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Union: GM Cuts Not Enough for Turnaround


This is MORNING EDITION from NPR News. I'm Steve Inskeep.

General Motors finally made a business move that Wall Street likes. The company says it wants to eliminate 25,000 jobs. That proposal comes after the giant automaker lost more than $1 billion during the first three months of this year. As soon as executives announced the cutbacks, GM's stock immediately rose. So investors may be happier, though the Auto Workers union definitely is not. We'll start our coverage with NPR's Jim Zarroli.

JIM ZARROLI reporting:

General Motors is still the world's largest automaker, but it's steadily getting smaller. Yesterday, GM chairman and chief executive, Rick Wagoner, told shareholders at the company's annual meeting that GM needs to shut down some of its plants in the United States and begin eliminating jobs. He said because GM has a large number of workers nearing retirement, most of the jobs will be eliminated through attrition rather than layoffs, but Wagoner gave no firm numbers. He also didn't say which plants would be affected. Wagoner said the company's North American revenues have been badly hurt by the decline in SUV sales, and with the auto industry so competitive, GM has no choice but to cut costs in response.

Mr. RICK WAGONER (Chairman, General Motors): With little pricing opportunity, we know we can't return to adequate levels of profitability without an extremely competitive cost structure and without being among the very best in quality.

ZARROLI: The cuts announced yesterday would save GM about $2 1/2 billion a year and would represent the company's biggest job reduction since 1992. The 25,000 jobs being cut represent about one in six GM jobs in the United States. Wagoner said the company was also in talks with its unions to find ways to reduce health-care costs, which absorb about $1,500 of the profit of every vehicle GM sells.

Mr. WAGONER: Let me just emphasize that our strongly preferred approach is to do this in cooperation with the UAW because we're convinced that's the best way for our employees, our stockholders, all of our constituents.

ZARROLI: But Wagoner said he was not 100 percent certain that the company and the union would find a way to reduce costs. GM also essentially needs the union's permission to proceed with job cuts. Under the current contract, GM can't close any plants without the union's permission, and if it does, any workers who are laid off will have to be paid their full salary until the current contract expires. UAW officials say they will help the company find ways to reduce costs, but they won't consider reopening the contract which goes through 2007, and Richard Shoemaker, a top union official, criticized the planned job cuts in a statement yesterday. He said GM needs to focus intensely on rebuilding the company's market share, not getting rid of workers. Even if the job cuts go through, it won't be enough to turn GM around, says Mark Oline of Fitch Ratings Service. He says the company also needs to sell more vehicles.

Mr. MARK OLINE (Fitch Ratings Service): GM really needs to perform on both sides of the equation, which is producing attractively styled vehicles with broad customer appeal that will retain some pricing power and certainly do that in volumes sufficient to absorb their high-fixed cost structure.

ZARROLI: GM officials said yesterday that they have several new promising vehicles coming on the market now such as the Pontiac Solstice and the Chevrolet HHR, and they have high hopes that some will catch on with the public. But David Healy, an auto industry analyst at Burnham Securities, says many of the new vehicles are less profitable than the SUVs.

Mr. DAVID HEALY (Burnham Securities): I think actually the problem of turning the revenue stream around by bringing in new models is a more difficult challenge than the--than say even take on the union on their health-care costs.

ZARROLI: GM says it is taking steps to increase revenue, in part by marketing its vehicles better in parts of the country where the company is less competitive. With some $20 billion in cash and short-term investments on hand, GM is in no danger of going bankrupt any time soon, but Wagoner told shareholders that the company has structural problems such as the cost of retiree benefits and he said if it doesn't address them, the risk of continually being weakened is real. Jim Zarroli, NPR News. Transcript provided by NPR, Copyright NPR.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.