WSJ: GM Plans to Cut Non-Union Staff

[mgescuro]

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GM Plans to Cut Non-Union Staff
Salaried Workers Targeted Amid Auto Maker's Crisis; Attrition Approach Tested
By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
March 21, 2005

DETROIT -- General Motors Corp., plans to slash its North American white collar work force, signaling the start of a more aggressive attack on deep, structural problems in its core auto business after years of efforts to avoid wrenching, large-scale restructuring.

The salaried staff cuts, which could be as deep as 28% in certain functions, are a prelude to an effort by GM to seek health-care concessions from its largest U.S. union, the United Auto Workers, and map out further cuts in its North American operations, industry officials and analysts said last week.

Separately, a spokesman for DaimlerChrysler AG yesterday confirmed a Detroit News report that the auto maker's Chrysler unit has negotiated an amendment of its contract that allows the company for the first time to charge UAW workers annual health-care deductibles ranging from $100 to $1,000 a year. The agreement, which covers about 35,000 union employees, retirees and their families enrolled in certain health plans, relied on a clause Chrysler has negotiated in its UAW contracts since 1982. That clause allows the company to renegotiate terms if health costs rise beyond certain limits.

It's not clear whether GM or Ford Motor Co. could negotiate similar amendments, but the Big Three Detroit auto makers usually seek to maintain parity in their contracts with the UAW. If the other two Detroit auto giants follow suit, it would mark a significant break with the long-standing tradition of giving UAW Big Three workers "first dollar" health-care coverage with no deductibles or premiums.

GM Chairman and Chief Executive Officer Rick Wagoner, facing the worst crisis at GM since the company skidded to the brink in 1991-1992, is under pressure from Wall Street to demonstrate that he has a robust plan to put the auto maker back on track. The No. 1 auto maker's credit rating is teetering on the edge of a downgrade to junk status following GM's disclosure last week that 2005 profit will fall well short of previous expectations, mainly because of deep losses in the North American auto business.

Since taking over as CEO in 2000, Mr. Wagoner has sought to shrink GM's North American auto operations without mass layoffs or confrontation with the UAW. Mr. Wagoner has bet that GM had time to allow attrition to reduce its aging, high-cost U.S. work force over several years. By contrast, Chrysler axed 26,000 jobs and moved to close six plants after skidding into the red in 2001. Ford in 2002 responded to a sudden profit collapse by announcing plans to close five plants and cut 35,000 jobs world-wide. Now, Mr. Wagoner's measured approach is getting a severe test.

Mr. Wagoner jolted investors last week when he warned that full year profit would be just $1-$2 a share, including a projected $1.50 a share loss for the first quarter, instead of the $4-$5 a share he promised in mid-January. GM North America, which earned $1.58 billion last year, is now projected to suffer "a significant full year loss" this year instead of earning $500 million as previously forecast, GM said.GM operations will burn $2 billion in cash instead of generating $2 billion, the company said.

GM's stock tumbled on the announcement Wednesday, falling 14% to $29.01 in 4 p.m. composite trading on the New York Stock Exchange. The shares declined again Thursday, then rebounded modestly Friday to $28.62. Among the investor concerns: That GM might have to cut its $2 a share annual dividend.

Some analysts are skeptical that Mr. Wagoner can produce a quick fix. "I think they're swatting at an elephant with a fly swatter," said Bank of America analyst Ron Tadross. "Anything they do at this point is going to be too little too late."

Mr. Wagoner and his top executives have offered few specifics of their plans to pull GM North America out of the ditch, but they are sending signals that the pace of cost-cutting efforts will pick up. Within the past several months, GM has announced plans to end production at three U.S. factories, though these plants had long been targeted for closure and were building aging vehicle lines. GM has ordered steep production cuts for the first and second quarter to reduce swollen inventories, and has begun to revamp its U.S. marketing strategy.

On April 6, GM's top purchasing executive, Bo Andersson, is expected to meet with key suppliers in suburban Detroit. Then on April 14, Mr. Wagoner is scheduled to meet with top UAW and GM officials in Dearborn, Michigan. The UAW-GM leadership meeting is a regularly scheduled event that Mr. Wagoner is expected to use to outline GM's problems, particularly the mounting burden of financing health care for 1.1 million active and retired GM workers.

In 2003, Mr. Wagoner avoided a confrontation with the United Auto Workers union over health-care costs, agreeing to a new contract that kept the union's rich benefits largely intact. But health care costs have since risen faster than GM expected.

Even if the UAW agrees to concessions now, that may not be enough to overcome GM's competitive disadvantage against rivals such as Toyota Motor Corp. Health care isn't GM's only problem. The company has suffered a string of disappointing new-model launches. It spent nearly $4.4 billion on a failed alliance with Italy's Fiat SpA. Overly optimistic sales assumptions led GM to stack up 101 days' worth of unsold cars and trucks in the U.S. at the end of February. Sales of GM's high-profit, large SUVs are skidding with roughly nine months to go before new models arrive.

Now, GM is slashing production in the first and second quarter and laying off thousands of workers, who will continue to receive the bulk of their pay and benefits under a costly UAW contract provision GM management has renewed in each round of contract talks since 1990.

When Detroit auto makers get into trouble, their pattern is usually to hit nonunion, salaried workers before turning to the UAW. GM started planning the latest round of white-collar buyouts in December, and made its offers to employees earlier this month. Thousands of employees are expected to accept the packages by sometime this week.

[Jimgm]

DC can work with the UAW on stuff but GM can't? Give me a break! GM needs to get rid of the UAW.

[awalbert88]

GM has to get out of the UAW contract. There will be no renegotiating of the contract in 2007. Simply say, "We are no longer interested in your services. Now kindly ***** off you stupid leeches!" Then hire the many thousands of skilled non-union workers out there to run fewer factories.

The general public (or at least those who read about GM's financial trouble) is rapidly turning anti-UAW. If GM wants to get away from this burden, their best bet is to make a plea for assistance from the federal government, and soon. President Bush is more likely to intervene on behalf of US business than probably any other potential president we might have in the next election. Sure, he'd piss off all the unions, but if a union is about to destroy one of the most powerful and important companies in the US, then it is for the greater good that the union be put in its place.

Quite frankly, I find it repulsive that UAW leadership doesn't offer concessions without even being prompted. They don't care about the companies that are giving them all these wonderful benefits. Why should GM, Ford, or DC care about them?

[mrfunji]

Originally Posted by awalbert88

The general public (or at least those who read about GM's financial trouble) is rapidly turning anti-UAW.

Quite frankly, I find it repulsive that UAW leadership doesn't offer concessions without even being prompted. They don't care about the companies that are giving them all these wonderful benefits. Why should GM, Ford, or DC care about them?

Yup - and that means the public is turned away from all union made vehicles. No matter what GM does they will shoot themselves in foot. Kill the union and hire in new workers? You just p'od ~1 million people who are union associated (probably more if you include everyone else that are in a union) and they won't buy union made cars. Cut white collar workers and not the union you burn lots of $ and lose valuable, experienced knowledge.

And good point about the union not stepping up and saying "hey, we'll help out"

[gopedxr7]

unions suck! i hate the **************** unions.

Alan

[yoblues]

EXCELLET IDEA. Make sure you get rid of everyone with a Vice President title first Rickey.

[Laffer98]

I wonder, if Rick Wagoner wishes he had never heard of Fiat (5 billion dollars later). That kind of cash would of taken care a lot of the new project development that's being cancelled. It also might of precluded the need to get rid of 28% of you non-union work force. I wonder, now, if Rick and the boy's are still big supporters of free trade, NAFTA, GATT, etc...