General Motors Announces Sale of Mortgage Division
[Sorry, the video for this story has expired, but you can still read the transcript below. ]
RAY SUAREZ: The world’s largest automaker is losing money — over $10 billion last year alone — and losing market share to Asian automakers building increasingly popular cars and trucks. To stop the hemorrhaging and even the playing field, the company is cutting costs and generating revenue any way it can. Industry analyst David Cole…
DAVID COLE, Center for Automotive Research: This is not an optional type of restructuring; the choice is change or die.
RAY SUAREZ: Today’s announcement by GM that it will sell a majority interest in its commercial mortgage division, known as GMAC, to an outside investment group will raise nearly $9 billion.
This comes a day after GM and its major supplier, Delphi Corporation — now in bankruptcy protection — announced the plan to offer buyouts to more than 125,000 hourly workers.
Under an agreement with the United Auto Workers, employees with 10 or more years of service will be eligible for a $140,000 buyout, but would lose health care and other post-retirement benefits, as would workers with less than 10 years experience, who’d receive a payment of $70,000. Employees with 30 or more years on the job would be eligible for just a $35,000 buyout, but would keep their full pension and other benefits.
Reaction was mixed from GM employees at the plant in Pontiac, Michigan.
JOHN KOLTON, GM Employee: I’ve been with General Motors since I was 18, so I’m ready to go.
DAVE WILLIAMS, GM Employee: We have worked our whole life here, and then, at the very end, someone’s going to pull the rug out now. As long as they’re building new factories around the world, we don’t think it’s fair.
RAY SUAREZ: But GM has long been known for treating its workers well, providing high wages and extremely generous health insurance benefits. But those benefits, for which workers pay nothing out-of-pocket, have been a major source of GM’s problems.
Company spokesman Tom Kowaleski broke down the numbers for the NewsHour’s Paul Solman, who’s covered the company closely.
TOM KOWALESKI, General Motors: We have about 145,000 employees, active employees, and we have health care coverage for 1.1 million retirees, independents and family members. Last year, we spent $5.2 billion on health care coverage for all of our employees in the U.S., basically. It equates to about $1,500 a car.
RAY SUAREZ: In addition, the company’s policy of providing full pensions after only 30 years of service tacks on another $1,000 per car. So when you add pension costs to the health care tab, GM is $2,500 behind its foreign competitors on every vehicle before it even starts to build it.
DAVID COLE: It’s like an Olympic swimmer trying to swim with a couple bowling balls hanging around his neck. He’s just not going to get very far.
RAY SUAREZ: Economist Peter Morici said GM’s costly perks have finally caught up to the company.
PETER MORICI, University of Maryland: The bottom line is they’re paying themselves, their workers and their management, more than the value they’re creating in the marketplace. They can’t sell their cars for a price that will permit them to cover their costs.
RAY SUAREZ: GM is banking on this week’s buyout offer as a way to slash the company’s increasingly burdensome payroll costs. Workers, many of whom are expected to take the buyout, are scheduled to start leaving by June 1st.
What do these latest developments mean for the future of GM, the auto workers at GM, and its parts supplier, Delphi? For that, we turn to Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Michigan, and Harley Shaiken, a professor at the University of California at Berkeley, who specializes in labor issues.
Sean McAlinden, let me start with you. These two big moves announced this week, selling off the finance company, offering the buyouts to tens of thousands of workers, what does do it for GM?
SEAN MCALINDEN: Well, eventually it’s going to result in a savings of about $2 billion a year on the parts and components they buy from Delphi and about $2.5 billion on their labor bill for their own workers, you know, for workers they really don’t need to build cars and trucks anymore in the United States.
But those savings are obviously a few years off. And in the meantime, they’re going to have to pay out a significant amount of money to get people to retire.
RAY SUAREZ: So you’re taking a hit in the near term to save yourself a lot of money down the road?
SEAN MCALINDEN: Absolutely, probably on the order of $4 to $4.5 billion worth of payouts, right.
RAY SUAREZ: Well, in those near-term years, why does it pay General Motors to do something that costs $1 billion to $2 billion, instead of paying these workers to make cars that they can at least sell somewhere?
SEAN MCALINDEN: Well, in other words, I’m not sure what $1 billion or $2 billion you’re referring to, but the real problem is GM can no longer remain at the size they’re at, trying to build five million vehicles in North America.
They have to downsize to a level where their price can rise and they can make a profit. And, really, that’s going to call for fewer workers, fewer plants, and obviously parts and components that, obviously from Delphi, that cost less.
RAY SUAREZ: Professor Shaiken, how does this look, if you’re an assembly-line worker in mid-work life?
HARLEY SHAIKEN, Professor, UC-Berkeley: It’s a very bittersweet moment. There is something to be said for the achievement of the UAW and General Motors, with the buyout package and the incentives for retirement. It makes the transition easier. It provides an important cushion, but it doesn’t stop the fall.
We’re looking at eliminating 30,000 jobs at GM, perhaps another 10,000 or 12,000 at Delphi. And it isn’t just the individuals, as catastrophic as that is for many; it’s families; it’s college educations; it’s mortgages; it’s the well-being of the communities that are involved.
And this isn’t just a GM story. It’s certainly a GM story today, a GM-Delphi story today, but longer term it’s the story of the middle class in America, of what kind of a middle class we have, and of the relationship between creating competitive firms and ensuring that workers enter the middle class.
So there’s a lot of big issues on the table. Today, it is bittersweet. I think many workers are glad that they’re getting these incentives for retirement, but they’re fearful about what the future will hold. Will their pensions be secure? And what does the future hold for jobs in the regions in which they live?
RAY SUAREZ: Well, reporters fanned out to the luncheonettes and shopping centers around car and truck plants in the Great Lakes region and heard from workers. Many of them saying they were ready to go; some of them could see the finish line anyway. Some of them saying they were going to try to hang on.
Are they taking a chance at getting nothing down the road, by passing up what could be a six-figure payout now?
HARLEY SHAIKEN: There’s a big risk involved, and workers are evaluating this very carefully. I think we have about 100,000 pension experts at General Motors today who are looking at the numbers and trying to get a sense: What does this mean for me?
Obviously, the money is tempting up front. But for somebody who’s 47 years old and has 26 years in, they may not have been saving for retirement; they were planning on working another 10 or 12 years.
For workers like this, it’s a very tough choice, because the job may not be there. But on the other hand, if they retire, five years down the road the pensions may not be there. So they’re evaluating a lot of things.
I think, for many workers, this is an important moment that provides them some security through a traumatic transition. They’re very thankful. For others, it’s a calculation they’re going to do and do again before they make a final decision.
RAY SUAREZ: Sean McAlinden, the company has famously hardly hired new workers in recent years. Is that something that’s going to have to end soon, even with a company that’s trying to shrink its workforce?
SEAN MCALINDEN: Yes, it is. As a matter of fact, we’re talking about the oldest industrial labor force in the United States. And many of these workers, of course, were heavily — you’re certainly considering retirement in the very near future anyway, and making these decisions.
As a matter of fact, about 90 percent of the workers at GM and Delphi would have naturally retired by 2010 or ’11 anyway, and, you know, in that period of time. We’re actually going to see General Motors hire thousands of new workers by the end of this decade, not, obviously, as many as they have on board today.
And, you know, it’s not next year or the year after, but it’s inevitable. And it’s going to be very interesting to watch, to see if it changes the kind of jobs they’ve had for many decades and the kinds of people that they want to work for the company, you know, when they do go back to hiring.
RAY SUAREZ: Well, you heard Harley Shaiken a few minutes ago talk about how this almost is closing a chapter in the development of the great American middle class. Those new workers that you’re talking about being hired down the road, how will they be different from people who went to work for GM in previous generations?
SEAN MCALINDEN: I think Harley’s absolutely right. This is, you know, really the end of 20th-century industrial America and the start, hopefully, in a few years of the 21st-century industrial America, where we’re going to be talking about workers whose requirements for hiring are much higher — several years of college, an associate’s degree, you know, some higher certification even than that — and whose job will, you know, actually involve less physical work, far more moderate moderating of equipment and technology and problem-solving, decision-making.
And there won’t be as many of them, because the productivity levels will be so high, but we already see this in some of the newest plants in the U.S. auto industry, even here in Michigan. And it’s pretty exciting to watch. We’re really saying goodbye right now to a whole generation, a Baby Boom generation of auto workers in the next three, four, five years.
RAY SUAREZ: Harley Shaiken, you just heard Sean McAlinden talking about those new auto workers of the future, how they’re going to be better educated and required to do different kinds of work, but how can they be cheaper if they’re also going to be required to be better educated?
HARLEY SHAIKEN: That could be one of the real dilemmas that we face. We may have better-educated auto workers that earn a lot less.
I think we have to remember that, in the 20th century, General Motors and the UAW paved the road to the middle class, not simply for hundreds of thousands of auto workers, but for many millions of Americans who look at this model of a company with rapidly rising productivity who passed those gains, because of a strong union, on to the workforce. The result was a consumer-driven, vibrant economy and a strong middle class.
The danger today is, given the pressures of the global economy in general and competitiveness at home, we may seek to have companies that become more competitive by paying lower wages, despite the fact that workers may be more educated.
If that becomes the model, I think we have a very troubled economy potentially and a society that becomes far harsher and far more difficult for many millions of Americans. That’s not the only alternative that’s out there, but that appears to be the direction in which we may be headed.
RAY SUAREZ: Well, Sean McAlinden, we’ve been talking a lot about production workers. What about white-collar workers, and there are many of them at GM? In addition to having their pensions restructured, are they also looking at large job losses, too?
SEAN MCALINDEN: There’s no question about it. GM had a fair-sized job cut in salaried labor force last year, and I do believe, at the end of this month, they will probably announce another cut. I think they’re committed to 7 percent reduction just for this year alone.
And usually, that happens very quickly, compared to the hourly labor force. In a matter of months, you see the cut taking effect. And certainly, they know they have to downsize the company in all directions.
RAY SUAREZ: And what about pressure on other American auto producers? Should the workers at other companies be watching this with a little trepidation, as well?
SEAN MCALINDEN: Well, there’s no doubt that — you know, Ford actually announced their downsizing plan and their buyout plan before General Motors, and they’re committed to proportionally an even larger reduction than GM, almost the same numbers.
And just the last three months, they’ve cut 4,000 salaried worker jobs here in the United States and are, certainly, you know, planning to cut up to 30,000 jobs in the hourly side, as well, by the end of the decade.
So, all together, about 60,000 GM and Ford jobs are being eliminated, obviously, on the hourly side, almost entirely through retirement in the next three years.
RAY SUAREZ: Sean McAlinden, Professor Harley Shaiken, gentlemen, thank you, both.