GM Sees More Savings Ahead in Employment Costs

General Motors Corp. chairman and CEO Rick Wagoner emphasized the automaker is making progress in its turnaround effort in a conference call with automotive analysts recently. “We’re delivering on the turnaround plan we established in 2005, and have exceeded expectations on virtually all counts,” Wagoner said. “We’ve set a strong foundation that we can truly build on. We’re encouraged by our progress in revitalizing our product portfolio, strengthening our brands, reducing structural cost and growing the business globally. At the same time, it’s clear that we’ll face some challenging headwinds in 2008.” Wagoner said the corporation must continue to pursue its effort to introduce new cars and trucks, and new propulsion technologies, in order to succeed in its turnaround effort. GM has made progress in its global target of reducing automotive “structural costs” to a benchmark of 25% of revenue by 2010, according to Wagoner. He said the corporation’s structural costs are below 30%, compared to 34% in 2005, “despite weaker than expected U.S. industry volumes.” Now, GM says it expects structural costs as a percentage of revenue to decline beyond 2010, and set a new target of 23% by 2012. With respect to its current operations, Wagoner indicated GM has lowered its annual North American “structural costs” by $9 billion since 2005. The corporation said these savings have been driven by its 2005 hourly health-care agreement, revisions to U.S. salaried health-care and pension programs, capacity reductions, and the special-attrition programs GM has introduced for its 34,000 hourly workers. GM says it will continue to reduce U.S. labor costs by about $5 billion by 2011. Recently, GM extended its special-attrition offer to workers at five operations it intends to close, including the GM Powertrain casting plant at Massena, NY. Those offers will begin to go into effect in March. In February, the special attrition program will be extended to workers at all other plants, and those workers who participate will begin leaving GM in April. Overall, GM states that 46,000 employees are eligible for the special attrition package. The corporation is targeting labor-cost savings of $5 billion by 2011. In addition to the special-attrition program, it expects a “significant portion” of those savings to come thanks to the 2007 labor agreement with the United Autoworkers union, which allows for transferring employee health-care obligations to a new, independent Voluntary Employees Beneficiary Assn. (VEBA). GM states that by 2010 its U.S. hourly and salaried pension and healthcare costs will be approximately $1 billion/year, reduced from an average of $7 billion/year over the past 15 years.