Laying to Rest a 'Generous' Way of Life
They called it "Generous Motors." If you were lucky enough to get an assembly line job at one of its plants -- or those of Ford, Chrysler and some of their major suppliers -- you could earn half again as much as neighbors with the same skills and education, along with "free" health insurance; a month's paid vacation; and, after 30 years on the job, a generous pension and whatever health services were not covered by Medicare. At some point, the company even agreed to guarantee all workers full pay and benefits, even if there wasn't enough work for them to do.
But last week, General Motors and the United Auto Workers acknowledged the jig was up. Prompted by steep annual losses in its North American auto operations and the bankruptcy filing of Delphi, its former parts division, GM announced it would offer between $70,000 and $140,000 to employees to walk out the door with nothing more than their lunch buckets and their accrued pension benefits. Similar deals will be offered to Delphi workers as well. Those with 30 years of service or more will be offered $35,000 just to begin the retirements to which they are already entitled.
The purpose is to right-size the company to reflect its shrunken market share and clean up a balance sheet weighed down by retiree costs. It is also designed to avoid a crippling strike at Delphi by workers who, if they choose to remain, will almost certainly have to accept reductions in wages and benefits.
The surprise here is not that the golden era for autoworkers has come to an end but that it lasted as long as it did. General Motors has been losing market share to foreign automakers with lower cost structures for more than 25 years. Until recently, however, the richness of the compensation packages has been maintained as the company pushed costs into the future through a series of generous early retirement packages. But the future has become the present, making the financial reckoning unavoidable.
The deal hammered out in secret over the past two months by the union, GM and Delphi will now become the template for similar agreements at Ford, Chrysler and their major suppliers. It goes without saying that the workers who agree to take the buyouts, along with the offspring who had hoped to replace them, will be unlikely to find such jobs again -- at least not without upgrading their skills. And even then, many will be forced to relocate to other regions to find employment.
For General Motors, the restructuring needed to stave off bankruptcy -- and keep Rick Wagoner at the wheel as chief executive -- is still not complete.
The once-mighty carmaker has already paid dearly to buy its way out of ill-fated alliances with Fiat and Mitsubishi. And the Securities and Exchange Commission is looking into its past accounting practices. Next week, the company is expected to hand pink slips to hundreds of white-collar workers. And to help cushion the financial impact of all those buyouts and severance packages, GM has had to sell off part of its highly profitable GMAC finance division. Last week, a consortium of private equity firms agreed to pay the equivalent of $8.8 billion for a majority stake in the commercial mortgage unit. The rest is expected to fetch an additional $11 billion.
Once it is gone, there will be only one way for General Motors to stay afloat: make cars and trucks people want to buy, and sell them at a profit.