GM hopes $3 billion restructuring will give it that competitive edge

The Outlook

November 30, 1997|By Samantha Kappalman

General Motors Corp. disclosed in a regulatory filing this month that it expects to take up to $3 billion in charges to cover plant closings and other restructuring costs, a sum that could exceed some of the huge write-offs GM took in the early 1990s to pay for closing 23 plants.

While GM has yet to announce what closings it is planning, analysts and published reports have said it hopes to eliminate about 30,000 jobs over the next three years as workers retire, and parts plants that are up for sale represent 11,300 more workers.

Although GM has cut about 82,000 jobs since 1991, the automaker has about twice as many workers as Ford Motor Co. and about triple those of Chrysler Corp.

Are these new cuts enough to boost GM's competitiveness and profitability? Does it need to cut deeper? Are there other steps it should take?

David B. Healy

Auto Industry Analyst, Burnham Securities, Arizona

We are looking at a reduction in GM's work force of maybe 20,000 to 30,000, or roughly 10 percent, over the next two years -- virtually all by attrition. They may close some plants, but those affected will probably be offered positions in plants close by.

The only way they can improve the profit margins and cost is by shrinking the work force.

Ideally they'd like to have new models increase GM's market share. In an ideal world they would like to have new models so successful they have to hire new workers to build them, but that doesn't seem to happen in the real world.

They can't raise prices, so they can only hope to cut costs.

GM still has 30 to 40 percent more cars produced than Ford or Chrysler. The unions are fighting every step of the way trying to get out of component manufacturing because that loses money.

Sean McAlinden

Research scientist, Office for the Study of Automotive Transportation

They will cut the labor force 5 percent a year for the next five years. To get competitive, they have to do more than just cut jobs. They have to design products that people want to buy.

GM eliminated two models that didn't find markets; if they keep producing models like that it won't matter what cuts they make. A large part of its restructuring plan is to rationalize and make more market-relevant their product line.

There are two sides to productivity -- maintaining sales and products and having the right employment count.

They still have a 5 percentage point market share lead over Ford. They think the UAW has allowed the other two companies to operate in a leaner fashion, and they would like that chance as well.

There's nothing surprising in the numbers. The last 40,000 job cuts cost them 20 strikes and a 43 near-strikes along with $2 billion in earnings.

This is a more reasonable way to restructure because they expect cuts to happen in attrition.

If they do cut jobs at 5 percent a year, they might actually do some salary hiring. I don't think that's all they have to concentrate on. They have a minivan now, and that's nice. They have to compete more effectively against the Japanese with cars and trucks, and with Chrysler on minivans.

They are going to try hard in product development as well. The average age of a Cadillac buyer is 73, they have to bring that age down.

They are going to try and try to encourage younger buyers to consider those vehicles.

Dale Brickner

Professor emeritus, Michigan State University, School of Labor and Industrial Relations

What they are trying to do, and what they are probably succeeding in doing, is changing the distribution of fat in GM, and that's not a promising phrase. Internally, they produce more of their own components than other automakers, both domestic and foreign. So GM is trying to sell off those elements of its parts supply operation that have a noncompetitive profile.

They're doing this on a worldwide basis. I think what they are trying to do is focus on their core operations -- to design and build cars. The other thing that is probably going to happen is they are going to take Delphi and make them free-standing. Twenty percent or more of Delphi will be available on the stock market. This will let them concentrate on high-technology parts production. All this is aimed at making them much more competitive.

It's not a fair comparison to compare their number of workers with Ford and Chrysler because they don't produce the same number of cars. GM has a 31.6 percent market share of cars and trucks, Ford is closer to 24 percent of the same market, and Chrysler is lucky if they are closer to 15 or 16 percent of the market. What you have to look at is labor content per vehicle. All of the others have less labor content than GM; this is in part because of the labor-to-parts ratio. Many of these are design and engineering issues.

GM is getting to a point where they are designing cars that go together easy. This means less labor coming off the production line.

Pub Date: 11/30/97

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