GM CEO's pay cut in half in 2005

Saturday, April 29, 2006


GM CEO's pay cut in half in 2005

Value of Wagoner's compensation package dropped 46 percent as firm lost billions, watched credit rating plunge

DEE-ANN DURBIN AP Auto Writer /


DETROIT -- General Motors Corp. Chairman and Chief Executive Rick Wagoner's 2005 compensation was cut by almost half as the automaker lost billions of dollars and its credit rating was slashed to junk status, according to a proxy statement filed Friday with federal regulators.
Wagoner received a package worth nearly $5.5 million in 2005, 46 percent lower than the $10 million package he received in 2004.

Wagoner's salary remained at $2.2 million, unchanged since 2003. He received no bonus for the year, compared to a $2.5 million bonus in 2004. He was granted 400,000 stock options with a current value of $2.8 million. In 2004, his 400,000 stock options had a value of $5.1 million.
Wagoner also received $345,082 in personal benefits, including $198,520 for security and $95,856 for use of the company aircraft.

The company's four-member compensation committee said it considered several factors in determining Wagoner's compensation, including the company's $10.6 billion loss in 2005 and ongoing costs for restructuring at GM and Delphi Corp., GM's former parts division. Delphi is looking for financial assistance from GM as it reorganizes in bankruptcy court. Last fall, GM announced a plan to cut 30,000 U.S. hourly jobs and close 12 plants by 2008.

"We noted Mr. Wagoner's strong direction and steady leadership in systematically and aggressively implementing a plan to restore the corporation and North American operations to profitability and positive cash flow," the committee said in a proxy filing to the U.S. Securities and Exchange Commission.

Other GM executives also saw cuts in their 2005 compensation. Chief Financial Officer John Devine received a package valued at nearly $3.9 million, down from $6.4 million in 2004. Bob Lutz, vice chairman for global product development, received a package worth $3 million, down from $6.5 million the year before. Devine and Lutz also didn't receive bonuses.

In GM's annual report, also filed Friday with the SEC, Wagoner described 2005 as one of the most difficult years in the automaker's 98-year history.

"It was the year in which GM's two fundamental weaknesses in the U.S. market were fully exposed: our huge legacy cost burden and our inability to adjust structural costs in line with falling revenue," Wagoner said.

Wagoner said GM's losses in 2005 were "unsustainable." He also said the recent discovery of accounting errors were "extremely disappointing and embarrassing" and promised GM will be more transparent in its financial reporting.

On March 1, Wagoner and other senior executives announced they would voluntarily reduce their salaries this year. Wagoner cut his salary by half, while Devine and Lutz cut theirs by 30 percent. GM's board of directors also reduced their compensation by 50 percent, and the company cut its dividend its annual dividend from $2 per share to $1.

GM's steps were similar to those taken at crosstown rival Ford Motor Co. Chairman and CEO Bill Ford received total compensation of $13.3 million in 2005, or 40 percent less than the previous year, after Ford's North American division lost more than $1 billion.

GM shares fell 32 cents to close at $22.88 on the New York Stock Exchange.

------ On the Net: General Motors Corp., http://www.gm.com/

Big Three CEOs, Bush set to meet

Thursday, April 27, 2006


Big Three CEOs, Bush set to meet

May meeting will focus on energy, pensions, health care; bailouts are not on the agenda, Bill Ford says.

Micheline Maynard / New York Times


DEARBORN -- President Bush, who touched a nerve this year when he told Detroit carmakers to build "relevant" vehicles, will meet with the companies' leaders next month, Ford Chairman and CEO Bill Ford Jr. said Wednesday.

People involved in planning the meeting, who spoke on condition of anonymity because of the high level of the talks, said it would focus on three areas: energy and the environment; costs like pensions and health care premiums that add hundreds of dollars to the price of a Detroit car; and how currency issues affect Japanese automakers.

The meeting is expected to take place May 18 at the White House. It would be the first time during his presidency that Bush has met collectively with Ford, Rick Wagoner of General Motors Corp. and Thomas LaSorda of Chrysler.

A White House spokeswoman, Dana Perino, said she could not confirm nor deny that the meeting would take place, adding that Bush's schedule is generally not final that far in advance. Officials at GM and DaimlerChrysler AG's Chrysler Group declined to comment.

Toyota Motor Corp., which ranks fourth in U.S. sales behind Chrysler, and which is considering sites for its eighth North American assembly plant, said it was not invited.

Bill Ford, who is known for his interest in the environment, said in an interview that he wanted to use the meeting to lobby the government to finance a national delivery system for ethanol, the grain alcohol fuel made from corn. Together, the three companies have sold millions of flexible-fuel vehicles, which can run on gasoline or a gasoline/ethanol mixture.

GM has introduced a big campaign to promote the use of E85, a mixture of 85 percent ethanol and 15 percent gasoline, blanketing billboards and the sides of buses with the slogan, "Live green, go yellow."

But Bill Ford said many of the 1.5 million buyers who own Ford's flexible-fuel vehicles either do not know they are able to run on both fuels, or are unable to find ethanol-based fuel that would help lessen the country's dependence on oil.

"If the goal is to drive ethanol, you have to have it priced attractively," Ford said. That is a problem because the United States has only 600 stations that dispense ethanol-based fuel, versus about 176,000 gasoline stations.

The discussion over ethanol comes amid rising gasoline prices, which threaten to hurt recovery efforts at Ford and GM. Each lost market share and billions of dollars in North America last year, while Chrysler gained share and made money.

Together, GM and Ford have announced plans to cut 60,000 jobs and close more than two dozen plants through 2012.

After Ford announced its cutbacks in January, Bush said the solution to reversing the automakers' problems lay in developing "a product that's relevant." Rather than having the government bail them out, as Congress did in 1979 to save Chrysler from bankruptcy, "I think it's very important that the market should function," Bush added.

Bob Lutz, the vice chairman of GM who is known for his candor, criticized Bush's comments this month. Speaking in New York, Lutz said: "I'm a lifelong Republican, by the way, but next time around, Hillary, here I come. I'm a protest vote."

Bill Ford said the discussion of a bailout would not be on the agenda for the meeting with Bush, whose former chief of staff, Andrew Card, served as GM's lobbyist before joining the White House.

Trading ban will continue, GM says

Sunday, April 23, 2006

Trading ban will continue, GM says

Since it is not issuing earnings forecasts, executives cannot buy or sell company stock.

David Shepardson / Detroit News Washington Bureau


The year-long ban on most senior General Motors Corp. executives buying or selling company stock will continue indefinitely and isn't likely to be lifted until the automaker starts providing earnings forecasts.

No senior GM executive with access to sensitive earnings information has traded company stock since April 19, 2005, when the company stopped providing earnings guidance amid uncertainty about GM's financial future.

GM told its executives and employees with access to such information that they were indefinitely barred from trading in company stock in a memo last May.

On Wednesday, GM's chief financial officer, Fritz Henderson, said the company has no immediate plans to start to provide earnings guidance.

GM wants to resolve its outstanding financial issues with its bankrupt former parts supplier, Delphi Corp., before offering Wall Street profit forecasts, he said.

GM spokeswoman Toni Simonetti said Friday that based on the company's history, the trading ban is likely to continue until the company again offers earnings guidance.

"Lawyers look at this all the time to assess trading restrictions and look at if and when there could be some relief," Simonetti said. "Many of us are still subject to the trading ban."

GM has taken steps to strictly limit the number of people who have access to earnings information. "We've said let's not share information with people who don't have a need to know," Simonetti said. That's allowed some people -- initially covered by the ban -- to again buy and sell GM stock.

Earnings information is more valuable when a company doesn't offer earnings guidance and often makes stocks more volatile. GM's stock jumped more than 10 percent on its upbeat earnings report Wednesday, its largest gain since May.

The caution comes as GM's accounting is under scrutiny on a number of fronts. Other firms that stopped giving guidance -- such as Ford Motor Co. -- haven't barred executives from trading.

GM disclosed that both a federal grand jury and the Securities and Exchange Commission have subpoenaed records related to transactions involving supplier credits and precious metals. GM is cooperating with the investigations, Simonetti said.

That followed the SEC's first subpoena to GM for accounting records last April, which was upgraded to an investigation in October.

GM insiders have seen their stock portfolios drop considerably since the ban was imposed, as the stock has since dropped 31 percent. CEO Richard Wagoner bought 50,000 shares for $1.48 million in March 2005 -- and they're now worth $1.09 million.

When the highest-level executives trade a company's stock, the transaction must be reported to the SEC, but it is illegal for any insider to trade based on information not available to other investors.

The ban on stock trading applies to employee 401(k) saving programs. Employees can continue to buy company stock in those plans but must do so at the same rate as before the ban.

You can reach David Shepardson at (202) 662 - 8735 or dshepardson@detnews.com.

GM's fix-it plan kicks in

Friday, April 21, 2006


GM's fix-it plan kicks in

Automaker cuts losses, increases cash hoard
Bill Vlasic / The Detroit News




With its losses narrowing and its cash reserves piling up, General Motors Corp. is ready to kick its turnaround plan into a higher gear in the second half of 2006.

The world's largest automaker said Thursday it lost $323 million in the first quarter, a $1 billion improvement over last year's results and a hopeful sign that GM may have turned a corner in its road to revival.

Even though it was the company's sixth consecutive quarterly loss, GM Chairman Rick Wagoner hailed the results as an "important milestone" in the recovery of GM's troubled North American auto business.

"Clearly we're moving in the right direction," Wagoner said in a CNBC television interview Thursday. "It's somewhat gratifying to see."

The quarterly results pumped some life back into GM's stock, which had been steadily declining in past weeks. GM's shares closed Thursday at $22.64, up $2.07 or 10 percent, on the New York Stock Exchange.

Wagoner and his executive team said more significant gains are projected in the second half of this year, when GM realizes substantial savings from the expected retirements of thousands of factory workers.

GM is rolling out an "accelerated attrition" program that offers buyout packages to more than 130,000 hourly workers at the automaker and at bankrupt Delphi Corp., GM's biggest parts supplier.

The unprecedented buyout program is designed to help GM shed 30,000 U.S. manufacturing jobs by 2008, and to bring its vehicle production capacity in line with its shrinking market share.
"The attrition program is a major enabler to achieving that goal (of cutting 30,000 jobs)," said Fritz Henderson, GM's chief financial officer.

Slashing jobs -- along with lower health care costs -- is an integral part of GM's strategy to reduce its bloated structural costs by $7.5 billion annually.

The bulk of the savings will materialize in the second half of this year, Henderson said. He said health care reductions and employee attrition could account for $2.1 billion in savings in the third quarter and another $2.3 billion in the fourth.

New products drive gains

The cost cuts should revitalize GM's balance sheet, and put the automaker on track to eventually return to profitability.

"The improvements we are seeing are real," said David Healy, an analyst with Burnham Securities. "There are a lot of basic improvements being made that will accumulate in the third and fourth quarters."

Highlights of GM's first quarter included a 14 percent rise in overall revenues to a record $52.2 billion.

The revenue gains were driven in part by the launch of GM's all-new, full-size sport utility vehicles, the company said. GM reported its revenue-per-vehicle climbed $1,000 to $19,960 in the quarter, as consumers paid higher sticker prices for new products such as the Chevrolet Tahoe.

But even with higher revenues and the introduction of several hot new products, GM's North American operations remained in the red during the first three months of the year.

The automaker lost $946 million in North America during the quarter, compared to $1.5 billion in the same period a year ago. The loss in this year's first quarter included $484 million of an overall $1 billion charge to fund retiree health care.

In its health-care agreement reached last year with the United Auto Workers, GM agreed to make three $1 billion contributions to a fund that will offset higher medical bills for retired workers. The next installments are scheduled in 2007 and 2011.

The improved results in North America overshadowed solid performances by GM in other regions of the world.

GM Europe reported earnings of $88 million in the quarter, the first time the division had a first-quarter profit in six years. The automaker also increased profits in Latin America and Asia, reporting a 76 percent increase in vehicle sales in China alone during the quarter.

Execs pleased with progress

After months of enduring grim predictions of a GM bankruptcy, company executives were understandably pleased with the progress displayed in the quarter.

"I wouldn't say that we're satisfied with any of the results," said Henderson. "But if you look at where we came from, there are signs that the turnaround is working."

GM lost $10.6 billion in 2005 as it gave up U.S. market share to foreign rivals such as Toyota Motor Co. and booked huge charges to pay for the planned downsizing of its North American manufacturing operations.

But despite calls for his ouster by some analysts and media organizations, Wagoner has remained firm in his belief that GM can be methodically turned around with better products, tighter costs and an infusion of cash from the sale of noncore operations.

Henderson said GM ended the first quarter with $21.6 billion in cash, including a $317 million gain in the quarter from the sale of most of GM's equity stake in Japanese automaker Suzuki Motor Corp.

The company expects to get another $10 billion in cash when it completes the sale of a controlling interest in its General Motors Acceptance Corp. finance unit later this year.
Building up cash is critical to GM's broad restructuring strategy, Henderson said.

"There is a sense of urgency about ensuring that we have a strong liquidity position in order to finance the turnaround," he said.

A portion of the cash will go toward funding buyouts ranging from $35,000 to $140,000 for hourly workers. Henderson said thousands of GM workers are expressing interest in the program, but declined to predict how many will choose to leave the company.

However, he said GM was hopeful that the bulk of its 30,000-worker reduction will be achieved in the current buyout program. "We want to frontload this as much as possible," he said.

Burning cash at rapid rate

The positive signs for a recovery, however, are still clouded by the uncertain situation at Delphi.
The bankrupt parts maker is seeking a major restructuring of its U.S. operations that includes slashing the wages of unionized workers and closing or selling 21 of its 29 plants.

Last month, Delphi asked a U.S. Bankruptcy Court judge to cancel its contracts with the UAW and other unions.

If the court approves the motion, the UAW has said it could launch a strike at Delphi that would cripple vehicle production at GM.

But Wagoner and other GM executives have vowed to work out a deal with Delphi and the UAW that averts a strike.

"We're committed to finding a solution," Henderson said.

"We have a vested interest in (Delphi) emerging from bankruptcy as a successful supplier."
But skepticism remains among some analysts who note GM is still burning through cash at a rapid rate.

"If we exclude the $2 billion in proceeds from asset sales, it appears that GM burned through approximately $1.2 billion in cash in the quarter," said Rod Lache of Deutsche Bank.

GM declined to provide any guidance about earnings for the rest of the year, primarily because of the uncertainty at Delphi. Wagoner also was careful to point out that GM has many more milestones to achieve before the turnaround is complete.

"We're optimistic, but there's still a lot of work in front of us," he said.

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.

GM posts $323 million loss

Thursday, April 20, 2006

GM posts $323 million loss

It's the automaker's 6th straight unprofitable quarter.

Dee-Ann Durbin / Associated Press




DETROIT -- General Motors Corp. reported a first-quarter loss of $323 million Thursday, the sixth straight quarterly loss for the world's largest automaker.

The loss of 57 cents per share for the January-March period was narrower than a loss of $1.3 billion, or $2.22 per share, in the first quarter of 2005.

GM said revenues were up 14 percent to a record $52.2 billion from $45.8 billion a year ago, thanks in part to strong sales in Asia and Latin America, the sale of a stake in Suzuki Motor Corp. for $317 million and improvements in North America, including better pricing."

The first quarter represented an important milestone in GM and GM North America's turnaround," GM Chairman and Chief Executive Rick Wagoner said in a statement.GM shares rose 68 cents, or 3.3 percent, to $21.25 in premarket trading.

The automaker, which lost $10.6 billion in 2005, is in the midst of a major restructuring that calls for cutting 30,000 jobs by 2008.

Included in the first-quarter results was a one-time pretax charge of $1 billion in for expenses related to a recent settlement that requires hourly retirees to pay more for their health care. GM must contribute $3 billion to a fund for retiree health care by 2011.

GM's struggling North American division reported a loss of $946 million, compared with a loss of $1.5 billion a year ago. GM Chief Financial Officer Fritz Henderson said cost savings from the health care agreement and from employee buyouts will largely be seen after July 1, but the automaker is optimistic about its results. Henderson said GM is on track to meet its goal of $4 billion in cost reductions by the end of this year."

It's a quarter of good, solid progress," he said. "Obviously, the job's not done."GM's financial arm, General Motors Acceptance Corp., earned $605 million for the quarter, down from $728 million a year ago because of lower mortgage earnings. GM recently completed an agreement to sell 51 percent of GMAC to an investor group for $14 billion.

GM hasn't provided earnings guidance since last April, and Henderson said the company has no plans to provide guidance until it reaches a resolution with auto supplier Delphi Corp. over wages and other issues.

Delphi, GM's former parts division and largest supplier, wants to lower hourly workers' wages and has asked a federal bankruptcy court to throw out its union contracts. Delphi, GM and the United Auto Workers union are in talks about a wage deal that could include payments from GM to supplement wages.

Henderson said the three parties are continuing to talk and he is confident they will reach a resolution without a strike, which could be devastating for GM."

A work stoppage doesn't benefit anybody," Henderson said.

GM's quarterly loss bigger than expected

GM's quarterly loss bigger than expected


By John Nolan

Staff Writer DAyton


General Motors Corp. on Thursday reported a first-quarter loss of $529 million, or 94 cents per share, compared with a loss of $988 million, or $1.75 per share, for the first three months of 2005.


The latest loss was more than double the 44-cent-per-share loss collectively predicted by industry analysts surveyed by Thomson Financial. And it was the sixth consecutive quarterly loss GM has reported.


But, GM said the latest quarter included an after-tax charge of $681 million — $1.20 per share — for the recent settlement with its largest labor union, the United Auto Workers, concerning the company's health care obligations for retired hourly workers and their families. GM said that settlement, approved by a federal court, will allow the automaker to reduce its retiree health care liability by 25 percent — about $15 billion.


Rick Wagoner, GM's chairman and chief executive officer, said the company has begun the turnaround it needs to deal with last year's $10.6 billion loss and the decline to 25 percent of its share of the North American auto market.


GM made progress in increasing its average revenue per vehicle sale, a sign the company is reducing its reliance on incentives to sell cars, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. The company is making the necessary adjustment to market demand by reducing its work force and shuttering unneeded manufacturing plants, Cole said Thursday.


Shares of GM (NYSE:GM) were up $1.81, or nearly 9 percent, at midday Thursday to $22.38, with trading at nearly double the normal daily volume of 12.4 million shares. The price has ranged between $18.33 and $37.70 during the past year.


The company's first-quarter revenue increased 14 percent to a record $52.2 billion. Global auto sales increased 4.4 percent to 2.2 million units, but GM's share of the worldwide market still slipped slightly to 13.2 percent from 13.3 percent a year ago.


GM's first-quarter loss was reduced to $323 million, or 57 cents per share, when it included the net effect of a $206 million gain, or 37 cents per share. That $206 million included a profit from sale of most of GM's stake in Suzuki and GM's costs of restructuring in North America and overseas.


Separately, members of Local 798 of the International Union of Electronic Workers-Communications Workers of America are voting Thursday on whether to approve a new hourly labor agreement at GM's Moraine sport utility vehicle plant. If approved, that deal would grant GM new work rules that the company says it needs to consider awarding Moraine new SUV assembly work beyond 2008.


The new contract would take away a pay raise averaging 83 cents per hour that Local 798 members would otherwise receive this September. The Moraine plant employs 4,100 people, including about 3,800 hourly production workers.


Contact this reporter at (937) 225-2242 or jnolan@daytondailynews.com

That little blue pill costs GM $17 million a year

That little blue pill costs GM $17 million a year

But cutting health coverage for items such as Viagra can be difficult

Brett Clanton / The Detroit NewsApril 16, 2006

DETROIT -- The little blue pill is leaving General Motors Corp. with a very large bill.
The world's largest automaker, which lost $10.6 billion last year, is shelling out $17 million annually for impotence drugs such as Viagra and Cialis, said GM spokeswoman Sharon Baldwin.

While the so-called "lifestyle drugs" make up a small fraction of GM's overall health care costs -- now hovering at $5.6 billion each year, or about $1,500 of every vehicle it builds -- company executives often use the example to illustrate how out-of-control health care costs have become in America.

GM, which provides health care for 1.1 million employees, retirees and dependents, is the world's largest private purchaser of Viagra, the popular erectile dysfunction drug produced by Pfizer Inc., whose sales reached $1.65 billion last year. The pill is covered under GM's labor agreement with United Auto Workers, as well as benefit plans for salaried workers.

Ford Motor Co. declined to say how much it spends on erectile dysfunction drugs, and a Chrysler spokesman could not provide figures.

Detroit automakers say hefty U.S. health costs are a competitive disadvantage with foreign automakers in the South that have nonunionized work forces. But cutting coverage, even for items such as Viagra, can be thorny after workers have become accustomed to them.

"Once you have these benefits, it's very difficult to take them away," said Jim Sanfilippo, president of AMC Inc., an industry consultancy in Detroit.

GM recently raised co-pays for erectile dysfunction drugs to up to $18 under a new agreement with the UAW, and it has pared benefits for salaried workers. The cuts are expected to lower the company's overall health care bill to $5 billion by year's end, Baldwin said.

But given the huge number of older GM workers who might need help to "keep the spark alive," the tab for Viagra and other erectile dysfunction drugs isn't likely to go down soon.

GM has more than two retirees for every active worker on its rolls.

When asked about the cost of Viagra and similar drugs, GM CEO Rick Wagoner recently told The Detroit News that the automaker needs take a look at the drugs it covers.

"It's clear that it would be good for the company to have a somewhat more restricted palette of prescription drugs that we pay for, but those are discussions negotiated with the union," he said. "There's certain things that people like to pick on, and it's easy to see why."

Many government and company health plans have already eliminated impotence drugs from their coverage plans.

GM appears likely to approach the UAW about eliminating this perk when the moment's right.

You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.

Lutz: GM in driver's seat by 2011

Lutz: GM in driver's seat by 2011

Wall Street is all wrong, vice chairman says; Chapter 11 bankruptcy is 'out of the question.'

Brett Clanton / The Detroit NewsApril 13, 2006

NEW YORK -- General Motors Corp.'s top product executive came out swinging Wednesday in the heart of the financial world, dressing down Wall Street critics who say the automaker is headed for bankruptcy, defending embattled GM Chairman Rick Wagoner and predicting the automaker is poised for a historic comeback.

Vice Chairman Robert Lutz said a Chapter 11 bankruptcy filing is "out of the question" and that he "absolutely refuses to believe" there will be a strike at key supplier Delphi Corp. because the consequences would be too great for all.

Predicting that in four to five years GM will be in far better shape, Lutz used a platform at the New York International Auto Show to rail against naysayers who he claims are ignoring the progress GM has made in turning around its North American auto business. He singled out New York-based financial analysts for creating and fueling the "fiction" that GM is bankruptcy bound.

"Most of the analysts living in New York don't even own cars, and have never even visited one of our dealerships," he said.

Lutz further suggested that Wall Street analysts may have profit motives for casting doubt on GM's future.

"At some point, I start to question whether they're holding short positions on the stock," he said, referring to the practice of betting that a stock price will fall over a short period in hopes of collecting on the back end.

Lutz's comments are the most pointed to date from a GM executive in defense of the struggling automaker. And they highlight a criticism that Detroit automakers often raise of auto analysts: that they are too far removed to know what's really going on.

But analysts say they have played a valuable role that executives may not acknowledge.

"Without pressure from Wall Street, they would never have got things moving," said Brad Rubin, an industry analyst with BNP Paribas in New York. "It took Wall Street to wake them up."

A good example of how unrealistic GM management has been came early last year when GM projected it would turn a solid profit, but instead lost $10.6 billion.

After the loss, GM intensified a sweeping overhaul of its North American auto business, which has been plagued by a decline in sales of its profit-rich SUVs, increased foreign competition and crushing obligations to retirees.

GM plans to close or downsize 12 facilities and slash 30,000 hourly jobs by 2008, shift more health care costs to retired factory workers and pare back pensions for salaried employees.

Industry analysts, though, point out that GM still has many serious problems to resolve.

Chief among them is the possibility of a strike at Delphi, GM's largest parts supplier.

Spun off from GM in 1999, Delphi filed for bankruptcy in October and last month riled its unions representing its 33,000 hourly workers by filing a court motion to terminate its labor contracts. With tensions high, the situation could blow up into a strike that could shut down both Delphi and GM in a matter of days, though the companies pledge to reach an agreement that avoids that outcome.

Until there is a deal, there will continue to be speculation about a GM bankruptcy, said Jeremy Anwyl, president of Santa Monica, Calif.-based Edmunds.com, an industry research firm.
"They don't want to file, but the question analysts are asking is 'Would they be forced to by events beyond their control?"

At a minimum, GM estimates it will have to pay between $5.5 billion and $12 billion to cover post-retirement benefits for former workers at Delphi. In anticipation of the hit, the company has raised cash by selling a majority stake in its profitable GMAC finance arm and unwinding other partnerships.

GM also says a list of cost-cutting moves under its North American turnaround plan will help it reduce overall costs by $7 billion beginning next year.

"Soon, all will be revealed to you," Lutz told reporters. "And the last skeptic in America will be convinced that we are well on the way to recovery. GM has its best days ahead of it."

He said Wagoner will be praised for engineering one of the biggest corporate turnarounds in history.

"General Motors will come back and blossom like never before, and Rick Wagoner will be the celebrated hero at the head of the company," Lutz said.

Wagoner has come under fire for GM's latest financial losses, and speculation has been rampant that his days atop GM are numbered. Last month, the company's board gave him a public vote of confidence, reportedly at Wagoner's request. GM dealers last week ran a full-page ad in the Wall Street Journal backing Wagoner.

"I've worked for a lot of CEOs in my life, including some who are very famous and wrote books," Lutz said, in a reference to former Chrysler Corp. Chairman Lee Iacocca.

"And Rick is the best, most stable, most thoughtful guy I have ever worked for. He's not dramatic. But he gets the job done."

Due in part to the bullish comments from Lutz, GM's stock jumped more than 4 percent to close at $20.03 Wednesday and helped send the Dow Jones Industrial Average over 11,000.

Despite Lutz's claim that GM's darkest days are past, the company faces big obstacles as it renegotiates a crucial United Auto Workers contract in 2007, introduces vital new pickups and waits for cost-cutting measures to take hold, said Glenn Reynolds, president of New York-based CreditSights.

"The worst behind them?" he said. "Not unless he just took the time machine to early 2008."

You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.

UAW loses 11% of its members

UAW loses 11% of its members


Union drops below post-World War II low as automakers, major manufacturers continue to bleed blue-collar jobs

David Shepardson / Detroit News Washington Bureau

April 13, 2006

WASHINGTON -- The United Auto Workers saw its membership decline 10.5 percent in 2005 to a post-World War II low of 557,099 members as Detroit automakers and major manufacturers continue to bleed blue-collar jobs.

It was the largest percentage drop in the union's membership since 2000 and comes as the UAW braces for another round of severe factory cuts at U.S. automakers and parts suppliers.

Across Michigan, the union's stronghold, active UAW membership dropped to 197,509 -- down from 233,493, according to one of several reports filed with the U.S. Labor Department.

Last April, the UAW reported its active membership in 2004 was 654,657, but revised that figure in November to 622,603 in an annual financial report. By comparison, the UAW had about 1.5 million members at its peak in 1978.

Like other industrial unions, the UAW has seen its political clout wane with the steady loss of members and the rise of the service economy.

At the same time, despite renewed organizing drives, the UAW has fallen short of efforts to recruit the increasing number of workers at U.S. plants operated by Asian and European automakers and parts suppliers.

The UAW's latest financial report shows the union's membership lost 65,804 members, or 10.6 percent, last year, and experts say with drastic job cuts on the way at General Motors, Ford Motor Co. and Delphi Corp., the UAW could see its ranks drop below 500,000 by the end of the year.

"What's driving this is the loss of 50,000 members at GM and Ford and the potential loss of 37,000 jobs at Delphi," said Sean P. McAlinden, an economist at the Center for Automotive Research at the University of Michigan in Ann Arbor.

The UAW is going to end up as a "much smaller but still rich union that has some control over final (vehicle) assembly," he said.

GM and Delphi have offered buyouts to 130,000 factory workers, nearly all of those are represented by the UAW.

Delphi, which is reorganizing under bankruptcy protection, wants to close four of its five Michigan plants; the four plants have about 10,000 workers. In total, the company wants court approval to close or sell 21 of its 29 U.S. factories.

Ford wants to cut its U.S. factory jobs by 30,000 from 87,000 today over the next six years.
With the planned cuts, the UAW could easily have more retired members than active members, experts say.

As of the end of 2004, the UAW had 563,000 retired members -- a figure certain to rise with thousands of members opting to accept buyouts and early retirement.

Roger Kerson, a UAW spokesman, declined to comment on the filings in Washington.

Raymond Wood, vice president at UAW Local 14 in Toledo, Ohio that represents 3,200 workers at GM's Powertrain plant, said the UAW "needs to be growing the membership.

"There's strength in numbers. The UAW provides a stable income for middle-class America," Wood said. "We're very much concerned about falls in membership."

Wood said "a couple of hundred (members) have actively signed up" for the GM buyout offer, but he expected that number to climb in the next few weeks as more workers review their options.

At UAW Local 148 in Lakewood, Calif., membership has dropped to 2,383 this year from 2,700 in 2005, said Jacki Harris, president of the local that represents employees at Boeing Aircraft factories in Long Beach and Carson, where employees build military and commercial aircraft.
But the Long Beach factory is scheduled to close in this summer.

Workers began production on the final Boeing 717 at the Long Beach plant in February. The plane will be delivered to AirTran Airways in May. In June, the Long Beach factory will close after producing more than 15,000 airplanes since 1941.

In a sign of the times, Harris decided to return to school to learn new skills.

Last May, she earned a bachelor's degree and is beginning coursework toward a master's degree in business. When she was hired by then-McDonnell Douglas in 1986, the local UAW represented 35,000 members, she said.

Today, college classes are offered at the union hall to help members prepare for other careers.
"The world is changing. Middle America is going away," Harris said. "A lot of our members are getting additional education to help figure out what they are going to do. I have to change eventually too -- I'm not going to be able to retire here."

Despite the reduction in membership, the UAW remains viable, McAlinden said, noting that a University of Michigan study suggested the union wouldn't have to sell off assets to remain solvent unless its membership dipped below 300,000.

The union reported income of $272 million in 2004, while expenses were $221 million, despite last's year membership losses.

You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com.

IT'S A GM FUTURE

IT'S A GM FUTURE

George F. Will



April 13, 2006 -- IT is better to be fired by General Motors than it is to be hired by most companies. Remember this when you are rightly ridiculing the riotous French who have successfully insisted that even workers under 26 should have property rights to their jobs. Remember because the accelerating crisis of private-sector welfare states such as GM prefigures the coming crisis of the public sector's entitlements.

France has been convulsed by young people whose sense of entitlement was affronted by a law - now withdrawn in a triumph of mob rule - that would have allowed employers to fire a young worker in the first two years of employment. Detroit's crisis also involves an entitlement mentality.

Under contracts negotiated, beginning in 1984, with the United Auto Workers, there are about 14,700 laid-off autoworkers in the Jobs Bank. About 7,500 of them are from GM. They get paid most of their wages and benefits - between $100,000 and $130,000 a year, for an annual cost to GM of $750 million to $900 million.

The former workers - expected to be 17,000 by next year - are required to do nothing that adds value to the auto companies. Some attend classes given by GM. The Wall Street Journal reports that one worker took a class in which he learned how to play Trivial Pursuit.


The French idea that a worker should have a property right in a job is a product of statism and scarcity: Government supposedly is responsible for allocating jobs which, in a collectivist society disdainful of capitalism, are presumed to be permanently scarce. That presumption is self-fulfilling: The more difficult it is to fire an employee, the more reluctant employers are to hire.
Detroit's Jobs Bank, which was GM's idea, is a product of an oligopoly's - the Big Three domestic automakers still were such in 1984 - misplaced sense of permanent abundance: They assumed that layoffs, if any, would be brief because expansion of demand for their products would generally be automatic. This mentality was self-defeating. It caused management to focus not on producing desirable products but on running private-sector welfare states, allocating much of the supposedly assured cash flow to fund employees' benefits. And labor's myopic focus was on extracting benefits from the corporation-as-welfare-state, not on the long-term vitality of the corporate employer.

The crisis now engulfing the UAW and the companies entered a new stage with last year's bankruptcy of Delphi, the nation's largest auto-parts manufacturer. That was the pebble that presaged an avalanche.

The avalanche may mean two large things; it certainly means one. Perhaps it means the bankruptcy of GM. Certainly it means, for the UAW and for organized labor generally, the worst crisis since the National Labor Relations Act of 1935 enabled private-sector unionization. In 1969, the UAW's active membership peaked at 1.53 million. Today it is 640,000 and, depending on the success of the buyout incentives and continuing failure to stabilize the domestic automakers' market share, might dip below 600,000.

A current GM commercial, featuring cars from the 1950s and 1960s and today, ends with three words on the TV screen: "Then. Now. Always." The third word is the commercial's point. It aims to reassure customers that GM will always be here. The message is: Do not be deterred when the word "bankruptcy" is bandied.

Yet, simultaneously, GM is hoping that more than 40,000 of its employees (and Delphi's; GM owned Delphi until 1999, and still has obligations to many Delphi workers) will accept buyouts ranging from $35,000 to $140,000. But for most employees, the buyout makes economic sense only if they believe there is a likelihood of something worse - bankruptcy, which would terminate their entitlements.

Were GM to use bankruptcy to end contracts and lower compensation costs, what would become of Ford, whose costs are now similar to GM's? Jay Palmer of Barron's says Ford cannot win concessions from workers by credibly threatening bankruptcy because "CEO Bill Ford and other descendants of founder Henry Ford own roughly 40 percent of the company's voting equity. A bankruptcy would in one stroke eliminate a huge chunk of their fortune and effectively sever the family's ties with the company."

Bankruptcy - seeking judicial permission to shred contracts improvidently entered into - should be so costly that it cannot become a routine management tool for private-sector welfare states. And America's welfare state cannot seek what is called "bankruptcy protection."
Detroit today is having what Washington will eventually have - a wrenching rendezvous with promises that seemed compassionate, or at least convenient, when originally made but that cannot be kept without ruinous consequences.

GM preps for possible walkout

Monday, April 10, 2006


GM preps for possible walkout (storylink)

Avoiding Delphi stoppage is a priority, but automaker is stockpiling parts just in case, Wagoner says in TV interview.


General Motors Corp. CEO Rick Wagoner said Sunday he doesn't expect a strike at bankrupt parts maker Delphi Corp. but acknowledged the automaker is preparing for the possibility.

In a television interview Sunday on CBS's "Face the Nation," Wagoner was asked if GM is stockpiling parts or taking other actions to prepare for a possible strike. Wagoner said "we're doing some of that," though "that is not going to really avoid the issue."

Delphi CEO Steve Miller last month asked a judge to void UAW contracts as part of a plan to exit bankruptcy. The United Auto Workers has threatened to strike if Delphi imposes terms such as wage cuts. Wagoner said that avoiding a long strike at Delphi is the highest priority for his company, which lost $10.6 billion last year.
"A long-term strike at Delphi would have huge ramifications for General Motors," other manufacturers, the unions and Delphi, he said. "Shame on us, the leaders of all those groups, if we can't come to a solution that avoids that kind of drastic action."

Last week, Sanford C. Bernstein analyst Brian Johnson told Bloomberg News that GM appears to be stockpiling parts. Johnson cited Delphi Chief Restructuring Officer John Sheehan, who said last month that some customers were stockpiling parts and the supplier's revenue from GM has risen in recent months.

Wagoner also reiterated Sunday that seeking bankruptcy protection or a government bailout wouldn't be good options for the company.

"Those approaches are not the right approaches for GM," he said. "They aren't good for our consumers, they aren't good for the people that count on us for our contributions to the economy, they're not the right thing for our business."

GM, the world's largest automaker, plans to eliminate at least 30,000 U.S. factory jobs by 2008 and has offered its 113,000 union workers buyout or retirement packages, part of an agreement among GM, the United Auto Workers and Delphi Corp., the bankrupt auto-parts supplier that used to be part of GM.

GM's troubles helped push Delphi into bankruptcy in October. Delphi is trying to shed 20,000 union jobs.

Wagoner, 53, said he has no plans to resign.

"I wouldn't be in this job if I didn't think I was the right guy to do it," he said.
Wagoner recently received a vote of confidence from his board of directors and a group of major GM dealers. The moves came after news reports surfaced that the board was growing impatient with Wagoner's progress in turning around the automaker.

GM expects about 45 percent of employees already eligible to retire and 9 percent of the workers within three years of retirement to take buyouts at the nine locations slated for closing, according to a March 28 regulatory filing.

Bloomberg News contributed to this report.

Toyota poised to become the world's largest automaker

Saturday, April 08, 2006

Toyota poised to become the world's largest automaker (storylink)

Industry experts praise the company's efficiency, flexibility, quality control and, most importantly, foresight

TOYOTA, Japan -- Satoshi Ogiso was in his office redesigning Camrys and Tercels when the young auto engineer was suddenly ordered to switch gears and join a secret mission "to come up with a whole new car for the 21st century."

Toyota Motor Corp.'s top management, Ogiso said, had read the wind. Believing that higher oil prices and the rise of eco-conscious consumers would spark surging demand for super-efficient autos, they ordered up what would become the prototype for the Toyota Prius.

The gas-electric hybrid reached U.S. shores in 2000, defying industry naysayers by becoming one of Toyota's hottest new models. Eager clients in the United States are still waiting two months or more for delivery as the futuristic hybrids roll off the assembly lines as fast as Toyota can make them in this booming city in central Japan.

As the company was busy unveiling the Prius, its U.S. competitors at General Motors Corp. and Ford Motor Co. were heading down a completely different road. Both companies were pouring cash into gas-guzzling sport-utility vehicles and minivans, sales of which tanked as oil prices shot up.

Analysts say the foresight and planning that went into the development of the world's first mass-produced hybrid underscore how Toyota has managed to leave the struggling U.S. automakers in the dust -- and why it is likely to stay ahead for years to come.

Toyota is poised to overtake ailing General Motors this year as the world's largest automaker in terms of units sold. It is a title, industry experts say, that the 69-year-old company could win through a combination of efficiency, flexibility, quality control and, most importantly, an uncanny sixth sense for what consumers want.

"The early development of the Prius put Toyota at least two years ahead of the Big Three in one of the fastest-growing car segments," said Noriyuki Matsushima, managing director at Nikko Citigroup Ltd. in Tokyo. "Toyota has succeeded in reinventing the idea of automaking and corporate efficiency in a manner that has everybody else in the industry playing catch-up."
In the midst of massive layoffs and plant closures, General Motors and Ford are struggling for survival. Meanwhile, Toyota is projected to post record profit this year after nearly doubling production and opening seven factories over the past five years.

The U.S. automakers have linked much of their woes to massive "legacy costs" -- or generations of generous benefit packages to its unionized employees. Industry experts say General Motors' health-care and pension expenses amount to roughly $2,000 more per vehicle than Toyota's.
But analysts say those costs tell only part of the story. Pegged in the post-World War II era as a maker of inexpensive cars, Toyota commands a record 13.3 percent of the U.S. market -- up from 12.2 percent in 2004 -- even though many of its models are more expensive than their American counterparts.

Toyota has avoided layoffs or major labor disputes for more than half a century while maintaining an industry edge in cross-training line workers to build multiple cars on the same assembly lines. Inside Toyota's sprawling Tsutsumi plant here -- one of two in Japan that make the Prius -- workers produce seven models on two assembly lines, changing tasks every two hours.

The relentless push for efficiency often takes shape in small ways. Two years ago, the company came up with a new process in which parts for specific models were presorted into blue boxes that travel down the line as each car is assembled. Though low-tech and inexpensive to put into effect, it significantly sped up the product line and saved space by doing away with the need for workers to seek out different auto parts from storage bins. It was one of roughly 600,000 small improvements Toyota makes annually.

"Toyota is the Tiger Woods of flexibility and efficiency; they've got everybody a few strokes behind," said Ron Harbour, head of Harbour Consulting, publisher of an annual auto industry productivity report. "Often, it's nothing that makes you sit back and go 'wow.' They're little things, thousands of little things that add up to a huge advantage."

Analysts say the Prius marks an inventive milestone for Toyota. Although it accounts for only a tiny fraction of the record 9 million vehicles Toyota expects to produce this year, the Prius was an atypical risk for a company that has become more known for quality and consistency than innovation.

Toyota has been toying with hybrid engines for the past 20 years. But the company began to seriously pursue a mass-producible hybrid in 1993. Ogiso, 45 years old and now the chief engineer on the third-generation Prius still under development, said the edict came from Eiji Toyoda, the patriarch of the Toyota family who headed the company until 1994.

Ogiso said Toyoda had grown increasingly concerned that gas-engine auto manufacturing would eventually become a sunset industry given the limits of global oil supplies and increasing pressure to curb emissions. Focused more on a long-term advantage than the short-term gains that U.S. automakers are under pressure from Wall Street to produce, Toyota put hundreds of engineers to work on creating a new engine that would double average gas mileage and cut emissions by 80 percent. Conventional engines were quickly ruled out. "We found that the only way to achieve that goal was building a whole new type of car," Ogiso said.

In the United States, an unconventional car called for unconventional marketing, and Toyota began selling the Prius via the Internet to generate a buzz. It worked. Hollywood celebrities, including Cameron Diaz and Leonardo DiCaprio, stepped in, scooping up the eco-friendly car in which even the floor mats are made from recyclable sugar cane.

The Prius hit a vein of gold. Despite a premium price, sales vastly outpaced Toyota's expectations. The car sold 107,897 units in the United States in 2005 -- about double the 2004 volume. Toyota quickly rolled out other hybrid models, including Lexus and Highlander versions, selling 235,000 worldwide in 2005, up from 134,000 a year earlier.

Some credit the success of the Prius to lucky timing -- sales took off just as gas prices were skyrocketing. But many who initially scoffed at the idea -- including General Motors and Ford -- have become true believers. Both companies have rolled out hybrids of their own.

But Toyota is banking on staying one step ahead.

"We knew were on the right path," Ogiso said. "And we were."

Special correspondent Akiko Yamamoto contributed to this report.

Decision of a lifetime

Sunday, April 09, 2006

Decision of a lifetime (storylink)

Autoworkers try to find a steady course in uncertain times

Louis Aguilar and Brian J. O'Connor / The Detroit NewsApril 9, 2006

For more than 100,000 U.S. factory workers, the historic buyout deal brokered by General Motors Corp., Delphi Corp. and the United Auto Workers comes down to a simple choice: Keep working and risk losing their jobs down the road, or take the money and run.
Simple, but not easy.

They are the last generation of autoworkers who expected to punch in at one company their entire working lives and be rewarded with hefty wages -- many can earn more than $100,000 a year with overtime -- and comfortable pensions.

For them, the buyout offer essentially represents a broken promise -- the promise of a job for life. They greet that fact in varied ways. With stubborn refusal. With dreams of a new career after decades of factory life. With hopes of transferring to a job given up by another.

The buyout program is one of the largest in corporate history. All of GM's U.S. factory workers -- 113,000 -- can take cash incentives ranging from $35,000 to retire early, to $140,000 for workers with less seniority to simply leave the company.

At Delphi, GM's former parts unit, 17,000 U.S. hourly workers can take $35,000 to retire. Of those not eligible, some hope talks related to Delphi's bankruptcy involving Delphi, GM and the supplier's unions will end with a cash offer to leave.

Others want to be among the 5,000 UAW workers GM has said can transfer to the automaker. Still others are scrambling for jobs at factories that will stay open as Delphi restructures, even if it means a deep pay cut.

They all face deeply personal choices.

"When you get a buyout, you're now in the driver's seat, you're now responsible for your career," says career coach Prudence Cole of Grosse Pointe, who runs http://www.beingatwork.com/.
"You can choose to stay or you can choose to leave, but it's all about you. That can be fearful, but it's an opportunity to decide what's important for you."

At GM and Delphi, some workers will insist on staying. Some won't be able to cash out fast enough. The rest will go with their guts and hope for the best. But they are all weighing the money against the risks, and their hopes against their fears.

You can reach Louis Aguilar at (313) 222-2760 or laguilar@detnews.com. You can reach Brian O'Connor at (313) 222-2145 or boconnor@detnews.com.

GM rolls dice on Las Vegas drive attraction

Sunday, April 09, 2006

GM rolls dice on Las Vegas drive attraction (storylink)

Automaker hopes test facility on Las Vegas Strip will lead to more sales

Brett Clanton / The Detroit News

What happens in Las Vegas could actually help General Motors Corp. sell more cars and trucks.
GM is opening a new test facility Monday on the famous Las Vegas Strip in an effort to convince thousands of well-heeled tourists to try out its products.

The attraction, called The Drive is part thrill ride and part marketing lab. For $10, anyone 18 or older who presents a valid driver's license and passes a breathalyzer test can take a spin in one of more than a dozen new GM vehicles ranging from the Cadillac Escalade to the Chevy Corvette.

Raising awareness of new vehicles is central to turnaround efforts at GM, which lost $10.6 billion last year amid falling sales. The Drive promotion is one of many efforts designed to draw attention to GM's cars and away from its financial troubles. "Right now, we're using this as a pilot to see what the response is," said Ryndee Carney, a GM spokeswoman.

Customers may choose to drive on one of two tracks -- a high-speed oval with high-walled turns or a rugged off-road course boasting two "adventure trails."

The promotion was lured to town by the Las Vegas Monorail, which runs an inner-city train system and has trolled for companies to sponsor stops.

The attraction sits at the shuttle stop outside the venerable Sahara Hotel & Casino, where GM has leased an 11-acre site for six months.

"It's going to bring people to the hotel," said Ron Garrett, the Sahara's director of marketing and entertainment.

And before it's over, it may lure new buyers into the GM family.

"At one time, Vegas was the Cadillac capital of the world," Garrett said. And maybe someday, he said, it will be again.

GM agrees to provide Delphi creditors with information

Saturday, April 08, 2006


GM agrees to provide Delphi creditors with information (storylink)

Paullette Chu / AP Business Writer



NEW YORK -- General Motors Corp. has agreed to cooperate with unsecured creditors of Delphi Corp. that are looking to challenge GM if the automaker attempts to seize big payouts from a restructured Delphi, attorneys in the case said Friday.

Delphi's unsecured creditors committee, which includes representatives from companies including Electronic Data Systems Corp. and General Electric Co., wants GM to provide it with various documents so that creditors can examine any claims GM has made or makes on Delphi's assets.

On Friday, attorneys in the case said GM and the unsecured creditors have reached an agreement in which GM will cooperate with the committee so long as the parties can agree to the scope and other terms of the creditors' inquiry.

The parties plan to file their agreement with the U.S. Bankruptcy Court in Manhattan, and Judge Robert Drain indicated he would approve it.

Delphi has listed GM, its former parent company, as one of its largest unsecured creditors, along with the International Union of Electrical Workers-Communications Workers of America and Pension Benefit Guaranty Corp.

Under an agreement with Delphi and its unions, GM has agreed to fund buyouts for 17,000 Delphi hourly workers and allow an additional 5,000 Delphi workers to flow back to GM. Creditors have raised concerns that the buyout deal would allow GM to file a claim against Delphi for some of the costs of the buyout.

As it is written, the program "would create an outsized, unnecessary and unjustifiable claim for GM" against Delphi, the creditors committee said in a court filing this week.

In addition, GM claims that Delphi owes it roughly $1.23 billion for costs related to post-employment benefits for employees who worked at Delphi and retire from GM, in addition to other amounts for warranty or product recall claims and overpricing claims.

Delphi's unsecured creditors committee, however, has questioned whether GM qualifies as an unsecured creditor at all because of the two companies' intertwined relationship. Delphi has largely blamed its financial struggles on an overly burdensome and costly labor cost structure that it inherited from GM in its spin-off from the automaker back in 1999.

Hedge-fund manager David Tepper and his Appaloosa Management LP, who bought most of his roughly 9 percent stake in Delphi right after the company filed for bankruptcy protection last October, has joined the unsecured creditors' committee in its potential challenge against GM.

Shares of GM slipped 4 cents to close at $19.51 on the New York Stock Exchange.

GM, its suppliers walk outsourcing tightrope

GM, its suppliers walk outsourcing tightrope

Episode highlights the pressure on both GM and its suppliers to take advantage of cheap labor

Brett Clanton / The Detroit News

April 6, 2006

General Motors Corp. says it has no official policy requiring suppliers to outsource work to low-wage countries. But several suppliers got the opposite message when they recently opened a bid package.

The companies were told in clear language that if they wanted the GM contract they had to acquire more than 30 percent of the parts from approved nations ranging from China to Namibia, according to documents obtained by The Detroit News.

In response to questions from The News, GM launched an inquiry and discovered one of its purchasing employees dummied up the documents without company approval. GM global purchasing chief Bo Andersson immediately sent a missive to employees reiterating that the automaker should not "direct suppliers where to source" parts.

"GM's suppliers must determine how to compete in this hyper-competitive market," he said.

The episode highlights the pressure on both GM and its suppliers to take advantage of cheap labor at a time of unprecedented global competition. GM, which spends about $85 billion on parts a year, is no longer willing to pay $30 for a component that can be made in China for $5. And it now reserves the right to review suppliers' costs and often strongly suggests that uncompetitive suppliers look offshore.

While most suppliers won't speak out against GM and other automakers on the record, they say the message is clear: Outsource or get left behind.

The tensions reflect the delicate task facing GM as it moves to slash purchasing costs, expand into foreign markets and maintain sometimes fractious supplier relationships.

GM, which lost $10.6 billion last year, says it has little choice but to cut costs and take advantage of low-cost manufacturing.

Pressure rises for cheap parts

U.S. automakers are under increasing pressure to find cheaper parts, both out of a need to offset rising costs elsewhere and in order to become more competitive with foreign rivals. Often, that means looking overseas, where suppliers can quote less expensive prices chiefly because of lower wages.

The endless push to procure lower-priced parts has been a major topic of discussion at the 2006 Society of Automotive Engineers World Congress this week in Detroit, with the China pavilion jammed with suppliers wooing new business and low-wage countries lobbying to land new plants.

The amount of auto parts sourced in low-cost countries is expected to double between 2004 and 2007, according to a recent study by Accenture.

A separate survey by Roland Berger Strategy Consultants in Troy predicts that North American auto suppliers will close plants and move as much as 20 percent of their production to low-cost regions by 2010.

The shift is a major threat to the United Auto Workers and other unions representing U.S. auto workers.

"There are some who say those days are over -- that the very idea of decent wages, health care and retirement security for workers has been rendered obsolete by the harsh realities of globalization," UAW President Ron Gettelfinger said in a Jan. 17 speech. "In other words, take the low road. The UAW rejects that strategy because no matter how low you go, some other country will go lower -- not only in wages but in safety conditions, human rights and environmental standards."

Other parts have a future

But recent actions of automakers and bankrupt suppliers such as Delphi Corp. suggest that, while some auto parts may never again be made in the U.S., there is a future for other parts.
GM, for instance, just stopped sourcing spark plugs from a Delphi plant in Flint, which pays workers an average of $27 per hour. The tiny parts are built in Mexico and other regions at a fraction of the cost.

"If you keep the business of selling spark plugs and we can't sell the cars they go into -- the competitors are beating us on a total cost basis," GM Chairman and CEO Rick Wagoner said, "that isn't helping anybody."

Delphi, in turn, plans to shed most of its U.S. plants as part of its reorganization in bankruptcy, but will continue building products such as electronics, safety equipment and heating and cooling systems here because they can be sold at a profit.

High transportation costs and demanding delivery requirements will prevent many large or labor-intensive parts such as seats or instrument panels from being sourced abroad any time soon, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

"There tends to be an over-anxiety related to outsourcing parts, when it really only affects some types of parts," he said.

Last fall, GM launched a new supplier program aimed at reducing its $85 billion global purchasing bill by 2008 as part of a broad turnaround. Under the plan, GM for the first time asked suppliers to compete on a part-by-part basis rather than live under corporate-wide targets. It also required suppliers to back up bids by opening their books to the automaker.

While some suppliers complain the process is coercive and designed to wring out the lowest price, GM says it protects the automaker and the supplier by ensuring a parts maker has a cost structure to support prices it is quoting and that its prices, quality and delivery scores are globally competitive.

"A lot of suppliers are making noise about this because they are not ready to compete on a global basis," Andersson said in an interview. "What we say is we are working on a global basis today."

'Global footprints' stressed

GM's purchasing operation, staffed by 4,000 employees in 40 countries, manages a network of 3,200 suppliers who build about 160,000 components for the automotive giant.

With GM now selling more vehicles in international markets than in the United States, and sharing engineering functions around the globe, it is encouraging domestic parts suppliers to follow the company into fast-growing regions such as China and Eastern Europe.

In recent presentations to suppliers, GM stresses a need for parts makers to "optimize" their "global footprints" to keep pace with the shift.

Such vague messages may explain why the GM buyer manufactured the document demanding parts be sourced in low-cost regions.

While the form is in direct conflict with stated company policy, Andersson said the employee was not fired. Rather, he defended the worker for his "creativity."

"This guy made a mistake," he said. "He made a lot of this stuff up based on what he felt was right."

GM downplays the incident as an aberration, and said it does not reflect a policy shift regarding low-cost countries.

Despite the outcry over outsourcing, GM says it still buys 99 percent of the parts found on vehicles sold to U.S. consumers from North American sources. That total includes parts that are assembled here, even if they largely consist of components imported from low-cost regions.

You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.

GM'S Rick Wagoner: We can do it

Wednesday, April 05, 2006


GM'S Rick Wagoner: We can do it

'The future of the company is held in balance by the actions that we all take in a relatively short period of time.'

Bill Vlasic and Brett Clanton / The Detroit News


DETROIT -- Wall Street is trashing his stock. Analysts are predicting a bankruptcy. Critics in the media say he should be fired as chairman of General Motors Corp.

But Rick Wagoner is not about to give up the wheel at GM -- or deviate from the plan he believes can restore it to greatness.

"I'm doing what I'm doing because I love General Motors," Wagoner said Tuesday. "I think it's very important what we're doing in the company, and I think I'm by far the most qualified person to do it."

Wagoner occupies the hottest seat in corporate America, a 53-year-old GM "lifer" under fire for decades of decline by the world's largest carmaker.

Yet as he presides over the most dramatic restructuring in GM history, Wagoner has neither the time nor patience for outsiders who say GM is destined to fail.

"It's easy to stand back and come up with great ideas, OK?" he said. "It's not so easy to do this stuff."

In an interview with The Detroit News on Tuesday, Wagoner said that the massive overhaul of GM operations will produce markedly improved results in 2007.

He also expressed confidence that a costly strike will be avoided at bankrupt parts maker Delphi Corp., and that many GM and Delphi hourly workers will take early retirements or buyouts as the automaker downsizes.

Wagoner admitted that investors, employees and other stakeholders have a right to be nervous about GM's future. Last year's $10.6 billion loss, combined with GM's shrinking share of the U.S. new-vehicle market, have spurred speculation that GM may yet have to follow Delphi into bankruptcy.

And while GM's board on Monday made a public show of support for Wagoner, he remains in the crosshairs of critics calling for his ouster.

"There's blood in the water, and a lot of people are looking to tear (Wagoner) apart," said George Magliano, an industry analyst with Global Insight in New York.

Wagoner is keenly aware of what he calls the "assaults" on his performance by media outlets such as The Wall Street Journal. "That can wear on you," he said.

Tough talk isn't enough

But his low-key manner fades quickly at suggestions that he is not tough enough to tackle hard issues involving GM, Delphi and the United Auto Workers.

"It's easy to talk tough," he said. "But I would invite anybody in who says you should play hard-nosed with the union. Yeah, you come sit in this chair the third week into a strike and see how that feels."

If GM is the beleaguered giant of the U.S. auto industry, Wagoner is its face, the personification of a proud but troubled company determined to come back despite huge odds stacked against it.
Sitting in his shirtsleeves at a conference table in his Renaissance Center office, Wagoner ticked off the milestones so far on GM's road to recovery: health care cost cuts for salaried and hourly workers, a dozen plant closings, the planned elimination of 30,000 factory jobs and the sale of a controlling interest in GM's prized finance division.

He is particularly pleased with the agreement reached last month by the UAW that will offer buyouts ranging from $35,000 to $140,000 to every one of GM's 113,000 hourly employees and another 13,000 workers at Delphi.

"What could be better?" Wagoner said. "We have a number of people who would like to retire. We provide them a reasonable, but not excessive incentive to retire. It's not a comprehensive solution, but it's a very important piece of the puzzle."

Buying out older workers, he said, is critical to opening GM jobs for workers who may be displaced in Delphi's reorganization plan. Beyond that, the buyouts can create space for idled workers in the controversial "jobs bank" program, which provides full pay and benefits for laid-off workers.

More importantly, the attrition program was negotiated and accepted by the UAW. While Wagoner has come under fierce attack from outside the company, he has gained an unusual measure of respect from the union's leadership.

UAW expresses support

In an interview Tuesday on WJR-AM, UAW Vice President Richard Shoemaker praised Wagoner for his sensitivity to workers whose livelihoods are on the line in GM's restructuring.
"I do think that Rick Wagoner is trying very, very hard to do what he believes is necessary to make General Motors a viable company for the long term," Shoemaker said. "And I think he is sensitive about the impact these things have on employees."

That level of trust between Wagoner and the UAW is vital to negotiations over Delphi's restructuring.

With Delphi Chairman Robert S. "Steve" Miller petitioning the bankruptcy court for sweeping cuts in union jobs and wages, the UAW is bracing for a fight and possibly a strike that would cripple the delivery of parts to GM.

Wagoner has become the pivotal figure in talks between GM, Delphi and the UAW to solve how Delphi can downsize its operations without brutally slashing factory jobs and paychecks.
He downplayed the possibility of a long, damaging strike, saying that all sides have too much to lose. "It would be a significant failing on the part of all three of us -- the unions, Delphi and GM -- if we can't come to a resolution without a major strike," Wagoner said. "It would be a good example of doing the worst for all of us."

He said he would be surprised if Delphi's reorganization is not resolved peacefully "over the next couple of months." Still, the prospect of a Delphi strike is the most unsettling factor in GM's immediate future.

"The one variable that could throw this whole thing in the trash basket is if Delphi workers walk," said Magliano.

Wagoner said skeptics need to appreciate the intricate, interdependent relationship between GM and the UAW, and the challenges that global competition have thrust upon both.
"We're in a tough time, and if GM's not successful, (the UAW) will have to help with the solution," he said. "There's no solution to this without their engagement."

Time is running short

But Wagoner knows the clock is ticking on GM. The automaker is losing millions of dollars a day, and GM's board is feeling its own pressure to push Wagoner and his team to move faster.
"He's got the right team of executives in place that can execute the changes," said Kevin Reale of AMR Research in Detroit. "The challenge is can he make it fast enough that the board is going to think he's the right guy."

The pressure, Wagoner said, is both wearing and exhilarating.

"We're at an epochal time in the history of GM. The future of the company is held in balance by the actions that we all take in a relatively short period of time," he said. "You want to make sure you do it right."

Wagoner and his deputies have steadfastly refused to offer specific guidance on when GM will return to profitability. However, he said that $7 billion in cost-cutting measures should transform the company's bottom line by next year.

In the interview, he sketched out on a yellow legal pad how GM identified its strategic alternatives in 2005, is implementing them in 2006, and expects the payoff in 2007.
"I have a high degree of confidence that we will show improved results," he said.

"We can't continue with the kind of losses we had last year. We need to get it turned. But to me, we will."

While Wagoner's unflappable optimism irks some investors, analysts and journalists, members of the GM corporate family have rushed to his defense.

Wagoner supporters step up

News reports predicting GM is heading toward an inevitable bankruptcy have galvanized support for Wagoner from dealers across the country.

"It gets a little tiresome to read articles from people who don't understand the situation and continue to pick on someone who is working so hard," said Carl Sewell, a major GM dealer in Dallas.

Wagoner takes offense at what he termed "backward looking financial analysis" that judges GM's future based on its past.

"We are at a juncture right now doing things that haven't been done in the history of GM," he said. "And I'm the guy who knows more about it than anybody because I'm right in the middle of it. And I feel pretty sure about it."

Some of the financial problems GM is facing are not Wagoner's doing, but have accumulated over GM's 100-year history. Yet he is blamed for everything, said David Fischer, who has 10 dealerships in Michigan.

"Rick Wagoner is not the type of guy to say, 'It's not my fault.'"

Pushing his team harder

GM insiders say that Wagoner is driving people harder than ever, forgoing sleep and time with his family to lead a historic transformation of the company.

"Time is the big enemy," said one GM executive close to Wagoner. "Does GM have enough time to do what it needs to do?"

Wagoner won't set a time limit on his own tenure as chairman and chief executive. He politely refused to discuss his future, except to say that he has paced his own "bet" on a successful GM revival.

"People are putting their bets on the table. And what I say is, we'll see how this plays out."

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.

UAW Statement on Delphi Filing 1113/1114 Motions

Friday, March 31, 2006

UAW Statement on Delphi Filing 1113/1114 Motions (story link)

DETROIT – UAW President Ron Gettelfinger and Vice President Richard Shoemaker today issued this statement on Delphi’s announcement that it will file Section 1113 and Section 1114 motions today with the U.S. bankruptcy court in New York.

“Delphi’s misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce health care, retirement and other hard-won benefits or eliminate them altogether is a travesty and a concern for every American.

“Delphi’s proposal goes far beyond cutting wages and benefits for active and retired workers.
Delphi’s outrageous proposal would slash the company’s UAW-represented hourly workforce by approximately 75 percent, devastating Delphi workers, their families and their communities.

“Delphi’s filing Section 1113 and Section 1114 motions with the U.S. bankruptcy court – like the quality of the proposals it has made to the UAW – is another indication that Delphi has never been serious about finding a solution to its current problems through the collective bargaining process.

“The changes touted in Delphi’s most recent proposal are entirely contingent on GM’s financial support, but GM has advised us and stated publicly that it has not agreed to provide that funding. In other words, Delphi’s latest proposal is basically a reiteration of its previous proposal.

“Last week, after many long, hard days and nights of negotiations, the UAW, GM and Delphi reached agreement on a Special Attrition Program that will reduce Delphi’s costs. That agreement, which was reached without an arbitrary, self-imposed deadline, created momentum that could have allowed the UAW, GM and Delphi to make progress in discussions focusing on other areas.

“Unfortunately, Delphi’s filing of its 1113/1114 motions kills that momentum. Indeed, today it appears there is no basis for continuing discussions.

“In the event the court rejects the UAW-Delphi contract and Delphi imposes the terms of its last proposal, it appears that it will be impossible to avoid a long strike.

“The UAW has worked diligently in good faith to resolve the Delphi situation through collective bargaining instead of through a lawyer-driven court process or confrontation. Regrettably, Delphi has chosen another path.”

GM board backs Wagoner

GM board backs Wagoner (story link)

GMAC sale shows he's on right track, directors say

Bill Vlasic / The Detroit NewsApril 4, 2006

DETROIT -- General Motors Corp. Chairman Rick Wagoner received a much-needed vote of confidence from GM's board Monday after the automaker finalized a historic deal to sell a controlling interest in its finance division.

In an unusual show of support, GM's board of directors said the sale of 51 percent of General Motors Acceptance Corp. was a "milestone" in the company's turnaround plan and a validation of Wagoner's leadership.

"While there is much work to be done, the GM board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability," said George Fisher, who serves as the presiding director of the 12-member GM board.

Wagoner has come under heavy fire on Wall Street and in the media in the wake of GM's $10.6-billion loss last year and the steady erosion of its stock price and U.S. market share.

He said Monday that any measure of support is welcome given the storm of criticism engulfing GM.

"I appreciate the support from the board, our employees, my wife -- anybody I can get it from these days," Wagoner said.

The vote of confidence directly refuted rumors that GM's board has lost patience with Wagoner's methodical strategy to slash labor costs, streamline operations and restore profits.

"It needed to be said because the speculation was just running rampant," said David Cole of the Center for Automotive Research in Ann Arbor. "The board was upset that there was a feeling that Rick was being pushed out."

The timing of the board's statement was hardly coincidental, coming the day after the directors approved the GMAC deal at a special meeting.

The agreement to sell off control of GMAC to a blue-chip investment group will raise $14 billion in cash to help fund the dramatic downsizing of GM's troubled North American operations.
For Wagoner, the deal represents a critical step forward in his plan to remake GM.

"I think it's just what the doctor ordered," he said. "From a liquidity perspective, it's a home run."
But the sale of GMAC, which has been a part of GM for 87 years, also underscores the automaker's precarious circumstances.

The finance unit has been a steady source of income -- $2.5 billion last year alone -- at a time when GM's auto operations are bleeding red ink and its sales are declining. On Monday, GM said its U.S. sales fell 14 percent in March.

GMAC's auto-financing business is a crucial link between the automaker and its dealers and customers. But the dismal performance of GM has dragged the credit rating of GMAC down to junk-bond levels, driving up its borrowing costs and squeezing its ability to offer competitive loan rates to car buyers.

By splitting GMAC off from GM, the automaker expects that the finance business will once again achieve investment-grade credit ratings.

"We believe we'll be on a path to investment-grade rating at the closing or shortly thereafter," said GMAC Chairman Eric Feldstein, who will continue as chief executive of the unit after the sale.

The major rating agencies -- Standard & Poor's, Moody's Investors Service and Fitch Ratings -- took no immediate action on Monday's announcement, which had been expected for weeks.
The new majority owner of GMAC is a consortium led by Cerberus Capital Management, a New York-based investment firm, and the private-equity arm of banking giant Citigroup Inc.

GM will retain a 49-percent ownership stake and enter into a series of 10-year agreements under which GMAC will continue to provide car loans and other financial services to GM customers.

"We recognize that GM's dealers are a cornerstone for growth in this business, and we are committed to maintaining the strong support that GMAC provides top its dealer customers," said Lenard Tessler, a senior managing director of Cerberus.

GM also has a 10-year option to acquire the global auto-financing operation of GMAC if the automaker itself regains an investment-grade credit rating.

Under terms of the deal, GM will get $14 billion in cash from the transaction over the next three years. That includes $7.4 billion from the consortium when the deal closes later this year and a $2.7-billion cash distribution from GMAC.

Also, GM will keep about $20 billion worth of GMAC auto leases and other assets that will realize a value of $4 billion over the next three years.

GMAC's 33,000 employees worldwide, including a large number of workers in Metro Detroit, no longer will be GM employees, said Toni Simonetti, a spokeswoman for the automaker. Terms of employment, including pay and benefit levels, should be determined before the sale closes, she said.

Industry analysts cautiously endorsed the deal, which brought a higher price than was originally expected on Wall Street. GM stock closed at $20.14, down $1.13, in trading Monday on the New York Stock Exchange.

"The transaction will raise much needed cash as GM attempts the Herculean task of turning around its core auto business," said John Murphy of Merrill Lynch.
GM faces huge hurdles in the weeks ahead as it grapples with its most dramatic downsizing in nearly a generation.

The automaker is committed to cutting 30,000 U.S. manufacturing jobs and shutting 12 factories by 2008. To accelerate the attrition of workers, GM is offering buyouts or early retirements to all of its 113,000 hourly employees.

Another 13,000 hourly workers at GM's biggest parts supplier, bankrupt Delphi Corp., also will be eligible for the program. Getting those workers to retire will be a major factor in the pending reorganization of Delphi in U.S. Bankruptcy Court.

GM's chief financial officer, Fritz Henderson, said that solving the Delphi dilemma is the subject of ongoing negotiations between GM, Delphi and the United Auto Workers. Without an agreement, the UAW could strike Delphi and cripple the delivery of parts to GM factories.

"No one has more of an incentive to find a solution for this (Delphi) problem than we do," said Henderson.

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.