GM cuts paychecks of salaried workforce, executives

Kalea Hall Breana Noble
The Detroit News

General Motors Co.'s decision to cut its salaried workforce's pay by 20% with the promise of payback and interest demonstrates the dramatic impact of the coronavirus pandemic, but that its implications are expected to be only temporary.

The company is pushing the move for up to six months, a spokesman said Thursday, as the Detroit automaker extends plant shutdowns indefinitely in North America. But GM would repay its employees the reductions with interest later this year or early 2021.

GM posted a loss of less than $800 million for the second quarter, rescinded most of its salary cuts and signaled that the second half of the year could prove surprisingly resilient.

“GM’s business and its balance sheet was very strong before the COVID-19 outbreak and the steps we are taking now will help ensure that we can regain our momentum as quickly as possible after this crisis is over," GM said in a statement.

The virus is a never-before-seen challenge for the industry that might require creative solutions, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions in Pennsylvania.

"Everybody believes this is temporary," he said. "This isn't the world coming to an end. We have to weather the storm now in order to survive on the other end."

GM has 69,000 salaried employees globally and about 40,000 in the United States. Instead of laying off salaried manufacturing and engineering employees, 6,500 will participate in the company's salaried downtime paid absence program and will receive 75% of their pay with benefits.

Executives will receive a 20% salary deferral, a 5% reduction in their cash compensation and most senior executives will receive a 10% reduction. GM's directors also will see a 20% reduction in their board compensation.

The deferred pay is kind of like a loan, said Jessica Caldwell, executive director of industry insights at Inc.: "It doesn't feel good now, but they're not taking it away from you, they plan to give it back. It helps with the psyche of the employees over just a salary reduction."

GM's cost-cutting action follows Ford Motor Co.'s move to defer portions of salaries for 300 top executives. In a letter to staff, CEO Jim Hackett said he will defer 50% of his salary and Executive Chairman Bill Ford will defer all of his base salary for at least five months starting May 1, though he will continue to receive full retirement benefit contributions during the period.

And Fiat Chrysler Automobiles NV confirmed Wednesday that almost 2,000 contract workers across North America will be out of a job as projects are paused, another indication of the pressure the auto industry is under amid the coronavirus pandemic.

"It's hard to hear, but I don't think it is a surprise at this point," Caldwell said. "Companies are having to make really hard decisions to preserve cash flow. No one is certain how long this is going to take."

With production down indefinitely, GM's union-represented hourly employees are receiving supplemental pay and unemployment insurance that equates to more than 88% of their take-home paychecks. GM told employees Thursday that it would extend production downtime indefinitely while Ford and FCA want to restart production April 14. 

GM's pay cuts come after the automaker said Tuesday it plans to draw down about $16 billion from its revolving credit facilities to increase its cash position and maintain financial flexibility during the current uncertainty in global markets caused by the coronavirus.

Ford also has borrowed $15.4 billion from its credit facilities to help with losses after taking vehicle manufacturing hiatus in Europe, North America and elsewhere. Additionally, it suspended its 15-cent quarterly dividend.

Hackett noted the Blue Oval's efforts do not include layoffs — for now. If the effects of the virus are longer or more severe than anticipated, however, the company could take "tougher actions," he said. He did not specify what expectations are, adding the company might offer voluntary sabbaticals.

The company also is deferring merit-based salary increases, suspending overtime for salaried workers and freezing hiring of non-critical skill roles. And Ford could reduce work schedules and compensation for jobs that cannot be done effectively away from Ford facilities.

Fiat Chrysler on Thursday also said it's borrowing $3.8 billion for a one-year term that can be extended for an additional six months. This is in addition to existing credit facilities of $8.4 billion. It already has started to draw down from a bilateral credit line worth $1.7 billion.

"It is difficult to see this as historically relevant or analogous to something else," Fiorani said of the outbreak. "We are in uncharted territory."

Twitter: @bykaleahall