for six weeks to nine weeks from May to July as GM runs down excess inventory of unsold Chevy Silverado and GMC Sierra pickup trucks.

As of the end of March, GM had an inventory equal to 152 days of sales for its big pickup trucks, about twice the inventory that industry planners typically target, according to industry tracking firm Autodata.

GM has been kept in operation with $13.4 billion in emergency government funding since the start of the year and has been given until June 1 to win deep concessions from its bondholders and the UAW.

Many analysts have concluded that the government will follow through on a threat to take GM through a bankruptcy process to shed debt from its balance sheet and allow the top U.S. automaker to shed cash-burning assets.

GM said the complication of the bankruptcy process for its former subsidiary Delphi is one of the reasons it has chosen such an extensive production shutdown over the summer.

GM said that while it has been in negotiations with Delphi and its lenders to arrive at a resolution that would allow the parts supplier to emerge from bankruptcy, that result could not be guaranteed.

Without the successful resolution of this dispute, it is General Motors' view that Delphi or its lenders could force GM into an uncontrolled shutdown with severe negative consequences for the U.S. automotive industry, the automaker said.

GM said it would keep factories in production that are in the process of launching new models, including the Oshawa, Ontario, Canada, plant that is building the new Chevrolet Camaro and the Fairfax, Kansas plant that is to build the new Buick LaCrosse.

Workers represented by the United Auto Workers union collect state unemployment benefits and supplemental payments from GM that amount to about 70 percent of normal wages.

(Reporting by Kevin Krolicki, Poornima Gupta, Soyoung Kim and David Bailey; Editing by Toni Reinhold)