GM Planning Still More Buyouts

January 18, 2008

Nearly two-thirds of General Motors’ U.S. blue-collar workforce could leave the company, at least if all 46,000 union members accept the latest round of buyouts from the fast-shrinking carmaker.

GM already offered incentives for 5,000 members of the United Auto Workers union to leave the company earlier this month, and another round of buyouts will come in February. It’s not clear how many cuts GM actually expects, as a sizable number of UAW workers will certainly choose to remain on the job, but there’s little doubt that by year’s end, GM will have far fewer than the 72,000 hourly employees it had on the job at the beginning of 2008.

“We’re delivering on the turnaround plan we established in 2005,” Wagoner explained, during a meeting with Wall Street analysts, “and have exceeded expectations on virtually all counts.”

The cuts reflect several factors. For one thing, increased factory floor productivity means the need for fewer employees. And some of those existing jobs could be replaced by new, lower-cost employees hired under the two-tier wage structure the union approved as part of its new contract, last summer.

There’s also the question of sales. Most industry observers expect 2008 to see a modest to sharp decline in motor vehicle sales, some of the most pessimistic observers predicting numbers in the low-15 million range. Even then, it’s unclear if Detroit’s Big Three, including General Motors, will be able to stave off further declines in their market share.

During his meeting with the analysts, Wagoner left open the possibility that further plant closings could come, reflecting the decline in sales and other “challenging headwinds,” such as rising raw material costs. Further plant closings, beyond those previously announced, could lead to a clash with the UAW, however.

While the latest news might be bad for the union, which has seen a steady erosion of its membership, as well as the State of Michigan, which has lost 200,000 manufacturing jobs since the beginning of the decade, the buyouts were seen as good news by those who attended the meeting, in the Detroit suburb of Dearborn. “The tone of GM’s presentation…was relatively positive,” reported analyst Rod Lache, of Deutsche Bank.

In a note to investors, Lache noted GM expects to achieve $2 billion in material cost savings this year, up to $5 billion in structural cost savings by 2010, and another $500 million in savings from its lead supplier – and one-time parts division, Delphi.

“Bottom line,” declared the analyst, “we continue to think the structural changes being put in by U.S. automakers will ultimately create value. But we don’t see near-term catalysts.”

In a separate conversation with TheCarConnection.com, GM CEO Wagoner said he does not expect “much” in the way of savings from buyouts and the new, two-tier wage structure, in 2008, but savings “will accelerate in 2009 and 2010.

GM: We’re Happy to Be Number Two. GM concedes it may soon slip behind Toyota. by TCC Team (1/17/08)

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