Los Angeles Times, June 27, 2006, Tuesday

Los Angeles Times

35,000 GM Employees Accept BuyoutThe automaker says it will save billions by reducing its healthcare and pension costs.
By John O'Dell, Times Staff Writer
June 27, 2006

In the largest employee buyout in U.S. corporate history, General Motors Corp. said Monday that nearly a third of its 113,000 manufacturing workers in the U.S. have agreed to quit or retire this year in return for cash payments of as much as $140,000 each.
The program would cost GM nearly $4 billion but is expected to save money in the long run by reducing the company's healthcare and pension costs as it struggles to reverse huge losses and adjust to its diminished share of the U.S. auto market.Rick Wagoner, GM's chairman and chief executive, said that shedding 35,000 unionized workers would increase the company's cost reductions by $1 billion a year. All of the job cuts would be effective by the end of 2006, he said.
The numbers announced Monday are preliminary because employees who waited for Friday's deadline to sign up can change their minds until June 30.
Wagoner said that 30,400 workers chose to take an early retirement incentive, meaning that GM gave many a cash payment and would retain liability for their pensions and healthcare. An additional 4,600 workers took buyouts, severing all ties with GM in return for cash payments of $70,000 to $140,000.
The GM workers are represented by the United Auto Workers and the International Union of Electrical Workers-Communication Workers of America.
Also Monday, Delphi Corp., GM's largest parts supplier and a former subsidiary, said that 12,600 of its unionized manufacturing workers in the U.S. had applied for a GM-funded early retirement program. A separate buyout offer to 14,000 other Delphi workers expires late next month.
Delphi filed for Chapter 11 bankruptcy protection in October 2005 and has said it intends to close 21 of its 29 U.S. factories and slash about 24,000 jobs from its manufacturing payroll — a 75% reduction — as it struggles to stay in business.
GM has agreed to cover the costs of the Delphi buyouts and early retirements under a cost-sharing plan negotiated when it spun off the parts maker in 1999.
Wagoner said he would be unable to disclose the total financial impact of the GM and Delphi "accelerated attrition" plans until the automaker reported its second-quarter results next month.
He earlier had estimated that GM's massive restructuring, a program instituted last year as the company tallied mounting losses from its North American automotive operation, would shave $7 billion from annual operating costs. The employee buyouts bump that to at least $8 billion, he said Monday.
GM lost $10.6 billion last year and has seen its share of the U.S. market shrink steadily for several decades in the face of fierce competition from foreign automakers, particularly Japan's Toyota Motor Corp.
Wagoner, who said GM was "coming very readily on the road back" to profitability, announced a turnaround plan late last year that included closing 12 U.S. and Canadian plants and cutting manufacturing employment by at least 30,000 jobs by 2008. The buyout and early retirement results announced Monday put the company two years ahead of schedule on the job cuts, Wagoner said.
But GM still has a long way to go.
"This doesn't push them over the hump. That will require the return of consistent repeat customers," said David L. Gregory, a labor law professor at St. John's University in New York and a former GM assembly worker.
And because most of GM's departing workers are retiring, the cost savings are merely accelerated "since most of them would have retired anyway within the next few years," said Ken Elias, a partner at Maryann Keller & Associates, an independent auto industry consulting firm.
He said that GM's savings were likely to be eroded by the massive incentive program he expects the carmaker to launch this summer to keep pace with rivals DaimlerChrysler and Ford Motor Co.
"The trick will be to stabilize market share and sell lots of trucks and sports utility vehicles," Elias said. But, he added, "I think that big gas guzzlers will be a tough sell."

On the plus side, the high percentage of workers taking the buyouts and retirement incentives "means they are taking GM's efforts seriously and recognize there has to be major retrenchment in U.S. auto industry," said Jay Waks, head of the labor law and employment practice at New York law firm Kaye Scholer.

"It takes some of the pressure off" for when GM begins negotiating a new labor agreement next year that is likely to hinge on major concessions by the unions, Waks said.

GM announced the buyout numbers after the stock market closed. Its shares rose 34 cents to $28.09 in after-hours trading.