Tuesday, November 22, 2005

GM slashing production and jobs

GM slashing production and jobs

By Tom Brown

DETROIT (Reuters) - General Motors Corp. said on Monday it would cut 30,000 North American manufacturing jobs and close a dozen plants as it struggles to compete with fast-growing rivals led by Toyota Motor Corp.

The cuts affect about a quarter of the North American factory work force at GM and are the deepest since it eliminated 21 plants and 74,000 jobs over four years beginning in December 1991.

The latest plan, which affects factories in the United States and Canada, allows GM to reduce costs by $7 billion by the end of 2006 -- $1 billion above its previous target -- and increases by 5,000 the jobs the company had said it would cut.

The world's largest automaker warned that it would take a "significant restructuring charge" with the plan, but did not say how much it would be or when it would be taken.

Merrill Lynch analyst John Casesa said in a note late on Monday that he expects the charge to range from $1 billion and $2 billion, "which is a tough number to justify without tangible results."

This is the largest single U.S. layoff announcement since Kmart said it would cut 37,000 jobs in January 2003, according to employment consulting firm Challenger, Gray & Christmas.

GM Chairman and Chief Executive Rick Wagoner, who took the unusual step of denying in a letter to staff last week that GM was preparing to file for bankruptcy protection, said he was not prepared to discuss GM's 2006 profit outlook.

Shares of GM closed down 47 cents, or 1.95 percent, at $23.58 on the New York Stock Exchange on Monday. The company has lost nearly $4 billion this year, while its shares have lost more than 40 percent of their value and hit a 14-year low last week.

"The plan was in-line with our expectations and is only the beginning of a long restructuring process," Casesa said in the note.

Plants marked for closure include those in Doraville, Georgia, Ontario, Canada, Portland, Oregon and Pittsburgh, an Oklahoma City plant that makes mid-size sport utility vehicles and GM's Lansing, Michigan Craft Center, which makes a poor-selling sport pickup truck.

Separately, GM has closed or stopped production this year at three assembly plants in Lansing, Michigan, Linden, New Jersey and Baltimore, Maryland.

Wagoner first announced plans to cut North American manufacturing capacity, in line with its shrinking market share and to match demand by 2008, at the company's annual shareholders meeting in June.

"It's a big move ... We're confident that this is what it's going to take to get us going," Wagoner told a news conference in Detroit on Monday.

GM, which was founded in 1908, said it hoped it could achieve many of the job cuts through attrition and buyouts.


Wagoner said the leadership of the United Auto Workers union had been told of the plans, calling it "tough medicine for everyone involved."

The UAW responded to Wagoner's announcement with an angry statement to the media indicating it would push to keep furloughed workers on GM's payrolls for the duration of its current labor contract, which expires in 2007.

That could mean that laid off workers would continue to receive most of their pay and benefits, with the plant closings providing little immediate savings to GM.

"The UAW-represented workers impacted by today's action are protected by our job security program as well as other provisions and protections of the UAW-GM National Agreement," the union said in its statement.

"The full cost savings won't be realized until 2008," said analyst David Healy of Burnham Securities, citing the impact of the restrictive UAW labor agreement.

Basil "Buzz" Hargrove, head of the Canadian Auto Workers union, said the closing of one of GM's assembly plants in Oshawa, Ontario, came as a "complete shock" to him because it was the company's most productive facility in North America.

"It's a jewel so to speak, and we couldn't imagine them kind of killing the lead horse," Hargrove told local radio. He blamed the decision on bad trade policies and what he described as unfair competition from Japan and South Korea.

"They ship into our market but they don't allow us to ship back to their market," Hargrove said. "As long as we have this

unfair trade situation ... you're going to see a continuing decline in the fortune of General Motors, Ford and DaimlerChrysler."

Pressures on Wagoner have mounted amid concerns that nothing short of a change at the top would improve the automaker's fortunes. He took the company's helm in 2000, but assumed control of daily operations at its North American unit in April 2005. On Monday, he dismissed any notion stepping aside.

"I haven't given any consideration whatsoever to that. I wasn't brought up to run and hide when things get tough," he said. "We're on the battlefield, we're taking the actions we need to, and I'm convinced that's the way the company is going to get righted."

Wagoner said his planned cuts in GM's North American production capacity did not mean that it would be ceding ground to Toyota as the world's No. 1 automaker when ranked by production.

Some analysts see that as inevitable, however, and Wall Street remained uncertain about his strategy.

In a warning issued not long after GM's restructuring announcement, Standard & Poor's said GM's credit rating could be cut further into junk territory.

Wagoner has also been under pressure from investor Kirk Kerkorian, who owns 9.9 percent of GM's stock and may demand a seat on the board next year.

GM and its crosstown rival Ford Motor Co. have both been grappling with high health-care and materials costs, loss of U.S. market share to foreign rivals, and slumping sales of large SUVs that used to be their profit centers but have lost popularity as gasoline prices rose.

Ford is expected to announce its own cuts in North American manufacturing jobs and a series of plant closings by no later than January. The No. 2 U.S. automaker announced on Friday that it was cutting 4,000 white-collar jobs, or about 10 percent of its salaried North American work force.