GM cutting 10,000 jobs

Troubled automaker reducing worldwide salaried staff by 14%, with a third of layoffs coming in U.S.; remaining workers to have their pay cut for 2009.

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By Chris Isidore, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- General Motors announced Tuesday it is cutting 10,000 workers, or 14% of its salaried jobs worldwide. A third of those job losses will be in the United States.

The troubled automaker also said it will cut the pay for its remaining U.S. salaried staff.

GM (GM, Fortune 500), which is preparing to present a long-term viability plan to the Treasury Department next week, said the cutbacks are part of the restructuring plan it submitted to Congress on Dec. 2 when it was first asking Washington for federal assistance.

The company said at that time it intended to cut its U.S. staff by between 22% and 33% by 2012.

GM received $9.4 billion in federal loans in order to allow it to stay out of bankruptcy, and expects to receive another $4 billion in federal loans after its Feb. 17 submission to the Treasury Department.

GM said worldwide salaried staff would be cut to 63,000 from 73,000, and that 3,400 of its 29,500 salaried staff in the United States will be affected. This job reduction will not include voluntary buyout offers, however.

The automaker made such offers to salaried and hourly workers last year and recently made another one to hourly staff that began this week.

GM was able to cut about 2,500 salaried workers and 16,000 hourly workers as a result of last year's buyouts. GM now employs nearly half as many people in the U.S. as it did at the end of 2000.

Instead of buyouts, the mostly white-collar workers affected by Tuesday's announcement will receive severance payments, benefit contributions and outplacement assistance.

Part of the reason that the company is not offering buyouts to salaried workers this time is that it is prohibited under the terms of its federal loan from using pension fund assets to pay for those buyout packages.

However, because of union safeguards, GM still needed to offer buyouts to hourly workers in order to get the United Auto Workers to agree to the level of job cuts GM is seeking in order to cut costs.

The majority of the salaried staff reductions are expected to take place by May 1, 2009. Staff who remain after May 1 will have their salaries reduced for the rest of the year, with executives having their base pay reduced by 10% and many other salaried employees having their pay cut between 3% and 7%.

Clock ticking to prove viability to the government

GM gave no estimate as to how much money these layoffs and pay cuts would save the company. But this is only part of the cost-cutting the company needs to present to Treasury next week.

GM and Chrysler LLC, which received $4 billion in federal loans last year, need to show the government they have agreements to shed two-thirds of their unsecured debt, and to bring their labor costs in line with those at nonunion U.S. auto plants operated by rivals such as Toyota Motor (TM) and Honda Motor (HMC).

Both companies have declined to give details of their negotiations other than to say they are ongoing and that they expect to be able to present their updated viability plans by the Feb. 17 deadline.

GM has about $35 billion in unsecured debt, while virtually all of Chrysler's debt is secured by its assets. Both companies are believed to be trying to get bondholders to swap their existing notes for equity positions in the companies.

The companies have also already made some progress in negotiating further cost cuts with the UAW.

The union agreed late last month to an end of the so-called "jobs bank" at GM and it has been reported that the UAW agreed to a similar deal with Chrysler. Ford Motor (F, Fortune 500), which has not received loans fro the government, also announced the UAW has agreed to eliminate the jobs bank there.

The "jobs bank" had provided nearly full-pay to auto workers who have been laid-off and had their unemployment insurance payments run out.

It is not clear what further concessions GM and Chrysler are seeking from the union.

GM Chief Operating Officer Fritz Henderson told investors earlier this year that while GM needed changes in some contract terms to achieve competitive costs, there wasn't much difference between hourly wages at UAW plants and nonunion plants.

Could GM and Chrysler be forced to repay the loans?

The viability plans will be looked at by whoever President Obama designates to oversee the loan program. So far there has been no designation of such a "car czar" however.

Whoever is eventually given that power will use the plans to determine by the end of March whether the automakers have a "positive net present value" going forward, even though everyone expects losses will continue well into next year and probably beyond.

If Treasury determines that the companies' plans are viable, it could open the door for them to go to Congress and ask for additional assistance. GM originally asked Congress for up to $18 billion to get it through to 2010, while Chrysler was asking for $7 billion.

But it's still possible, though not expected, that the Treasury Department could rule that the companies' turnaround plans are not sufficient and demand that the loans be repaid within 30 to 60 days.

GM and Chrysler are both on record saying they will be forced to file bankruptcy without the loans. The Treasury Department has confirmed that it has retained bankruptcy attorneys to advise it how to proceed if the companies are forced to file for bankruptcy.

Add to that all the uncertainty about how the negotiations with creditors and unions will play out, and it is clear this will be a very important week for the U.S. auto industry.

"I think it could go either way," said Bob Schulz, chief auto credit analyst at Standard & Poor's. "Part of it is a political decision. Part of it is all the other factors. We wouldn't try to call how it would all come out." To top of page

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