RE: AGMGM to slash 25,000 jobs by 2008
CEO details plan for recovery in North America
By Shawn Langlois, MarketWatch
Last Update: 11:58 AM ET June 7, 2005
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SAN FRANCISCO (MarketWatch) - General Motors, hit by falling sales, soaring costs and recent credit downgrades, said Tuesday it will cut at least 25,000 jobs in the U.S. by 2008 to generate $2.5 billion in annual savings.
"The most challenging and important operating issue we face is getting GM North America, our biggest business unit, turned around and back into a profitable position," Chairman and CEO Rick Wagoner told shareholders at GM's annual meeting in Delaware.
Shares of General Motors (GM: news, chart, profile) gained almost 2% to $31 in midday trading on the New York Stock Exchange.
Along with the job cuts, which target about 13.8% of GM's U.S. work force, the company plans to close additional assembly and component plants to fully utilize capacity as part of a four-step plan to get GM North America back to profitability.
Key to the success of the plan is GM's ability to execute a desirable line-up of new cars and trucks, Wagoner said.
Consumers have steadily shied away from GM in favor of Japanese automakers like Toyota (TM: news, chart, profile) and Nissan (NSANY: news, chart, profile) . The most recent evidence came in May when GM posted a 5% decline in monthly sales to 393,147, adjusted for two fewer sales days. See full story.
A shift from GM's aging sport utility line-up amid higher gas prices has taken a bite out of the bottom line and the automaker will now prioritize meeting consumer demand with a focus on popular crossovers and hybrids, Wagoner said.
To meet these goals, GM will raise capital expenditures by nearly $1 billion, mostly in North America. Wagoner said he expects to hold this higher level of spending through 2006. Listen to analyst's take.
The focus will also be on surging health-care costs, which has been a highly-publicized drag on GM's earnings. Wagoner said that GM's $1,500 per unit health care expense puts the company at a big disadvantage compared to its foreign competition.
GM's total health-care bill is expected to reach $5.6 billion in 2005, up from $5.2 billion in 2004.
"Left unaddressed, this will make a big difference in our ability to compete in investment, technology, and other key contributors to our future success," he said.
To this point, ongoing "intense" discussions with unions have yet to yield results, according to Wagoner.
"We have not reached an agreement at this time, and, to be honest, I'm not 100% certain that we will," he said. "But all parties are working hard on it, in the spirit of addressing a huge risk to our collective futures while providing greater security and good benefits for our employees."
He declined to comment on what would happen should GM and its unions fail to hammer out a deal. Analyst: Job cuts? Strike?
The job cuts dovetail with another key part of the plan, which will prune GM's product line, a line that many industry analysts suffers from duplication among its eight brands. This will mean "fewer but strong entries" from Pontiac and Buick, Wagoner said, citing two of GM's weaker divisions.
UBS analyst Rob Hinchliffe, who maintains a reduce rating on the stock with a $20 price target, said the plan isn't aggressive enough and the job cuts and brand focus are old news.
"This amounts to little more than past 5% annual attrition levels," he told clients in a note. "Fundamentals remain poor given soft SUV sales and declining market share."
To put the job reduction in perspective, it's the biggest since January 2003 when Kmart said it would cut 37,000 jobs, according to John Challenger, CEO of Challenger, Gray & Christmas.
"The massive job cut will, of course, have a rippling effect as plant closings adversely impact surrounding communities, suppliers and other businesses that depend on these facilities for sustenance," Challenger said.
Auto parts makers, however, responded positively to the news. Delphi Corp. (DPH: news, chart, profile) , a GM spinoff and the No. 1 parts supplier in the U.S., added 4.1% to $4.56.