GM slashes dividend, CEO pay
Troubled automaker also to shed nonunion pension and limit health care costs -- moves that could signal new push for UAW concessions.
NEW YORK (CNNMoney.com) - General Motors is spreading the pain around.
The troubled automaker slashed its dividend in half Tuesday, along with the pay of CEO Rick Wagoner, and said that other top officers and directors are taking a haircut as well.
GM also joined a list of other big companies by saying it would drop its traditional pension plan for nonunion workers, and said it would cut health care spending for more than 100,000 salaried retirees.
The steps are similar to ones outlined in a recent speech by Jerry York, an adviser to GM's largest individual shareholder, Kirk Kerkorian. And they could be presage a move by GM to win new concessions from the United Auto Workers union in an effort to stem huge losses.
GM (Research) stock slipped more than 2 percent in afternoon trading, even though the dividend cut had been widely expected on Wall Street. Even with the cut, GM's yield of about 4.4 percent is the among the biggest of the 30 companies in the Dow Jones industrial average.
GM, the world's largest automaker, lost $8.6 billion last year, its worst performance since 1992, and saw its bonds cut to junk status by the major credit-rating agencies.
Its market share sank at the expense of Toyota, Honda and other overseas rivals, and GM is counting on rebounding sales from its new lineup of big SUVs. But sales of big SUVs are taking a hit from rising gasoline prices.
"It is clear to me what we need to do," Wagoner told a news conference. "It is also hard because it affects a lot of people. I don't take these actions lightly."
He wouldn't comment on what he'll be asking in terms of savings from the union.
Union President Ron Gettelfinger called the new GM moves responsible, given the job cuts union workers at GM are facing, but he ruled out granting more concessions during the current contract, which runs through September 2007.
"No, absolutely not," he told reporters in Washington about more help for GM, according to Reuters. "We've done our share."
Despite the moves -- and plans announced last November to close plants and cut 30,000 jobs to save $7 billion a year -- one industry expert said that GM still needs more savings from the union, adding that Tuesday's move was a step in that direction.
But David Cole, chairman of the Center for Automotive Research, said he doubts the UAW will grant concessions before the current contract expires in September 2007.
"What you're looking at here is more the opening of bargaining for the '07 contract," said Cole. "I think symbolically it's important. Health care is very important. If GM had had the same health care costs that Toyota had at its U.S. plants last year, it would have made money."
Retiree health care and pension costs are a major problem for GM, especially benefits promised to unionized workers, who are not affected by the changes announced Tuesday. The company won changes last October from the union on health care costs that it says will save $1 billion a year.
The Kerkorian influence
York, who was named to the GM board Monday evening, last month called for the company to get in "crisis mode," and he argued that a sense of shared sacrifice was needed to win additional concessions from the UAW, which represents about 105,000 workers at the world's largest automaker.
GM slashed its dividend to 25 cents a quarter from 50 cents, where it had been for nine years. It was the first cut by the No. 1 automaker since August 1992.
Wagoner will have his pay slashed 50 percent, while other top officers' pay will be cut 10 to 30 percent. Outside directors of the company will also have their compensation cut 50 percent.
GM has yet to report Wagoner's pay for 2005. He received base pay of $2.2 million in 2004 and a bonus of $2.5 million, but the company has disclosed he would not receive a bonus for 2005 due to the company's poor fiscal performance. It has not disclosed if he would received additional stock options last year.
The dividend cut should save about $550 million a year, while the pay cuts for officers and directors will probably save less than $10 million. The cut should also cost Kerkorian, who owns a 9.9 percent stake in GM through his Tracinda Corp., about $56 million a year.
Lowering retirement costs
With its announcement GM becomes the latest employer to back away from a traditional pension plan, at least for its nonunion work force. IBM (Research), Hewlett Packard (Research) and Verizon (Research) have made similar moves in recent months.
GM said the changes in its health care plan would add $900 million to pretax earnings next year and reduce its long-term liability by $4.8 billion. But the actual cash savings will be more limited, with GM's savings on retiree health care reaching about $200 million a year about five years from now.
The company spent about $5.4 billion a year on health care for all workers, retirees and dependents in the U.S. in 2005, up from $5.2 billion in 2004. Almost 70 percent of that was on retirees and their family members. GM expects that to drop to $5.1 billion this year due to changes it won from the UAW last year.
Wagoner said the moves announced Tuesday had been under consideration at GM before York's speech in Detroit on Jan. 10.
Looking for more help from UAW?
And while he pledged to hold talks with the UAW about costs, he denied the latest moves were an effort to convince the union to make concessions ahead of the next round of contract talks.
"This is too important a decision, and it affects too many people, to use it to send messages to third parties," he said. "I'm not sure I'm going to make a lot of progress by scorekeeping everyone's sacrifice. It just doesn't work that way.
"It is clear now more than ever that we have a shared fate," he added.
He declined to comment when asked if the changes announced Tuesday would be a blueprint for what he would seek from the UAW.
No move to cut salaried pay, brands
Wagoner also defended the decision not to follow two of York's other recommendations -- graduated pay cuts across the company's salaried staff and a cut back in the number of brands that GM markets and sells.
He said GM's salaries for nonunion workers were competitive and said that "euthanizing" a brand, as GM did with Oldsmobile in 2000, was expensive and unnecessary, given the changes GM is making at brands such as Buick and GMC.
"If we keep playing them like we did the last 20 years, yeah, we should reduce them because we didn't play them very well," he said.
For a closer look at York's proposals to turn around GM, click here.
For a look at America's pension time bomb, click here.
What should you do if your company moves to end your pension? Click here.
For a look at the debate over GM's dividend, click here.
For Fortune magazine's in depth look at the embattled automaker, "The Tragedy of GM" click here.