June 7, 2005

General Motors Plans to Cut 25,000 Jobs in Next 3 Years

WILMINGTON, Del., June 7 - General Motors said today that it planned to cut more than 20 percent of its blue-collar work force in the United States - about 25,000 jobs - by the end of 2008.

The sweeping reduction represents G.M.'s biggest wave of job cuts since 1992 and should save the struggling automaker about $2.5 billion a year, the company said.

Addressing such costs "will be challenging and discomforting, but it is clear that not addressing them will cause significant risk to the long-term viability of our business," Rick Wagoner, G.M.'s chairman and chief executive, told shareholders at the company's annual meeting here.

The future of the world's largest automaker, and of the domestic auto industry it helps sustain, has become increasingly cloudy in recent months. Sluggish sales of its cars and trucks, especially high-profit sport utility vehicles, led to a $1.1 billion loss in the first quarter - its biggest such shortfall in 13 years and a shock to investors.

"We registered an unacceptable financial performance," Mr. Wagoner said today.

Since then, two of the three major credit-rating agencies cut the company's bonds to junk status for the first time, and its shares have traded at times at a 12-year low as sales continue to stall. Kirk Kerkorian, the corporate raider, has also begun buying chunks of the company's shares.

"If we had a chance to rerun the last five years, we probably would have done a little more thinking about making sure that each product was distinctive and had a chance to be successful, and a little less expansion of the model lineup," said Mr. Wagoner, who has been chief executive for the last five years.

Investors seemed to take today's announcement in stride, sending shares of G.M. up 1.4 percent, or 43 cents, to $30.85 in afternoon trading on the New York Stock Exchange.

However, Mr. Wagoner got an earful of complaints about the company's plight from shareholders and activists at today's meeting.

Moreover, the depth of the company's troubles and the extent of its excess capacity may make far more cuts necessary, said Kevin Tynan, chief auto analyst at Argus Research. He estimated that the company has the plants and people to produce more than 6 million vehicles in North America, but the company produced only 5 million in 2004.

"This 25,000 is sort of a token step in the right direction, but it's nowhere near what eventually will wind up happening, or will have to happen," Mr. Tynan said.

Mr. Wagoner declined to say how many plants would be closed as part of the job cuts. To avoid the prospect of strikes, G.M. will have to persuade the United Automobile Workers union to agree to its proposal.

The union did agree to let G.M. close a handful of plants in its 2003 contract negotiations with the company. The union's current contract with G.M., the Ford Motor Company, and the Chrysler division of DaimlerChrysler expires in 2007.

"We work very proactively with the union on these kinds of issues," Mr. Wagoner said. "We will work with them and come up with a solution that works for them and us."

The company is also working aggressively to reduce its health care costs, but Mr. Wagoner said it had not yet reached an agreement with the auto workers union "and, to be honest, I'm not 100 percent certain that we will."

He declined to say what would happen if the negotiations failed.

"Either way, it is crystal clear that we need to achieve a significant reduction in our health care cost disadvantage, and to do so promptly," Mr. Wagoner said.

Shortly after Mr. Wagoner's remarks, Paul Krell, a spokesman for the union, declined to comment but said the union would have a statement later in the day.

G.M. currently employs 111,000 workers in its assembly and component plants in the United States.

The planned job cuts are a blow to the Midwestern economy, and particularly that of Michigan, which has one of the nation's highest unemployment rates and has been struggling to make up for the woes of the domestic auto industry.

Mr. Wagoner said today that G.M. planned to spend $1 billion more this year as well as next year, or about $8 billion a year, to develop new cars and trucks, mostly in North America, and to roll them out more quickly. Those vehicles should sell on their merits, rather than relying on deep discounts, Mr. Wagoner said, pledging "lessening emphasis over time on incentives."

The company also said it was exploring a range of restructuring options for its financing division, the General Motors Acceptance Corporation, to alleviate the burden of borrowing money now that G.M. is rated below investment grade by two of the three major credit agencies.

Danny Hakim reported from Wilmington for this article and Jennifer Bayot from New York.

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