Detroit General Motors Corp., pounded by declining sales and rising health care costs, said Monday it would cut more than a quarter of its North American manufacturing jobs and close 12 facilities by 2008. The United Auto Workers called the plan "devastating" and warned it would make negotiations more difficult, but some Wall Street analysts said GM's actions may not go far enough.
To get production in line with demand, GM will cut 30,000 jobs, which represent 17 percent of GM's North American hourly and salaried work force of 173,000, and will close nine assembly, stamping and powertrain plants and three parts facilities. GM's U.S. market share fell to 26.2 percent in the first 10 months of this year compared with 33 percent a decade ago, the result of increasing competition from Asian rivals. GM lost almost $4 billion in the first nine months of this year.
"The decisions we are announcing today were very difficult to reach because of their impact on our employees and the communities where we live and work," GM Chairman and Chief Executive Rick Wagoner said. "But these actions are necessary for GM to get its costs in line with our major global competitors."
GM isn't the only U.S. automaker cutting costs. Last week, Ford Motor Co. told employees it plans to eliminate about 4,000 white-collar jobs in North America early next year as part of a restructuring plan.
GM said the plant closings were part of a plan to shave $7 billion off its $42 billion annual bill for operations by the end of next year. That includes a $3 billion cut in health care costs, $1.5 billion in manufacturing cuts and $1 billion in savings on materials.
The company's shares fell 47 cents, or 2 percent, to close $23.58 in trading on the New York Stock Exchange. They have traded in a 52-week range of $20.60 to $40.82.
Standard & Poor's Ratings Services, which lowered GM's debt to "junk" status earlier this year, said the company remained on credit watch. S&P said the staff cuts were substantial but may not be adequate considering GM's problems, including a possible strike at Delphi Corp., its largest supplier; an ongoing federal investigation into accounting errors; and an uncertain outlook for its new lineup of full-size sport utility vehicles, which may fall victim to consumer concerns about gas prices.
Goldman Sachs analyst Robert Barry said those headwinds could offset any gains from the cuts.
"We are not confident the restructuring addresses the core issue that GM brings too much supply to the North American market," Barry said in a note to investors.
GM has 77 facilities in North America, including 30 assembly plants, 23 stamping plants and 24 engine and transmission plants, spokesman Stefan Weinmann said.
Wagoner said the job cuts would come primarily through attrition and early-retirement packages to mitigate the impact on workers. GM has an annual attrition rate of about 7 percent, Wagoner said. The average hourly worker is about 49 years old, he said.
Some workers who don't choose to retire could go into jobs banks, which pay laid-off workers their salary and benefits. Wagoner said details about layoffs and early-retirement packages still need to be worked out with the UAW, the Canadian Auto Workers and other unions.
Earlier this month, GM's U.S. hourly workers agreed to pay more for their health care benefits, a concession UAW leaders said was necessary because of GM's financial status. But the union responded angrily to GM's latest announcement, saying the company needs to design attractive and exciting vehicles instead of trying to shrink its way to prosperity.
"Workers have no control over GM's capital investment, product development, design, marketing and advertising decisions. But, unfortunately, it is workers, their families and our communities that are being forced to suffer because of the failures of others," UAW President Ron Gettelfinger and Vice President Richard Shoemaker said in a joint statement.
The plan will cut the number of vehicles GM is able to build in North America by about 1 million a year by the end of 2008. GM will be able to build about 4.2 million vehicles a year in North America, down 30 percent from 2002. Wagoner said GM's plants are increasingly flexible and will be able to add capacity to meet market demands.
General Motors Corp. said Monday it would close nine plants and three parts facilities in North America. Those scheduled for closure are in: Oklahoma City, Okla.; Lansing, Mich.; Spring Hill, Tenn.; Oshawa, Ontario; Doraville, Ga.; Portland, Ore.; St. Louis; Pittsburgh, Pa.; Ypsilanti, Mich.; St. Catharines, Ontario; and Flint, Mich. GM's Fairfax plant in Kansas City, Kan., was not included in the announcement.
The decrease could help Toyota Motor Corp. surpass GM in worldwide production, although it's unclear if that could happen, because GM is growing rapidly in Asia, said Greg Gardner of Harbour Consulting, a manufacturing consulting firm. Toyota expects to produce 8.1 million vehicles this year, while GM expects to produce 9 million, he said.
Wagoner said the plan would get GM's North American plants running at 100 percent of their capacity rather than 85 percent, as they do now. In 2004, Toyota had the most productive plants in North America, with six plants that ran at 107 percent of their capacity, according to the Harbour Report, which measures manufacturing productivity.
The plants that are closing make a variety of vehicles. GM didn't target plants where it makes full-size trucks and SUVs, products it's counting on for a comeback. Instead, it's significantly reducing its capacity to produce minivans like the Buick Terraza, mid-size SUVs like the GMC Envoy and mid-size sedans like the Buick LaCrosse. It's also ending production at the Lansing plant that produces the slow-selling Chevrolet SSR, a small pickup.
Wagoner said GM had no plans to kill off any of its eight brands. He added that plants were chosen for closure based on overcapacity of their products in the market, the life span of various products and the state of the facilities.
"Frankly, we've done it in the fairest and most cost-effective way we could do it," Wagoner said.
GM said assembly plants will close in Oklahoma City, Lansing, Mich., Doraville, Ga., and Ontario, Canada. One production line will close and one will remain open in Spring Hill, Tenn. The company is removing shifts at plants in Moraine, Ohio, and Ontario.
An engine facility in Flint, Mich., will close, along with a separate powertrain facility in Ontario and metal centers in Lansing and Pittsburgh.
Wagoner said GM also will close three service and parts operations facilities. They are in Ypsilanti, Mich., and Portland, Ore. One other site will to be announced later.
GM has been crippled by high labor, pension, health care and materials costs, as well as by sagging demand for sport utility vehicles, its longtime cash cow. It could be facing a strike at Delphi, which filed for bankruptcy protection last month. GM spun off Delphi in 1999 and may be liable for billions in pension costs for Delphi retirees.
Last week, after the automaker's shares fell to their lowest level since 1987, Wagoner sent an e-mail to employees saying the company has a turnaround strategy in place and has no plans to file for bankruptcy. Wagoner repeated that Monday, and added that he continues to have the board's support and hasn't considered stepping down.
"I have given no thought to anything but turning the business around," Wagoner said. "I wasn't brought up to run and hide when things get tough."
Wagoner said the job cuts are part of a larger restructuring plan that includes the possible sale of a controlling interest in General Motors Acceptance Corp., GM's profitable finance arm. Wagoner said bankruptcy talk hasn't affected those plans and the company has had conversations with some possible buyers.