Chrysler, GM Gear Up For Still More Job Cuts
SAN FRANCISCO October 24, 2008: According to Shawn Langlois writing for MarketWatch, General Motors Corp. and Chrysler LLC, mulling a merger to survive the current U.S. economic crisis, are each planning yet another round of job cuts as vehicle sales continue to plummet both at home and abroad. GM said it plans more layoffs than it previously expected among its U.S. salaried and contract workforce, according to people familiar with a letter GM sent to executives. The company declined to comment on the internal memo. Chart of GM.
Separately, Chrysler said Thursday it will eliminate one production shift at its Toledo North Assembly Plant in Ohio and accelerate the closure of its Newark Assembly Plant in Delaware.
As for GM, the reduction of some employee benefits, including the suspension of matching 401(k) contributions and other reimbursement programs, also is in the works. In the letter, GM Chairman and CEO Rick Wagoner and Chief Operating Officer Fritz Henderson cited deteriorating business conditions and the global credit crisis for the actions. "It is important for those who are still considering a retirement window offering to be aware of these changes," they wrote. "This may be an ideal time for them to exit the organization under provisions that are generally regarded as very positive by those who have already gone through the process of consideration." GM said this summer that it would reduce salaried employment costs by 20% and consider more asset sales in an effort to raise $15 billion by the end of 2009.
"There's a good chance we'll still meet the initial buyout target," GM spokesman Tom Wilkinson said. "But that was set back in July, and conditions have clearly worsened since then." He added that GM's third-quarter report will likely come out within a month and may include further details on the reductions. The company also said at the time it would eliminate health-care coverage for white-collar retirees over 65 years old and cut cash bonuses for executives. Shares of GM began the session in the green, but eventually closed down 1.5% at $6.10. Since the beginning of the year, the Dow component has lost 75% of its value. Cuts at privately-held Chrysler's Toledo plant will affect about 825 jobs, while the closure of the Newark plant will hit about 1,000 jobs. Chrysler said these changes are in response to the continuing global economic slowdown and auto industry contraction, as well as the market's movement toward smaller vehicles. Both changes will be effective Dec. 31.
GM and Chrysler have been exploring a merger and reportedly were looking to close a deal before the presidential election Nov. 4. GM, hamstrung by a dwindling cash pile, hasn't been able to secure the necessary funding.
The auto industry is scrambling to react to a plunge in consumer demand for new cars in the U.S., which is bringing monthly sales tallies to levels not seen since the early 1980s. In fact, Deutsche Bank analyst Rod Lache said he expects GM to post a 50% drop in retail sales this month compared with October of 2007. "The domestic automobile manufacturers face the most difficult conditions they have faced in decades."
The situation has grown so bleak in Detroit that Michigan lawmakers called on the Treasury Department Thursday to use a portion of the $700 billion bailout package to help breathe life into the ailing auto industry. In a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, 16 of the 17 members of the Michigan delegation in Congress urged them to "take necessary steps to promote liquidity in the U.S. auto industry."
The industry employs 355,000 workers and supports 4.5 million other jobs, they said in the letter, adding that the auto credit freeze "threatens to cripple these industries and the communities in which they operate." The law gives Paulson broad discretion to buy assets, while the Fed has the authority to provide liquidity to nearly any company.
"The domestic automobile manufacturers face the most difficult conditions they have faced in decades," Congressman John Dingell said. "The Michigan Delegation is pursuing all options and asking that the Bush Administration -- Treasury, Fed, FDIC -- also consider all available options."