GM CFO: 5,000 salaried employees have signed up for buyout; no layoffs planned
About 5,000 people are taking General Motors Co.'s buyout offer, CFO Paul Jacobson said during a BofA Securities Inc. presentation Tuesday, enabling the automaker to meet cost-savings targets and preventing involuntary employee departures.
The automaker announced a voluntary separation program for most of its U.S. salaried employees in early March. GM employs about 58,000 salaried workers in the United States. Eligible employees had to sign up by March 24. The move is part of a $2 billion cost-savings program GM announced earlier this year.
The number of buyouts will lead to about a $1 billion charge for the company in the first quarter, Jacobson said: "I would say the voluntary program came in about in line with our expectations."
Wedbush analyst Dan Ives said the 5,000 figure was a bit higher than expected, "but ultimately is a positive for the GM story as this rips the band-aid off on costs ahead of a major EV transformation on the horizon." What he called "massive cost cutting" amid transitioning the business to electric vehicles "definitely raises execution risks."
GM's stock dropped Tuesday closing at $35.74, down 1.5%. In a statement, GM spokesperson David Barnas said that "given the results of the program, company-wide involuntary separations are not a consideration at this point. The steps we are taking will allow us to maintain momentum, remain agile, and create a more competitive GM.”
As a result of 5,000 employees taking GM's buyout offer, the automaker will achieve about $1 billion of cost savings so it can realize at least 50% of its targeted savings for this year and achieve at least $2 billion of savings in 2024.
"We've already achieved a billion dollars in run rate savings when all those people exit later this year," Jacobson said at the BofA event. "As we talked about when we launched that program, we were looking at trying to simplify the business, reduce complexity, increase sharing of parts, decrease in discretionary spending around travel and marketing and other things across the board and then also ride the attrition curve. This was a tool to get us to really accelerate the attrition curve [and we] got a pretty quick payback."
Also as part of the cost-cutting measures, in late February the Detroit automaker said it was cutting about 500 executive-level and salaried jobs. The news came a month after CEO Mary Barra said General Motors Co. was "not planning layoffs."
After reporting record pre-tax earnings of $14.5 billion for 2022, GM leaders told investors in late January it would look to cut $2 billion in cost savings through attrition and other methods including lowering the "complexity in all of our products and reducing corporate overhead expenses across the board," Jacobson told investors at the time.
GM previously would not disclose its targets for the voluntary severance package. Through the buyout program, employees with at least five years of service at GM are eligible to receive one month of pay for every year of service up to 12 months, a pro-rated performance bonus and outplacement services. And global executives with at least two years of service are eligible for a package that will include a base salary, incentives and outplacement services. Both groups will also have access to COBRA health care benefits.
Angela Hall, associate professor in the School of Human Resources and Labor Relations at Michigan State University, referenced one survey conducted in December among 1,000 businesses that reported 20-30% of employees accepted a buyout when offered.
“To me, that seems a little high,” she said, though noted a double-digit percentage acceptance wouldn’t be abnormal.
The response to GM’s offer likely would be lower than that threshold, but that also isn’t surprising, Hall said: “People are kind of afraid with the pending recession. GM has a reputation for being a good employer. People don’t want to leave that. They don’t see them as a sinking ship.”
But even for a reduction of this size, that’s a significant loss of experience, expertise and talent. It may help to save on costs, but it also can have negative implications, according to studies, Hall said: “It usually hurts them in the long-term.”