Buyouts kick off $2B cost cutting drive

DETROIT — Job cuts and buyouts to speed up attrition in General Motors‘ U.S. salaried work force are just the start of a crusade to eliminate $2 billion in expenses through the end of next year.

The belt tightening at the nation’s largest automaker is not happening at a time of financial stress, as in the lead-up to the Great Recession and GM’s bankruptcy, but following a year of record pretax earnings in 2022 that handed hourly workers their highest-ever profit-sharing payouts. GM executives have said they are focused on preserving margins and managing overhead as the company scales up its development and production of electric vehicles.

CEO Mary Barra cited that need earlier this week in rolling out a “voluntary separation program” to entice some employees to leave early. That came shortly after GM made a “small” but undisclosed number of job cuts it said were performance-related.

GM is not alone in reducing costs and head count. Executives at Ford Motor Co. have said they now aim to cut a “considerable amount more than” the $3 billion in costs initially targeted for elimination by 2026. Ford eliminated 3,000 jobs globally last year and is planning more job cuts in Europe as it makes its own transition to EVs.

Both companies, along with Stellantis, must negotiate new contracts this year with the UAW and Canada’s Unifor union covering hourly employees. Union officials have signaled that they will push for higher pay from the Detroit 3 given their sizable profits in recent years.

Should hourly compensation costs rise under the new contracts, salaried cutbacks could be an offset as GM manages its overall staffing costs, said David Whiston, U.S. autos equity analyst with Morningstar Research Services.

Legacy automakers need to minimize costs to stay competitive in the market, particularly relative to Tesla, Whiston said.

Barra has insisted that GM will achieve its cost-cutting targets without layoffs — through attrition and other means, such as reducing vehicle complexity and sharing more subsystems between internal combustion and EV programs. But she raised that possibility this week in a memo to employees, saying that “taking this step now will help avoid the potential for involuntary actions.”

GM had about 58,000 U.S. salaried employees at the end of 2022, according to its latest annual report. That’s 10,000 more than the company had two years earlier and 5,000 more than it had before its last big round of buyouts in 2018. The company employs about 46,000 hourly workers in the U.S., the same number it had in 2020.

GM is directing the entire company toward EVs and software-equipped vehicles, which will be fundamentally different products than traditional gasoline-powered vehicles, said Mike Ramsey, an automotive analyst at Gartner.

“The talent that you need is different. The people that you need is different than what you have,” Ramsey said. “I think what they are doing is not so much trying to cut costs because the company is struggling but contract their work force so they can reorganize into this new organization.”

GM did not say how many employees it wants to take the latest buyout offer, which is available to U.S. salaried workers with at least five years of service and global executives with at least two years. Workers have until March 24 to decide whether to leave, and those who accept the deal will depart by June 30, Barra said in her memo.

Nonexecutives who take the deal would receive one month of pay for each year with the company, to a maximum of 12 months, along with COBRA health insurance coverage, a prorated performance bonus and outplacement services. Executives are eligible to receive base salary, incentives, COBRA insurance and outplacement services.

The buyouts are expected to cost GM up to $1.5 billion in pretax employee separation costs, “substantially all” of that cash-based, and as much as $300 million in pretax, non-cash pension curtailment charges, the automaker said in a regulatory filing. The final cost will depend on how many employees agree to leave, GM said.

The latest offer is available to a larger pool of employees than the 2018 deal, which was only for workers with at least 12 years of service. The company then initiated layoffs in early 2019 because the buyouts and a reduction in contract workers only got it about halfway to a goal of eliminating 8,000 jobs, sources told Automotive News at the time.