GM cuts bring temporary relief for ailing giant

Roland Jones Business news editor • Profile • E-mail

News of massive jobs cuts at General Motors Corp. may temporarily remove the cloud of bankruptcy hovering over the world’s largest automaker, but stormy weather still lies ahead for the auto icon, analysts say.

GM said Monday it plans to cut 30,000 workers, or about 9 percent of its global work force of about 325,000 people. The job cuts — 5,000 more than expected — are part of an effort to slash $7 billion of expenses by next year, which includes closing nine North American assembly plants and three service and parts facilities.

A spate of downsizing would seem to be just the ticket for GM, now struggling to cope with a slump in demand for gas-guzzling SUVs — its longtime cash cow — and the crippling costs associated with its workers’ massive healthcare bills and pensions, while at the same time warding off competition from nimbler and more efficient foreign car manufacturers like Toyota.

But GM still has a long road ahead to profitability, auto industry analysts say.

In October, GM struck a deal with unions that should cut its annual healthcare costs by $3 billion. But its pension plan, the biggest in U.S. industry, remains in crisis. And the company faces tough negotiations with its unions to reduce its costs, keep them under control and must convince Wall Street it can entice car consumers with a new and exciting product line Global Insight’s automotive industry analyst Rebecca Lindland told CNBC.

“And all these areas have to be maxed out,” she said.

2005 has been a rough road for GM. The car maker has lost almost $4 billion this year alone, shocked investors with earnings restatements and seen its stock price tumble to 18-year lows. GM’s massive staff cuts did little to brighten the outlook for the company or its stock price Monday. Shares of GM were down 1.95 percent at $23.58 by the close of trading on the New York Stock Exchange.

Monday’s layoff plan also did little to impress industry analysts like Efraim Levy, automotive industry analyst at Standard & Poor’s. While Levy believes the company has enough cash to keep it from filing for bankruptcy any time soon, he thinks serious challenges lie ahead for GM, most particularly its negotiations with its labor unions.

“This [announcement] is not enough,” Levy told CNBC, noting that the company will face challenges when it comes to removing employees who are employed under union agreements from its payrolls.

“There has been some progress with healthcare costs, but GM has to negotiate these job cuts with the unions and they have their work cut out for them,” Levy said in a CNBC interview. “They can’t just close down plants without union agreements.”

GM said Monday the job cuts will come primarily through attrition and early-retirement packages to mitigate the impact on workers. Some workers who don’t choose to retire could go into jobs banks, which pay laid-off workers their salary and benefits. GM’s Chairman and Chief Executive Rick Wagoner said details about layoffs and early-retirement packages still need to be worked out with the United Auto Workers (UAW) and other unions.

More union woe could come in the form of a strike at Delphi, GM’s top parts maker, which filed for bankruptcy last month. If the UAW’s negotiations with Delphi break down and workers strike it could force GM to quickly burn through its $19 billion in cash and make a bankruptcy filing far more likely analysts say.

Last week, GM’s Wagoner rejected claims that the company may be heading for bankruptcy. On Monday, the UAW, which is in talks with GM about labor concessions, said GM’s 30,000 layoffs were “extremely disappointing, unfair and unfortunate” and said they would make negotiations more difficult.

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