After buyout deadline, GM's workforce faces greater change

Nora Naughton
The Detroit News
General Motors CEO Mary Barra

General Motors Co.'s years-long effort to overhaul its workforce is shifting into overdrive as the deadline for 18,000 salaried employees to accept buyouts passed on Monday.  

“The best time to solve a problem is the minute you know about it," CEO Mary Barra said at The New York Times DealBook conference earlier this month, where business leaders discussed their industries. "Most problems don’t get smaller with time — and so that’s kind of a fundamental learning.”

Under GM's buyout offer, eligible employees could receive six months' pay and six months' health care starting in February, though on a case-by-case basis some employees could leave before the end of the year to effectively get eight months' compensation, according to two sources familiar with the matter. 

“The best time to solve a problem is the minute you know about it," CEO Mary Barra said at The New York Times DealBook conference earlier this month, where business leaders discussed their industries. "Most problems don’t get smaller with time — and so that’s kind of a fundamental learning.”

To meet a company-wide cost savings target, managers from each department received goals to meet by the end of the year. Those could be met by addressing discretionary spending or by leveraging the buyouts, a GM spokesman said. If these costs goals can't be reached, GM has said it would consider layoffs at the start of 2019.

The company is not targeting a specific headcount for the buyouts, focusing instead on the cash savings those buyouts would deliver over time. Still, given the generally low take-rate of white-collar buyout programs, GM faces an uphill battle to avoid layoffs.

"These programs don't usually fulfill the entire need of the company, but even if layoffs have to come later on it's much less than if a company had to start with layoffs," said Andy Challenger, vice president of Challenger, Gray and Christmas, a Chicago-based employment firm. "It's generally a good (tactic) if a company can afford it, because you can weed out some of the people who were ready to leave" before forcing exits.

GM and its competitors have for the last half-decade aggressively recruited and hired workers in emerging auto disciplines — from software development, to battery and fuel-cell technology. And in a year when the traditional side of the business is facing more acute challenges — including rising commodity costs due to tariffs and uncertainty surrounding NAFTA and trade with China — automakers are signaling that the next step in transforming their workforces for the future will have to include cuts.

And the time to do it is now, industry leaders have concluded, when consistent profits and hefty margins allow automakers to make their cuts surgically before the automotive industry contracts dramatically and they can't slash fast enough to keep up.

GM's buyouts, offered to salaried workers in North America and global executives with at least 12 years of experience, are as much a cost-savings effort as they are another step in GM's transformation of its workforce, the company says. GM already boasts that some 40 percent of its 67,000 salaried workers joined the company in the last four years.

Ford Motor Co. is also taking a hard look at its salaried workforce, planning to cut an undetermined number of its 70,000 salaried jobs globally by the second quarter of next year. It's all part of CEO Jim Hackett's fitness regimen for the Blue Oval, which aims to trim $25.5 billion in operating costs over the next few years at the same time the automaker spends $11 billion in part to restructure the workforce.

"It's not that these companies don’t need as many people," said Mike Ramsey, an automotive analyst for research firm Gartner Inc. "It’s that they don’t need the people they have. The people they have can’t necessarily pivot to what they need."

The deadline to accept the GM's buyout was this week, but the automaker says it likely won't report the result of the program — cost savings or jobs eliminated — until next month. If the automaker doesn't meet the undisclosed savings benchmark for this voluntary severance program, GM has said it would have to consider layoffs. 

The results could show that there are some previously protected salaried jobs that might go extinct as the automotive industry barrels toward the mobility, electrification and automation of Auto 2.0. Said Ramsey: "Software development is beginning to automate what used to be done by (mechanical and technical) engineers." 

That phenomenon shows in an upcoming study of automation's effect on industries by the Brookings Institution in Washington, which found that six engineering and engineering technician occupations in the auto industry have automation potential of more than 20 percent in the next 20 years, meaning more than 20 percent of the tasks associated with those jobs could be automated. The same study found that chief executive tasks have an automation potential of 25 percent.

"Knowing that we almost lost the domestic auto industry a decade ago, these companies have to be cognizant of staying on the right side of technology," said Mark Muro, a senior fellow at the Brookings Institution's Metropolitan Policy Program who helped compile the study.

GM's Barra insists the need to remain competitive on new technologies and cut costs are intertwined. In a memo sent to employees on Halloween, she said the leadership team is focused on improving the company's free cash-flow — essentially the money GM is able to keep after all expenditures, like in a savings account.

"Free cash-flow is an important measure of how much we can invest in new products and technologies, and provide returns to our investors in the form of dividends," Barra wrote. "Without a strong cash position, we cannot be the agile, innovative industry leader we need to be as we realize our longer-term vision."

Providing returns to investors while still pouring money into what GM has said will prop up its vision for the future — driverless and emission-free vehicles — will be important to maintain for the Detroit automaker, a company that has lauded itself as shareholder-friendly after emerging from federally induced bankruptcy in 2009.

"Companies are in the business, in the long run, of creating value for shareholders," said Mark Wakefield, a consultant for Alix Partners. "Driving cash and cash flow means you give me a dollar and I give you two dollars back."

GM is aiming to end the year with $4 billion in free cash flow. It had negative $300 million at the end of the third quarter, though seasonally most of GM's cash flow comes in the last three months of the year when new products hit dealer lots.

The Detroit automaker is also planning to spend $1 billion this year on its GM Cruise LLC operation, the company's self-driving vehicle development arm. And $500 million of that will be spent largely on hiring in the fourth quarter, Barra told investors after GM released its third-quarter earnings. 

"This isn't really about cutting overall staff, it's about realigning," said Ramsey. "Look at what GM and Ford have committed to, with bit bets on electrification and autonomy. To make people believe what they're saying, they need to re-balance the workforce."

Twitter: @NoraNaughton