GM cuts costs after US$2.5B Q3 loss: 'rapidly deteriorating conditions'
Published Friday November 7th, 2008
Another round of job and cost cuts at General Motors and Ford, coupled with the prospect of more plant shutdowns at Chrysler, thickened the already dark clouds hanging over North America's auto sector Friday, an industry desperately struggling to emerge from one of the worst periods in its history.
Unless the battered car market recovers, there's a chance that one of the so-called Detroit Three auto companies will go bankrupt, wiping out tens of thousands of jobs in Canada and the United States.
On Friday, GM Corp. (NYSE:GM), the world's biggest carmaker, reported a US$2.5 billion loss in the third quarter, announced 3,600 job cuts, and warned it could run out of cash next year if the U.S. economic slump continues and it doesn't get government aid.
The cuts affect numerous U.S. plants and the company's biggest Canadian factory, a 5,000-employee carmaking operation in Oshawa, just east of Toronto. About 500 workers will temporarily lose their jobs there as output is reduced.
CAW president Ken Lewenza said that while the cuts at the Oshawa car plant are temporary, the move signals the need for Canadian government financial aid for the troubled industry.
Cuts are also coming to the white collar workforce at the company, which once employed more than 30,000 Canadians but has pared back its workforce over the last two decades.
In a conference call with reporters and analysts, GM chairman and CEO Rick Wagoner said the giant automaker, with 266,000 employees, will "take every action we possibly can" to avoid bankruptcy.
"We're convinced that the consequences of bankruptcy would be dire," he said, adding that the company will use every source of funding it can.
"We need to find a way to get through this, and that's really our focus."
In Canada, GM has already announced plans to shut down a truck plant in Oshawa next fall, with the loss of 2,600 jobs, and a transmission plant in Windsor, Ont. in 2010, cutting another 1,400 jobs.
And more cuts could be coming as production shrinks to deal with GM's staggering loss of market share, caused by rising fuel prices, the slumping U.S. economy and a credit crunch that has made it hard to finance vehicle purchases in the U.S.
"Today's news is devastating to our members in Oshawa," Lewenza said. "If there is a silver lining it's the fact that these are temporary and not permanent layoffs."
In another key development, GM also said Friday it has suspended talks to acquire Chrysler, the troubled rival that has been hit especially hard by the shift in consumer demand toward smaller, more fuel-efficient vehicles in the U.S. market.
While it didn't specifically name the automaker, GM said it was setting aside considerations for a "strategic acquisition."
Chrysler said it will now focus on returning to profitability, which could lead to major cuts at the company's operations in the U.S. and Canada, where it employs nearly 10,000 people at assembly and parts plants in southern Ontario.
The pressure now is on Chrysler to shore up its finances and cut costs as it tries to find a white knight to save the company from collapse.
Chrysler nearly went out of business in the early 1980s - after acquiring the former American Motors Corp. - and was kept alive with a U.S. governent bailout plan at the time. Today its prospects look even darker.
"They need to partner with a foreign automaker or they're left with the options of bankruptcy and liquidation," said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight.
"Chrysler is basically not big enough to stand on its own anymore."
The GM streamlining comes in the wake of 470 layoffs of CAW workers at the Navistar truck plant in Chatham, Ont., and another 500 job losses at the CAMI plant in Ingersoll, a joint venture between GM and Japanese carmaker Suzuki.
Spillover job cuts are also coming to plants in Ontario and elswhere, since the general rule of thumb is that one auto assembly job usually supports up to seven other jobs in supplier industries.
Friday's job cuts are part of a broader plan by GM to sell assets and reduce costs to improve its finances.
The woes of GM, Ford and Chrysler, former iconic companies that dominated North American manufacturing decades ago, reflect the rapid slump in the U.S. economy and the credit crunch that has made it difficult for consumers to finance car purchases.
Hundreds of thousands of high-paying blue-collar assembly jobs have been shaved from the so-called Detroit Three since the late 1970s as GM, Ford and Chrysler lost market share to Japanese and European rivals.
At the same time, though, Toyota, Honda, Nissan and others have built plants and hired tens of thousands of workers in Canada and the U.S. as their business grows.
While the Detroit Three have cut thousands of jobs in Canada, Toyota and Honda have expanded their plants in central and southwestern Ontario to feed growing market share in the United States.
GM employs about 20,000 at Canadian plants, which ship about 90 per cent of their assembled cars to the U.S. market. That means a drop in demand from U.S. consumers impacts jobs at auto factories across southern Ontario.
"Volatility in the world's financial markets, tightening of consumer and business credit and historically-low consumer confidence has created a very challenging environment,"
Wagoner said.
"Given the current lack of credit availability we must take further difficult 'self-help' actions."
The latest GM cuts came hours after Ford Motor Co. (NYSE:F) said it lost $129 million for its third quarter and will cut about 2,260 more white-collar workers in North America as the industry tries to weather the worst economic downturn in decades.
At Ford, CEO Alan Mulally said the company has the right strategy to survive the troubles in the industry.
"While Ford has been dramatically affected by the difficult business environment, we remain absolutely convinced that we have the right plan and are taking the right actions to weather this difficult period and emerge as a lean, globally integrated company poised for long-term profitable growth," Mulally told industry analysts.
While prospects look bleak in the short term, industry analysts note that the overall global industry is still in relatively healthy shape.
The global sector, which employs about 25 million workers directly or at supplier companies, is growing in China and Asia, with new vehicle companies entering the market and rising consumer demand.
Japanese carmakers have been affected by the U.S. slump, but companies such as Audi, Fiat, Tata, Chery and others not overly dependent on the American market are doing well.
In addition, new fuel efficient and low-emission vehicles that all the carmakers are developing - including GM's Volt electric car - promise to create rising demand in the future and potentially hundreds of thousands of new jobs around the world.
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