GM to Close Plants Cut 25,000 Jobs

WILMINGTON, Del. June 8, 2005; Brad Dorfman writing for Reuters reported that General Motors Corp. expects to close more U.S. assembly and component plants over the next few years, slashing at least 25,000 manufacturing jobs as it battles high costs and shrinking market share, the company's chief executive said on Tuesday.

Chairman and CEO Rick Wagoner, addressing shareholders at a contentious annual meeting, said GM expects to save $2.5 billion a year from the cost-cutting measures.

GM, the world's largest automaker, lost $1.1 billion in the first quarter and is riding out its worst financial crisis in more than a decade. It has been closing and idling plants over the past four years and will have cut its annual North American assembly capacity from six million vehicles in 2002 to five million by the end of this year.

A benchmark annual report on North American manufacturing operations released last week ranked GM dead last among leading automakers in assembly plant capacity utilization.

"We need to get to 100 percent capacity utilization or better," Wagoner said. A plant can get above 100 percent capacity utilization when overtime is factored in.

Wagoner said at least 25,000 U.S. jobs would likely be cut in the period 2005-2008, from an hourly work force that stood at 111,000 at the end of 2004.

His warning of plant closings and headcount reductions seemed to suggest an aggressive strategy for turning around an icon of industrial America, and investors welcomed the news, sending GM shares up as much as 2.4 percent.

But analyst Michael Bruynesteyn of Prudential Equity Group said eliminating 25,000 or more hourly jobs through 2008 would only be in line with the normal 5 percent annual retirement or attrition rate at GM.

"These plans are not surprising given market share losses and efficiency gains but we do not think they should be viewed as a new strategy," added Goldman Sachs analyst Robert Barry.

"If market share continues to fall over time, as we expect, then GM is really just treading water with such actions, not boosting profitability."

Wagoner said GM had been in intense discussions with the United Auto Workers union about ways to reduce the company's massive health-care costs. But he said it was not certain an agreement would be reached.

Wagoner stressed the company, whose debt was cut to high-yield, or "junk," status last month, had to cut costs promptly.

UNION REACTION

A senior UAW official suggested Wagoner was unlikely to win any major concessions from the union under its current labor contract, however. The contract expires in September 2007.

"It's one thing to present in a speech specific targets for job reductions and closing plants by the end of 2008; in reality, various important factors will come into play," Richard Shoemaker, the UAW vice president in charge of union affairs with GM, said in a statement.

"The UAW is not convinced that GM can simply shrink its way out of its current problems," he said.

Shoemaker said the union was doing its part "to help GM meet the challenges of today's fiercely competitive auto industry." But he added: "We will do all that is possible to protect the interests of our members and their families."

The GM job cut announcement was the biggest in the United States since Kmart unveiled plans to cut 37,000 jobs in January 2003, according to John Challenger of outplacement firm Challenger, Gray and Christmas Inc.

"This may not be the last major job cut announcement we see this year as other companies, including other American automakers, struggle to make a profit amid escalating health-care costs, not to mention the cost of providing ongoing health benefits to growing ranks of retirees," Challenger said in a statement.

GM expects to spend $5.6 billion on employee and retiree health care this year, and cited that burden when it recently withdrew its earnings guidance for 2005.

GM executives have argued that hourly union workers should pay the same out-of-pocket medical expenses as the company's white-collar, salaried workers. That would save GM as much as $1 billion a year, including the cost of medical care for hourly retirees, according to Sean McAlinden, an economist at the Center for Automotive Research in Ann Arbor, Michigan.

Wagoner declined to give specific details about plant closings and job cuts during the two hour, 20-minute meeting, where he faced investor discontent and at least one call for his resignation.

"We're going broke. It's time for a change," said Jim Dollinger, a long-time Buick salesman.

Wagoner also declined to say what steps GM's board might take if billionaire Kirk Kerkorian is successful in his $31-a-share tender offer for 4.95 percent of the company. The offer by Kerkorian, who already owns 3.89 percent of GM's stock, expired on Tuesday.