Piece by piece, General Motors Corp. Chairman and Chief Executive Rick Wagoner says the world’s largest automaker is moving closer to a turnaround of its North American automaking business.
On Tuesday, GM announced plans to rein in white-collar pension and health care expenses, slash the dividend and trim executive salaries — moves some analysts say suggest it might seek benefit cuts from union workers.
In November, GM’s hourly workers agreed to a proposal that would increase the amount retirees and active workers must pay for their health care in a deal to cut GM’s annual health care expenses. Later that month, GM announced plans to shed 30,000 hourly jobs and close 12 facilities by 2008 as part of an attempt to bring its production capacity back in line with the demand for its cars and trucks.
“We are confronting a dramatic change in our industry and in the global competitive environment, and that requires us to look for additional ways to reduce financial risk and improve our competitiveness for the long term,” Wagoner said.
Now, he says, the company continues to look for ways to cut costs as it faces two more challenges: an attempt to shed a majority stake in financing arm General Motors Acceptance Corp. and talks on the future of Delphi Corp., GM’s former parts division, which filed for bankruptcy last fall.
“Those are certainly two big issues,” Wagoner told reporters after a press conference at GM’s headquarters in Detroit. “They’re obviously big and have a chance to impact our earnings.”
Wagoner said the company had nothing to announce Tuesday regarding either. But the United Auto Workers said Tuesday that little progress had been made in negotiations on the restructuring of Delphi, and Moody’s Investors Service said GM may have encountered difficulty in selling a stake in GMAC.
GM has been under pressure from one of its largest shareholders, billionaire investor Kirk Kerkorian, to take more aggressive steps to revive profitability.
The automaker, which is suffering from declining U.S. market share at the hands of its Asian competitors, lost $8.6 billion in 2005 amid high health, pension, labor and materials costs. GM is counting on its new lineup of SUVs to boost sales this year, and is trying to wean itself from the use of costly, confusing incentives.
The cut in its dividend alone will reduce GM’s yearly cash payout by about $565 million. Cash savings from the health care changes will grow to about $200 million within five years, GM said, and then continue to increase after that.
Analysts said Tuesday’s cuts could help provide leverage for GM in contract talks next year with the UAW. And it could help GM in talks with the union on a possible bailout for hourly workers of Delphi.
“The dividend cut ... is only a modest step,” credit ratings agency Fitch Ratings said in a statement. “The cuts in the dividend and in management compensation could, however, facilitate conversations with the UAW.”
Shares of GM closed down 53 cents, or 2.3 percent, at $22.81 in regular trading on the New York Stock Exchange.
The announcement came a day after Jerome York, a top aide to Kerkorian, was elected to GM’s board. It mirrored some of the measures York previously proposed — including cutting the yearly dividend to $1 a share and cutting pay for Wagoner and his senior leadership team — to help invigorate GM’s turnaround efforts.
York is a consultant to Tracinda Corp., Kerkorian’s private equity firm, which owns 9.9 percent of GM’s common stock and is GM’s third-largest shareholder.
Wagoner said the company has long been working on issues such as health care and pension costs. And he said GM didn’t have plans to release profitability goals, cut all white-collar salaries or drop brands like Saab or Hummer, which were among York’s proposals.
Asked Tuesday whether GM’s move might lead to future concessions by the union, however, UAW President Ron Gettelfinger said: “Absolutely not. We’ve done our share. We’re ready to move forward.”
Gettelfinger said the union had sought reductions in executive compensation across the board during its discussions about reducing health care costs.
“We said it had to be all in, so it just appears that that’s what they’ve done,” said Gettelfinger, who was attending a conference in Washington.
Most of the plant closures and job cuts announced by GM in November must be negotiated with the UAW in 2007, when the automaker and the union write a new contract. The UAW already agreed last year to require hourly workers and retirees at GM and Ford Motor Co. to pay more for their health care.
Wagoner said GM is working with the union to make the company more competitive, but said Tuesday’s announcement was not intended to send a message to the UAW.
As part of Tuesday’s changes, Wagoner will take a 50 percent pay cut. That would reduce his salary to about $1.1 million, based on GM figures for his 2004 compensation. Details on his 2005 compensation — including possible stock options — won’t be released until this spring, but GM said he won’t get a bonus.
Vice Chairmen John Devine, Bob Lutz and Fritz Henderson will see their salaries reduced by 30 percent, and Executive Vice President and General Counsel Thomas Gottschalk will take a 10 percent cut. And there will be no annual or long-term cash bonuses paid to GM’s global executives for 2005 performance.
The board also reduced its own compensation by 50 percent to $100,000 a year, the company said. Non-employee directors will forgo cash compensation but will keep some of the stock portion of their annual retainer.