General Motors Corp. announced yesterday that it will eliminate 25,000 jobs by 2008 and close an unspecified number of plants to trim costs and reinvigorate its North American auto business.
GM chairman and chief executive G. Richard Wagoner Jr. said at the company's shareholder's meeting yesterday in Wilmington, Del., that the closings and job cuts should save about $2.5 billion a year. GM now employs 110,000 hourly workers in the United States.
"The most challenging and important operating issue we face is getting GM North America, our biggest business unit, turned around and back into a profitable position," Wagoner said.
GM, once a towering icon of U.S. industry, has stumbled badly in recent years. Sales -- particularly of its once-hot sport-utility vehicles -- have plummeted, and the company is weighed down by rising health care and pension costs. Its foreign rivals, meanwhile, continue to expand their share of the North American market, with more efficient factories, lower health care and pension costs and fewer unionized employees.
In a written statement, United Auto Workers Vice President Richard Shoemaker said he was skeptical of the plan. "The UAW is not convinced that GM can simply shrink its way out of its current problems," he said. "What is needed is an intense focus on rebuilding GM's U.S. market share, and the way to get there is by offering the right product mix of vehicles with world-class design and quality."
Some shareholders at the meeting strongly criticized GM's leadership. Shareholder John Lauve compared GM officials to the officers of the Titanic, according to the Associated Press. "The Titanic sank because the directors ignored the warnings," he said.
Some industry observers said GM's plan may not be enough to turn the company around. Jobs will be cut mostly through attrition, and because of union contracts, workers at closed plants will receive most of their pay until a new contract goes into effect in 2007.
"It's going to save some money, but it's not nearly enough," said Peter G. Morici, a professor at the University of Maryland's Robert H. Smith School of Business. "In some industries there are golden parachutes for the guy at the top. Here, the golden parachutes are at the bottom. The best thing that could happen to you at 55 at GM is to be bought out. Then it's off to the golf course forever."
GM has closed or stopped production at several plants this year, including one in Baltimore in May. It also closed a Linden, N.J., plant in April and two plants in Lansing, Mich., last month.
Wagoner said the announced cuts and other moves this year will reduce the company's capacity to 5 million vehicles by the end of this year, down from 6 million in 2002.
The strategy carries some risk, because GM needs a high volume of sales to generate cash for its health and pension plan costs. But GM has made it clear that it wants to get smaller to become more efficient.
GM North America lost $1.3 billion in its first quarter this year, while the company's other divisions fared better. The company's bonds were downgraded to junk status last month.
GM shares closed yesterday at $30.73, up 31 cents. GM's 6.875 percent note due in 2011 rose 1.5 cents on the dollar, to 92 cents, as its yield fell to 8.55 percent.
"This probably represents some acceleration in their reduction in their workforce, but I think pretty much it's the logical outcome of all the other announcements that GM has been making," said Dana Johnson, chief economist for Detroit's Comerica Bank. "It's clear they've lost market share; it's clear the finance markets are putting pressure on them to improve performance."
GM's announcement amounts to the largest single job cut since January 2003, when Kmart announced plans to eliminate 37,000 jobs, according to John A. Challenger, chief executive of Challenger, Gray and Christmas, an outplacement firm.
Wagoner said yesterday that the company lost revenue because of its weaker retail sales, and that it did not achieve its "market share expectation." The company has been selling fewer high-profit SUVs and more lower-profit cars.
"Only new product can save GM," said Maryann N. Keller, an automotive consultant.