The world’s largest automaker announced yesterday they would eliminate 25,000 jobs from their rolls, mostly through attrition as a number of employees approach retirement. The move by the once might GM would save $2.5 billion annually according the report presented by GM chief, Rick Wagoner at the annual stockholders’ meeting.
GM has taken a beating in the auto industry in recent months. They reported a massive $1.1 billion dollar loss during the first quarter. Gasoline prices continue to remain high and in turn have killed the sales of new SUVs. This has hammered GM and Ford sales alike. Even after the layoffs and retirement, GM will still produce 5 million vehicles a year, far too many vehicles when you’re having problems moving the ones you have.
GM also faces exceptionally stiff competition from foreign automakers like Toyota as they prepare to add a hybrid to their top-selling Camry line built in Georgetown, KY. Another major point is the rise in healthcare costs. Wagoner said healthcare costs tack $1500 onto the price of each vehicle.
The problem with the layoffs is they won’t affect salaries or healthcare costs for at least a couple of years. Based on United Auto Worker (UAW) contracts, which go out in 2007, workers keep most of their base pay and their healthcare benefits. GM actually has more retirees than active workers at this stage in the game and their current market share is 25%.
In an interview on NPR’s Morning Edition on Wednesday, automotive analyst Maryann Keller suggested GM’s problem hasn’t been too many workers; it’s been poor innovation and lack of vision. She suggested this was just a temporary fix and not a solution. She told NPR, “if you sell twice as many cars, they’d be $750 a car.”
The UAW also suggested this isn’t going to cure GM’s woes. They suggested GM needs to work on regaining some market share by offering the right mix of products and service.
“No one has a greater stake in the success of General Motors than UAW GM members – and no one has played a more vital role in GM’s strong gains in productivity and product quality,” said UAW Vice President Richard Shoemaker “They’re doing their part to help GM meet the challenges of today’s fiercely competitive auto industry. We will do all that is possible to protect the interests of our members and their families.”
Economists also suggest GM needs to do something much more dramatic than cut a few jobs and let attrition take care of most of those because when looking at this, they haven’t done anything. GM loses just over 6000 jobs a year due to natural attrition. This means retirements, health issues etc. So looking upwards, one could say 18,000-20,000 jobs out 25,000. The other jobs will need to go through the UAW, which means they may or may not happen. This still leaves GM in the same boat they’re in now. Lack of innovation and vision needs to be addressed.
In his weekly email, Dr. Pete Morici of the Robert H. Smith Business School at the University of Maryland suggested GM is doing to little too late. He said Wagoner still hasn’t told shareholders how GM will turn things around through new products and cutting costs.
“By reducing capacity to make only 5 million vehicles a year, GM will still have too much capacity. By focusing solely on health care, Wagoner failed to address larger and more important compensation issues, among both managers and blue-collar workers,” said Morici. “By focusing solely on manufacturing efficiency, Wagoner failed to address chronic inefficiencies in platform and new model development, poor product choices and quality, and the costs imposed by the heavy weight of GM’s management and bureaucracy.”
Conspiciously absent from all this talk of changing things around at GM has been Kirk Kerkorian. He didn’t buy quite as much GM stock as initially offered only going up to 7.2% of the total share instead of the original 8.8%. This still makes his firm, Tracienda, the third largest stockholder at GM and some analysts feel the cuts were done to possibly curb fears of Kerkorian ruffling feathers.
In any event, GM has a while to go before bankruptcy as they have lots of available capital but bankruptcy will be inevitable unless they change the attitudes and vision at the top of the structure there. In order to grow, they need to offer something attractive, affordable and economical on gas. Until they do that, they will continue to lose ground.
John Stith is a staff writer for murdok covering technology and business.
