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GM to Cut Jobs, Bonuses, Dividends

July 15, 2008
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General Motors said Tuesday, July 15, that it will improve its finances through 2009 by laying off salaried workers, making more cuts in truck production, suspending its dividend and borrowing at least $2 billion as it rides out its worst U.S. sales in a decade.

Those moves, combined with several other initiatives, are expected to improve GM's cash position by $15 billion through the end of 2009.

The No. 1 U.S. automaker was compelled to cut costs and raise capital because of a deepening slump in U.S. auto sales. Through the first half of the year, GM’s total U.S. light vehicle sales are off 16.3 percent.

GM said it will save $1.5 billion, or 20 percent of its cash costs, in 2009 through layoffs and changes in benefits to salaried employees and executives.

In addition to an unspecified number of layoffs among salaried workers, GM said it will eliminate health care coverage for U.S. salaried retirees over 65, effective January 1. Those workers will receive a pension increase to help offset losses. In addition, no salaried employees will receive compensation increases in the U.S. or Canada through 2009.

GM said its executives “will have a significant reduction in their cash compensation” this year and will receive no cash bonuses in 2008. The move will result in a 75 percent to 84 percent reduction in executives’ cash compensation opportunity, GM said.

The automaker also said it will defer $1.7 billion in payment to its union-led health care benefit trust for hourly retirees. Those payments had been scheduled for this year and next. Establishing the fund—called a voluntary employees beneficiary association, or VEBA—was a key part of the 2007 contract agreement with the union.

“We are responding aggressively to the challenges of today’s U.S. auto market,” CEO Rick Wagoner said in a statement. “We will continue to take the steps necessary to align our business structure with the lower vehicle sales volumes and shifts in sales mix. We remain committed to bringing to market great products that target changing consumer preferences for more fuel-efficient vehicles.”

GM said that at the end of the first quarter of 2008 it had liquidity of $23.9 billion, along with access to an additional $7 billion in credit. While GM believes it has enough liquidity through 2008, the automaker said the actions will cushion it against a prolonged U.S. downturn.

“The actions announced today are difficult decisions, but necessary to respond to the current auto market conditions,” Wagoner said in the statement.

The automaker has faced speculation about its liquidity in recent weeks as its stock price tumbled below $10 to the lowest point in more than 50 years. Analysts raised concerns over whether the company would resort to bankruptcy.

Wagoner last week told reporters GM is not considering bankruptcy.

“Even under conservative planning scenarios, GM is well positioned to withstand the U.S. market downturn and emerge a stronger company,” Wagoner said Tuesday. “We have a solid position in the rapidly growing emerging markets, a global operating framework that allows us to respond to changes in the U.S. market, a commitment to technology leadership, and an ever stronger and competitive product lineup.”

Filed by Craig Trudell of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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