GM: Is the Swagger History?

General Motors plans to cut 25,000 manufacturing jobs, close more plants and shift more production overseas.

Published: 08-Jun-2005

General Motors Corp., once a swaggering industrial behemoth admired and envied around the world, is cutting at least 25,000 U.S. manufacturing jobs and will close auto plants in a sweeping attempt to return to profitability.

Delivering the news at its annual meeting of shareholders--some of whom loudly called for his resignation--GM Chairman and Chief Executive Rick Wagoner said the cuts would save the automaker $2.5 billion annually by 2008.

After having two months of little to say about plans to turn around its struggling North American automotive operations, Wagoner unveiled his plans at the meeting in Wilmington, Del., and it wasn't pretty. Nearly one in every five GM jobs in the U.S. would go away over the next three years, mainly through attrition.

It's the biggest job cut for GM since 1992--at that time, the carmaker employed more than 200,000 workers. GM, maker of Chevrolet, Cadillac and Saturn among others, currently employs about 111,000 in manufacturing plants in the U.S.

GM didn't say which plants may close, but one in Janesville, Wis., that makes sport-utility vehicles, could be a candidate, industry analysts say.

Months of sales declines, especially of its once hot-selling SUVs, and steep health-care costs for employees and retirees have squeezed the automaker. Rising oil prices have left many of GM's larger vehicles sitting on showroom floors collecting little more than dust.

Perhaps more troubling longer-term, GM continues to struggle to compete with its overseas competitors, namely Toyota Motor Corp., which has steadily gained market share at GM's expense.

GM lost $1.1 billion in the first quarter, mainly from sagging sales of sport-utility vehicles in the U.S., and GM's credit rating was downgraded to "junk" status last month.

Even with the major job cut--22.5 percent of GM's hourly workers--some analysts said the attempted fixes didn't go far enough.

"While management appears aware of the significant issues, there does not appear to be enough detail in Wagoner's remarks that tells us how the losses will be significantly reduced in the near term," Morgan Stanley's Stephen Girsky wrote in an analysis Tuesday.

The 25,000 job cuts, Girsky said, is "roughly in line with recent attrition and does not appear to be an acceleration."

Brett Hoselton, senior auto analyst with Key Banc Capital Markets, called the announcement a "short-term Band-Aid that doesn't address the longer-term issues." The main one, he says, is that GM is not building compelling products.

Still, the automaker will be much leaner by the time it's done, scaling back to staffing levels not seen in years.

Tuesday's 2 1/2-hour meeting was attended by about 200 shareholders, double the typical number in recent years, and some put the blame for GM's woes squarely on Wagoner and suggested he resign.

"This company is sick," said James Dollinger, a Buick salesman from Flint, Mich., who angrily told Wagoner he should resign.

Wagoner promised that "great cars and trucks" are coming, but Hoselton said he has been underwhelmed by recent introductions such as the Chevrolet Cobalt, GM's first new compact car in 20 years.

Roughly 6,000 United Auto Workers members retire or quit each year, so GM could meet most of its workforce reduction goal without layoffs. Laid-off workers continue to collect most of their base wages for the life of a UAW contract, in the case of the current one, until 2007.

Girsky expects GM to lose $4 billion this year and said attrition won't reduce costs immediately.

Wagoner did not say when GM expects to be profitable, but his remarks addressed demands from Wall Street and stockholders to cut the automaker's North American manufacturing capacity, currently 5 million vehicles.

GM has 62 assembly and parts plants in North America, 54 in the U.S. Sales in the U.S. are off 6.7 percent this year, and the company's market share has fallen to 25.7 percent from 27.2 a year ago. That's a far cry from the 1970s, when nearly one of every two cars sold in the U.S. was GM-made.

Wagoner did not say how many plants would be closed or which ones, but he said GM is being conservative in assessing its production needs. GM's goal is to "get to 100 percent capacity utilization or better." Ninety percent is considered the break-even point for most manufacturers.

Last year, GM's plants operated at 85 percent of capacity, according to Harbour Consulting, a Michigan firm that specializes in manufacturing.

GM has slashed North American production by 10 percent this year, to 2.4 million vehicles in the first half. Last week, it lowered its third-quarter plans 9 percent, to 1.1 million.

Wall Street reacted favorably to the news coming out of the annual meeting, with GM shares rising 31 cents, to close at $30.73 on the New York Stock Exchange.

"It's certainly the right direction for General Motors," Catherine Madden, analyst with industry forecaster Global Insight, said of the plant closings. "Their plant utilization has taken a big hit this year."

Global Insight projects GM will build around 4.5 million vehicles in North America, 1 million less than in 2002.

Among plants likely to close are one in Doraville, Ga., that produces GM's slow-selling mini-vans and another in Oklahoma City that makes midsize SUVs, Madden said. GM is shifting to car-based "crossover" SUVs from the truck-based models built in Oklahoma.

GM will introduce redesigned, full-size SUVs early next year, and Madden says the Janesville plant could be vulnerable if those models stumble.

Janesville, which employs 3,900, is one of three plants that build large SUVs--the Chevrolet Tahoe and Suburban and GMC Yukon. The others are in Arlington, Texas, and Silao, Mexico.

Plant closures promise to make negotiations for a new UAW contract in 2007 more contentious because jobs will be on the line. In the past, GM has closed U.S. plants only with UAW agreement.

GM has closed plants in Linden, N.J., and Baltimore this year and mothballed another in Lansing, Mich.

GM is in talks with the UAW on shifting more medical costs to union workers under the current contract, but Wagoner said: "We have not reached an agreement at this time, and, to be honest, I'm not 100 percent certain that we will."

GM says its health-care bill will hit $5.6 billion this year, adding $1,500 to the cost of each vehicle it builds. The company says UAW members pay 7 percent of their health-care costs versus 27 percent for salaried employees.

<< PREVIOUSNEXT >>
RELATED NEWS ITEMS

Allocating significant money to produce a saleable hydrogen fuel cell car is likely to be a tough decision for GM. Larry Burns with image of Sequel fuel cell car behind him.

The dual-mode hybrid system will be available in a wide range of cars, trucks and S.U.V.'s made by the three companies, starting with the 2008 Chevrolet Tahoe that goes on sale in fall 2007.

READER COMMENTS

blog comments powered by Disqus