- Sep 14, 2004
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Part of the job cuts should be the GM President and Board of Directors who managed to lose $1.1 billion in the first quarter. As its market value continues to sag and Toyota captures its market share:
GM to Cut 25,000 U.S. Manufacturing Jobs Through 2008
http://quote.bloomberg.com/apps/news?pid=10000006&sid=a2Gc4HDVRp7Q&refer=home#
June 7 (Bloomberg) -- General Motors Corp., the world's largest automaker, will cut at least 25,000 U.S. manufacturing jobs by the end of 2008 and close additional assembly and parts plants to reduce costs, Chief Executive Rick Wagoner said.
The unspecified plant closings will generate estimated savings of $2.5 billion a year once complete, Wagoner said today in a speech at GM's annual shareholders' meeting in Wilmington, Delaware. The company had about 150,000 U.S. employees, including 111,000 hourly workers, at the end of last year. (Thus GM is getting rid of an additional 16 percent of its US work force after cutting 39,000 US jobs during the 2000-05 period.)
Wagoner's announcement shows "the process of restructuring is moving at a faster pace,'' David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, said in an interview. "These are very significant cuts.'' Other analysts said they wanted to see deeper cuts.
Wagoner, 52, met shareholders amid investors' calls for a detailed plan to stem losses, restructure the business and rebuild sales. GM's first-quarter loss of $1.1 billion was its biggest for any quarter in 13 years. The company has shed 1.5 points of U.S. market share this year, while Toyota Motor Corp., the world's No. 2 automaker, has gained 1.3 points.
GM shares rose 51 cents to $30.93 at 2:50 p.m. in New York Stock Exchange composite trading. The company's shares had fallen 24 percent this year through yesterday.
Analysts including UBS Securities' Robert Hinchliffe in New York said before today's meeting that GM needs to cut as many four plants. The company has demand for 5 million of its cars and trucks, while its factories have the capacity to make 6 million.
Wagoner said today that GM's U.S. capacity will fall to 5 million by the end of this year. The new cuts will further reduce that number.
Call for Resignation
The two-and-a-half hour meeting was attended by 194 shareholders, about double the attendance of recent years, spokeswoman Toni Simonetti said. James Dollinger, a Flint, Michigan, Buick dealer who attends the meetings almost every year, suggested several times that Wagoner resign.
Several investors, included shareholder activist Evelyn Y. Davis, who owns 202 GM shares, criticized Wagoner and the GM board for being neutral to billionaire investor Kirk Kerkorian's bid to increase to 8.8 percent his share of the automaker's stock. Kerkorian said May 9 the investment is passive ``at present.''
Wagoner said Kerkorian's Tracinda Corp. hasn't asked for a seat on the GM board. Kerkorian made an unsuccessful bid a decade ago to take over Chrysler Corp. and did win a seat on that automaker's board. The $868 million GM tender offer for up to 28 million shares expires today.
"Kerkorian is an enemy of everyone in this room,'' Davis said.
Bonds Rise
General Motors 6.875 percent note due 2011, sold by the company's finance unit, rose 1.25 cents on the dollar to 91.75 cents as its yield fell to 8.60 percent, or 492 basis points more than comparable Treasuries, according to Trace, the bond price reporting system of the NASD. A basis point is 0.01 percentage point.
"From a bondholder's perspective, it looks like they're taking things rather serious,'' said Wil Stith, a portfolio manager at MTB Investment Advisors in Baltimore, whose team manages about $2 billion of fixed-income investments. "Job cuts are significant, cost savings are significant, bond prices are higher -- it looks like it's what the market wanted to hear.''
The automaker cut North American production 12 percent in the first quarter and plans a 10 percent reduction this quarter. Another 9 percent drop is slated in the third quarter after U.S. sales in May fell for the fourth month in five this year.
Falling sales, particularly of large sport-utility models, prompted Standard & Poor's and Fitch Ratings to cut GM's unsecured debt to junk last month. Moody's Investors Service has said it may follow if GM sales don't start to improve, without giving a specific timetable.
85 Percent of Capacity
GM's planned cuts include attrition. The company normally loses about 5 percent of its workforce to attrition each year, so the cuts announced today aren't that drastic, said UBS analyst Hinchliffe.
"I wanted to hear more significant cuts and more specifics about GMAC,'' he said. "I didn't want to hear they're exploring GMAC.''
Wagoner has said the automaker is looking at "strategic'' options for its General Motors Acceptance Corp. finance company, without being more specific. GM has earned more money from making car and truck loans than from selling cars and trucks since 2002 (But being in the finance business ties up some of the capital necessary to stay competitive and improve market share in the car manufacturing business.)
Merrill Lynch & Co. estimated in a March 24 report that GMAC could raise as much as $14.2 billion if it sold its residential mortgage and insurance units.
Shadow of the 1990s
GM's plan to cut 25,000 jobs amounts to about one-third of the 74,000 cut during its last big restructuring, in the early 1990s.
GM is the sixth-largest employer among companies in the Standard & Poor's 500 Index, with 324,000 workers worldwide in 2004, according to Bloomberg data. Toyota had 264,410 employees as of March 31, according to its annual filing. More than one in every eight, or 31,420, are in the U.S.
GM's biggest challenge is its North American automotive unit, where fixed costs such as factories and labor amounted to 39 percent of revenue in the first quarter, Wagoner told employees in an April 19 broadcast.
The figure should be about 25 percent for GM to be competitive, he said. The gap is ominous, Wagoner said, because it's growing. It was four percentage points higher in the first quarter than in the same period two years earlier.
GM already will have cut North American capacity 20 percent by the end of this year from 1993, Merrill Lynch analyst John Casesa wrote in an April 15 report.
"They know they have to get rid of this overhead,'' said Burnham Securities Inc. analyst David Healy, who is based in Sierra Vista, Arizona, before the meeting. "GM has too many plants and too many employees. If there isn't a plan, Wagoner is toast.''
Market Share
Falling sales in the U.S. helped GM's global market share slip a tenth of a percentage point to 14.5 percent last year. While the Detroit-based automaker's sales climbed 4.2 percent to 8.98 million, world auto sales rose 5.6 percent to 62.1 million, according to GM data. Wagoner has said GM will add capacity outside the U.S. as it gets two thirds of its growth from emerging auto markets such as Poland, Russia, China and Brazil. (And because labor is vastly cheaper there.)
Labor agreements require GM to continue to pay the workers most of their pay, at least until new contract talks in 2007. The United Auto Workers already said April 14 there are no current plans to re-open the contract before 2007 to discuss health-care costs, which Wagoner said in January will rise to about $5.6 billion this year.
Wagoner's remarks today on the need to cut health-care costs sent a strong message to the UAW that it must be willing to compromise, (This must be one of the benefits of globalization that economists keep talking about.) said Pete Hastings, vice president of corporate fixed income for Morgan Keegan Inc. in Memphis, Tennessee.
'Velvet-Covered Dagger'
"It's like he was presenting the union with a velvet-covered dagger and saying, `You need to cooperate, but we will do what we need to do,''' Hastings said.
Uncertainty about health-care costs prompted Wagoner on April 19 to abandon the automaker's 2005 profit forecast. GM has said it won't offer a new one.
If the UAW agrees to some sort of significant cuts in health- care costs, it might reduce the number of plants that need to be cut, Cole said.
Wagoner has said he's pursuing a four-part plan to stem losses: creating new products more people want to buy; developing marketing that relies more on low pricing and less on rebates; cutting manufacturing costs; and reducing health-care costs.
GM has trimmed 80,000 employees, including 39,000 in North America, since Wagoner became chief executive in June 2000. At the same time, GM's market value has fallen to $17 billion, 45 percent below the $31 billion level of 2000. (What a dismal record. The GM President and Board of Directors should resign. Cutting employees and capacity is easier than producing cars that perform better than the competition, increase market share, and earn a price premium.)
