Rick Wagoner looked for one moment at the GM annual shareholders’ meeting yesterday as if he was going to go unilateral on the healthcare crisis.
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He spent several minutes of his speech creeping up on the issue and reminding everyone how long talks had been going on with the Union of Automotive Workers and how critical the whole issue was to the security of the business.
Then he said: “It’s clear to us that these efforts are not yielding the progress that we need fast enough and that the healthcare crisis is putting our future at stake…and so we must act now.”
He got as close as you can get to a detonation. There was a collective intake of breath. Then once again he took a step back: “If that (discussion with the unions) takes a little longer, then we need to give it the time.”
The change of tone was so sharp that there was no mistaking how close GM must be to breaking the logjam of the talks and going it alone. His final remark on the subject was this: “It is crystal clear that we need to achieve a significant reduction in our healthcare cost disadvantage and to do so promptly. We are committed to do that.”
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By GlobalDataIt doesn’t sound as though he will give ground again. It was almost as if the build-up was to a breaking of ranks, and that the script had been redrawn at the very last minute.
The cost of healthcare has now reached $1,500 for every unit vehicle sold and as the number falls so the cost per unit climbs. Additionally the annual increase in the cost of looking after people has grown by “double digit” percentages every year for many years now and was unmanageable.
Having decided against unilateral action, Wagoner’s task in persuading his shareholders that the financing of the company was secure was that much harder. Yes, the downgrading of the credit rating had a severe cost implication on borrowings. Of course it had. But liquidity was still good – “robust” even in Wagoner’s words, and GMAC was still in a position to service car loans, insurance and mortgages.
And it was really only GM in North America that was making a pig’s ear of profitability while the recovery plans elsewhere were working well – particularly in Europe where 12,000 jobs have been taken out.
The news for GM in North America is clarification of brand strategy. Chevrolet will be the full range volume brand, Cadillac the mainstream luxury business. GMC, Pontiac, Buick, Saturn, Saab and Hummer will focus on target market niches. Pontiac and Buick therefore will get fewer new models but those they get will be stronger according to Wagoner – who has recently appoint himself the new executive head of GM North America operations. That subtle but important downgrading of Pontiac and Buick is presumably what gave rise earlier in the year to rumours that one whole brand would be killed off.
One way or another there will be less volume. Capacity of six million three years ago will be down to five by the end of next year and 25,000 jobs will go within three years. The annual cost saving will be $2.5bn.
But without that healthcare cost saving, the downscaling is just making it harder to pay the hospitals.
It seems quite clear that there cannot be another major shareholders’ briefing by Wagoner without the grand plan being explained – and enforced.
Rob Golding
