Production of H1 Alpha to Cease

South Bend, Ind.--Transcript of Remarks
James A. Armour
President and CEO, AM General LLC
May 12, 2006

Good morning, ladies and gentlemen. Today AM General and General Motors are jointly issuing an announcement regarding the future of the Hummer H1 Alpha series.

Many of you will recall the story that in 1989 I was invited to attend a meeting at TACOM with the Program Executive Officer, or PEO, for military vehicles. In that meeting, the PEO stressed his concern about the projected future funding for Humvee and that it would be perhaps too low to sustain our production. He therefore urged AM General to do everything that we could to find ways to decrease the overhead, and perhaps spread it over a different product line, to enable the plant to stay open during the lower years of production of Humvees.

Subsequent to that meeting, I took the decision on behalf of AM General that we would launch into the commercial market by bringing the Hummer to the commercial world. That led to the vehicle known as the Hummer; eventually it was called the Hummer H1, and now it is known as the H1 Alpha.

We’ve had 14 very successful years of production with that vehicle. During that 14 years our engineering organization has come up with several very significant enhancements to the vehicle, many of which have found their way into the production of the Humvee, helping to keep the Humvee, the military version, the state of the art vehicle that it is today.
Unfortunately, in recent years, the production and actual retail sale of the Hummer H1 have fallen to a level between 200 and 300 vehicles per year. At that level of sales, the GM dealers tell us that with a vehicle that costs $145-150,000 each, it just becomes too difficult to find customers willing to pay for that vehicle, pay that kind of price for that vehicle, especially since we have not been able to change the body style for the last 14 years. In the automotive industry, a 14 year production run without a significant body style change is very rare, very unusual.

Obviously, we cannot make a business case to put tens of millions of dollars into an all new body to sell a few hundred trucks a year. Therefore, General Motors and AM General, together, have made the decision that now is the time to discontinue production of the H1 Alpha series. So effective with the conclusion of the 2006 production run, which will be sometime this June, production will cease on that wonderful vehicle.

Now, it would be easy for some of our employees to have an emotional reaction to this news, and to be disturbed by it. However, I would encourage everyone to take the positive view. We have had a remarkable success story with this vehicle. Basically on a shoestring, we have launched this vehicle which created a very famous worldwide brand. And as I said before we have gained several technology improvements in our vehicle that have flowed to the Humvee. It is time to close this vehicle out. We simply cannot make the business case to pay for things like EPA certification, advertising, new body style, other vehicle enhancements for such low volume production.

Now as we move forward I have a message for our employees. Especially those employees who are in Bill Thompson’s organization who are dedicated full time to the H1 series. I want you to know that you should not be concerned about your job with respect to this decision. We have no plans to change any employment levels as a result of the decision to discontinue the H1. As a matter of fact, you know we have some 12,000 vehicles out there, and they are very durable and highly reliable vehicles, and they will be in service for a number of years; we will continue through the GM dealers to ensure that warranty, service, technical manuals, training, things of that nature, are available to our customers. Also, AM General will continue to strongly support the Hummer Owner’s Club throughout the country. There are some hourly people who are directly affected with this production and those people have been identified and they will be placed on other jobs within the manufacturing organization because once again we are increasing the Humvee production.

It would be easy for some employees to have an emotional reaction to the decision to discontinue the Hummer H1 Alpha series. And that emotion might lead them to want to blame GM for this. That would be inaccurate and wrong to do. Again, this is a joint decision by General Motors and AM General, and one that we support. During recent years, AM General in an attempt to continue the production of the H1, has invested heavily in new technology insertion. In particular, the incorporation of the Duramax Engine and the Allison Transmission and several other product enhancements. That additional expense has caused AM General to raise the price of the vehicles substantially in recent years. In fact, over the last five years we have essentially doubled the price of the vehicle. Obviously that has made the vehicle more difficult to sell. It simply is time from a business case point of view to make the decision to discontinue this vehicle, and it is no one’s fault. It’s just that we cannot make the business case to continue, to go forward.

Now in closing, I would like to give a personal and special thank you to those employees who have dedicated themselves and who have worked very hard to ensure that the H1 is a success. We owe you a special debt of gratitude. And I want all employees to adopt a positive attitude and to remember the tremendous success story that H1 has been - a 14-year history of successful production, and successful sales without being able to afford a new body style. Thank you and have a good day.