|GM Chairman and CEO Rick Wagoner said the company can't be sure it can win needed health care cost savings from the union, but it will keep trying.|
NEW YORK (CNN/Money) -
General Motors Corp. is cutting 25,000 jobs and closing an unspecified number of plants over the next 3-1/2 years, CEO Rick Wagoner told shareholders Tuesday, as the world's largest automaker struggles to stem huge losses.
Wagoner, who is also chairman of GM, did not offer more details other than to say the troubled automaker needs to cut capacity by the end of 2008. GM, which has lost $1.1 billion in the first quarter, is facing its worst financial crisis in more than a decade.
The 25,000 jobs represent about 17 percent of GM's U.S. work force, which includes 111,000 unionized employees and another 39,000 salaried staff.
Speaking at GM's annual shareholders meeting in Wilmington, Del., Wagoner said the company's goal is to trim capacity so that plants are running full out. He noted that the cuts announced Tuesday and other moves this year will reduce its production capacity to 5 million cars and trucks by year-end, down from 6 million in 2002.
GM (Research) stock rose as much as 2.4 percent following the announcement, but showed only a 1.4 percent gain in the last hour of trading.
GM also announced plans to buy more components from suppliers outside the United States, and reported it couldn't be sure it would win needed health care cost cuts from the United Auto Workers union.
A spokesman for the union wasn't immediately available for comment.
GM's UAW contract essentially forces it to pay union employees during the life of the contract even if hourly workers are laid off and their plants are closed. But those protections only run through September 2007, when the current four-year pact with the union ends.
GM spokesman Ed Snyder said the automaker has yet to reach any agreement with the UAW yet on the nature or the manner of the work force reduction.
GM may be able to handle much of the reduction by offering early retirement incentives, said David Cole, chairman of the Center for Automotive Research, an independent research group, estimating that more than 25,000 of the company's U.S. workers are near retirement age.
Cole said he was surprised that GM was ready to announce cuts of this magnitude at the Tuesday meeting, and suspected that union leadership was willing to go along with any voluntary staff reductions that GM is likely to use through 2007.
"I can't believe he'd make an announcement of that without labor being supportive of it," Cole said. "They (the union) are in a position where they are very vulnerable. Without strong employers, their job protections don't mean anything."
In fact a drop of 25,000 U.S. jobs for GM by the end of 2008 is not much steeper than the normal attrition rate the automaker's seen in recent years.
In January Wagoner told reporters at the North American International Auto Show in Detroit that attrition among hourly workers had been running about 5 percent annually, and about 2 percent for salaried staff.
If the work force kept to last year's attrition rates, there would be a reduction of 7,000 to 8,000 employees this year without any plant closings, and three more years of those kind of gradual trimming could achieve much if not all of the 25,000 reduction in active staff.
"As things currently stand, GM has too many brands, workers, managers, capacity and bureaucracy," said Peter Morici, a business professor at the University of Maryland and a critic of GM's management who says the cuts announced Tuesday were too little and too late.
"Offered the challenge to rescue GM from the dust heap of history, occupied by other formerly mighty icons like Bethlehem Steel, AT&T and Packard, Wagoner demonstrated he will not be making any history worth remembering," he said in an e-mail.
In his remarks, Wagoner noted GM is talking to the unions about the health care issue.
"In recent weeks, we have been in intense discussions with the UAW and our other unions focused on a cooperative approach to significantly reduce our health care cost disadvantage," he said. "All parties are working hard on it, in the spirit of addressing a huge risk to our collective futures while providing greater security and good benefits for our employees."
Wagoner's prepared remarks suggested that there are other options available if the union does not agree to changes, although he added, "I don't believe that it serves a useful purpose to speculate on that."
Weak sales, share price
Cole said the cuts are deeper than he expected at GM, but they solve only part of the major problems the company is facing.
"You've got the revenue side and the cost side," he said. "On the revenue side, you've got to still sell product profitably. But the important thing at this point is to define a trajectory to get them to sustainable profitability."
GM's sales have tumbled 7 percent for the first five months of the year, and the company has also been hurt by what Wagoner has called "fewer high-profit SUVs, more lower profit cars."
Its share of the U.S. market has fallen to 25.7 percent from 27.2 for the same period a year ago.
While shares are trading up from the 12-year low they hit in April, they have not recovered from the hit taken in March when GM warned of a steep loss in the first quarter.
GM ended up reporting a loss of $839 million, or $1.48 a share, excluding special items, for the quarter. Despite the plans announced Tuesday, Wagoner's prepared remarks did not include guidance on when the company might turn a profit.
During the two hour, 20-minute meeting, Wagoner faced investor discontent and at least one call for his resignation.
"We're going broke. It's time for a change," said Jim Dollinger, a long-time Buick salesman.
GM's weak stock price prompted veteran financier Kirk Kerkorian to make a tender offer for 5 percent of GM shares outstanding at $31 a share a month ago, on top of the nearly 4 percent he had purchased at a lower price.
That offer, which helped lift GM stock, expires Tuesday. Wagoner declined to say what steps GM's board might take if the offer is successful.
"The issue obviously gets ample attention and discussion on the board and we are well informed," Wagoner said.
Kerkorian has said he was making the purchase as an investment and, despite a reputation as an activist shareholder, he was not at the shareholders' meeting.
GMAC staying put?
GM's credit ratings were recently cut to junk-bond status by Standard & Poor's and Moody's, the nation's two leading bond-rating agencies, hurting GM's profitable finance unit, GMAC.
Since the credit downgrade, there has been some speculation that GMAC might be spun off to improve its credit rating while freeing up cash for GM. But Wagoner suggested the automaker intended to keep the finance arm.
"GMAC is a business that is very important to GM," he said. "Besides their steady contribution to our overall earnings and financial strength, GMAC provides significant support in the sale of GM's cars and trucks around the world, at both the wholesale and retail level."
"This 'hand-in-glove' working relationship between GM Auto and GMAC provides ample benefits to our dealers and our stockholders, and is critical to our ability to compete in the marketplace," said Wagoner.
But, he added, "We are now in the midst of a detailed study of the strategic options that are available to us."
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