GM to close 12 plants, lay off 30,000

[Torpedo Fodder]

Originally Posted by [url=http://quote.bloomberg.com/apps/news?pid=10000006&sid=aTmZMKNq0G5M&refer=home

Bloomberg[/url]]GM to Close 12 North American Sites, Cut 30,000 Jobs

Nov. 21 (Bloomberg) -- General Motors Corp., weighed down by its biggest losses in more than a decade, will close 12 North American operations and purge 30,000 jobs in its deepest round of cuts since 1991.

Chief Executive Rick Wagoner said today he will idle five auto plants, four parts factories and three non-manufacturing complexes. Among them is a Saturn plant opened 15 years ago as an answer to the small-car threat from Asia. The moves will lower GM's $41 billion annual operations expenses by $7 billion by the end of next year, Wagoner said.

``This is the bad medicine they need to swallow to get back to some form of profitability,'' said Rebecca Lindland, senior analyst with Global Insight Inc. in Lexington, Massachusetts. ``If they can combine these actions with some concessions on the health-care side, and some really exciting products, it definitely sets them on the right path.''

The job cuts are 20 percent greater than what Wagoner promised in June. Since then, GM's North American losses have ballooned to $4.8 billion for the first three quarters. Competition from rivals such as Toyota Motor Corp. has pushed the automaker's U.S. market share to 80-year lows. Ratings companies responded by reducing the automaker's debt to junk.

Plant Closings

In addition to one of the Saturn plants in Spring Hill, Tennessee, GM will close assembly plants in Doraville, Georgia; Lansing, Michigan; Oklahoma City; and Oshawa, Ontario. The automaker will shut down engine plants in St. Catharines, Ontario, and Flint, Michigan. GM will also reduce shifts at assembly plants in Moraine, Ohio, and a second car plant in Oshawa.

Oklahoma City and Moraine make mid-size sport-utility vehicles, whose falling sales have contributed to GM's losses this year.

The majority of the closings and shift reductions will be complete by next year. The Georgia and Oshawa closings will come by the end of 2008. Today's announcement was the biggest since Dec. 18, 1991, when GM said it intended to close 21 assembly and manufacturing operations and eliminate 74,000 jobs.

The closings will reduce GM's North America assembly capacity to about 4.2 million cars and trucks by the end of 2008, a 30 percent or 2 million-unit reduction since 2002. GM will have flexibility to add production if there is market demand, Wagoner said.

``As they lose sales and market share, they have to find a way to reduce their overhead cost structure,'' said Erich Merkle, director of forecasting at the consulting group IRN Inc. in Grand Rapids, Michigan.

GM shares, which on Nov. 17 touched their lowest level since 1987, have fallen 41 percent this year through Nov. 18. That is the most of any company in the Dow Jones Industrial Average as investors waited for Wagoner's job-cut plans. GM shares dropped 47 cents to $23.58 at 4:16 p.m. in New York Stock Exchange composite trading.

Swaps

The cost to insure GM debt against default fell as Wagoner's announcement eased concern the world's biggest carmaker will declare bankruptcy.

Traders last week demanded upfront payments of more than $2 million plus $500,000 a year to insure $10 million of GM debt for five years with credit-default swaps. The premium fell to about $1 million a year without upfront payments today, according to Deutsche Bank AG and ABN Amro NV prices.

Investors use credit-default swaps to bet on a company's creditworthiness or protect against non-payment. A buyer typically pays an annual fee and gets the full amount insured if the borrower defaults. In return, the swap seller gets the defaulted loans or bonds. Swap prices typically decline when creditworthiness improves, and rise when it worsens.

Bonds

GM's 8.375 percent bond due in 2033 rose 2 cents on the dollar to 73 cents today in New York, according to Trace, the bond-price reporting system of the NASD. The yield fell to 11.7 percent. The bond reached 75.5 cents earlier.

The debt dropped to a record low of 67 cents on Nov. 15, a week after GM said Nov. 9 that 2001 profit was overstated by $300 million to $400 million. The bond hasn't closed as high as 75 cents since Oct. 27, according to Trace data.

The extra yield, or spread, investors demand to own the debt rather than Treasuries narrowed 31 basis points to about 700 basis points, according to Trace. A basis point is 0.01 percentage point. The bond was the most widely traded company bond in transactions of $1 million or more, Trace data showed.

October Plunge

GM's U.S. sales fell 26 percent in October, and the automaker this month returned to rebates as high as $12,000 on some SUVs to regain buyers. Asian automakers' October U.S. market share rose to a record.

Toyota is adding plants in North America and has released cars this year such as a redesigned Avalon sedan targeted at people who might otherwise buy GM's Buick Lucerne. Toyota plans to open a factory for Tundra pickups in San Antonio next year and a plant for the RAV4 SUV in Woodstock, Ontario, in 2008.

The Toyota City, Japan-based carmaker has said it plans to take 15 percent of the global auto market in the next decade, rising from about 12 percent now.

Closing Details

GM is closing five of 30 solely owned North American assembly plants by 2008. Oklahoma City, which shuts down early next year, makes the Chevrolet Trailblazer and GMC Envoy, whose sales are down 15 percent through October. The Lansing, Michigan, Craft Center, which will close in mid 2006, makes the Chevrolet SSR pickup truck.

Spring Hill, which will close at the end of 2006, makes the Saturn Ion compact sedan and coupe. A second Spring Hill plant, which assembles the Saturn Vue SUV, will remain open.

Doraville makes Chevrolet, Buick, Saturn and Pontiac minivans and closes in 2008. The Oshawa Car Plant No. 2, which will close in 2008, makes the Buick LaCrosse and Pontiac Grand Prix sedans.

GM will also cut the third shift at two other plants next year: the Moraine SUV plant and Oshawa Car Plant No. 1, which makes the Chevrolet Impala.

In addition, GM is closing three of 25 service and parts operations, two of its 23 stamping plants and two of 24 powertrain facilities.

The `Shrinking' Solution?

The closings announced today ``clearly makes'' the 2007 contract negotiations between GM and the UAW ``much more difficult,'' union President Ron Gettelfinger and Vice President Richard Shoemaker said in a statement. ``We have said consistently that General Motors cannot shrink itself to prosperity,'' the union leaders said.

Elements of today's plan have to be approved by the UAW, noted Robert Barry, an analyst with Goldman, Sachs & Co. in New York. That could require ``some giveback to the UAW on Delphi negotiations, which we see as linked,'' he said. Delphi, GM's former parts subsidiary now operating under bankruptcy protection, wants GM to pay for buyouts for some of its workers who are former GM employees.

GM's U.S. market share, which peaked at 51 percent in 1962, fell to 26 percent in the first 10 months of this year. That's the lowest since 19.1 percent in 1925, according to the trade publication Automotive News.

Taking Charge

Wagoner reassigned two top lieutenants and took charge of North American operations on April 4 after the automaker lost $1.6 billion in U.S., Canadian and Mexican auto operations in the first quarter. He pledged to end losses.

Since then, in addition to the job cuts, UAW members agreed this month to concessions that will trim GM's estimated $5.6 billion annual health-care costs by $1 billion. Wagoner also said for the first time Oct. 17 he is seeking a buyer for a majority of the General Motors Acceptance Corp. finance unit, GM's most profitable group.

``The decisions we're announcing today were difficult to reach because of their impact on our employees and the communities where we live and work,'' Wagoner said. ``But these actions were necessary for General Motors to get its costs in line with the major global competitors.''

Wagoner has been under increased pressure since May 4, when billionaire investor Kirk Kerkorian, who led an unsuccessful Chrysler Corp. takeover a decade ago, said he was making a passive investment in GM shares.

Kerkorian, 88, has spent $1.7 billion this year for a 9.9 percent stake in the automaker. He said in September that he may ask for a board seat. At the Nov. 18 closing price, his holdings in GM had lost $334 million in value.

Kerkorian's Push

Kerkorian ``is really pushing this company to do more and putting pressure on the board of directors, because they've been almost silent throughout this process,'' said Patrick McGurn, executive vice president of Institutional Shareholder Services in Rockville, Maryland. ``I think it's really time that they have to step up.''

Delphi, of Troy, Michigan, filed for bankruptcy-court protection from creditors last month. Delphi Chief Executive Steve Miller has proposed cutting wages by two-thirds to as low as $10 an hour. He also has proposed reducing the number of U.S. hourly workers to about 10,000, from 33,650, according to the UAW. The UAW's Ron Gettelfinger has called the offer an ``insult.''

Concern about a bankruptcy at GM from a Delphi strike or other problems last week prompted Wagoner to send an e-mail to employees assuring them he didn't plan to declare bankruptcy. The letter helped the stock gain more than 6 percent each day on Nov. 17 and Nov. 18.

I see GM is even going to close one of the Oshawa plants and scale back the other, and GM has always been reluctant to touch the Oshawa plants due to the lower health-care costs of Canadian workers, and in any case the downsizing and layoffs of the Oshawa plant is not going to be pretty for the local economy. On the other hand, GM needs to make a move like this to survive and regain profitability, and is long overdue in doing so; They are far too bloated to be profitable at the moment, since their operations are still almost as big as in their heyday when they dominated the American automotive industry, something that is no longer possible for any car company to achieve regardless of their product lineup.

[bradclark1]

I think the UAW are a big part of the reason for this happening so they only have themselves to blame.

[caspofungin]

decades of high pay and great benefits, defended tooth-and-nail whatever the eventual cost...

[Torpedo Fodder]

Originally Posted by caspofungin

decades of high pay and great benefits, defended tooth-and-nail whatever the eventual cost...

GM currently spends $1,500 per vehcile on benefits for workers who have already retired. Given GM sells about 9 million vehicles per year, that translates to $13.5 billion total.

[caspofungin]

but try to cut those benefits based on sound economic reasoning, and the unions hold your company to ransom. seriously, i'm a bit of a socialist, and i'm all for people getting paid fairly, especially if the ceo is making millions, but the big 3 benefits are ridiculous. i'm not sure if they (unions) appreciate the effect they have on a company's economics. whenever something doesn't work out, it's always the white collar bosses that get the blame -- rightly or wrongly -- but union policies are only recently getting looked at.

I feel sorry for all the people losing their jobs, especially at this time of year.

And with the $2.2 M salary of Rick Wagoner (GM CEO) and the $4.5M salary of Robert Miller (Delphi CEO), I'm sure they could care less.

If they were truly caring about their company, some of that $6.7M would go back into the company.

That's a crime

[caspofungin]

too true. mistakes/greed on both sides of the labour/management divide. as usual, its the regular joes that have to bite it, while the worst that'll happen to management is a cheerful goodbye w/ a golden parachute.

[mog]

Originally Posted by von Buelow

I feel sorry for all the people losing their jobs, especially at this time of year.

And with the $2.2 M salary of Rick Wagoner (GM CEO) and the $4.5M salary of Robert Miller (Delphi CEO), I'm sure they could care less.

If they were truly caring about their company, some of that $6.7M would go back into the company.

That's a crime

How is it a crime? I wouldn't expect any GM or Delphi employee, from the CEO down to the assembly line workers, to sacrifice their earnings.

[Torpedo Fodder]

Originally Posted by von Buelow

I feel sorry for all the people losing their jobs, especially at this time of year.

They aren't all being let go now; their jobs are being phased out over the next 3 years as current production plans end. Still, this was a bad time for GM to deliver the unhappy news.

Originally Posted by mog

How is it a crime? I wouldn't expect any GM or Delphi employee, from the CEO down to the assembly line workers, to sacrifice their earnings.

I wouldn't expect it from the rank-and-file workers, but it is a good gesture on the part of a chairman/CEO (who likely have enough money stashed to maintain their current lifestyle for years) to instill confidence and loyalty among their workers. Take Bill Ford, current chairman/CEO of Ford, who is refusing to accept a salary until his company is profitable again.

The economy begins to show some cracks.

Thank you T.F. for your help clarifying - I'm shocked at MOG's response


MOG, your logic just astounds me (and not in the good way)

[mog]

Originally Posted by Torpedo Fodder

I wouldn't expect it from the rank-and-file workers, but it is a good gesture on the part of a chairman/CEO (who likely have enough money stashed to maintain their current lifestyle for years) to instill confidence and loyalty among their workers. Take Bill Ford, current chairman/CEO of Ford, who is refusing to accept a salary until his company is profitable again.

It's a hollow gesture really. Bill Ford received no cash salary, but last year he accepted payment of some $22 million worth of stock. In any case, GM's excess capacity isn't going to be resolved by pay cuts.

Originally Posted by von Buelow

Thank you T.F. for your help clarifying - I'm shocked D'oh! at MOG's response


MOG, your logic just astounds me (and not in the good way)

My logic is that what your employer agrees to pay you is your money, and you aren't obliged to give any of it back. You evidently disagree. I hope you would apply the same standard to yourself though; i.e. if your employer was going to lay off a janitor, you'd take a pay cut in order for him to keep his job.

[Iceman]

Originally Posted by U-552Erich-Topp

The economy begins to show some cracks.

Did I miss something here in your quote?...You revel in this?...I'm no economist but I think a company's going belly up can't be good for anyone not just people in the U.S. ....Weird.

[Kresge]

Of course some cracks may finally help people realize what they are doing to their own economy.

What I mean is this:
If you demand to get paid more and more each year,
demand very good benefits with increases each year,
then go to Walmart so you can pay the very minimum for an item that can't be produced locally because of your own labor costs,
something has got to give eventually.

I know there are many more factors that govern the economy as a whole, but people seriously need to think about what they do. I'm not taking this as a perspective of "Buy American" but more as a concept in general. As consumers constantly demand continually lower prices they are eventually going to price themselves out of that market and out of a job.

I live on the edge of the Detroit area and it's very difficult for me to feel sorry for many of the union factory workers when they get laid off. They are buying $500,000+ houses in my area, driving $50,000+ new vehicles, and then treat their unemployment paychecks as vacation money for their cottages up north. I hope this is not that case in many other areas and am sure that there are laborers who need these jobs for all the complaining that goes on.

I devoutly believe that a company does not owe its employees anything if those same employees feel they owe nothing to their company. I wouldn't expect a CEO to give up their millions for running one of the largest companies in the world when it is highly doubtful that anyone in one of their factories would give that same person a dime if they were down on their luck.

On the other hand, I work for Home Depot and have been very impressed by the sense of being part of a company. They take very good care of their employees but nobody takes it for granted. There is a reciprocal relationship between corporate staff and retail staff. Just this year alone they have spent over $9million on their own employees for hurricane relief and other tragedies, some as seemingly minor as en employee needing surgery, etc. If we were unionized and had to go through hostile negotiations every year I believe the entire atmosphere of the company would change.

[bradclark1]

You said it exactly right Kresge!