GM loses $1 billion, will cut 25,000 jobs
Company plans to boost efficiency and quality, build fewer vehicles
The announcement, made by the company's chief executive at its annual meeting in Wilmington, Del., was the latest blow to the corporate giant. In recent months, GM closed plants in Baltimore and New Jersey, had its unsecured debt rated as "junk" and watched its stock fall to a decade-low before recovering some of late.
Ford Motor Co. to the former Bethlehem Steel Corp., GM has struggled to compete with the efficiency and lower costs of foreign competitors. Japanese and Korean carmakers have continued to produce new models that have proved more popular with U.S. consumers.
News of the layoffs, reportedly the largest single announced job cut in corporate America in more than two years, helped boost GM shares by 31 cents, or 1 percent, to close yesterday at $30.73 on the New York Stock Exchange.
The cuts will be phased in over the next three years, and include the 1,100 jobs lost in Baltimore last month. The company employs 321,000 people, with about 150,000 in the United States.
The company also announced plans to improve efficiency and quality at its plants, revamp marketing, and cut capacity to 5 million cars and trucks - down from 6 million in 2002 - to cut overhead. The moves will save about $2.5 billion annually, the company said.
"We've got a clear focus on the necessary steps to get GM North America back to profitability as soon as possible, and we are addressing them with intense focus and a great sense of urgency," said Rick Wagoner, the company's chairman and chief executive officer.
The world's largest maker of cars and trucks, GM still builds one out of every four cars and trucks sold in the United States, with brands that include Chevrolet, Saturn, Cadillac and Saab. But that is down from one of every two vehicles sold in the country as recently as the 1970s.
While GM sales are growing in China and other foreign markets, advertising and incentive offers have failed to stem the decline in the American market to imports such as Toyota Motor Corp., Nissan Motor Co. Ltd. and Hyundai Motor.
Wagoner said GM will refocus on its North American unit, which lost $1.3 billion in the first quarter. The loss for the entire company for the quarter was $1.1 billion.
John A. Challenger, chief executive of Challenger, Gray & Christmas Inc., a global outplacement firm, said GM's planned cut of 25,000 jobs is the largest since January 2003, when retailer Kmart Corp. said it would eliminate 37,000.
"This may not be the last major job-cut announcement we see this year as other companies, including the other American automakers, struggle to make a profit amid escalating health-care costs, not to mention the cost of providing ongoing health benefits to the growing ranks of retirees," Challenger said.
"Unless companies can reduce these expenditures, they will have no choice but to make tough decisions such as the one just announced by GM's chief executive."
However, some analysts say the company may have come too late to its sense of urgency. They expressed doubt that the proposed changes would save the company from future layoffs, or even bankruptcy reorganization.
Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business, said there are examples of large American companies that "reinvented themselves" to keep ahead of changing times and markets, such as International Business Machines Corp. and General Electric Co.
But analysts say GM could end up looking more like Bethlehem Steel, which failed to adjust to global competition and was carved up in bankruptcy. GM has been slow to develop "hybrid" vehicles and other fuel-efficient and fashionable models - a specialty of Japanese manufacturers. Sales of GM's gas-guzzling sport utility vehicles and Hummers, meanwhile, have been hurt by soaring fuel prices.
"These problems have their origins in outdated management practices, high compensation for executives and blue-collar workers, which well exceed health care in their scope, and a culture of entitlement," Morici said. "Wagoner has announced he will cut 25,000 workers and close plants, rev up marketing, focus on manufacturing efficiency, and zero in on health-care costs. The capacity cuts are too little too late, and the rest is really nothing new."
It is also unclear how GM will achieve cuts in health-care costs for workers and retirees - a bill that amounts to $1,500 for each car it makes in the United States, the company says.
The United Auto Workers union, which represents more than 100,000 GM workers, has a contract in force until 2007 and has declined to reopen negotiations.
GM has not said which plants will close, although the Midwest is bracing for the impact. The job cuts will have far-reaching effects for communities dependent on the plants, as well as companies that supply them or rely on workers' paychecks.
Bill Barry, director of labor studies at the Community College of Baltimore County, called layoffs the "easy way out" of bad performance numbers.
Layoffs "are like the nuclear option," Barry said. "I'm not sure it's ever proven to be the best answer. It's a short-term answer."
Increasingly, he said, the relatively low-skilled workers cannot find new jobs that pay as well and offer health insurance. Many, including hundreds of former workers at the GM plant in Baltimore, are not old enough to retire and qualify for Medicare.
In Baltimore, where the company closed a 70-year-old van plant last month, GM's financial problems could complicate plans to redevelop the property.
State economic development officials are trying to persuade the company to locate an automotive research facility in Maryland to replace jobs lost. But the proposal is a tough sell, given the financial climate at GM headquarters in Detroit.
"The financial problems of the corporation make it hard to invest money right now," said Aris Melissaratos, Maryland's secretary of business and economic development.
Sun staff writer Paul Adams contributed to this article.