General Motors Corp., awash in $10 billion in red ink, took its first step back from the brink of bankruptcy yesterday when it offered buyouts to its entire hourly work force of 113,000.
The bold move, which includes retirement offers for an additional 13,000 workers at bankrupt Delphi Corp., GM's biggest supplier, is the latest retreat by the world's largest automaker.
GM employed nearly 500,000 union workers in the United States 20 years ago, when its market share was 40 percent, but its share has fallen to 25 percent this year.
So, this is perhaps the company's biggest acknowledgement that it is no longer the force it once was in the auto industry. Toyota Motor Corp. sits on GM's rear bumper, ready to overtake the Detroit-based automaker in worldwide sales as early as this year.
The buyouts are being offered less than two months after GM announced it was investing $118 million in its Allison Transmission plant in northeastern Baltimore County to manufacture hybrid light-truck transmissions. On Feb. 1, GM Chairman Rick Wagoner went to the facility in White Marsh to make the announcement and said the expansion would add up to 87 jobs. The plant currently employs about 440 people.
Those expansion plans are still on track, but GM risks losing skilled workers there to the buyouts.
GM spokeswoman Katie McBride said yesterday that there is language in the agreement between the company and the union which allows them to address a possible shortage of workers. She declined to explain what the options might be.
Calls to United Auto Workers Local 239, which represents hourly workers at the White Marsh plant, were not returned yesterday.
The move also signals that the days of guaranteed, high-paying auto jobs that helped build the Midwest's rock-solid middle class over several decades is nearing a tumultuous end. Thousands of such jobs will be replaced with new ones that pay a fraction of current wages, as GM and other domestic automakers adjust to smaller roles in a new global economy.
Attrition too slow
"[GM] has too many plants and too many people, both white and blue collar," said Burnham Securities analyst David Healy. "The attrition of its labor force has been running from 4 to 6 percent a year, and that's not enough.
"Its overhead structure supports a company that has a 30 percent share of the market when GM has a 25 percent share and nearly 25 percent of its [manufacturing] capacity is not working," Healy said.
That's why GM is enticing UAW members to retire with buyouts of $35,000 to $140,000, depending on the employee's age and length of service.
After posting a $10.6 billion loss last year, the bulk of it in North America, GM is racing to trim at least 30,000 union jobs by 2008 in a downsizing that includes closing nine plants and eliminating about 1 million units of idle production capacity.
The situation is made more tenuous by the Delphi bankruptcy, a move that still has the potential to push GM itself into bankruptcy.
Delphi, which was once part of GM, warned yesterday that it still plans to file motions in bankruptcy court March 31 to void its union contracts if workers don't accept lower wages and benefits. Talks continued yesterday between Delphi and its unions.
UAW members at Delphi make $65 an hour in wages and benefits, the same as GM workers. Delphi has said it wants to slash that to less than $25.
The unions have threatened to strike if Delphi files to void their contracts. A strike could halt GM's production within days because it depends on Delphi for critical parts for its North American-built models. A strike that lasts a few weeks could spell doom for GM.
This makes acceptance of buyouts all the more urgent.
About 36,000 union workers at GM have 30 years of service and are eligible to retire. They would receive a $35,000 incentive to do so. About 27,000 more would qualify for full pension benefits under the early retirement offers, so GM could easily eliminate the 30,000 jobs it wants to cut.
The maximum buyout of $140,000 would go to workers with more than 10 years' experience who agree to give up all retirement benefits. Such legacy costs have been another burr under the automaker's saddle.
GM wouldn't estimate how many workers might take the deal. It recently jettisoned its plan to eliminate the 30,000 jobs mainly through attrition because it realized it didn't have time for that during weeks of complex negotiations with the UAW and Delphi which resulted in yesterday's deal.
GM officials will visit each plant and explain the different buyout options to eligible workers, McBride said. She did not know when they would go to White Marsh. Workers will have 45 days from the date of the visit to accept a buyout, McBride said, and those who sign up will have an additional seven days to change their minds.
Buyouts at the White Marsh plant could be good news to hundreds of displaced GM workers in the Baltimore area. In May 2005, GM shut its van assembly plant in southeast Baltimore and laid off 1,100 workers. As of last month, about half were still looking for jobs. They have first dibs on new jobs at Allison Transmission, thanks to an agreement between the union and the company.
But with rising health care costs and a number of companies eliminating benefits for retirees, workers might not be eager to take a buyout, said Bill Barry, director of labor studies at the Community College of Baltimore County.
"They look up the street at Sparrows Point and see an industry that promised a lifetime of benefits and a pension and didn't follow through," Barry said. "They think, 'If it happened to them, it could happen to me.'"
As part of yesterday's deal, the 13,000 UAW workers at Delphi will be offered $35,000 retirement buyouts, paid by GM. An additional 5,000 will be allowed to transfer to jobs at GM, which will assume their retirement benefits. Those Delphi workers went to Delphi when GM spun off the supplier in 1999.
Analysts estimated that the buyouts and pension liabilities from Delphi would cost GM $1.8 billion to $2 billion. GM previously said it would spend about $1.7 billion on eliminating jobs and closing plants, though the amount could increase as workers agree to retire.
David Cole, chairman of the Center for Automotive Research, said the buyouts are GM's only route to lowering costs.
"The cost of a full-time worker is about $130,000 a year, but when you get them to take early retirement the cost falls to about $50,000," Cole said. "When the worker actually reaches retirement age [and collects Social Security], it falls to about $20,000. So there is a lot of payback to GM here."
Getting GM workers to retire also will open positions at GM for about 8,500 Delphi and GM workers in the "jobs bank," where union members on permanent layoff get paid for not working or for doing community service. Delphi, which spent $400 million last year on the jobs bank, has said it will challenge it in bankruptcy court.
The agreement barely moved the price of GM stock yesterday, which gained 1 cent to $22.01 on the New York Stock Exchange.
GM's shares had risen 5 percent Tuesday in anticipation of a deal.
Merrill Lynch analyst John Murphy pointed out that "the risk of a strike has not been eliminated" and noted that GM still faces several major issues, including trying to sell a majority interest in its GMAC finance unit and the prospect of continued operating losses in North America this year. GM lost nearly $5.9 billion in North America last year.
Cole, however, thinks the deal "has defused the potential for a strike. No one wanted one. It was an available tool, but not a viable option."
"The settlement provides a roadmap on how to resolve two major uncertainties, the relationship between Delphi and GM and whether GM would be able to downsize its work force," Cole said.
Murphy estimated that GM will spend "well in excess of $1 billion" on buyouts for its workers.
GM restated its 2005 results last week, increasing its loss by $2 billion in part to cover anticipated costs from the Delphi agreement. The automaker recently raised $2 billion by selling its stake in Suzuki Motor Corp., enough to cover Delphi costs.
Rick Popely and Jim Mateja write for the Chicago Tribune. Sun reporter Allison Connolly contributed to this article.
Highlights of buyout
Key points of the buyouts and retirement incentives that General Motors Corp. and Delphi Corp. are offering to an eligible 113,000 hourly GM workers and 13,000 hourly Delphi workers:
Employees with 10 or more years of service can get a one-time payment of $140,000.
Employees with less than 10 years would get $70,000.
Anyone taking this option gives up all post-retirement benefits, including health care, but vested pension benefits would not be affected.
RETIREMENT FROM GM OR DELPHI:
Anyone taking a normal or early retirement gets $35,000, retroactive to Oct. 1, 2005. Normally, employees can retire at 65 years of age or 30 years of service.
Employees who are at least 50 years old and have worked 10 years or more can retire with full benefits.
Employees with at least 27 years of service but less than 30 can take a special "pre-retirement" option, under which they would receive slightly less than their full wages until they reach 30 years, at which point they can retire with their full benefits.
RETURNING TO GM:
GM will take back 5,000 Delphi employees.
GM said that once employees are notified of their options, they will be given 45 days to decide, and seven more days to change their minds. Delphi said similar deadlines are likely for its workers.
GM said it expects retirements to begin June 1. Delphi said it is still working with the UAW on the time frame.
The target date for GM to take back 5,000 Delphi employees is Sept. 1, 2007.
[UAW-GM-Delphi Special Attrition Program Framework Agreement; Delphi, GM spokesmen; Associated Press]