General Motors Corp. took the first major steps yesterday to arrest its recent decline and turn around the fortunes of the world's largest automaker.
Chief executive G. Richard Wagoner Jr. said GM and the United Auto Workers reached an agreement to pare health care benefits for its workers. He also announced that GM plans to sell a controlling stake in its lucrative GMAC finance subsidiary, possibly bringing in tens of billions of dollars to the ailing company.
The moves underscore the dire condition of the U.S. auto industry and point to a new reality that is forcing workers and management to cooperate in finding quick solutions. U.S. carmakers have watched consumers move away from gas-guzzling sport-utility vehicles in favor of more efficient models -- a trend that has become more pronounced as gas prices have soared.
The health care agreement will save GM $1 billion in cash annually. It came as GM reported that its North American division lost $1.6 billion in the third quarter and that the company's overall loss for the year expanded to about $3 billion.
Wagoner also said yesterday GM is cutting $4 billion in costs by shuttering factories, slashing 25,000 manufacturing jobs, freezing bonuses, and cutting health benefits for nonunion workers and retirees. The GM of the future will be a smaller, leaner company designed to better compete with its more nimble foreign rivals.
Staggered by slow sales of its SUVs, GM said it is stepping up development of more fuel-efficient technology and the rollout of hybrid-powered cars. The automaker has long relied on the popularity -- and profitability -- of its trucks and SUVs, but the run-up in gas prices has turned the strategy into a liability. Wagoner told GM employees yesterday that the company had "too much reliance" on trucks and SUVs.
GM once dominated the U.S. auto industry, accounting for half of the new cars and trucks sold in the United States, but its market share has steadily slid over the past 30 years in the face of aggressive foreign competition. Ford Motor Co. and Chrysler, now a division of DaimlerChrysler AG, also have yielded part of the market. Japanese, Korean and European rivals have attacked with new vehicles in every major segment of the market. Meanwhile, costs for materials, including the price of steel and oil-based products, have shot up.
The Big Three automakers have closed factories and shed parts of their operations and made gains in vehicle quality. But company executives have complained about their inability to slash unionized labor costs. Wagoner yesterday characterized wage and health care costs for unionized workers and retirees as GM's "single line item of greatest cost uncompetitiveness."
The costs include some of the richest compensation plans of any manufacturing workers in the world. The plans were won through decades of collective bargaining agreements between the Big Three automakers and the UAW. Wagoner has been particularly forceful in pushing the union for concessions to bring down GM's health care bill, which is expected to reach $5.6 billion this year.
GM said the new agreement will save money by cutting health care costs for current UAW workers and retirees. The plans would reduce GM's retiree health care liabilities by about $15 billion, or 25 percent of its total liabilities. In addition, GM said the agreement will slash pretax health care expenses by $3 billion. Few details were available, so the impact on individual workers was unclear. The agreement needs to be ratified by the UAW membership. The deal between GM and the union could be replicated at Ford and Chrysler. Ford said yesterday it was in talks with the UAW on ways to reduce health care costs.
In a statement, UAW President Ronald A. Gettelfinger and Richard Shoemaker, the UAW vice president who oversees GM affairs, said that the agreement was in the best interests of the UAW membership and that it was a result of the union's in-depth analysis of GM's financial situation.
For labor, amending the union contract, which will not expire until 2007, was not easy. Labor experts say the agreement marks the most significant deal since the UAW reopened its contracts with GM and Ford before they expired because of a deteriorating U.S. economy in 1982. Those negotiations resulted in major union concessions on vacation time, cost of living and job security issues.
The deal represents labor's evolving role as a "partner and collaborator rather than an antagonist," according to David E. Cole, chairman of the Center for Automotive Research. He said the UAW recognized the need to make concessions because of the competition in the marketplace. "There's been a sea change," he said. "It's a coming out party for collaboration."
The dealmaking between GM and the UAW stands in stark contrast to the rancorous relationship between the auto-parts supplier Delphi Corp. and the union. Delphi filed for Chapter 11 bankruptcy protection earlier this month after demands for concessions went unanswered.
As part of its turnaround, GM has cut 30 percent of its salaried workforce in the past five years. Since 2003, the company has closed factories that assemble about 1 million vehicles, and it is reviewing a new list of factories to close, company officials said yesterday.
Analysts welcomed the news that GM had won a deal with the union to trim labor costs. Shares of GM rose 7.5 percent on the New York Stock Exchange yesterday. The analysts also said the deal represented a win for Wagoner, who has struggled to put a turnaround strategy in place.
Wagoner took control of North American operations in the spring. His success in nailing down an agreement relieves some pressure on him from the GM board, which was pushing for action to rein in labor costs.
Staff writer Ben White contributed to this report.