GM Takes Largest Step Towards Profitability Yet
In the largest change thus far at GM, 47,600 hourly workers have agreed to walk away from the world’s largest automaker; a process that will take five months to finalize. Accepting offers of early retirement, severance, and buyouts, the mass exodus represents the most drastic attempt made to regain profitability by General Motors, which has posted catastrophic losses in recent quarters.
Throughout this year, GM CEO Rick Wagoner has been campaigning an accelerated recovery program for the auto giant, already announcing a personal pay cut (which was later revealed to be less effective than statements communicated), and various plant closures throughout the hemorrhaging North American market. Trying to recover from seemingly insurmountable $10.6 billion USD 2005 losses, the 47,600 workers were offered either early retirement with benefits or a buyout option that paid out between $70,000 USD and $140,000 USD depending on years of service. A total of 30,400 workers opted for early retirement while 4,600 took the lump sum. Of those workers who will walk, 12,600 are from Delphi while the other 35,000 are from GM.
And those numbers are vastly higher than expected; early estimates placed the numbers of those who would quit somewhere between 20,000 and 25,000. The success of the buyout means Wagoner has met the goal of cutting 30,000 jobs from GM’s North American operation by 2008, a full two years early. Additionally, the Delphi buyout could help stave off a potential Delphi strike GM has been fending off for months now. Removing that many jobs could help alleviate some of the pressure Delphi has been feeling since filing for bankruptcy last October, and help it negotiate a new contract with the auto workers’ union. As the former owner and current largest customer of Delphi, an auto parts’ supplier, GM has taken an active role in its labour negotiations and has already agreed to hire 5,000 employees away from Delphi.
Finalized on June 23rd, the attrition program will cost GM $3.8 billion USD in reimbursement to those employees that walked away. Conversely, a regular union labourer costs GM approximately $81 USD an hour including benefits and retirement costs, which correllates into a total annual cost of $168,000 USD per worker (not including overtime). A temporary worker costs a mere $39,530 in comparison. The conclusion to be drawn from these figures is that GM could save as much as $4.2 billion USD annually as a result of lower labour costs.
Unfortunately, analysts don’t see this making up the much needed difference. No amount of labour buyouts will change the fact that GM’s auto sales are still down 8 percent this year, and although executives are hoping incentives like the 0 percent financing program announced recently will help, most are inclined to disagree. Numerous economists have already voiced concern over such incentive programs (especially the infamous “employee pricing” scheme of last year) citing the fact that reducing the price of the automobiles they are selling simply reduces the amount of cash GM has coming in over the long haul. Beyond this, the smaller workforce, plus plant closures and idlings (12 across North America) will tax the remaining facilities even more, which could potentially lead to lower product quality; precisely the opposite of what GM needs.