GM Announces Job Cuts
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JEFFREY BROWN: Today’s decision to cut 30,000 jobs at plants like this one in Spring Hill, Tenn. was presented as a way for the world’s largest automaker to start making money again. GM’s CEO Rick Wagoner announced the move this morning as part of a series of measures.
RICK WAGONER: It is tough medicine for us and I think it’s tough medicine for everybody involved.
JEFFREY BROWN: In all a dozen plants will be closed in the U.S. and Canada. The job cuts represent about 9 percent of GM’s worldwide workforce.
RICK WAGONER: So not an easy call, and I suspect I’m not going to satisfy any plant as to why they should have been chosen. This isn’t the fun part of our job. But, frankly, we have done it in the most – the fairest and considering all the relevant factors, the most cost-efficient way that we felt we could do it.
JEFFREY BROWN: Wagoner also fended off concerns raised on Wall Street last week that GM might file for bankruptcy within the coming year.
In the first nine months of this year, GM posted a $4 billion loss despite offering deeply discounted prices on its vehicles during the summer. GM has also struggled with the high cost of employee health care and retiree pension plans. Wagoner said today that talks with the United Auto Workers on how to handle those costs are ongoing.
In Grand Rapids, Mich. former UAW president, Owen Bieber, said today’s announcement was a step backwards.
OWEN BIEBER: No civilization since history began ever was able to not only maintain its living standards, but increase its living standards unless it builds something. You can’t do it on a service economy.
JEFFREY BROWN: In recent years, the company’s sales strategy depended heavily on the popularity of large trucks and SUV’s. But the rising cost of fuel is changing the auto marketplace. Today’s closings are in addition to three other assembly plants slated for shutdown.
JEFFREY BROWN: And joining me now is Csabe Csere editor-in-chief in Car and Driver magazine. Welcome to you.
Let’s start with the announcement. What is management’s arguement for cutting the jobs and closing the plants?
CSABE CSERE: Well, management’s argument is simply that GM has been losing market share in the past several years and they have to reduce their capacity accordingly. These moves will take gm’s capacity from about 5.2 million units down to 4.2 million units by the end of 2008; and that’s commensurate where the sales are today, which are in the mid 4 million area.
JEFFREY BROWN: And the actual job losses will mostly happen, if I understand right, through attrition, correct?
CSABE CSERE: Yes. GM has talked about 30,000 job losses with the new plan. And GM’s been losing about 7,000 people a year through normal retirement. There are a lot of baby boomers employed in the company, and as they come up for retirement, they simply won’t be replaced and that’s going to probably be the vast majority of these job losses.
JEFFREY BROWN: So if we try to look at what the reasons are for why GM is not making any money, in fact losing a lot of money, one obviously, you just referred to it, is they are not selling enough cars.
CSABE CSERE: Well, not only are they not selling enough cars, but they are not selling cars at a profit. If you remember, last summer, GM did a seemingly very successful promotional program; the employee discount applied to everyone; they came out with that in June, did extremely well, sold a lot of vehicles.
But as we saw in the third quarter earnings report, the company lost $1.6 billion. So they’ve moved a lot of vehicles but didn’t make money on it. And what they really need to do is not only sell cars but sell cars at a price where there’s a profit.
JEFFREY BROWN: How are they doing in terms of new models, in terms of creativity, in terms of keeping up with Japanese and European makers?
CSABE CSERE: Well, that’s been the problem over the years. And GM’s probably been losing three-quarters of a percent in market share every year for the past 25 years precisely because they haven’t been keeping up in that area.
They have been getting better of late and there’s a bunch of new products coming out next year; there’s a new line of full-sized SUV’s that are completely redesigned, good looking, good interiors and the best mileage in that segment; that’s going to be followed by some new big pick-up trucks, but it takes a long time for the public perception to turn around.
And GM has to hang in there and continue to produce very strong products for the next several years to really turn things around.
JEFFREY BROWN: Now, the other big issue that we referred to in our set-up is of course labor costs, health care, pensions. These are things that cut across all of American industry, but in GM’s case, it is a larger share of cost; it’s more important? Explain it to us.
CSABE CSERE: Well, it is the biggest problem among the big three for GM, simply because they have lost the most market share. I mean, think of it this way: Back in 1980 or so GM had 45 percent of the U.S. vehicle market and they had a huge body of retirees created when they had that huge business needed to supply 45 percent of the product.
Today their business is only 26 percent of the U.S. market. So they are paying for this very large body of retirees created when the company was a lot bigger with a much smaller enterprise. You go over to Chrysler Corporation and, in fact, Chrysler’s market share in 1980 and their market share today is both in the 12- 13 percent area; it really hasn’t changed that much.
So their ratio of retirees to current business size is a whole lot better than GM’s is.
JEFFREY BROWN: So in the negotiations that are going on now over these kinds of matters, does today’s announcement affect that? Will it make the unions less amenable to coming to the table on issues of health and pensions?
CSABE CSERE: I think the unions understand that GM is in a fairly serious position here, and that they, while they may not like it, they have to give a certain amount.
Just a few weeks ago, GM management organized a new contract for health costs that increased the co-pays and reduce GM’s costs by about $1 billion a year. I think GM is going to have to continue along those lines. But nobody likes it when 30,000 positions are simply eliminated.
So the union is in a tough position here. On the one hand they have to do what they can to help GM survive and be healthy, but they clearly are not in the business of giving things away.
JEFFREY BROWN: Now, you have referred to Ford and Chrysler. But I want to ask you more specifically to what extent should we look at today’s announcement as a specifically GM story and to what extent is it something that cuts across the entire American auto industry?
CSABE CSERE: Well, it definitely goes out to other auto companies. It is widely rumored that Ford will be announcing a similar round of cutbacks to what GM did today around Jan. 1. It might be fewer plants closed because Ford is a somewhat smaller enterprise. But they suffer a lot of the same problems that GM does.
Chrysler is in a little bit better shape and they’ve got a better line of products; they’ve been actually gaining market share the last couple of years and I think they will still try and benefit from any health care concessions that are created by GM or Ford. But as far as closing facilities, they are in better shape.
JEFFREY BROWN: And looking at today’s move, does anybody you’re talking to think that this is the end of the matter, that this in itself turns things around? Or should we look for more to come?
CSABE CSERE: Well, this is simply the cost side of the equation. And then you have got to look at the revenue or the sales side of the equation. No company can cost cut its way into prosperity. You cost cut; you improve your capacity situation so you can make more profit on each unit, but then you’ve got to build cars and trucks that people actually want to buy and will pay enough for that the company will earn a profit. If you don’t do that, the cost-cutting isn’t going to help and, in fact, it’s going to be followed by more cost-cutting because interestingly, this program right now comes on the heels of another GM major announcement of plant closings that went from 2002 to 2005.
And that’s what happens if you continue to lose market share. You just keep on chasing your tail closing plants and cutting costs and you never make progress.
JEFFREY BROWN: All right. Csabe Csere of Car and Driver magazine. Thanks very much.
CSABE CSERE: My pleasure.