WILMINGTON, Del. -- During a 45-minute interview session with the media at the General Motors annual shareholder meeting on Tuesday, Chairman Rick Wagoner gave more detail on his comments to shareholders.
Here is an edited version of Wagoner's comments to the media:
You announced a $2.5 billion savings and job reductions. How far does that go in your plan to turn around GM? Are we halfway?
That's the specific plan we can comment on vis-à-vis capacity utilization and employment area. In addition to the revenue side, we also have identified that we need to keep moving material costs and pick up the pace there. That's our biggest cost item and we also talked about health care. It wouldn't be accurate to say our whole job in cost reduction is $2.5 billion. But it's fair to say, as we look out at the 2005 to 2008 period, that looks like the bulk of the savings we need to register in the manufacturing and employment area.
What about beyond 2008?
It would be premature to comment on that. It's going to depend a lot on sales, market share, market growth.
GM builds a lot of cars in Canada. Is there a spillover of cuts in Canada?
We have the three assembly plants in the Oshawa area. At this point those points are operating fully and very competitively, but as we look at capacity utilization in North America, we look out across the entire continent. So Canada would be involved. And I would say that we haven't specified any additional plants for closure beyond what we announced today. But we do expect all of our plants to continue their improvements in quality. No announcements regarding future allocations or future plans to reduce the size of those plants. But I would say we need them to continue their historical excellent performance in productivity and quality, and I suspect they will. Our purpose is not to scare people. We feel like we owed our investors some explanation of the strategy and where we felt the savings were, but I think if there's anything we've all learned in this business over the last 30 years is that you can't relax, competition is tough. We need to keep doing what we've been doing in places like Oshawa.
Have you communicated this downsizing plan to the unions? How many plants could be affected?
We have talked in reasonably extensive detail about a range of scenarios with the UAW and actions that might happen -- some on the down side and some on the up side, depending on our sales and market performance. In general, they are informed. The reduction of 25,000 or more people consists of the impact of plant closings for example, some at Baltimore that we announced late last year. Those people will gradually move off the rolls this year, many retiring. I would also make the point that the average age of our workforce is quite high versus the rest of the industry, so we have a lot of natural attrition. The strategy we've had in improving our efficiency, and in some cases reducing our capacity over the last decade, has been built around taking advantage of people who want to retire. So our goal in this next round of downsizing -- the 25,000 people or more over the next four years -- would be built around the philosophy of taking advantage of when people naturally wish to retire. We may also offer some special attrition programs in places where we have closed down a business or sold a business to give employees an opportunity to move to other positions and the terms of those are negotiated with the UAW. They are informed of those plans and specific things will be announced as we make specific calls. Today we're not in a position to announce specific plants and time frames. This is going to play out over a three- or four-year period.
Does the 25,000 include the Baltimore and Linden, N.J., plants that have already been announced?
The capacity, going from 6 million in 2002 to 5 million units at the end of this year, does include those plant closures. The reduction in manning levels begins at Jan. 1, 2005, through Dec. 31, 2008, and that includes 25,000 more people and that would include anyone who has not left from Baltimore. But that's not the bulk of the reductions. A lot of the reductions are efficiency at existing plants, to be honest.
Sounds like this is all blue-collar cuts. Will your white-collar workers see any reductions in this time frame?
I want to stress we need to get a competitive cost base and that means we have to go after all aspects of the business, particularly those where we spend more than competitors. On the salary and contract side, our employment is down about 33 percent over the last five years, and that's been done by a variety of things: Consolidation of business operations, focusing on efficiency and product development, leaning out the field sales force. So I see us continuing to try and drive improved efficiency. I suspect that will be a consistent, gradual process. I don't see any mega, single announcements on the salary side.
What kind of plants would you close?
We expect to, in each of our facilities, see continued productivity improvements, and that leads to the opportunity to either raise production or reduce manning level if capacity isn't required. We'll do some of that. In order to get to the full 25,000, we see a very high likelihood of closing additional facilities over this period, and that doesn't just mean assembly. It means supporting facilities, as well. We need to do it in concert with the union, as well.
Given the slimmed-down product lineup from Buick, could those plants close?
What we're endeavoring to do going forward is build in a significant amount of flexibility in the assembly plants that we have, so that we don't simply have the capability of assembling one or two vehicles. We have to be able to assemble more. I think historically, based on the way we've run the business, your assumption would have been correct. I think going forward we expect our assembly plants to have a significantly greater degree of flexibility. We can't pin it to a specific brand.
How long will you run North America, and when will it return to profitability?
No predetermined time how long I run it and as soon as possible, but no specific date. We've gotten out of earnings guidance.
What's the board's view of the offer from Kirk Kerkorian?
We're well-informed and following it closely, as we should. And I think we need to get this tender done and hear the results from the Tracinda Group and take the next step at the time.
You said you are basing your reductions on conservative estimates. Can you elaborate on that a little more?
It's not our objective for our market share to slide at all. I think one of the potential diseases in the business, and we had it from time to time in various markets of the world, as our competitors had, is perhaps an overly sunny view of the ease of growing market share. I want to make it clear that we do not see this issue being fixed by cutting cost alone. We have work to do on the cost side. We have work to do on the revenue side. First and foremost, it has to be driven out of product and good smart marketing strategies.
What do you want to get down to on capacity?
We want to drive to 100 percent utilization.
What are you exploring with GMAC?
We're basically developing a series of options that might solve what is an important side of the equation, which is to maintain the benefits of the relationship between GM and GMAC, but at the same time address the fact that the downgrades in the credit ratings of GMAC have significantly impacted GMAC's cost of funds and access to traditional sources. There's a range of alternatives there. We're still in the exploratory stage.
How should your own success be benchmarked?
None of this happens in a vacuum. If the U.S. market booms, if gas prices go down, if large SUVs come back, then our return to profitability will be quicker If the United States enters into a downturn and gas prices go higher or other factors we have to react to, it's going to be a tougher job. So I think we have had the chance to share a lot of detail, the plans with the board, and they are interested in those and monitoring those closely. I think it's clear the board has decided today they have the best management team. No one's job security is forever and that applies to me. But I'm very confident that we have the right plan, that I have the full support of the board and the full support of the key constituents in our company.
Have you given the UAW a timetable?
We have had regular conversations with the UAW leadership at all levels, and they've been very productive dialogues ensuring that we all have a set of facts we understand and we all have competitive issues. The art here is, can we come together with a set of solutions that works from the perspective of the UAW and the same for us? I would say that we are making progress with those discussions, but it's very clear today it is not certain whether we will come to a conclusion. We need to move promptly. I don't want to set out an artificial deadline and create a frenzy from that. We are focusing on moving to a solution with them in a prompt fashion. If we can't do that we have to consider our other options. I don't think threats and speculation help the process.
What are the odds of working out something before the contract expires?
We're working hard on trying to come up with a solution to the competitive issue, particularly on health care, and we're trying to do it as soon as we can. We don't necessarily think the expiration of the current contract is the only way to think of the timing on this. It's going to require the cooperation and the agreement of the UAW to approach it that way, but it doesn't mean we shouldn't try.
Is this an accelerated plan in terms of job closures? Where will the company get the cash to fund buyouts?
Any plan that encompasses reducing your workforce by roughly 25 percent over a four-year period is a significant plan. Yes, it's an acceleration. It's facilitated by some of the plant closings we've announced and some that will be upcoming. We expect we can take advantage of attrition to get a lot of those numbers, but it is highly likely that we will need to accelerate attrition. Our guess is the cash needs can be handled within current liquidity of the company. It's not as expensive as, say, buyouts in a place like Germany.
Do you expect the union to sign off on this?
We work very proactively with them on issues like this.
What's the timetable for closing plants?
What we've done is to align the overall capacity situation with life cycle of products and attrition profiles at plants. And what we've tried to do is, when we've had to close plants down, we have a product that is selling OK and take advantage of the point when sales and product trickle down over time. Then at the point when it becomes non-economical, we proceed with the appropriate plan. We've got some ideas where we think the most likely are.
Are some GMT 800 (full-sized pickup and SUV) plants going to be affected?
RW: Most of the work in the 900 (next-generation full-sized pickup and SUV) area has been around making sure we have adequate flexibility in those plants, for example, capability of building at least in some of them a different mix of trucks and SUVs. What we'd like to have, and what we're going to drive in the next round, is more flexibility between the SUVs and trucks. It looks like the truck demand is a little less subject to the ups and downs we've seen in the last 12 months on SUVs. The work we're doing on the 900 over the last six months and for the next six months is more around flexibility at one of those facilities.
So you're going to fully utilize that manufacturing footprint?
That's the plan.
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