Profitable GM looking to cut costs with buyouts

Nora Naughton
The Detroit News
A General Motors logo is shown at the General Motors Technical Center in Warren.

A consistently profitable General Motors Co. is offering buyouts to 18,000 salaried employees in North America as part of a larger cost-savings effort to brace for an industry downturn and free capital for future technologies.

The Detroit automaker notified employees of the voluntary severance program Wednesday, shortly after it released strong third-quarter financial results, with a 10.2-percent profit margin on earnings of $2.8 billion in North America alone last quarter.

"We are doing this while our company and economy are strong," GM said in a  statement. "The voluntary severance program for eligible salaried employees is one example of our efforts to improve cost efficiency."

ReadHowes: Fat truck, SUV profits are necessary preconditions for Auto 2.0

The targeted buyouts come at a time when GM's balance sheet is clean and the company is positioning itself for the future with big bets on the mobility, autonomy and electrification of Auto 2.0. The prospective job cuts mark a dramatic cultural shift from an old GM that typically reserved such actions for difficult times.

General Motors Co. is offering buyouts to salaried employees in North America with 12 or more years of experience as part of a larger company-wide cost-savings effort.

The last time GM offered buyout packages to salaried workers was in 2009. The automaker was in the throes of its historic, federally induced bankruptcy that claimed four of its eight U.S. brands, closed plants and almost forced the automaker to abandon its Detroit headquarters.

"It's never easy to lose jobs or let people go," said Stephanie Brinley, an automotive analyst with industry analysis firm IHS Markit. "But if you can make these decisions when you're in a good space, you can make healthier choices than when you're in trouble and your back is against the wall." 

Investors welcomed the news, pushing GM shares up more than 9 percent to close at $36.58. The buyouts are being offered to 18,000 GM employees in North America with 12 or more years of experience with the company. GM employs 50,000 salaried workers in North America.

Eligible employees have until Nov.19 to opt into the voluntary severance program, and GM is not ruling out possible layoffs after this buyout program closes. The company is not publicly releasing details of the offers.

As GM charges forward with its plan to largely electrify its global fleet and deploy autonomous vehicles in North America and China, the company says it needs to take "proactive" steps to prepare for the costliness of those ventures.

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

And as GM right-sizes portions of its North American workforce, other pieces of the business are expected to grow their staffs. 

On a call with investors following GM's third-quarter earnings report, CEO Mary Barra said GM Cruise LLC, the automaker's autonomous-vehicle development arm, is planning to largely spend on hiring in the fourth quarter. GM Cruise is expected to spend an estimated $500 million in the fourth quarter to reach a total of $1 billion for the year.

"It's due to a lot of hiring and accumulating miles and experience," Barra said of the expected spending in the fourth quarter.

If GM cannot meet a cost-savings benchmark set for its buyout program, the company says it will "evaluate the need to implement" any form of layoffs after it sees the results of the voluntary program and other cost-reduction efforts. GM is not releasing its cost-saving target for the buyout program, which is a voluntary severance package. 

The Detroit automaker has said it plans to save $6.5 billion in cost efficiencies through 2018, some $6.3 billion of which it has already achieved through the third quarter. Suryadevara said GM is on track to hit its efficiency goals by the end of the year.

Meantime, crosstown rival Ford Motor Co. is just beginning its own years-long restructuring. The Dearborn automaker plans to cut an undetermined number of its 70,000 global salaried workforce, the company said in early October, most likely in the second quarter of next year.

Ford CEO Jim Hackett plans to trim $25.5 billion in operating costs over the next few years, and at the same time spend $11 billion to restructure the global business. Like GM, Ford is pushing to get things in order — and cut excess — for an uncertain future expected to bring a slew of automated vehicles and electric powertrains into the marketplace.

"Both companies are in the same spot," said Mike Ramsey, an automotive analyst with research firm Gartner Inc. "They're doing well because of trucks and SUVs, but there are a lot of threats hanging in the near future."

As a long period of growth for the industry finally starts to show signs of contracting, Ramsey says "both Ford and GM will need to figure out how to continue to be profitable at a lower volume level."

Those looming challenges are compounded by immediate threats to the bottom line posed by rising commodity costs due to steel and aluminum tariffs, rising interest rates and deepening trade disputes between the U.S. and China.

"You have two highly capital-intensive, completely separate business streams right now," Brinley said. "GM is likely looking for anywhere you can reasonably reduce or shift costs, but those are going to become increasingly tough decisions."

GM's cost-cutting and serial restructuring, including jettisoning Europe and renegotiating labor contracts in South Korea, have helped yield GM's strong financial performances — most recently in the third quarter with an 8.8 percent profit margin worldwide on $3.2 billion in pre-tax earnings.

"GM has been doing this under Barra for years," Ramsey said. "It's less of a restructuring and more of an effort to make major strategic decisions about markets where they can play ... decisions that have contributed to GM being a smaller and more profitable car company."

Staff writer Ian Thibodeau contributed to this report

Twitter: @NoraNaughton