The automaker's moves are expected to save the company $2.5 billion a year.
General Motors Corp. announced Tuesday that it will eliminate 25,000 jobs by 2008 and close an unspecified number of plants to trim costs and reinvigorate its North American auto business.
GM Chairman and Chief Executive G. Richard Wagoner Jr. said at the company's shareholders meeting Tuesday in Wilmington, Del., that the closings and job cuts should save about $2.5 billion a year. GM employs 110,000 hourly workers in the United States.
"The most challenging and important operating issue we face is getting GM North America, our biggest business unit, turned around and back into a profitable position," Wagoner said.
GM, once a towering icon of U.S. industry, has stumbled badly in recent years. Sales -- particularly of its once-hot sport-utility vehicles -- have plummeted, and the company is weighed down by rising health care and pension costs. Meanwhile, its foreign rivals continue expanding their share of the North American market with more efficient factories, lower health care and pension costs, and fewer unionized employees.
Some industry observers believe the job cuts and plant closings will do little to perk up GM's business. The jobs will be cut mostly through attrition, and because of union contracts, workers at closed plants will receive most of their pay until a new contract goes into effect in 2007.
"It's going to save some money, but it's not nearly enough," said Peter Morici, a professor at the University of Maryland's Robert Smith School of Business. "In some industries there are golden parachutes for the guy at the top. Here, the golden parachutes are at the bottom. The best thing that could happen to you at 55 at GM is to be bought out. Then it's off to the golf course forever." GM has closed or stopped production at several plants this year, including one in Baltimore in May. It also closed a Linden, N.J., plant in April and two plants in Lansing, Mich., last month.
Wagoner said the announced cuts and other moves this year will reduce the company's capacity from 6 million units in 2002 to 5 million by the end of this year.
The strategy carries some risk, because GM needs a high sales volume to generate cash for its health and pension plan costs. Cutting production could make it harder to meet those obligations, but GM has made it clear that it wants to get smaller to become more efficient.
"This probably represents some acceleration in their reduction in their work force, but I think pretty much, it's the logical outcome of all the other announcements that GM has been making," said Dana Johnson, chief economist for Detroit's Comerica Bank. "It's clear they've lost market share; it's clear the finance markets are putting pressure on them to improve performance."
GM North America lost $1.3 billion in its first quarter this year, while the company's other divisions fared better. The company's bonds were downgraded to junk status last month.
Major job cuts
GM's announcement amounts to the largest single job cut since January 2003, when Kmart announced plans to eliminate 37,000 jobs, according to John Challenger, chief executive of Challenger, Gray and Christmas, an outplacement firm.
"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 in a written statement.
Wagoner said Tuesday that the company lost revenue because of its weaker retail sales, and it did not achieve its "market share expectation." The company has been selling fewer high-profit SUVs and more lower-profit cars.
"Only new product can save GM," automotive consultant Maryann Keller said. "This is a company that has gone through cost-cutting measures for the last 30 years. But at end of day, unless you can come up with something people want to buy, it doesn't mean anything."