GM to Slash 25,000 Jobs by 2008

[Marc]

From the LA Times:

GM to Slash 25,000 Jobs by 2008
By Jesus Sanchez, Times Staff Writer

General Motors Corp. today said it will slash 25,000 factory jobs in the next few years and step up efforts to reign in employee heath care costs as the giant automaker struggles to turn around its ailing North American operations.

Speaking before the annual GM shareholders meeting, company chairman Rick Wagoner said the job cuts are part of a more aggressive plan to deal with sagging sales and high operating costs in North America, the company's single-largest market. Detroit-based GM lost $1.5 billion in North America during this year's first quarter.

In addition to reducing employment, Wagoner said GM will "re-energize" its line up of vehicles with highly profitable large pick-up trucks and mid-size sports utility vehicles as well focus development efforts on entry-level luxury cars and energy-efficient hybrid vehicles. GM will also try to reduce its reliance on costly rebates and other incentives to spur sales.

"Let me say up-front that our absolute top priority is to get our largest business unit back to profitability as soon as possible," Wagoner said in prepared remarks.

Wall Street investors greeted Wagoner's remarks. GM shares retreated from the high point of the day but still rose 31 cents or about 1% to close at $30.73 on the New York Stock Exchange.

GM will reduce U.S. manufacturing employment by about 25,000 positions — or less than 10% of the company's workforce — by 2008.

The move will save an estimated $2.5 billion annually, and it reflects the company's long term effort to eliminate underused factories. By the end of this year, GM will have reduced its annual production capacity to 5 million vehicles, down from 6 million in 2002.

Wagoner also repeated previous statements about the need to reduce the company's ballooning employee health care costs, which amount to about $1,500 for each vehicle. He noted that negotiations with the United Auto Workers had so far failed to result in any savings but failed to say what would happen if no agreement is reached anytime soon.

The company needs to achieve "a significant reduction in our health care cost disadvantage, and to do so promptly," Wagoner said. "We are committed to do that."

Wagoner also focused on a campaign to re-tool the company's marketing and sales strategy. That effort includes creating distinct identities for GM's eight brands and eventually reducing rebates by selling vehicles at "compelling prices that represent great value."

[Wes Bucey]

All I can think about is the "ripple effect" (more like a tsunami) on the GM supply chain.

Is GM going to curtail production or is it going to try outsourcing more of the work done by its own blue collar workers. What will the union members say about that?

You can bet your sweet bippy some suits at GM are going to claim giant bonuses for this scheme.

[Jennifer Kirley]

Originally Posted by Wes Bucey

All I can think about is the "ripple effect" (more like a tsunami) on the GM supply chain.

Is GM going to curtail production or is it going to try outsourcing more of the work done by its own blue collar workers. What will the union members say about that?

You can bet your sweet bippy some suits at GM are going to claim giant bonuses for this scheme.

Ripple, or rip, in the supply chain is right. Such as the formed fiber place where I recently applied for a quality engineer opening. Sigh.

I have an issue with the Wall Street paradigm, where the execs take big bonuses after firing 20,000 people (AT&T did that also, as I recall) as a result of the business not going well. The system should run well, but tends to favor those persons subject to greed and delusions of grandeur.

[Bill Ryan]

Now I'm not the sharpest knife in the drawer (by a long shot ) but I would sure appreciate someone explaining to me the economics behind what GM is doing right now.

Let's say I'm in the market for a 2006 vehicle but get swayed by the employee discount (which everyone is eligible for) plus rebate (and whatever other "incentives" they're throwing out now) to buy a 2005 model. And let's say another million people are thinking like me. Wouldn't that have a direct impact on their sales for the 2006 model year? Aren't they pretty much forcing Ford and DCX to "follow suit"? How are the B3 going to meet projected sales for 2006?

I really don't want anything getting ugly here, but being in the GM supply chain, something is just not adding up to me, and I'm a bit concerned.

[Claes Gefvenberg]

25.000 people plus all the further victims down the supply chain? We are talking about the equivalent of a fair sized town here. Scary...

/Claes

[gpainter]

Is this the beginning of the end? !?! Our economy is so in relience on the big three and its supply chain. I think that we will see the rest follow suit in this. As interest rates climb it only spells more trouble for the big 3. Rough times are looming. BE PREPARED!!!

[jonny O]

I remember not so long ago when it was very common to see 10 to 12 year old vehicles on the road. I am hard presses to see 10 cars in a day now that are over 5 years old. I believe the demand for new vehicles is still very much alive. That being said, I am very much hoping that many of the highly skilled people looking for work in the next few years as a result of the GM situation will be able to find good jobs with the many high quality tier I and tier II companies still supplying product for the market through Ford, Chrysler ( who was mentioned on the news as one of the two major contributors to the GM marketshare loss ) or even Toyota.

[AllanJ]

It is somewhat of a strange decision given that GM has been claiming their problem is the low ratio of employees to retirees funded with health care and pension benefits (foolishly) awarded in bygone years of plenty. As I understand the speeches of its executives, that creates a base charge of about $1500 per vehicle. To reduce further the number of employees will surely further reduce that ratio.

What might be the effects on its sales? Can we believe those aggrieved workers who are laid off will be as inclined to buy GM vehicles exclusivley in the future? And, GM currently losing sales and market share needs every sale it can get.

But, though the other posts rightly talk of the effects on supply chains, consider, too, the economic multiplier effect on local business. Fewer people in jobs able to pay taxes until they (hopefully) find ne employment. The probability those that do find new positions will take lower salaries/ wages. The consequence is of lower tax take for the community.

Just as Britain was grateful for the FDI provided by Nissan, Toyota and Honda replacing its own failed domestic car industry, Ameicans should be grateful for those same companies and others (Hyundai etc) doing likewise in the USA. Though the profits may flow to the Orient, a substantial proportion of the revenue will remain in the USA (at least temporarily until the workers visit the stores and buy stuff "Made in China" and so forth.)

What I fear most are these two things: GM receives a tax payer bailout at either federal or state level; GMs pension obligations are dumped onto the taxpayer through the Federal Pension Guarantee system. The latter stratagem seems to be fashionable. If that happens, those Americans who scoff at European style socialism safety nets and subsidy should ask if America is not becoming the same without consulting its electorate.

As I noted in a recent post on the thread "Is USA out of the crisis" "you ain't seen nothing yet".