Big Cuts Coming at GM

May 29, 2008
Just days after word leaked that Ford Motor Co. will eliminate up to 12 percent of its salaried workforce comes news that General Motors is readying a new restructuring plan of its own. While GM officials are declining to discuss that work in progress, they did confirm Thursday that 19,000 hourly employees, represented by the United Auto Workers Union, have signed up for a lavish buyout program and will leave the company by July 1.

Another 34,410 GM workers left the company two years ago when offered a similar package of incentives. There is a possibility that some of the 19,000 workers leaving the company over the next five weeks will be replaced – possibly at lower pay levels, under the new contract approved by the UAW last September. But observers believe the company will ultimately come through the new cuts with only about 55,000 blue-collar workers, in the U.S., less than half the hourly workforce GM tallied at the beginning of the decade.

That the giant automaker might enact still more cuts comes as no surprise to industry observers. GM has been slammed hard by the U.S. economic downturn, and especially by the sharp run-up in fuel prices. That has slammed the light truck market, which has traditionally accounted for much of the automaker’s sales and revenues. But since the latest price surge began, pickups – such as the Chevrolet Silverado – have seen their share of the overall U.S. motor vehicle market plunge from 11 to just 9 percent, and few expect trucks to regain much of those losses, even after the housing market recovers.

Right now, GM has a 139-day supply of SUVs and a 125-day inventory of pickups, despite the nearly 3-month strike at supplier American Axle, which forced over 30 GM plants to close, due to parts shortages. A normal supply is generally considered to be about 60 to 65 days.

Ford’s gloomy news was revealed to senior managers during a corporate “town hall” meeting, last Friday, and leaked to the news media shortly after the Memorial Day holiday. It could mean the loss of as many as 2,000 jobs – and reflects the reality, according to CEO Alan Mulally, that the automaker won’t be able to meet its goal of returning to profitability in 2009.

GM has had similar problems, reporting a multibillion-dollar loss in the most recent quarter. In a letter to investors, Lehman Brothers auto analyst Brian Johnson estimated that the General will have to cut North American production by 16 percent this year. But industry analysts concede they don’t know just how far down the market will go.

A separate forecast, by Deutsche Bank, anticipates May truck sales will decline by as much as 30 percent, but it also foresees a sharp upturn in car sales. Like Ford, General Motors is struggling to quickly shift its product and production mix to reflect that new market order.

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