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General Motors Emails Buyout Offers to 18,000 Salaried Employees

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【Summary】Automaker General Motors is looking at ways to cut costs amid tariffs and other pressures from the market and announced that its sent buyout offers to 18,000 salaried employees. The buyouts were sent to GM employees with over twelve years of service.

FutureCar Staff    Oct 31, 2018 3:12 PM PT
General Motors Emails Buyout Offers to 18,000 Salaried Employees
author: FutureCar Staff    

Automaker General Motors is looking at ways to cut costs amid tariffs and other pressures from the market and announced that its sent buyout offers to 18,000 salaried employees. The buyouts were sent to GM employees with over twelve years of service. The figure represents around 36 percent of GM's salaried workforce.

The announcement comes after the automaker reported strong Q3 profits above Wall Street expectations.

Shortly after reporting better-than-expected third-quarter earnings, GM CEO Mary Barra sent an email to all 50,000 salaried employees in North America at around 8:30 a.m.

"We sent a letter to employees saying any salaried employee in North America with 12 years or more experience will have the opportunity to take a voluntary severance program," said GM Spokesman Pat Morrissey.

Employees have until Nov. 19 to accept the buyout. Those who accept have until the end of the year to continue with GM, with severance effective Jan. 1. The buyouts do not affect hourly workers at GM's assembly plants.

GM did not say if the buyouts would lead to layoffs if not enough people accept the severance.

Depending on how many workers take the offer and other cost-cutting efforts, Morrissey said, "we'll re-evaluate doing an involuntary program after the first of the year."

GM has been cutting costs for several years. Wednesday, it said it would make $6.5 billion in reductions for 2018. The job cuts will not benefit GM until 2019, Morrissey said.

Morrissey wrote that GM is "Still in a good place in terms of our performance and the future." It will continue recruiting and hiring workers needed for next-generation transportation."

"We are doing this while our company and economy are strong."

"The voluntary severance program for eligible salaried employees is one example of our efforts to improve cost efficiency." Morrissey said.

gm-lordstown.jpeg

The Chevy Cruise on the assembly line at GM's Lordstown, Ohio assembly plant.

GM will continue its effort to recruit talent for certain areas of the business it is expanding, namely engineering and technology for its work on self-driving cars, electric vehicles and mobility services and battery production.

"We always have the need to acquire new talent. We're trying to address ongoing efforts to reduce costs but continue our efforts in working on the future of mobility," said Morrissey. "We'll continue to recruit in select areas of the business."

The company has hired 17,000 salaried and hourly workers in the past two years and spent $1 billion remaking its offices into modern workspaces. It also has secured two major investments in its work on autonomous vehicles, with Japan's SoftBank and Honda partnering with Cruise, GM's self-driving division.

The company says that 40 percent of its 67,000 salaried full-time global workers have been hired in the past five years.

GM is focused on keeping the company lean

The buyout offer is one of many proactive steps GM is taking as it combats rising tariff-related costs on steel and other commodities.

"We've been on a journey to transform the company, both in how we operate the business and in how we lead in the future of mobility. Even with the positive progress we've made, we are taking proactive steps to get ahead of the curve by accelerating our efforts to address overall business performance," said Morrissey in a statement.

In her email to employees, Chief Executive Mary Barra wrote that "Our structural costs are not aligned with the market realities."

The Detroit automaker had previously promised investors it would cut $6.5 billion in costs this year, and the buyouts would add to that total, a company spokesman said on Wednesday.

In her email to employees, Barra focused on the fact that GM has burned through $300 million in cash in its automotive operations during the first nine months of 2018. She also noted that the company's stock price is still stuck near the $33 a share IPO price in 2010 after a bankruptcy restructuring following the 2009 U.S. recession.

GM has cut production at car plants over the last two years and its hourly workforce fell by 4,000 workers last year, according to GM's annual report. In addition, GM in June ended the second shift at its Lordstown, Ohio assembly plant, cutting 1,500 jobs, as demand for sedans fell sharply in the U.S.

GM faced with higher material costs

GM also cited increasing material costs caused by new tariffs on foreign metals imposed by the Trump administration.

GM, along with its rivals Ford Motor Co. and Fiat Chrysler Automobiles NV have all forecasted a substantial decrease in profits from rising steel and aluminum costs from tariffs imposed by the Trump administration.

The rise in materials costs is increasing pressure on automakers to cut costs ahead of a predicted decline in U.S. vehicle demand after a long bull market In July, GM lowered its full-year forecast, citing higher steel and aluminum costs due to tariffs.

In the third quarter, GM said it was able to raise prices by $900 million in North America, in part because it is launching a new generation of its popular full-size pickup trucks, the Chevrolet Silverado and GMC Sierra.

Tariffs eating into U.S. automaker profits

GM, along with its chief U.S. rivals Ford and Fiat Chrysler has said it expects tariffs to reduce its profits by $1 billion in 2018 and 2019, while Fiat Chrysler has warned that rising metals costs could cost it 850 million euros ($963 million) this year and next year.

Excluding the effect of any cost cutting it achieves, GM's CFO Dhivya Suryadevara reaffirmed GM's commodity costs in 2019 will increase by $1 billion over 2018.

GM's biggest U.S. rival Ford also is working to reduce its salaried workforce. Ford has not provided specifics on how many jobs will be cut as part of its $11 billion "fitness" plan.

Earlier this month, Ford said it would cut its global salaried workforce of 70,000 by an unspecified number and hoped to complete the cuts by the end of June 2019. This week, Ford is holding three days of meetings to discuss ways to flatten the structure of its salaried workforce and get managers to oversee larger numbers of employees.

In addition to the buyout announcement, GM said it booked a record $500 million in income from its joint ventures in China, GM's largest market by volume. That result was in spite of the sharpest industry sales drop in nearly seven years during September.

Barra said on a conference call with analysts that demand remains strong in larger Chinese cities for the company's luxury vehicles, including GM's Cadillac models.

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