GM faces new pressures after year of deep cuts

[doh]

http://yahoo.reuters.com/news/articl...mktNews&rpc=44
By Jui Chakravorty

DETROIT, Jan 3 (Reuters) - A year ago, General Motors Corp. (GM.N: Quote, Profile , Research) was facing the risk of bankruptcy and the ire of a big-money shareholder, while an all-black cover of Fortune magazine concluded the world's top automaker was "heading for a wreck."

But GM management silenced its critics in 2006 by cutting more than 34,000 jobs, unveiling plans to close 12 plants and reduce recurring costs by $9 billion.

The cost-cutting flurry by GM Chief Executive Rick Wagoner sent GM stock up more than 50 percent over the year, outperforming the Dow Jones industrials by more than 3-to-1.

Now, caution analysts, comes the hard part: convincing still skeptical investors that GM can deliver sustained profitability against increasingly successful competitors in a weak market.

Although GM still sells twice as many cars in the U.S. market as Toyota Motor Corp. (7203.T: Quote, NEWS , Research), it is on track to be overtaken by Toyota for the global top spot in terms of production in 2007.

And even after the share rally of last year, GM also has a market capitalization, at $17 billion, that is just one-twelfth that of Toyota's and one-fourth that of Honda Motor Co.


The disappearance of billionaire investor Kirk Kerkorian, who had agitated for changes at GM before selling off his stake, removes the uncertainty of a fight for board control but also puts the spotlight back on GM management in 2007, analysts said.

"Wagoner's hotseat has cooled down a little bit," Argus Research analyst Kevin Tynan said. "But at the same time, the pressure has risen a bit because now there is no outside activist, it's all about Wagoner and his strategy. So in a way Kerkorian's departure intensifies long-term pressure."

'BIG BUT OUTDATED'

GM executives say they understand the magnitude of the problems. An internal planning memo, which became public in December, describes the automaker as "big but outdated" and warns that GM's "advantages of size and economies of scale are eroding."


The strategy document, first reported by the Detroit News and confirmed by GM, also says that "lack of flexibility is GM's chief disadvantage."

That issue will loom large this year when GM kicks off labor talks with the United Auto Workers union aimed it clinching a new four-year contract.

For GM, which has not faced a strike since 1998, the negotiations are expected to test a collaborative relationship with the UAW as the automaker seeks to unwind many of the costly obligations written into past contracts.

Those include health-care costs averaging $1,500 per vehicle for GM and a "jobs bank" program that has morphed since its creation in 1984 into a nearly open-ended commitment to pay laid-off union workers.

"What they have to get is major concessions to reduce cost, create flexibility, cut wages, retiree benefits and health-care costs," said Standard & Poor's equity analyst Efraim Levy. "They will also have to do away with the jobs bank."

The UAW contract does not expire until Sept. 14 and intensive talks are not expected until the summer, but in the meantime the automaker will have to clinch a deal with bankrupt former subsidiary Delphi Corp. (DPHIQ.PK: Quote, Profile , Research) and the UAW.

That deal, which is central to Delphi's plans to emerge from bankruptcy, will determine the final tally for GM's Delphi-related liability, estimated at between $6 billion and $7.5 billion.

CHANGING PLACES

[zete]

Nothing new, though the scream of "bankruptcy" seems lacking, which is a pleasant change. They also make positive comments re: new products out or soon to be out.

Of course, the hard part for GM is not reverting to their old habits.

[uboys]

Slow news day. I hate these generalized rehashes.

[mgescuro]

"Bankruptcy" is still very much in play, but I would say it's on the back burner for now.
It is conceivable that GM could still shoved in that direction. They're not that healthy. A lot hinges on UAW talks and continued cost cutting. If they can cut $8-9B again this year, they'll be fine. but after cutting $9B last year... *phew*... they have to look a bit longer and harder.

I believe a lot of the cost savings (~50%) will come from product consolidations and product development efficiencies. The rest needs to come from UAW.

[1931Chevy]

Remember people someone said that GM is becoming the new Toyota

[jon21]

Originally Posted by 1931Chevy

Remember people someone said that GM is becoming the new Toyota

And ford is becoming the old Mitsubishi.

[Laffer98]

UAW labor makes up 7 to 10% of the average cost of any U.S. GM Vehicle made today. I think it highly unlikely they should agree to 50% of the cost burden.

Most of these "world economy" price adjustments seem to fall on labor's lap. Dismantling the wage structure for workers who have worked their collectives lives for a company, looks good to the bottom line, but is it really what's best for America?

We've watched as business sector after business sector has been systematically dismantled here in the U.S., when will enough be enough?
A lot of peoples lives go into any product created and sold in this country. It's highly unjust to dump on people who have done nothing but uphold the bargains they have made, vis-a-vis, hours of monotonous, unhealthy, work in exchange for fair wages, retirement, and healthcare promises.

When a company like GM is able to expand it's business across the globe the way GM has, it obviously takes huge amounts of capital. Capital that's diverted from product development here in the U.S.

I would hope that GM continues to recognize the true worth of all their employees, and is smart enough not to rebuild the barriers of class that were tore down decades ago. GM salaried employees, and the UAW hourly workforce, all make up the sweat and blood equity that constitutes the true GM. Tearing up the understood agreement between GM's U.S. salary and hourly workforce for the purpose of building a new company in China, on the backs of cheaper labor, is an atrocity that GM will probably be forced to regret.

I would also admonish those on this board who would parrot the line that UAW workers are overpaid. I would tell you all to study some economics, compare wages earned year after year, adjust for inflation, look at the benefit packages given to each and every employee, compare real worth's of each and every employee. Look and study each contract, compare total sector wage packages, Ford, GM, Chrysler before blindly assuming it's the UAW workers fault.

I want everyone to understand what is really going on here is the slow systematic dismantling of the U.S. automotive business. No wage concession, and no benefit consession will ever be enough. Big business (GM) only sees the growth potential in China, and like any cow will do whatever it takes to get to the greener grass on the other side of the fence.

[zabolots]

Originally Posted by Laffer98

I would also admonish those on this board who would parrot the line that UAW workers are overpaid.

Personally I have no issue with what they get paid as a salary. However, they need to join the rest of the workforce in accepting these common practices:

1) Monthly fees for healthcare with some form of deductible
2) If you get laid off, you get a severance based on time-of-service but not an "idle-job-for-life" in the jobs bank

That would bring them in line with nearly everybody else in this country and would probably save GM a good chunk of change.

[doh]

Originally Posted by zabolots

Personally I have no issue with what they get paid as a salary. However, they need to join the rest of the workforce in accepting these common practices:

1) Monthly fees for healthcare with some form of deductible
2) If you get laid off, you get a severance based on time-of-service but not an "idle-job-for-life" in the jobs bank

That would bring them in line with nearly everybody else in this country and would probably save GM a good chunk of change.

Exactly, legacy costs are higher than the raw steel cost per vehicle

[tom3]

I'm curious as to how GM can build quality cars with half the workforce gone, many replaced by temps, with parts from a bankrupt supplier that's still losing billions? Guess we'll find out in the near future. At any rate I see the stock is starting to drop noticeably, could be an indication of things to come. These big time investors are pretty shrewd sometimes.

[Laffer98]

Originally Posted by doh

Exactly, legacy costs are higher than the raw steel cost per vehicle

Legacy cost are already paid for, (as required by federal law that money is already set aside in a gigantic 1 billion dollar fund). Steel cost, driven up by market demand is and should be a cost attributed to each new car built, legacy cost were paid for by all the previous cars GM built and sold.
Does anyone on this forum really do any research?

[Geotpf]

Originally Posted by tom3

I'm curious as to how GM can build quality cars with half the workforce gone, many replaced by temps, with parts from a bankrupt supplier that's still losing billions? Guess we'll find out in the near future. At any rate I see the stock is starting to drop noticeably, could be an indication of things to come. These big time investors are pretty shrewd sometimes.

I wonder if all those temp workers could cause a drop in quality, the one thing GM can not have right now.

[Havasavana]

Originally Posted by Laffer98

We've watched as business sector after business sector has been systematically dismantled here in the U.S., when will enough be enough?
A lot of peoples lives go into any product created and sold in this country. It's highly unjust to dump on people who have done nothing but uphold the bargains they have made, vis-a-vis, hours of monotonous, unhealthy, work in exchange for fair wages, retirement, and healthcare promises.

I think it'll be enough when it's all gone. It's not a matter of injustice, it seems, but just the numbers. It's beyond comprehension that the 'leaders', of both parties, seem not to see the wall we're headed for. Here's a nice line from a WSJ article a couple of days ago:

"To some extent, the hit U.S. manufacturing has taken in recent years has made the sector's outlook less consequential today because there just aren't as many American manufacturing jobs left to lose, says Ed Leamer, head of the forecasting center at the University of California's Anderson School of Management. Manufacturing has been shedding jobs since the recession of 2001."

So, we've got it made now boys. Nothing much left to lose. So who's going to buy those new cars?

There was an interesting article in the WSJ yesterday about Wal-Mart's use of a piece of software to improve the scheduling of workers. Improve from Wal-Mart's perspective that is. People will have to be on call (unpaid of course) more and sent home unexpectedly if store traffic is light. Wal-Mart workers don't make much, and many can't afford cars so carpool or rely on a friend. Put yourself in their place. How does a single parent, or a parent with a working spouse, deal with child care, etc.

Sales of the Cadillac Escalade roughly doubled from December of last year,so somebody's doing OK. And of course a big story today was of the CEO of Home Depot getting sacked due to poor performance. He's walking away with 210 million. Oops, I almost typed 'billion'. Getting a couple of years ahead I guess. So the only certain answer to your question of when will enough be enough is 'not yet'.

[gwwyjjliu]

Originally Posted by Laffer98

When a company like GM is able to expand it's business across the globe the way GM has, it obviously takes huge amounts of capital. Capital that's diverted from product development here in the U.S.

I would hope that GM continues to recognize the true worth of all their employees, and is smart enough not to rebuild the barriers of class that were tore down decades ago. GM salaried employees, and the UAW hourly workforce, all make up the sweat and blood equity that constitutes the true GM. Tearing up the understood agreement between GM's U.S. salary and hourly workforce for the purpose of building a new company in China, on the backs of cheaper labor, is an atrocity that GM will probably be forced to regret.

...

I want everyone to understand what is really going on here is the slow systematic dismantling of the U.S. automotive business. No wage concession, and no benefit consession will ever be enough. Big business (GM) only sees the growth potential in China, and like any cow will do whatever it takes to get to the greener grass on the other side of the fence.

The unfortunate reality is that the US and European auto markets are stagnant, while Asia-Pacifc, South America, and the Middle East are growing rapidly. And if GM is to survive the next 100 years, it cannot do it solely on the backs of its North American business, especially with car companies all over the world (including China) hungry for a piece of a non-expanding pie.

Reread the article: it says that GM still sells twice as many vehicles as Toyota in the US market, by far the world's largest, and yet Toyota is on track to take over GM as the world's top carmaker globally. What does that say about Toyota's presence worldwide vs. GM? Toyota certainly understood the necessity of expanding overseas; its Japanese home market has been stagnant for years.

Worldwide growth is not a win-lose situation. It means good jobs and benefits can be protected in the home market through exports. GM's rapid expansion in China means that UAW-built Cadillac CTS's, SRX's, and Escalades are now being shipped to the world's fastest growing luxury car market. GM's overseas expansion literally saved the militant Daewoo union from extinction. Rapidly expanding exports from South Korea allowed GM hire back all of the former Daewoo workers who lost their jobs when the company nearly went bust a few years back. Today, GM Daewoo ships more cars overseas than it sells in its home market (itself a stagnant market). There's no reason GM North America cannot create a similar success story.

To retrench and focus on your home market, ignoring the rest of the world, commits GM to a fate similar to MG Rover, which did just that and went bankrupt and shut everything down. Last year, two Chinese companies came in picked through the pieces of MG Rover that they thought had any value left. What did they buy? The vehicle designs, intellectual property, and tools. Not the workforce.

[timman]

Originally Posted by zabolots

Personally I have no issue with what they get paid as a salary. However, they need to join the rest of the workforce in accepting these common practices:

1) Monthly fees for healthcare with some form of deductible
2) If you get laid off, you get a severance based on time-of-service but not an "idle-job-for-life" in the jobs bank

That would bring them in line with nearly everybody else in this country and would probably save GM a good chunk of change.

Well, I guess the $175.00 a month that all hourly people at GM gave up starting last September, won't qualify? These wage concessions are to go to a fund that helps with the retiree costs related to health care. Other cost's related to co-pays and deductables have also increased. So I guess I don't know where you are coming from.
The jobs bank will be changing.