General Motors "end of an era"

TOM WALSH

General Motors "end of an era"

Thu Mar 23, 2006 16:57

General Motors "end of an era"

WASHINGTON -- General Motors Corp.'s offer of buyouts to tens of thousands of older, high-wage factory workers Wednesday is the latest effort to transform an ...
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TOM WALSH: For GM, this is merely a first step
Detroit Free Press, United States - 8 hours ago
BY TOM WALSH. Delphi Corp. employees in Dayton, Ohio, leave the main entrance of the plant after a shift change http://www.freep.com/apps/pbcs.dll/article?AID=/20060323/BUSINESS01/603230559/1014/BUSINESS">
Wednesday. (DAVID KOHL/Associated Press). ...

TOM WALSH: For GM, this is merely a first step

BY TOM WALSH
FREE PRESS COLUMNIST

March 23, 2006

If you have a long to-do list, it's always best to tackle the biggest, baddest, messiest job right away.

That's what General Motors Corp. did Wednesday by cutting a historic deal with the UAW and Delphi Corp. to speed the exit of about 40,000 hourly workers from the GM and Delphi payrolls.

Expensive? Incredibly so. Billions of dollars so far, and the weary GM number crunchers are still counting.

Mind-boggling? Absolutely. Paying an army of healthy workers up to $140,000 apiece to just go away?

Yes, it's expensive, mind-boggling and absolutely necessary if GM, Delphi, the UAW and the rest of Michigan's traditional auto industry are to survive and be relevant.

Completing the rest of the tasks on its long and daunting to-do list will not mean squat until GM -- working with its labor unions, Delphi and other suppliers -- gets its bloated costs in line with its shrunken share of U.S. vehicle sales.

Wednesday's buyout bonanza should speed that process, by shrinking the head count and lessening the chances of a labor dispute at Delphi that could cripple GM.

Yet plenty more tricky tasks remain before GM, which lost $10.6 billion last year, returns to prosperity, or even stability. Those include:

# Slowing the cash burn: GM was losing $24 million a day, maverick Jerry York said in a January speech before joining GM's board of directors. That number must come down. Wednesday's deal doesn't provide immediate relief because it burns cash now to save bunches later.

# Greasing Delphi's exit from Chapter 11 bankruptcy: GM will absorb many of Delphi's excess workers and most of the costs of retiring thousands more, but Delphi still must decide which plants to close and which to keep open. And Delphi must cut deals with its unions to reduce wages and benefits for remaining workers. GM will need to cough up more cash to ease the transition for those workers.

# Selling GMAC: The automaker has been trying for months to sell a controlling stake in its profitable finance unit, in part to raise cash, but primarily to preserve GMAC's long-term viability. The car company's crummy credit rating looms as a drag on GMAC, which will have better access to cheap money if it is owned by a strong financial institution rather than a fragile car company with junk-rated debt.

# Creating hot cars and trucks: GM is winning raves for its retro Camaro concept car and the Solstice two-seater, plus solid marks for bread-and-butter new products like the Chevy Tahoe large SUV, the Buick Lucerne and Chevy Impala. But GM's overall share of the U.S. vehicle market is still slipping because some big holes remain in the product lineup. Think minivans. Or Pontiac, beyond the Solstice and G6.

# Kicking the rebate habit. GM rolled out a new strategy of lower sticker prices in January, hoping to shed the company's fire-sale reputation for dangling the industry's biggest cash rebates and low-interest loans in order to sell cars and trucks. The February sales results were promising -- GM had lower incentive costs, lower inventories and better transaction price improvement than Ford Motor Co. or DaimlerChrysler. But that was just one month's result. Can GM maintain it?

Michigan Gov. Jennifer Granholm praised the union and companies Wednesday for hammering out a deal that will help GM and Delphi compete, while cushioning the impact on workers leaving jobs. "This agreement signals that Michigan's manufacturers and workers are committed to working together in new ways to protect workers, keep Delphi jobs here and avert a strike," Granholm said in a statement issued by her office.

When GM announced last November that it planned to cut 30,000 hourly jobs by 2008, the major plants targeted for closure -- including Baltimore, Oklahoma City, Linden, N.J., and Muncie, Ind. -- were outside Michigan. In-state casualties included a stamping plant and small assembly plant in Lansing, an engine plant in Flint and a parts facility in Ypsilanti that employ about 2,000 workers combined.

It's unclear how many GM and Delphi workers in Michigan will take the early-exit buyouts and whether they will remain in the state once they do. Clearly, there is potential for some further drain on Michigan's sluggish economy after perhaps a short-term spending bounce when the buyout checks are cashed.

But whatever hit the state takes from these buyouts, it will be a modest price to pay if GM and Delphi ultimately survive and prosper.

Contact TOM WALSH at 313-223-4430 or twalsh@freepress.com.

Copyright © 2006 Detroit Free Press Inc.