General Motors is to extend buyouts to a total of 46,000 hourly paid workers as it continues its restructuring plan.

Chairman and CEO Rick Wagoner and vice chairman and CFO Fritz Henderson told automotive analysts yesterday (17 January) that the new US labour agreement with the United Auto Workers (UAW) union would yield additional savings of $5bn by 2011 and that the automaker had set a new automotive structural cost target of 23% of revenue by 2012.

But he hinted that further plant closures might be necessary, a move that the UAW hinted it would resist strongly.

GM said the new UAW deal, including the independent healthcare VEBA scheduled to begin in 2010, would drive “a significant portion of those reductions” but, in the shorter term it would take full advantage of the workforce restructuring opportunities included in the contract, including a ‘non-core’ wage and benefit structure which will result in the re-classification of a significant number of jobs over time.

The ‘non-core’ deal will pay lower wages and benefits to workers not directly engaged in vehicle assembly.

A first phase of a buyout program for hourly workers began in January 2008 for those in some job banks, service parts operations (SPO), and other sites. Employees taking up this offer will begin to leave in March.

Phase 2

GM said on Thursday that phase two of the programme, currently being discussed with the UAW, would be launched in February in all other plants and employees would begin departing in April. For both phases, 46,000 existing employees are eligible for retirement.

GM’s initial attack from 2005 to 2007 reduced annual structural cost in North America by $9bn, due to the 2005 hourly healthcare agreement, revisions to US salaried healthcare and pension programmes, capacity reduction, voluntary retirement programmes for 34,000 hourly employees, and various other efficiencies. The company also claimed “significant” improvements in vehicle quality.

The company currently has 73,000 hourly-paid workers. Analysts told the Detroit Free Press that they expected up to 20,000 to take up the offer.

The paper said the buyout offers this year are expected to be similar to those made in 2005, when cash incentives ranged from $35,000 for those with at least 30 years of service to lump-sum buyout payments of as much as $140,000.

Mainly as a result of the pacts with the UAW, GM now expects its spending on US hourly and salaried pension and healthcare will be reduced from an average of $7bn per year over the last 15 years, to approximately $1bn per year from 2010.

“We’re delivering on the turnaround plan we established in 2005, and have exceeded expectations on virtually all counts,” Wagoner told analysts. “We’ve set a strong foundation that we can truly build on.”

For 2008, the automaker expects global industry volume to reach a record high of approximately 73m units, up from about 71m in 2007, with growth in Asia Pacific, Latin America, Africa and the Middle East and Europe.

It expects US industry sales in the low 16m range, reflecting continuing high fuel prices and sub-par consumer confidence, yet plans to increase revenues in all of regions, particularly in emerging markets.

Capital spending is projected to be up slightly from 2007 levels to about $8bn in 2008.

Brand realignment

GM said it would accelerate the alignment of its seven US brands into four distinct dealer channels: Chevrolet, Saturn, Buick/Pontiac/GMC and Cadillac/Hummer/SAAB. By doing this, the company expects to enhance dealer profitability and eventually facilitate more highly differentiated products and brands.

GM said it had made major progress towards achieving its global target of reducing automotive structural costs to benchmark levels of 25% of revenue by 2010.

Structural costs are already below 30%, compared to 34% in 2005, despite weaker than expected US industry volumes.

“In light of the progress already made, the company fully expects structural costs as a percentage of revenue to be further reduced beyond 2010, with a target of 23% by 2012,” GM said.

Wagoner reiterated GM’s strategy to achieve manufacturing capacity utilisation of 100%, or greater, in countries with higher labour costs and said that, based on current US industry volume, additional capacity cuts would be required in vehicle assembly, stamping and powertrain facilities.

“The company will continue to assess US industry and product mix trends, and what potential actions may be required over the coming months,” it said.

Lehman Brothers analyst Brian Johnson told the Detroit Free Press GM North America operated at 82% capacity in 2007 and said he thought GM could stand to close an additional three to four assembly plants in North America.

Union resistance was signalled by UAW president Ron Gettelfinger who told the Detroit News onm Thursday that the union rejected the idea of any possible plant closings.

“Eventually there will be a buyout, but I’m not going to put a time frame on it,” Gettelfinger said.

GM would continue its “aggressive” plans to grow in emerging markets such as China, Brazil, Russia and India, analysts were told.


Looking ahead to 2010, GM said it expects continued cost savings and improved automotive pre-tax earnings by 2010, compared to 2007 levels, with the most significant savings being the estimated $4-5bn it expects to gain in 2010 once the full benefits of the 2007 GM-UAW labour agreement are realised.

This shifts the burden of US hourly-paid workers’ healthcare to an independent union-run VEBA, and allows workforce levels to be adjusted with some workers transferred to a new, lower non-core wage structure.

Restructuring of agreements with reorganised supplier Delphi should result in savings of approximately $500m.

GM expects the US industry to rebound from the relatively low 16.5m total industry in 2007 in 2009 and beyond.

“All indications are that 16.5m units are approximately 1m units below trend. It is estimated that a move of the industry back to trend levels by 2010 would generate additional pre-tax income to GM in the range of approximately $1bn to $1.5bn annually,” the automaker said.

“At the same time, continued US industry product mix deterioration, regulatory cost increases and the ongoing competitiveness of the marketplace pose potential risks to GM’s profitability.

“GM management expects to significantly improve operating results, including earnings and cash flow, over the next two to three years.”