GM to Pink Slip 25,000 Workers

When Kirk Kerkorian bought almost 5% of General Motors a month ago to bring his total stake to around 9%, this journal warned that the warm feeling investors and workers got from that move would be short-lived. It turns out to have been shorter than expected. At the annual sharheolders’ meeting, Chairman and CEO Rick Wagoner has announced 25,000 North American jobs will go by 2008.

Management blames a number of factors for the decline in GM results, but it is inevitably the workers who pay the price. This particular batch of job losses will save around $2.5 billion a year, which would only partially make up for the $1.1 billion loss it incurred in just the last quarter for which it has reported results. In other words, even with this change, the company will lose money all things being equal.

Part of the problem, GM maintains, is the price it has to pay for American labor. It isn’t just that American screw tighteners make about 10 times what Chinese screw tighteners earn. The benefits also entail heavy costs. As Mr. Wagoner explained, "Our $1,500 per [vehicle] health-care expense represents a significant disadvantage versus our foreign-based competitors. Left unaddressed, this will make a big difference in our ability to compete in investment, technology, and other key contributors to our future success." In other words, GM would save $1,500 per worker if the US had a universal healthcare system like that of the Netherlands, Denmark, the UK, Japan, etc. Mr. Bush should consider cutting this tax on American business and take care of the American people at the same time.

There is, of course, a certain amount of bad management that contributes to the rotten results at General Motors as well. As mentioned here last month, GM and the other US-based carmakers don’t really have a hybrid with which to challenge the Japanese. And the latest marketing ploy, the “GM Employee Discount for Everyone Event,” will boost volumes but may reduce revenue by being just too damn generous. On GM’s economy car, the 4-door Aveo, for instance, the price reduction ranges from $1,200 to $1,500 – the price of the worker healthcare cost Mr. Wagoner bemoaned. On a Trailblazer, the reduction is more like $7,000.

The company will benefit from its belt-tightening, but in its drive to retain its shrinking market share, it will continue to do things that reduce its profitability. It is a terrible dilemma – retain revenue to pay the bills while losing sales to others, or cut prices to make sales but wind up short of funds in the end. It is too early to write the company’s epitaph, but it wouldn’t be out of order to start sketching an outline of a eulogy.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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