Posted by: David Welch on May 29, 2008
You can’t accuse General Motors Corp. of sitting still. While the company is en route to losing money for the third straight year and its stock languishes at $17 a share, bigger restructuring moves are rolling out. The company said today that 19,000 workers took the company up on buyout and early retirement offers made early in the year. That’s almost one-third of its 73,000 U.S. factory workforce. Many of those jobs won’t be filled. Many will be staffed by new workers making $14 an hour and with a weaker benefits package. Those workers will cost $26 an hour all in, compared with $62 an hour for today’s tenured workers.
That should save GM about $2 billion, says JP Morgan analyst Himanshu Patel. GM won’t say if it will close plants when it announces more details of its restructuring moves at the company’s annual meeting next week, but some plant closures could be in the offing. GM may have to in order to get in step with a rapidly-changing car market. Weak truck sales forced the company to cancel shifts at four truck plants already. Inside GM, the company has already mulled plans to get rid of one full-size-truck plant retool one to build something more fuel efficient. GM just doesn’t need to build as many trucks as its current factories can make. That was proven when, after a two-month supplier strike this year shut down its truck plants, dealers still had plenty of inventory.
GM needs to do all of this. Chairman and CEO Rick Wagoner has the support of his board, but he can’t keep losing money at home year after year. The company’s inability to make a real buck in North America has erased, in financial terms, Wagoner’s successful push into emerging markets. The extra production also pushes GM to offer profit-sapping discounts to move all those trucks. This round of cuts, which comes just two years after GM bought out 34,400 workers in a similar deal, will help GM’s costs both on the plant floor and within its marketing budget.
But it’s also a sign that GM’s product and brand strategies aren’t doing enough for the top line yet. That’s why the company must keep shrinking. Here are some stats. Before 2006, GM had 108,000 factory workers in the U.S and Toyota had a little more than 20,000. GM employed more than five times the factory help Toyota did. If, say, 10,000 of these 19,000 workers are replaced, GM will have 65,000 workers. When Toyota opens its new plant in Mississippi in 2010, it will have 25,000 factory hands, or a bit less than half what GM does. Now that’s a sign of the times.