msnbc.com news services
updated 3/21/2005 5:52:07 PM ET 2005-03-21T22:52:07

General Motors Corp., which rocked investors last week by slashing its 2005 income outlook, plans deep cuts in its white-collar work force, according to a newspaper report.

The company also said Monday it has canceled plans to build some rear-wheel drive cars in North America beginning in 2008, a move that industry analysts said could further erode its competitiveness against other automakers.

“We’ve stopped work on Zeta,” GM spokesman Pat Morrissey said, referring to an architecture that was expected to be used to build an array of vehicles, including the next-generation Pontiac GTO sports car and the Buick Velite convertible.

The news came the same day The Wall Street Journal, citing "industry officials and analysts," reported that the automaker could cut up to 28 percent, in certain areas, from its 38,000 U.S. white-collar workers. The cuts are seen as the beginning of GM’s effort to restructure structural problems in its core auto business after several years of avoiding large job cuts.

GM spokeswoman Toni Simonetti told The Associated Press Sunday the company planned to continue reducing its work force through early-retirement offers and “natural attrition.”

“There are no layoffs (planned),” Simonetti said. “There’s no broad-based reduction. These are targeted reductions in areas of the business where we have determined there is a need for reductions. It’s going to be determined department by department, function by function, as we look at the resources we’re deploying and the resources we need.”

The Journal said GM began offering buyouts to white-collar workers earlier this month, with thousands of workers likely to accept the packages this week.

GM stunned Wall Street last week when it said net income for 2005 would be only $1 to $2 per share, far below the $4 to $5 the company had predicted earlier this year. The company also has told salaried U.S. employees they will not receive merit pay raises this year.

GM shares plunged 14 percent on Wednesday, and fell again on Thursday but rallied Monday after the news of the cost-cutting.

GM's Morrissey said the decision to cancel the Zeta project would allow the company to speed up the introduction of other future vehicles.

But John Wolkonowicz, an analyst with Global Insight, said the loss of the Zeta would hurt GM's car lineup.

“I’m very concerned about what this does for GM’s car plans. It’s almost like giving up on the passenger car segment,” he said.

In a separate issue of crucial importance to U.S. carmakers, DaimlerChrysler said Monday that it had reached an agreement with the United Auto Workers union which hourly U.S. workers, retirees and their families will be required to pay annual deductibles of $100 to $1,000 for health care coverage under a preferred provider plan.

Chrysler, which will implement the deductibles next month, was able to reach a deal with the UAW because of a letter in its contract with the union that allowed it to seek greater sharing of PPO costs if they rose beyond the costs of traditional or standard health care coverage.

Similar letters are in the contracts GM and Ford have with the UAW, the union said in a statement on Monday.

“I definitely think that GM will be going to the union asking for concessions like that,” said David Healy, an analyst with Burnham Securities.

A spokesman at GM, the largest private provider of health care in the United States, declined to comment on any plans to ask the union for similar concessions. GM’s unionized workers currently pay nothing for health insurance.

The Associated Press and Reuters contributed to this story.

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