Tuesday, July 15, 2008
GM to cut salaried staff, dividend, retiree health care
The Detroit News
DETROIT — General Motors Corp. Chairman and CEO Rick Wagoner outlined a new round of cost-cutting measures today, including white-collar job reductions and a suspension of the dividend, to bolster the automaker’s cash position this year and next.
At a news conference at GM’s Detroit headquarters, Wagoner, flanked by his top executives, said the new plan reflects an unexpectedly rapid deterioration in U.S. auto sales and assumes that the market will remain weak in 2009.
“Today’s actions, combined with those of the past several years, position us not only to survive this tough period in the U.S., but to come out of it as a lean, strong and successful company,” Wagoner said.
GM’s stock, which has stumbled to historic lows in recent weeks, was up 7 percent at $10.05 at 1:15 EDT as the announcement quelled concerns about a liquidity crunch or possible bankruptcy at the largest U.S. automaker.
The latest cost-cutting plan affects the automaker’s investors, salaried and hourly workers, and senior executives who lose their cash bonuses this year.
GM cautioned that it would report a “significant” second-quarter loss, on top of a $3.3 billion first-quarter loss, due to the market’s weakness and the impact of the American Axle and other strikes.
The main elements of the plan are:
⢠A 20 percent reduction in salaried worker costs through a variety of means including normal attrition, early retirement and voluntary separation programs. GM’s salaried workforce has declined by about 12,000 to 32,000 since 2000, when Wagoner became CEO.
“The vast majority of actions will come without involuntary layoffs,” said Wagoner. He said he expected an early retirement offer to be successful because such packages haven’t been extended to white collar workers for the past several years.
⢠Cutting health-care coverage effective Jan. 1, 2009 for Medicare-eligible salaried retirees, partially offset by increased pension payments.
⢠No pay raises for salaried workers through the end of 2009.
⢠No discretionary bonuses for executives.
⢠Reducing truck capacity and related component capacity. GM expects to cut 300,000 units by the end of 2009, about half by already announced actions and half by new steps, Wagoner said. Last month, GM said it would cut 170,000 trucks from its production plan later this year.
⢠Cutting and consolidating sales and marketing budgets, including motorsports activity.
⢠Holding engineering spending to 2006-07 levels through the end of 2009.
⢠Reducing capital spending.
⢠Suspending the dividend on common stock, to save $800 million through 2009.
Wagoner also said GM would defer until 2010 its payments to the UAW-run health-care trust agreed upon in last fall’s contract negotiations, saving $1.7 billion.
“These measures will provide us with ample liquidity,” Wagoner said. He called the acts difficult but said, “We need to take them as part of our plan to keep GM on track.”
The company also wants to raise $4 billion to $7 billion through asset sales and financing using some $20 billion in assets as collateral. Examples of the assets include foreign subsidiaries, brands, a stake in its financing arm GMAC or real estate, Wagoner said. GM already has said it’s reviewing a possible sale of its Hummer brand.
Wagoner mentioned several future products including a sport wagon and coupe version of the popular Cadillac CTS sedan; a new Buick sedan designed in China to be sold in the U.S. and a new Saab crossover.
GM’s board of directors met Monday to approve the plan, which executives took weeks to prepare. The directors also reaffirmed support for the management team led by Wagoner and its newest turnaround plan.
The plan seeks to address concerns that have sent GM’s stock to historic lows, such as the rate at which the company is burning through cash and concerns that its production plans are not adapted to the swift and radical changes taking place in the U.S. auto market.
“The hysteria began to build over the last couple of weeks across the whole industry,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
GM’s stock fell 5.4 percent Monday to finish at $9.38 a share, its lowest close in more than 50 years.
The automaker’s sales have fallen 16.3 percent in the first half of the year, more than the auto market as a whole, and analysts say the automaker could face a liquidity crunch as early as next year.
Wagoner and other GM executives are holding a public press conference right now; come back to www.detnews.com for continuing coverage.