DETROIT — General Motors (GM), the world's largest automaker, said Monday that it will close 12 North American manufacturing and service centers and eliminate at least 30,000 jobs in an attempt to return to profitability.
GM said the plan is to achieve $7 billion in annual cost reductions by the end of 2006. That would be $1 billion above its previously indicated target. The number of job cuts also was above earlier estimates. GM said earlier this year it planned to cut 25,000 jobs by 2008, mostly through attrition and early retirement.
"The decisions we are announcing today were very difficult to reach because of their impact on our employees and the communities where we live and work," said GM Chairman and CEO Rick Wagoner. "But these actions are necessary for GM to get its costs in line with our major global competitors. In short, they are an essential part of our plan to return our North American operations to profitability as soon as possible."
In addition to the announced changes, the competitiveness of all packaging operations at the Pontiac, Drayton Plains, and Ypsilanti Processing Centers in Michigan, as well as portions of the packaging operations in Flint, Mich., will be evaluated within the guidelines of the GM-UAW national agreement.
After earning $3.7 billion in 2004, the company lost that and more — $3.8 billion — through the first nine months of this year, as sales of new cars and trucks started falling.
GM attributed many of its problems to so-called legacy costs. GM, like many of the nation's large, older industrial companies, has an army of retirees for which it provides health care insurance and pensions. health care expenses were expected to reach about $6 billion this year. In addition, GM has 142,000 active workers, more than half in Michigan, and a complex, multinational organization, all while powerhouse competitor Toyota continues to close in.
But the roots of GM's problems are deeper and more complex than a simple sales decline and high personnel costs.
After the Sept. 11 attacks, GM launched a bold initiative — interest-free loans — that led to record auto sales the following month and which many economists credited with helping save the U.S. economy from a deep recession. But GM's temporary fix to boost sales proved to be a long-term addiction that sapped profits and trained consumers to wait for big deals before buying new vehicles.
Since then, GM has had trouble selling most vehicles at regular prices in the competitive auto market. Critics have also complained that GM has too many brands, a lot of its cars and trucks are too bland and the company is too dependent on fuel-hungry trucks and SUVs, which are falling out of vogue.
Additional problems, such as expensive joint ventures that didn't pan out, have sped GM's spiral into financial crisis.
Although the restructuring is primarily focused on reshaping the company's beleaguered North American automotive division, which develops, manufactures and sells cars and trucks in the United States, Canada and Mexico, GM also has had notable failures elsewhere.
In 2000, GM spent about $2.4 billion to buy a stake in Italy's Fiat with the idea of launching joint ventures in engine development and purchasing. About that time, GM also spent $1.3 billion to invest in Fuji Heavy Industries, parent of automaker Subaru, to develop all-wheel-drive and other technologies.
All of that went bust this year. In February, GM paid $2 billion to Fiat so it wouldn't have to buy Fiat's struggling automotive division, as a clause in the partnership might have commanded. In October, GM also sold off its 20% stake in Fuji Heavy Industries for a loss of about $788 million.
But North American operations have dominated GM's troubles.
The unit posted a loss of $4.8 billion the first nine months of the year, compared with a profit of $668 million in the period a year ago. And profits in the company's other business units only partly offset that poor performance.
Over the summer, there did seem to be some bright spots in the division's performance.
GM's Employee Discount for Everyone program, which ran from June through September in the United States, gave the North American operations a temporary sales surge and helped dealerships clean out inventory. Ultimately, however, the program didn't do much for the bottom line, showing just how problematic discount programs can be.
GM's share of the North American market declined to 25.6% in the third quarter, from 28.5% a year ago, while the employee-pricing program was in effect.
Revenue for the division, meanwhile, fell to $24.8 billion during the third quarter, which runs from July through September, from $26.3 billion during the period a year ago. That's a drop-off of 5.7%.
GM's North American operations posted a loss of $1.6 billion in the first quarter, $1.2 billion in the second quarter and $2.1 billion in the third.
Wagoner, GM's chairman and CEO, announced the closings Monday morning to employees before U.S. financial markets opened.
The automaker could also be facing a strike at Delphi, its biggest parts supplier, which filed for bankruptcy protection last month. GM spun off Delphi in 1999 and could be liable for billions in pension costs for Delphi retirees. GM also is under investigation by the U.S. Securities and Exchange Commission for accounting errors.
Last week, after the automaker's shares fell to their lowest level in 18 years, Wagoner sent an e-mail to employees saying the company has a turnaround strategy and has no plans to file for bankruptcy.
"I'd like to just set the record straight here and now: there is absolutely no plan, strategy or intention for GM to file for bankruptcy," Wagoner said in a letter to employees which was posted on an internal website.
Wagoner earlier this year said he planned to cut manufacturing capacity to match demand by 2008.
New closings would add to three assembly plants that GM has already closed or stopped production at this year: a car plant in Lansing, Michigan, an SUV plant in Linden, New Jersey, and a van plant in Baltimore.
The Detroit Free Press is owned by Gannett, publisher of USA TODAY.
***************** Closure Details
Oklahoma City, Okla., with 2,734 employees, will cease production in early 2006.
Lansing, Mich., Craft Centre, 398 employees, will cease production in mid-2006.
Spring Hill, Tenn., Plant/Line No. 1, will cease production at end of 2006. Total plant employment: 5,776.
Doraville, Ga., 3,076 employees, will cease production at the end of current products' run in 2008.
Third shift will be eliminated at Oshawa Car Plant No. 1, in Ontario, Canada, in the second half of 2006. Oshawa Car Plant No. 2 will end production after the current product runs out in 2008.
Third shift will be eliminated at Moraine, Ohio, in 2006, with timing to be based on market demand. Total plant employment: 4,165.
Stamping, power train and service operations
Lansing, Mich., Metal Center, 1,398 employees, will cease production in 2006.
Pittsburgh, Pa., Metal Center, 613 employees, will cease production in 2007.
Parts Distribution Center in Portland, Ore., will cease operations in 2006.
Parts Distribution Center in St. Louis, Mo., will be converted to a collision center facility in 2006.
Parts Processing Center in Ypsilanti, Mich., will cease operations in 2007.
One additional Parts Processing Center, to be announced later, will cease operations in 2007.
St. Catharines Ontario Street West powertrain components facility in Ontario, Canada, 1,699 employees, will cease production in 2008.
Flint, Mich., North 3800 engine facility ("Factory 36"), 2,677 employees, will cease production in 2008.
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